Novartis AG’s decision to exit its Indian subsidiary is only the latest instance of large multinational drug companies choosing to cease India operations or restrict their activities in the country to sales and marketing of a few imported, specialised, high-value products, where profitability is assured despite low volumes. They find it hard to compete with India’s pharma industry and have little interest in building manufacturing facilities in India.
Their R&D activities in India are confined to back-end and peripheral ventures such as market research and data analytics, where low costs are an attraction. None of them have ever engaged in R&D on new chemical entities (NCEs) in India. The trend of Big Pharma leaving Indian shores is especially engaging because over the last half a century, drugmakers from the West appeared keen on expanding their business in India.
They opened wholly-owned subsidiaries or bought Indian companies, presumably hoping that at some point New Delhi would eventually lower the thresholds for patenting. That hope has, however, never been fulfilled.
Though India adopted product patents in pharmaceuticals way back in 2005, it still retains stiff “public safeguard” provisions to curb abuse of the exclusive rights granted to innovators. Section 3(d) of the Patents Act, for instance, restricts secondary patents on “known molecules” with the defined criterion of “significantly enhanced efficacy”.
Also, under domestic laws, generic companies may rely on the innovators’ data dossiers for their own commercial ventures. India’s policymakers are accused of formulating and implementing industrial policies that have undermined the flourishing of entrepreneurship and economic value creation.
There have been numerous examples of regressive policies like a difficult licensing regime, red tape, and reserving assorted labour-intensive sectors for the micro, small, and medium enterprises. Perverse incentives existed for firms to restrict their own growth.
How has the Pharmaceutical sector been an exception
The pharmaceutical sector has, however, been a notable exception. Just two years after Independence, the Bakshi Tek Chand Committee recommended measures to “counteract the misuse or abuse of patent monopolies in India” and sought the enactment of compulsory licensing provisions.
The Justice N Rajagopala Ayyangar panel discussed the matter in great detail in its 1959 report. It did acknowledge that the desire for economic reward is an important factor motivating inventions.
However, the panel stressed that patents are taken not in the interests of the economy of the country granting it, or with an intent to manufacture there, but with the main object of protecting an export market from competition.
Even the 2005 amendments did not essentially change the policy thrust. The policy has indeed let the domestic industry thrive. Studies have shown that foreign direct investment in India’s drug industry hasn’t resulted in the transfer or adoption of technology.
Nor has it created sufficient linkages with domestic production systems. In fact, Big Pharma increasingly outsource R&D to start-ups and publicly funded institutions, merely conducting horizon scanning to identify commercially promising NCEs.
Recommendation for policymakers
Rewarding inventors in a more liberal way would be meaningful only when the country is technologically advanced enough to maintain the pace of R&D. India’s drug industry has never really crossed this threshold, though a handful of companies may just be at the cusp of driving innovation-based growth verticals.
Policymakers don’t need to be perturbed by the trend of Big Pharma exits. Instead, they ought to continue with the current policy marked by judicious patenting, lowering the cost of new-generation medicines, and aiding backward integration of the industry.