The Indian pharmaceutical market which would rank amongst the top five in terms of volume is also the largest provider of generic drugs globally. This has earned India the sobriquet “pharmacy of the developing world”. It is estimated that Indian pharmaceutical companies supply around 80 per cent of the antiretroviral drugs that are being used on a global scale to deal with AIDS.
The sector, which is valued at around $ 35 billion, is expected to cross $ 50 billion by 2019-20. This sector also attracts considerable Foreign Direct Investment (FDI) with inflows crossing $ 13 billion during the last sixteen years. The last ten years have witnessed numerous big ticket foreign investments in this sector with the prominent ones being the acquisition of Ranbaxy by Daiichi Sankyo, Abbot’s buy-out of Piramal Healthcare and Mylan’s acquisition of Matrix. The present Indian regulations allow up to 100 percent FDI subject to certain conditions. In June 2016 the government decided to permit up to 74 percent FDI under automatic route in brownfield pharmaceuticals. However any FDI beyond 74 percent in brownfield pharma sector would require FIPB/government approval.
On the legal front things were pretty quiet last year as there were very few high profile litigations or patent office proceedings. Notable among the patent infringement litigations was the one between Merck and Teva over Merck’s patented anti-diabetic drug Sitagliptin where the High Court issued an interim injunction against Teva. In one of the most recent pre-grant patent opposition involving the drug Xtandi/Enzalutamide which is used to treat prostate cancer, the patent office denied the patent in November 2016 and this might pave the way for the introduction of the generic version of the said drug at a fraction of the price being charged by the patent holder.
Emergence of the biosimilar market
While the previous century belonged to drugs made by pharma companies that created chemical entities which were easy to reverse engineer, advancements made in the field of biotechnology is changing the pharmaceutical landscape at a rapid pace. Today a significant number of the important medicines are biological products that are made from living organisms that can come from many sources which may include human beings, animals and microorganisms such as bacteria or yeast. Such biological products are made using biotechnology and presently these biological products are used as medicines to treat conditions such as rheumatoid arthritis, anemia, psoriasis and different forms of cancer.
A biosimilar is a product which is approved by a national regulator after demonstrating that it is highly similar to a biological product called as reference product which had been previously approved by the regulator. Furthermore a biosimilar should have no clinically meaningful differences in terms of safety and effectiveness from the reference product.
The growth of the biologics market for the treatment of cancer (monoclonal antibodies), diabetes (insulin) and many other auto-immune diseases has in turn resulted in creating a global opportunity for biosimilars also. Just like the generics market for chemical entities, a huge market is waiting for biosimilar developers once many of the patents covering the biologics expire in the next few years.
India is emerging as an important player in the global biosimilar market. In 2012, India drafted the ‘Similar Biologics Guideline’ by the Central Drugs Standard Control Organisation (CDSCO) and the Department of Biotechnology. In August 2016, CDSCO made some revisions to the country’s biosimilar guidelines.
Prof V K Unni of IIM Calcutta
Interestingly India has a vibrant biosimilars market that can even compete with some of the highly advanced countries and many Indian pharma companies are now making substantial investments into biosimilar development and production for gaining the first mover advantage. Major Indian players in this space include Zydus Cadila, Biocon, Dr Reddy’s Laboratories, Intas Biopharmaceuticals, Emcure Pharma etc. In December 2014, Zydus Cadila became the first company in the world to launch the biosimilar of Adalimumab patented by the US drug major AbbVie, which is being used to treat rheumatoid arthritis and other auto immune disorders.
Expectations from the Budget
Earlier the Government of India allowed a weighted tax deduction of 200 percent for any capital and revenue expenditure incurred as a result of in-house R&D by a company. However, the last budget reduced the weighted tax deduction from the 200 percent to 150 percent with effective from April 2017 to March 2020 and thereafter from April 2020 to 100 percent. This has been a huge disappointment and in the present budget the industry will be very happy to see this benefit to be raised to 300 percent or at least restore the 200 percent deduction which they used to enjoy earlier.
The last budget proposed a special patent regime wherein global income by way of royalty from international exploitation of patents developed and registered in India will be taxed at the rate of 10 percent on a gross basis. This can be further reduced or tax on income from such exploitation can be abolished all together to give a fillip to local innovation and manufacturing. It is anticipated that the upcoming budget may provide certain incentives to the sector that has the effect of promoting innovation and in-house R&D.
V K Unni is the professor (public policy and management) at Indian Institute of Management (IIM) Calcutta
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