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BY:

MR. SUMAN JYOTI KHAITAN

MANAGING PARTNERKHAITAN

& PARTNERS

ADVOCATES & NOTARIESW-13,

WEST WING GREATER

KAILASH PART-IINEW

DELHI-110048, INDIAPH.: +91-

11-4950 1500, 4053 6944FAX: +91-

11-4950 1599, 2921 7108E-MAIL:

delhi@khaitanpartners.in

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TABLE OF CONTENTS

1. Overview of the Industry ……………………………………………………………3-42. Policy and Promotional Measures …………………………………………………...5

- CDSCO- Central Drugs Standard Control Organization ………………………….5- DPCO- Drug Price Control Order ……………………………………………….…5- Department of Pharmaceutical ………………………………………………..……5

3. Pharmaceutical Policy 2002 …………………………………………………………74. The National Pharmaceutical Pricing Authority …………………………………….8-9 5. Draft National Pharmaceuticals Pricing Policy 2011 ……………………………….10

- Main Features of the Policy ……………………………………………………….116. Aidan’s PIL ………………………………………………………………………....12-137. Pharmaceutical Intellectual Property Right ………………………………………...148. Patents ……………………………………………………………………………....15-169. Vision 2020 ………………………………………………………………………....17-2010. FDI in the Pharmaceutical Sector ………….......................................................…....2111. Advantages ………………………………………………………………………….22-2312. Conclusion ………………….....................................................................................2413. Sources and Acknowledgment ……………………………………………………...25

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• Pharmaceutical Industry in India is one of the largest and most advanced among the developing countries

• The Indian pharmaceutical industry has come a long way from waiting for imports of bulk drugs from global players to breaking new grounds in medical research worldwide.

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• According to the Annual Report 2011-2012 of the Department of Pharmaceuticals India ranks 3rd largest in terms of volume in the pharmaceutical market and is ranked 14th in terms of value. Moreover, it ranks 4th in terms of the production of generics and seventeenth in terms of the export value of bulk activities and dosage forms.

• Indian domestic pharmaceutical market size is estimated at US $ 12.76b in 2010 and is expected to grow at a CAGR of 9.5 % till 2015. The domestic sector has been steadily expanding over the years from US $ 6.88b in 2003-04 to US $ 11.72 in 2008-09. Indian pharmaceutical exports were valued at US $ 12.5b in 2009-10 as compared to US $ 10.6b in 2008-09.

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• CDSCO- Central Drugs Standard Control Organization The main regulatory body for the Indian pharmaceutical industry is the Central Drugs

Standard Control Organization (CDSCO), which falls under the ambit of Ministry of health and Family Welfare. Drug Controller General of India (DCGI) is the controlling body for CDSCO and is responsible for the approval of new drugs and clinical trials as well as establishment of quality standards.

The regulator also monitors State Drug Authorities, which are mainly responsible for granting drug manufacturing and retailing licenses.

• DPCO- Drug Price Control OrderPrices for essential drugs are defined under the Drug Price Control Order (DPCO)

• Department of PharmaceuticalThe Department of Pharmaceuticals was promulgated on 2 July 2008 under the Ministry of Chemical and Fertilizers. The department was established with the objective of providing greater focus on development of the pharmaceutical sector in India and to regulate complex issues related to affordability and availability of medicines, R&D, the protection of intellectual property (IP) rights and international commitments related to the pharmaceutical sector, all of which required integrating work with other ministries.

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The Pharmaceutical industry in India is governed by the following enactments, regulations and guidelines:

• Drugs (Price Control) Order 1995

• Drugs (Price Control) Order 1979

• National Institute of pharmaceutical and research Act (NIPER) 1998

• Narcotic drugs and Psycotropic and substances (NDPS) Act 1985

• Essential Commodity Act 1955

• Drugs and Cosmestic Act 1940

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• The main objectives of this policy are:-

– Ensuring abundant availability at reasonable prices within the country of good quality essential pharmaceuticals of mass consumption.

– Strengthening the indigenous capability for cost effective quality production and exports of pharmaceuticals by reducing barriers to trade in the pharmaceutical sector.

– Strengthening the system of quality control over drug and pharmaceutical production and distribution to make quality an essential attribute of the Indian pharmaceutical industry and promoting rational use of pharmaceuticals.

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• The National Pharmaceutical Pricing Authority (NPPA) was established as an independent body of experts under the Ministry of Chemicals and Fertilizers by Gazette notification dated 29.08.1997. Essential drugs are regulated by the government through National Pharmaceutical Pricing Authority

• The Authority is entrusted with the task of price fixation / revision of the 74 scheduled bulk drugs and formulation containing any of the scheduled drugs under the Drugs (Prices Control) Order, 1995 as well as monitoring and enforcement of prices.

• NPPA also provides inputs to the Government for policy formulation and on other specific issues concerning affordable medicines to the consumer.

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• The functions of the National Pharmaceutical Pricing Authority (NPPA) are:– To implement and enforce the provisions of the Drugs (Price

Control) Order (DPCO), 1995 in accordance with the power delegated to it.

– To undertake and/or sponsor relevant studies in respect of pricing of drugs/formulations.

– To monitor the availability of drugs, identify shortages, if any, and to take remedial steps.

– To collect/maintain data on production, exports and imports, market share of individual companies, profitability of companies etc. for bulk drugs and formulations.

– To deal with all legal matters arising out of the decisions of the Authority.

– To render advice to the Central Government of changes/revisions in the drug policy.

– To render assistance to the Central Government in parliamentary matters relating to drug pricing.

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• The policy’s objective is to put in place a regulatory framework for pricing of drugs so as to ensure availability of essential medicines at reasonable prices while providing opportunity for innovation and competition

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• Main Features of the Policy– Prices would be regulated based on essentiality of drugs rather

than the economic criteria and market share principle enunciated in the Drug Policy of 1994.

– The new policy would regulate the price of formulations only which is different from the earlier principle of regulating the prices of specified bulk drugs and their formulations.

– The price of formulations would be regulated through market based pricing rather than cost based pricing.

– Formulations will be priced only by fixing the ceiling price which would be calculated on the basis of Weighted Average Price (WAP) of the top three brands.

– The policy is unclear on the pricing of patented drugs; it states that their prices will be determined by a separate committee constituted by the Government.

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• The All India Drug Action Network (AIDAN) had filed Writ Petition (Civil) No. 423 of 2003, which is pending before the Hon’ble Supreme Court of India, against the implementation of a National Pharmaceutical Policy pointing out serious flaws in the new, 2011 policy mainly– The new policy would lead to escalation of prices because of

its costing mechanism which is based on market price rather than cost price

– The control price would be determined based on the market price of the top three best selling brands (leading to an increase in the price of other brands)

– Manufacturers could avoid price control by changing the formulation which has now been made the subject of price control

• On the other hand Government pointed out that the new policy is beneficial as it brings 348 drugs under price control up from 74.

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• The Supreme Court of India in AIDAN and Ors. Vs Union of India and Ors. observed that the Government should ensure the prices of drugs reduce rather than escalate.

• Following the directions from the Supreme Court, the government of India is in the process of finalizing the list of medicines to be brought under direct control of the government as well as their pricing methodology

• The Group of Ministers is most likely to stick to the list of 348 bulk drugs and 652 specified dosage formulation for direct price regulation. However, the various concerned ministries are yet to arrive at a consensus on the pricing formula

• The ministerial panel is mulling various methods like cost-plus and market driven mechanism to determine prices of drugs.

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• The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) came into force from 01 January 1995.

• It lays down minimum standards for protection and enforcement of intellectual property rights in member countries, which are required to promote effective and adequate protection of intellectual property with a view to reducing distortions and impediments to international trade.

• India , as a developing country, had a transition period of five years (with effect from 01 January, 1995), i.e., till 01 January 2000 to apply the provisions of the Agreement.

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• India granted as many as 3,488 patents to pharmaceutical products between 2005 and 2010

• A research paper, “Pharmaceutical Innovation, Incremental patenting and Compulsory Licensing” by Carlos M Correa, a professor at University of Buenos Aires, points out that

– 278 patents were granted in Brazil between 2003 and 2008.

– 951 pharma patents were granted in Argentina between 2000 and 2007; and

– 439 were approved in Colombia between 2004 and 2008

• However, in South Africa, where patents are simply registered without much verifications and patentability requirements, 1,426 were registered in 2008 alone, the paper added.

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• It was in 2005, India changed its patent law and started granting patents in medicines.

• That year, only three pharma patents were granted. The number rose to 113 in 2006 and 772 in 2007. The trend continued with as many as 1,369 patents being approved in pharma in 2008 and 1,046 in 2009, as per the Indian patent office.

• Experts attribute this significant change in the patent regime to entry of product patents.

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• The Department of Pharmaceuticals has prepared a "Pharma Vision 2020" document for making India one of the leading destinations for end-to-end drug discovery and innovation. Through this, the government provides support by way of world class infrastructure, internationally competitive scientific manpower for pharma R&D and venture fund for research in the public and private domain

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• Responsibilities and Resources would make an important beginning in the transition of efficient and effective use of pharmaceutical in building a prosperous and healthy India. In doing so, following issues have been identified for realizing the Pharma Vision 2020. • The Indian pharmaceutical industry shall ensure that essential

drugs at affordable prices are available to the vast population of this sub-continent and also continue providing employment for millions.

• India shall implement all the rules and regulations, which guide, monitor and control the activities of the providers of the healthcare system in the country and shall Corporate Catalyst India India’s Pharmaceutical Industry examine the way to bring them up to international standards. The government should implement the recommendations of Mashelkar committee and constitute the Central Drug Authority at the earliest.

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• The basic course of education should be designed to ensure that the newly qualified pharmacist has the necessary knowledge and skills to commence practicing competently in a variety of settings including community and hospital pharmacy and the pharmaceutical industry. Continuing professional development must then be a lifelong commitment for every practicing pharmacist. Concept of National schools of pharmacy should be established to develop and introduce model curriculum.

• India shall attain new heights in herbal drugs research in shaping Indian Systems of Medicine into a popular system of medicine of the future for holistic health care and ensuring health care for all - especially for the welfare of the poor.

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Other Policy Initiatives by Government

• These include tax-breaks to the pharmaceutical sector and weighted tax deduction at 150% for the R&D expenditure incurred.

• Steps have been taken to streamline procedures covering development of new drug molecules, clinical research etc.

• Schemes launched are-

• New Millennium Indian Technology Leadership Initiative.

• Drugs and Pharmaceuticals Research Programmes

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• The Government of India allows 100 per cent FDI under the automatic route in the drugs and pharmaceuticals sector.

• The DIPP data suggests that the drugs and pharmaceuticals sector has attracted an impressive level of FDI worth US$ 1,882.76 million during April 2000 to March 2011. Industrial licenses are not required in India for most of the drugs and pharmaceutical products. Manufacturers are free to produce any drug duly approved by the Drug Control Authority.

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• Multinational companies entering Indian market seek out the domestic industry's skills and infrastructures to boost their research and manufacturing activities.

• India’s largest pharmaceutical companies are attaining global-player status as existing markets expand, and new ones open up, for high quality, affordable generic drugs

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• Most of Pharmaceuticals have multiple approvals from regulatory authorities in Canada, Australia, Germany and South Africa.

• Indian government has promoted development of special economic zone (SEZ) for pharma sector

• About 75% of the top 20 pharma companies are Indian owned. India has a total of 24,000 pharmaceutical companies, of which around 250 fall under the organised category. These 250 organised units control nearly 70 per cent of the market.

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• Outsourcing in the fields of R&D and manufacturing is the next best event in the pharmaceutical industry. Spiraling cost, expiring patents, low R&D cost and market dynamics are driving the MNCs to outsource both manufacturing and research activities. India with its apt chemistry skills and low cost advantages, both in research and manufacturing coupled with skilled manpower will attract a lot of business in the days to come.

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• Department of Pharmaceuticals 2011–12, Annual Report • Cygnus – Industry Insight – Indian pharmaceutical Markets• Indiabudget.Nic.In• Ministry of finance website- finmin.nic.in • http://www.cci.in/pdf/surveys_reports/

indias_pharmaceutical_industry.pdf• http://www.indiainbusiness.nic.in/industry-infrastructure/industrial-

sectors/drug-pharma1.htm• http://www.investindia.gov.in/?q=pharmaceuticals-sector• http://www.cci.in/pdf/surveys_reports/indian-pharmaceuticals-

industry.pdf• http://dipp.nic.in/English/default.aspx25• http://www.business-standard.com/india/news/drug-patentsthe-rise-

3488-in-five-years/487430/