Intellectual Property and the Indian Pharmaceutical Industry

Utilizing intellectual property rights during the creation of new drugs.

The Indian pharma industry is on a growth trajectory—being the third largest in terms of volume and the thirteenth largest in terms of value. Indian generics accounts for 20 percent of global exports in terms of value. However, branded generics dominate the drugs market, accounting for 70 to 80 percent of the market.

The pharma industry has registered unprecedented growth in the past decades fuelled by high burden of disease, higher disposable income, healthcare infrastructure, etc. The pharma industry will continue to grow organically and inorganically through alliances, joint ventures, and mergers and acquisitions. The focus is on improving efficiency and productivity through novel ideas and business models. The major growth drivers for the pharma industry include developments in healthcare insurance, medical technology, healthcare financing, and improving healthcare access.

Market Size and Growth Rate

According to a report by India Ratings, the Indian pharmaceutical industry is projected to grow at 20 percent CAGR over the next five years. The Indian pharmaceutical industry stands at USD $20 billion and is expected to grow to USD $100 billion by 2025. The government is taking steps to reduce healthcare costs, which lead to speedy launch of generic drugs and a shifting the benefit to domestic firms (as compared to foreign entities).

Innovation has a dramatic impact on the pharma industry. As the rewards for success of innovation are high, the risk of failures can threaten company’s survival. The pharma companies have to keep pace with innovation that creates significant impact on millions of lives and the bottom line of a company. Companies are using innovation to propel growth and deliver tangible results. Managing innovation in the pharma industry helps companies to broaden their drug discovery and generate higher returns on investment.

Developing a medication costs billions of dollars and requires a huge investment in research and development. The return on effective innovations are huge—thus helping to gain a competitive edge in the market. As the stakes involved in the pharma industry are high, companies are spending a significantly higher portion of revenues on not only innovations, but developing an innovation strategy for the development and marketing of new drugs. Innovation is synonymous with drug discovery and approval.

According to industry estimates, the large pharma companies are now spending USD $5 billion for approved molecules. Smaller companies, on the other hand, tend to spend less. The cost incurred for research and development is enormous: with an average cost of USD $1.3 billion for a new drug. The average time spent is 12-15 years from research to market of drug (with clinical trials consuming anywhere from 6-8 years).

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Intellectual Property Rights

These innovations lead to discovery of new life-saving drugs and have to be protected through intellectual property rights (IPRs). Patents provide pharma companies exclusive rights to market drugs and prevent others to manufacture, sell, and make these drugs for a period of 20 years. IPR is a prerequisite for pharma companies for identification, planning, commercialization, and protection of invention. It is also an important tool to protect investment, time, and effort and encourages healthy competition—thus promoting industrial development and economic growth. IPRs also provide incentives to pharma companies to invest in research and development.

The IPR protection works in numerous ways:

  1. Provides fair and effective incentive for innovation
  2. Protects pharma companies against potential infringers
  3. Provides strong enforcement tools for defending infringed patents

In a weak IPR protection economy, generic drug manufacturers imitate biopharmaceutical innovations without investing time and money to develop new medicines. As a result, branded drug manufacturers are unable to recoup investments in new drug development, thus finding it difficult to invest in research and development (R&D) of new drugs and costly diseases. 

A stronger IPR regime is aids pharma companies in protecting innovation from the research to development stage. Creating, managing, and protecting intellectual property are becoming an important source of raising funds required for investment in R&D. IPRs also play a crucial role in mergers and acquisitions of the target SME and are independent commodities that can be traded by way of licensing, joint ventures, etc.

IPR has a significant impact in the pharma industry from issues ranging from discovering, developing to pricing, distribution, competition mapping, availability, and pricing of new medicines. With stronger IPR protection in developed countries, the pharma companies are growing at a rapid rate. On the flip side, developing countries criticize patent system as it creates monopoly in the market and leads to higher prices of drugs.

Future Roadmap

Ideally, the IP system should cover the scope of product development. By focusing on IP strategy, companies can avoid litigation that might lead to financial loss to the company. Additionally, they can exploit IP-related products through commercialization and licensing. This increases the demand of low-value drugs and rapid growth of pharma companies.