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Plenty of Questions – Few Answers (from the Indian Bio-Pharmaceutical Industry)

Chirantan Chatterjee, IIM Bangalore


There is a tide in the affairs of men, which, taken at the flood, leads on to fortune;

Omitted, all the voyage of their life is bound in shallows and in miseries.

On such a full sea are we now afloat; And we must take the current when it serves, Or lose our ventures.

– From Julius Caesar, William Shakespeare.

Access versus Innovation (AvI) is a key challenge for stakeholders in global healthcare markets in current times. Pharmaceuticals, which account for about 10-15% of overall national healthcarei expenditure on an average, are a key component in this debate. Nations across the world (richer or less rich ones alike) are debating how prices of medicines can be rationalized such that access can be enhanced for the ordinary consumer. But in doing so, nations are also contemplating the hurdles in Intellectual Property (IP) regimes, and looking at ways to steer around challenges in devising nuanced regulatory pathways, such that incentives to innovate are not completely dissipated for firms focusing on drug discovery and innovation of new bio-pharmaceutical products. After all for firms like Pfizer, Lipitor (its blockbuster statin drug that went off-patent recently), accounted for about 1/3rd of its overall annual sales and contributed significantly to its expenditure on pharmaceutical R&D. In the absence of cash, made available from monopolies coming from patent-protected drugs, innovator firms are facing a stifling environment, more so with diminishing R&D productivity, the other thorn in the basket. Getting new drugs to the market have over the last 2 decades become costlier and progressively more uncertain and time-intensive. By some estimates, it now takes about 10-12 years to get a new drug out into the market with an average investment of close to $1 billion or more, in comparison to $200 million in the 1980sii. A recent paper (Scherer 2011iii) also extended this issue on R&D productivity in pharmaceuticals by pointing out how, even after adjusting for inflation, R&D expenditures have risen at roughly 7.4% per year in the last 3 decades and the approval of new pharmaceutical entities in comparison have increased only at 2% per year.

Within this milieu of the global AvI debate in healthcare, the global pharmaceutical industry now lies at an intriguing cusp looking for potential panacea, perhaps from international locations of bio-pharmaceutical activity. The hope that international participants in the industry are looking out for is perhaps potential disruptions to address challenges on the demand and supply side. This is the context in which one will have to appraise opportunities today in Indian bio-pharmaceutical industry. And herein, a short history of Indian bio-pharmaceuticals might be relevant. Broadly speaking, the life-cycle of this sector is categorizable into four phasesiv:

  • Period A: an era of pre-Independence in India (before 1947)

  • Period B: 1947-1970

  • Period C: 1970-2005

  • Period D: 2005-till date.

EVOLUTION OF THE INDIAN BIO-PHARMACEUTICAL INDUSTRY

Period A was those years during which Indian drug firms were few and far between. There were certainly traditional medicines in the country, but formal scientific medicines bore a strong colonial influence with the presence of research institutes like Haffkine Institute in Mumbai (Bombay), Central Research Institute in Kasauli, Kings Institute in Chennai (Madras), and Pasteur Institute in Coonoor. Formal medicines were mostly sold by big global pharmaceutical firms of that era, whose products were patent protected and highly priced, and they sold their innovative drugs taking advantage of the British Patents Act of 1911, that recognized product patents in India till 1970. New entrepreneurial firms in the early 1900s (like the Bengal Chemical and Pharmaceutical Works (BCPW) Ltd., set up in Kolkata and Alembic Chemical Works Co. Ltd., in the modern-day city of Vadodara), were only a handful, though this was also the time when one of India’s most controversial drug-maker, CIPLA, was founded in 1935 by its German trained founderv. Period B, marked an urgency on the part of the Government of India (GoI) to develop a formal domestic sector in pharmaceutical manufacturing. This probably came about with the need to have a domestic source of antibiotics after the war with China in 1964. The GoI set up public sector units like the Hindustan Antibiotics Limited and Indian Drugs and Pharmaceutical Limited and also made its first attempts in regulating prices of drugs in 1963 with the Drug Price Display Order. Sooner rather than later though, the GoI realized that a formal development of the domestic pharmaceutical sector might only be possible with an intervention around the IP environment in the country. With that in mind, the Patents Act of 1970 came into force, ushering in an era of process patent regime in the nation, which encouraged process innovation (but no product innovations) and shortened the life of patents within India. Noted as one of the key policy interventions that has guided the industry’s evolution over the next few decades between 1970 to 2005 (Period C), the new patent regime ensured that the India pharmaceutical sector became a supplier of cheaper, reverse-engineered medicines (generics), not only to its domestic markets but also to nations around the world with a weak IP regimevi. This was also the period which saw the entry of many new firms in the industry. In the early 1990s, the GoI negotiations on the World Trade Organization mandated Trade Related Intellectual Property agreement, saw the first attempts in revisiting the country’s IP environment. Infact, when India signed the WTO-TRIPS agreement in 1995 and finally implemented a Western-style product patent regime in the country in 2005, it marked the onset of a new era for the domestic bio-pharmaceutical sector (Period D).

The Periods A-to-D point out how Indian firms in the bio-pharmaceutical sector have over the years developed exploitative capabilities to produce generic medicines, which were first innovated and patent-protected by global bio-pharmaceutical majors. By many accounts, the challenge lies now in capitalizing on the new IP environment in Period D and become a drug discoverer. In the process, the sector now has an excellent opportunity to provide panaceas to the global AiV debate both on the supply side (by being a location of cost-effective and efficient R&D) and on the demand side (by continuing to provide generic medicines to the world). This is easier said than done for sure, since many micro-issues need to be addressed and apparently conflicting production activities need to be perhaps organized within the boundary of perhaps the same firm. But two broad questions could potentially be considered by scientists, policy makers and related stakeholders to introspect:

  1. Can Indian bio-pharmaceutical firms leapfrog into becoming explorative innovative firms themselves in the coming decade? Or should they focus on their comparative advantage and remain suppliers of generic medicines to the world? Perhaps there is a middle ground that firms can strike, by selling generic drugs to the world and generating cash to explore New Molecule research.

  2. What might be the key institutional constraints to firms and the country’s innovation environment in taking these steps towards leapfrogging? A moot issue to look out in this regard is related to how the GoI can seize the gauntlet in incentivizing education in especially biology (to resolve human capital problems), hitherto ignored by the country’s young in favor of professional options in medicine or engineering? A substantial number of pharmaceutical scientists in North America are of Indian origin as per some accounts and it should worry Indian policy makers as to why, the country’s institutions fail to take advantage of this global labor pool of trained Indian bio-pharmaceutical scientists within the country’s boundaries. This also connects to the larger question of how the GoI can surmount the biology-hole in Indian bio-pharmaceutical R&D.vii

To conclude, in worrying about outcomes of industries, nations and economic growth in the long run, economists and social scientists often ponder about the steady-state for various phenomena. Introspecting about the future of the Indian bio-pharmaceutical industry, this might be the time for such a mulling. Just like Brutus (in the words of William Shakespeare ) noted, the industry is intriguingly poised in the milieu of the AvI debate and could potentially ride the tide of challenges facing global healthcare markets. Or it might eventually decide to rest on ‘shallows and miseries’ – having few answers to provide in a basket full of questions. For observers and interested participants till then, we will have to wait and play the watching game!

 


1 The author is an assistant professor in IIM Bangalore and is interested in research around innovation policy and the economy with a focus on global healthcare markets.


i In developing nations this share is far higher.

iv Perhaps, intriguingly alluding to Four Phases of a man’s life in ancient Indian mythology.

vi The License Raj in India from 1970 through 2005 also played a critical part. See http://www.nber.org/public_html/confer/2008/LBA/branstetter.pdf

Healthcare innovation has always been a very difficult

Healthcare innovation has always been a very difficult journey, taking about 14 years in average from initial invention to make it into a marketable project. This offcourse means that the money, time, efforts and risks involved are much more in lifescience/healthcare innovation than in any other industry. A developing country like India  has been historically been a very reserved and calculating country in terms of risk management. If something is sure to work only then even venture capitalists in India will put money in it. Given the historical mindset, for Indian biopharma it is easy to dive into generics which involves much less risk. However big biopharma is also an intelligent animal. For instance Pfizor, once lipitor goes out of its patent etc etc is also planning to develop their own generics and market it but also market that if people continue taking Lipitor they will give huge rebate on it. People find comfort in the known and are worshippers of premium designer labels if they can afford it and specifically because health is a very sensitive issue. So unless there is a change in mindset to try the new no matter if it fails, unless young people(specifically VCs and entrpreneurs getting out of great MBA schools) take the initiative in India to come out and of their cocoons of comfort and invest in risky yet novel healthcare ventures, I am afraid that India will always only be on the sideline of innovation.

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