PharmaBiz.com reports that Chinese pharmaceutical companies are posing a serious threat to their Indian counterparts. As usual the Chinese who are past-masters at reverse engineering have started manufacturing drugs at prices cheaper than Indian drugs. Active pharmaceutical ingredient (API) units in India have already faced severe competition in the country during the last ten years leading to several units shutting down but the threat now is to the formulations industry. The Indian pharmaceutical industry is lobbying hard to ensure that it does not meet the same fate as the API industry. The government at the most can impose some kind of anti-dumping duty but that’s only a temporary measure. The real solution lies in investing more in R&D and moving up the value chain. This brings into question the flexibility of certain provisions of patent laws especially Section 3(d). A restrictive interpretation of Section 3(d) would make it rather difficult to obtain pharmaceutical patents thereby discouraging companies from investing substantially in R&D. However a more balanced, flexible interpretation of Section 3(d) would reward pharmaceutical innovation more appropriately leading to an increase in investments in pharmaceutical R&D. Of course this would involve some farsighted policy making on part of the Indian government on an extremely sensitive issue. If the high decibel coverage of the Novartis case is anything to go by it is unlikely that the Indian Government will want to bring upon itself another battle with increasingly shrill civil society groups.
The complete PharmaBiz report is below:
Cheaper import of Chinese formulations threaten Indian formulation producersFebruary 29, 2008, 0800 IST
After its onslaught on active pharmaceutical ingredient (API) units in Indiawhich saw closure of several bulk drug units in the country during last tenyears, cheaper Chinese formulations are posing a major threat to the Indianpharmaceutical sector. Some major Chinese formulation companies have nowstarted offering low priced drug formulations to the Indian market.Several traders engaged in formulation import have received offers fromChinese formulation units quoting much lower prices than the Indianproducts. It is not possible to gauge how many thousands of formulations aregoing to flood the Indian market, but a tentative list indicates that morethan 300 formulations are being contracted to be imported very soon.While in the case of some formulations, the Chinese dealers have alreadyquoted the price, others are under negotiation. “In case of some products,the quoted prices are more than half of the prices prevailing in India. TheChinese prices for formulations are expected to come down further afternegotiations”, a senior industry leader who is dealing with the issue said.The formulations which are likely to hit the Indian market belonging tofollowing therapeutic groups: amoxicillin, ampicillin, indomethacin,tetracycline, chloramphenicol, albendazole, clindamycin,cloxacillin+ampicllin, cefalexin, paracetamol+ amantadine hcl, oxacillinsodium usp, sibutramine, cimitedine, nimotipine, naproxen sodium, omeprazoleenteric-coated capsules, tinidazole capsules, ibuprofen, phenylbutazone bp,
atenolol, analgin, vitamin c, pyrazamide, cinnarizine, carbamazepine,rifampicin inisitol nicotinate, catopril, catopril, enalapril usp,piroxacam, griseofulvin, ketotifen, sucralfate, clotrimazole, acyclovir,oflaxaci, ciprofloxacin, famotidine, raniti dine, gemfibrozil, levodopa,amiodarone, isoniazide+rifampicin, isoniazide+ethambutol and ethambutol.The entry of Chinese pharma formulations into India could pose a majorthreat to the formulation units here as they are likely to be hit quitebadly by cheaper versions of Chinese products. Chinese manufacturers will beable to make their finished products at much cheaper prices as bulk drugsand intermediates are cheaper in China. Though the effect will be across theboard, the small and medium units will be most affected.Industry leaders foresee that the Indian formulation industry will alsowitness the same fate of the API industry. According to industry estimates,around 40 per cent of intermediaries needed for the industry here are nowcoming from China. Though the government periodically imposes anti-dumpingduties to save the domestic industry, several companies dealing in API hadto be closed down as they became financially unviable.According to sources, the first target of the Chinese formulation industryis the medicine dispensing markets in the country. According industryestimates, the dispensing market strength is around 30-40 per cent of thetotal formulations market in the country.
Alarmed over the development, the pharma industry has urged the Unionchemicals ministry to initiate steps to check this trend and deviseappropriate strategy to counter the trend. The SME Pharma IndustriesConfederation (SPIC), a body which represents mostly small drugmanufacturers, has already sent a memorandum to the ministry in this regard.The small scale units, which are already reeling under the pressure ofimplementation of Schedule M will be in real danger once the cheap Chineseformulations enter the Indian market, SPIC leader Jagdip Singh said. It ishigh time the government did something to check this trend, he added.
The complete PharmaBiz report is below:
Cheaper import of Chinese formulations threaten Indian formulation producersFebruary 29, 2008, 0800 IST
After its onslaught on active pharmaceutical ingredient (API) units in Indiawhich saw closure of several bulk drug units in the country during last tenyears, cheaper Chinese formulations are posing a major threat to the Indianpharmaceutical sector. Some major Chinese formulation companies have nowstarted offering low priced drug formulations to the Indian market.Several traders engaged in formulation import have received offers fromChinese formulation units quoting much lower prices than the Indianproducts. It is not possible to gauge how many thousands of formulations aregoing to flood the Indian market, but a tentative list indicates that morethan 300 formulations are being contracted to be imported very soon.While in the case of some formulations, the Chinese dealers have alreadyquoted the price, others are under negotiation. “In case of some products,the quoted prices are more than half of the prices prevailing in India. TheChinese prices for formulations are expected to come down further afternegotiations”, a senior industry leader who is dealing with the issue said.The formulations which are likely to hit the Indian market belonging tofollowing therapeutic groups: amoxicillin, ampicillin, indomethacin,tetracycline, chloramphenicol, albendazole, clindamycin,cloxacillin+ampicllin, cefalexin, paracetamol+ amantadine hcl, oxacillinsodium usp, sibutramine, cimitedine, nimotipine, naproxen sodium, omeprazoleenteric-coated capsules, tinidazole capsules, ibuprofen, phenylbutazone bp,
atenolol, analgin, vitamin c, pyrazamide, cinnarizine, carbamazepine,rifampicin inisitol nicotinate, catopril, catopril, enalapril usp,piroxacam, griseofulvin, ketotifen, sucralfate, clotrimazole, acyclovir,oflaxaci, ciprofloxacin, famotidine, raniti dine, gemfibrozil, levodopa,amiodarone, isoniazide+rifampicin, isoniazide+ethambutol and ethambutol.The entry of Chinese pharma formulations into India could pose a majorthreat to the formulation units here as they are likely to be hit quitebadly by cheaper versions of Chinese products. Chinese manufacturers will beable to make their finished products at much cheaper prices as bulk drugsand intermediates are cheaper in China. Though the effect will be across theboard, the small and medium units will be most affected.Industry leaders foresee that the Indian formulation industry will alsowitness the same fate of the API industry. According to industry estimates,around 40 per cent of intermediaries needed for the industry here are nowcoming from China. Though the government periodically imposes anti-dumpingduties to save the domestic industry, several companies dealing in API hadto be closed down as they became financially unviable.According to sources, the first target of the Chinese formulation industryis the medicine dispensing markets in the country. According industryestimates, the dispensing market strength is around 30-40 per cent of thetotal formulations market in the country.
Alarmed over the development, the pharma industry has urged the Unionchemicals ministry to initiate steps to check this trend and deviseappropriate strategy to counter the trend. The SME Pharma IndustriesConfederation (SPIC), a body which represents mostly small drugmanufacturers, has already sent a memorandum to the ministry in this regard.The small scale units, which are already reeling under the pressure ofimplementation of Schedule M will be in real danger once the cheap Chineseformulations enter the Indian market, SPIC leader Jagdip Singh said. It ishigh time the government did something to check this trend, he added.
Hopefully our marketing strategies come to our aid here. Even otherwise we can always rely on the government to come up with a solution some way or the other, either in the form of drug pricing control or some kind of duty barrier or to cast aspersions on the quality of Chinese goods. For once the Indian manufacturers will know what it feels like to be flooded with low-priced goods added to the fact that even our R&D is yet to make a mark.Forgive the bitter tone of the comment, but unless and until we take R&D seriously, we shall find each and every industry in doldrums simply because our neighbour happens to be the cheapest shop floor on earth with increased realisation about the importance of R&D. I am reminded of an article from the Business World on the eve of its 25th anniversary where 100 individuals from various fields where asked to give their opinions about India’s future. One particular article left an indelible mark on me. Xerxes Desai, the then chairman and managing director of Titan industries recollected his experiences after a recent visit to China. He spoke to a Chinese worker on the shop floor of a watch manufacturer and showed the worker a Rolex watch (fully mechanical) and asked him if Chinese manufacturers could match up to Swiss standards. The worker gave the watch a long and hard look and in a very matter-of-fact tone told him that he could get the same technology at $10 in any chinese factory. This is what we are up against. i do not mean to sound breathless, but the rate at which we should be changing our approach, doesnt inspire confidence at all. A zillion articles on China have been written by every publication, every journal, every newspaper, but has there been a perceptible change on the ground? forget technology, is every professional as conscious of his role in the bigger picture as much as his Chinese counterpart? Had i been jingoistic, the answer would have been yes. unfortunately, i am not and the answer is far from yes.
We have an opportunity that the Indian companies and for that matter any drug company has not capitalized on. The opportunity is production of API using “quality by design” principles. Every company has produced using “quality by analysis” and it does not allow to innovate the chemistry and manufacturing practices. If one can innovate, the competitor is always behind and trying to catch up. With this scenario one does not need government help. Self help is the best help and for that we only need a desire to innovate.
Girish Malhotra, EPCOT International
For political reasons, Chinese pharmaceutical products have not yet entered the United States en masse. Thus far, Indian pharmaceutical manufacturers have been the only real competition in the US for “originator” products. Perhaps this results from the high costs of litigation (and market entry) in the US, especially compared with similar costs in India. However, entry of Chinese pharmaceutical manufacturers into the US generic marketplace cannot be far off, especially if there is an even greater price advantage.
Indian pharmaceutical manufacturers will be hurt by such intense price competition in the US, perhaps even more in the long run than they will be hurt in India.
In the future, Chinese companies will also move up the “value chain,” and will produce many “innovator” products. Although, in the future, patents will also be used in China to protect and compensate the risk-taking that underlies invention, the IP protection afforded such companies in China at the present time will not matter as much as the protection afforded elsewhere. There are and will be other barriers to entry in the Chinese market that will “protect” Chinese businesses. And, Chinese manufacturers will opportunistically find and exploit markets in which patent protections do not serve as a costly, or even insuperable, barrier to entry.
If Indian innovation is to have a chance in the future, it will arise not only from innovation itself, but also from the ability to capitalize on the investment in risk-of-failure. Such large investments can only be recovered if patent protection is afforded and an innovator is permitted to earn “monopoly” profits until its investment in innovation is recovered with an appropriate return for the risks assumed. This may not be entirely popular, in the short term, but it is critical in the longer run.
The difference between “real” innovation and simple use of prior art to make another product is often difficult to define. In the US, as has been widely noted, great concerns have been voiced in recent years about “patent quality.” Our pending Patent Reform legislation, several recent Supreme Court decisions and the USPTO’s own actions have all attempted to address the problem of “patent quality” in different ways. Without elaborating any of these developments in this short comment, suffice it to say that the tension between recognition of innovation (and the concomitant need and desire to protect it), and the need to leave to public dedication simple “improvements” that are not worthy of a “monopoly” and its resulting profits, continue to exist and will never be finally resolved. It is worth noting, however, that most new patents, in some form, re generated by a combination of old ideas and technologies.
It is not sufficient, then, merely to remark on the existence of prior art and claim it dispositive, as seems to be the case in the recently suggested provisions for a new Indian patent examiners’ manual (in its sections relating to 3(d)). Some combinations are novel and worthy of protection, even if some prior art exists in the general field. The fact, for example, that a substance may exist in some native form, such as in a free base, does not make it a product from which an innovator can recover any of the costs of its research efforts, let alone a reasonable return on the capital risked to discover the properties or existence of that original substance. On the other hand, Once a pharmaceutical product is created from a racemate, it is hard to understand why a monopoly should be extended for production of a product based upon a stereo-isomer, unless the method of separation from the racemate is itself novel. These finely tuned distinctions should not be left to inflexible rules, no matter how easy it may make the process for patent examiners. The costs of dispute resolution are inconsequential, in comparison to the benefits gained from a more flexible and realistic approach. Such an approach, though productive of controversy and constant efforts to “reform” the patent-granting and litigating system, offer the kind of incentive for investors in innovation. Literalist, inflexible approaches to innovation will not.
If India (or the US) is to compete in the future, especially when there is always some place in the world with lower labor and production costs, it must do so in a system in which invention is fostered and rewarded. The US system is now undergoing “reform.” The Indian system is still in early stages, although the litigation has already become very sophisticated. Better to take the time, at the beginning, to craft a system that will adequately reward inventors, than to risk invasion of products from other areas in which new ideas are not well protected, and in which the profit motive will drive exports to places in which such protection does not exist.
This is, of course, my own opinion and it does not represent a position of my firm or any of its clients.
Chris Ohly
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