Indian Pharmaceutical Sector

Three gentlemen come to our mind when we look at the history of the Indian pharmaceutical sector over the last 100 years.
Indian Pharmaceutical Sector

The Indian pharmaceutical industry has evoked very empathetic reactions from all around the world for over more than two decades supplying generic medicines globally and thereby helping nations to reduce the cost of medicines and the medicinal costs in the overall healthcare budgets of countries. If you look at the export orientation of Indian pharmaceutical sector, you will see that they go to more than 200 countries in terms of exporting medicines. They sell all kinds of products starting from depression pills to hypertension drugs and they also focus on diseases of the rich as well as of the poor. But, that being said, they also raise some thorny issues, and the key thorny issue that they raise is related to this debate on access versus innovation.

Three gentlemen come to our mind when we look at the history of the Indian pharmaceutical sector over the last 100 years. There is Acharya Prafulla Chandra Ray and his work with ammonium nitrate in Bengal Chemicals and pharmaceutical work, in the early 1900s. There is Dr. Khwaja Hamied from Cipla who actually went to Germany and got his PhD in chemistry and traveled back and set up Cipla which is one of the first domestic pharmaceutical company with a science base that was developed in the 1930s. The third person to harp on is Mr. Sarabhai who has set up Ambalal Sarabhai which is one of the older Western-Indian pharmaceutical firm. When we look at the history of that particular era, we  see that the Indian pharmaceutical sector is characterized by this broader drive that we  should develop national sufficiency in medicines. And we see a bunch of individuals who are scientists having some kind of a background in chemistry, taking the initiative to set up organizations that can create drugs for India and also, if that is relevant, for export markets around the country. We  should realize the nature of the institutions at that point in time.

Since 1911 until 1947, India had a regime that was broadly respecting product patents following the British Patent Acts of 1911. Since independence, India adopted a regime which started focusing a little bit on how to develop domestic capabilities in Indian pharmaceuticals. Couple of entities were formed by the government of India—Indian Drugs and Pharmaceuticals Limited and the Hindustan Antibiotics Limited—both public sector units to develop the self-sufficiency in producing medicines for the country.

In 1962, India fought a war with China and that developed a national imperative to have antibiotic sufficiency and medicinal sufficiency and that resulted in longer-term drive to create an institutional environment that incentivizes the entry of domestic firms in the sector. So, if you see after 1962, you will see that in 1970 India adopts a process-patent regime, it starts respecting only process patents, these patents are respected only for five to seven years, and 70s onwards, there is this wave of entrepreneurs who enter the generic space. You will see Dr. Anji Reddy, who is trained in public sector unit like Indian Drugs and Pharmaceutical Limited, coming out of IDPL and setting up Dr. Reddy's in Hyderabad. You will see a Kiran Mazumdar-Shaw who takes a step forward and sets up the country's first biotech enterprise in early 1980s. You will also see Northern Indian firms like Bhai Mohan Singh and Ranbaxy being set up in the 70s with Italian collaboration from an entity called Menarini. And then, you will also see some Western- Indian pharmaceutical firm like Zydus Cadilas of the world, which are getting set up in the 70s and 80s. But broadly speaking, all these entrepreneurs are taking advantage of the institutional environment that allows for weak patents, that allows for price control of drugs and are setting up units or organizations that produce generic medicines. And over time, as they develop these capabilities they are also able to enter export markets.

Indian pharmaceutical firms adopt into U.S. markets by intensively selling generic medicines to the U.S. This was aided by what is called the Drug Price Competition and Patent Term Restoration Act of the U.S. in 1984 and it is more loosely called as the Hatch-Waxman Act in the U.S. And it's interesting to know about the U.S. because it is the largest pharmaceutical market in the world in terms of purchasing power of medicines. So, the Hatch-Waxman Act in the U.S. allowed for authorized generic entrants to come into the market even when the patented drug was there in the market through a certain regulatory mechanism. India took great advantage of that particular scenario.

There is a role of a leading firm like a Zydus Cadila in Ahmedabad or a Dr. Reddy's. Industry anecdotal estimates suggest that more than 75% of all the pharmaceutical firms around Hyderabad have some kind of a linkage to Dr. Reddy's either in terms of formal relationships or informal relationships, they were ex-employees of Dr. Reddy's or they have still strong linkages on learning and capabilities. Similar such observations are observed in Gujarat. There is a village in Gujarat which actually has given birth to some seven Gujarati pharmaceutical entrepreneurs, and there you start looking at the contribution of pharmacy colleges like LD College in the state of Gujarat. In Bangalore, the nature of entrepreneurship in biopharmaceuticals is slightly different. It's more science driven, it is driven by diaspora entrepreneurs, scientists and innovators who went out of India, got a PhD, did a postdoctoral experience and they come back and set up their entities, here in Bangalore. Bangalore is also one of the hubs for the science and biology segment of our country, so you see a National Center for Biological Sciences, The Indian Institute of Sciences, which essentially gives a more discovery oriented flavor to entities or pharmaceutical organizations that are coming out of Bangalore and we'll come back to that later as we talk a little bit more on entrepreneurship.

The other aspect that we want to consider while looking at the evolution of the sector and its last 30 to 40 year old history is that there are the leader firms like Ranbaxy and Dr. Reddy's which have had a significant imprint on future generation firms. So, if you do a quick LinkedIn search of, let's say, founders of new generation biopharmaceutical companies in India, you'll see a lot of them have past experience in Ranbaxy or Dr. Reddy's. Some analysis by me shows that this is close to like 70 to 80 percent. Dr. Reddy's, Cipla, Wockhardt, Lupin, Ranbaxy are the key seminal leader firms that have given birth to follow-on firms and this basically ties back to the phenomenon spin-offs that also drives entrepreneurship and clusters in this context of Silicon Valley.

The global biopharmaceutical industry, especially the innovator-originator firms like the Pfizers and the Eli Lillys and the GlaxoSmithKlines will argue, if you talk to them, that the Indian pharmaceutical industry is a pirate. It basically reverse engineers drugs, free rides on intellectual property generated by them, and sell generic medicines at low prices, not just domestically in India, but globally around the world.

Shabir Ahmad is a UPSC aspirant, from Raiyar Doodhpathri.

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