Article Summary

International medical aid organisation (Mdecins sans Frontires) operating in

more than 70 countries described India as the pharmacy for the developing world. One of
the most important factors contributing to this remarkable transformation was the abolition of
product patent protection for pharmaceuticals in 1972. After Independence, when India
wanted to develop the pharmaceutical industry, the multinational corporations (MNCs) were
invited to come to India to help in these efforts. But before 1972 while the MNCs themselves
were not very keen on manufacturing in India, they used their patent rights to prevent Indian
companies from manufacturing. As a result, on the one hand, the industry remained
underdeveloped and, on the other, the monopolies led to high prices. The abolition of product
patents eliminated the monopoly power of the MNCs.

The cost-efficient processes developed by the indigenous sector, often in
collaboration with government laboratories, could be used for manufacturing the latest drugs,
introducing them at a fraction of international prices and dislodging the MNCs from the
position of dominance in the domestic market. India became self-reliant in drugs. It emerged
as a major player in the global pharmaceutical industry receiving worldwide recognition as a
low cost producer of high quality pharmaceuticals. India supplies medicines not only to other
developing countries but also to developed countries such as the US. But from 1 January
2005, drug product patent protection has been reintroduced in India to comply with the
requirements under the agreement on Trade Related Aspects of Intellectual Property Rights
(TRIPS) of the General Agreement on Tariffs and Trade/World Trade Organisation (WTO).

But the MNCs are not interested only in patented markets. They are trying to grow
aggressively in the generic segments as well. Traditionally, MNCs have relied for their
growth on patented drugs and focused mainly on developed country markets. The high
monopoly prices of patented drugs yielded high returns. But recent years have witnessed a
sharp fall in the number of new drugs introduced in the market. The MNCs are finding it
increasingly difficult to fill the product gap as the patents on their blockbuster drugs are
expiring and they are facing constraints on further profitable growth in developed country
markets. Some developing country markets are experiencing rapid growth. The seven
emerging markets of China, Brazil, India, Russia, South Korea, Mexico and Turkey
contributed to more than half of the growth of the pharmaceutical market of the world in
2009 compared to only 16% by the developed country markets of North America, western
Europe and Japan. The post-TRIPS situation is the vigour with which the MNCs are trying to
expand not only in the patented markets, but also in the generic markets. MNCs such as
Pfi zer, GSK, Merck earlier opted not to introduce some of their blockbuster drugs in India.


The post-TRIPS environment and the strategy being adopted by the MNCs
suggest that they are on the way to dominating the industry again.

o MNCs are aggressively pursuing growth in the generic segments.
o They will enjoy monopoly power in the patented drugs market.
o They have the financial capacity to take over more Indian companies.


The MNCs are not only taking over Indian companies. They are also
consolidating their control over their Indian counterparts. Under the Foreign Exchange
Regulation Act, 1973, (FERA), the pharmaceutical MNCs, which were manufacturing only
formulations or bulk drugs not involving high technology were required to reduce foreign
equity to 40% or below. With the abolition of FERA as a part of economic reforms of the
1990s, not surprisingly the MNCs have increased their equity stakes. Indian generic
companies are no longer permitted to manufacture and market new drugs for which patents
have been granted in India. But not all new drugs are patentable in India.

Drugs patented after 1 January 1995 can be classified into the following categories:

o Those involving new chemical entities (NCEs) (also known as new molecular entities
(NMEs)), and new biological entities (NBEs) patented after 1995.

o Those involving NCEs/NBEs developed before 1995 but with patents after 1995 for:
New formulations and compositions,
New combinations,
New chemical derivatives (salts, esters, etc).

In the product patent regime, the prices of new drugs will depend on:

o The prices the MNCs holding the patents would charge;
o The steps that can be taken to regulate such prices including price control or price
negotiation;
o The steps which are taken to provide competition from generic producers.


If MNCs charge affordable prices for patented drugs in developing countries,
access may not be adversely affected. Some MNCs are selling drugs at a discount compared
to the prices charged in the developed country markets. The MNCs have started marketing
new patented drugs at exorbitant prices particularly for life-threatening diseases such as
cancer. The manufacturing and importing behaviour since the 1990s bears a close
resemblance to that before the 1970s. Imports of high priced finished formulations are
expanding rapidly, with manufacturing investments lagging far behind. The MNCs are also
expanding vigorously in the generic segments. They are trying to grow not only organically
but through mergers & acquisitions and strategic alliance with Indian generic companies. The
aggregate market share in the formulations market has gone up dramatically with the taking
over of some Indian companies by the MNCs. The MNCs are on the way to dominating the
industry.