In Indian context, drugs are categorized as Innovator Drugs/Patented Drugs (protected by exclusive rights granted by the government to the inventor for a certain period, typically 20 years), Generic Drugs (not possessing a proprietary, trademark-protected name), Branded Generics (marketed using the route of brand promotion), Trade Generics (branded medicines but not promoted to the doctors, and are provided to the channel players, e.g., retail chemists, hospitals, etc.), and Generic Generics (unbranded, sold without any specific brand name and priced usually lower as compared to brand-name counterparts).

As per a recent study titled, ‘Changing Dynamics of Indian Pharma Supply Chain’ (2024) by Pharmarack Technologies with the support of Indian Pharmaceutical Association (IPA), Branded Generics comprise 87 per cent of the Indian Pharmaceutical Market (IPM) and valued at Rs. 2,10,000 crores in 2023, Trade Generics account for 10 per cent of IPM (valued at Rs. 24,000 crores), and Generic Generics hold 0.5 per cent market share of IPM. Hence, the patented drugs hold a relatively small amount, i.e., less than 3 per cent of the IPM but are projected to reach Rs. 15,500 crores by 2030. Just about four years ago, AIOCD AWACS data (Business Standard dated February 10, 2020) showed that the patented and in-license products constituted 4.5 per cent of the domestic pharma market. In 2014, patented drugs accounted for about 0.9 per cent of the Rs. 72,000-crore IPM (IMS Health).

Low share of patented drugs in India is attributed to higher prices as these drugs remain unaffordable for a large part of the population. Further, out of pocket cost is higher in India so higher prices affect the patient. In 2014, a study was conducted by IMS Health for the Planning Commission of India (now, NITI Aayog) on affordability aspect of patented drugs. This study had shown that patented drugs were ‘much less affordable’ in India as compared to countries like Mexico, China, Indonesia, South Africa, and Brazil even when these were sold at 46 per cent of the prices prevailing in other developing countries. The study was based on ‘relative affordability’ which considered factors such as per capita Gross Domestic Product (GDP) of respective countries, cost of medicines, etc. Further, the study also concluded that patented drugs were available in India at 27 per cent of the average price of those drugs in developed countries.

Patented drugs and their pricing, has attracted the attention of all stakeholders because these drugs are priced on the higher side. Underlying rationale is the amount spent by innovator companies on R&D of these drugs including the cost of failure. Way back in April, 1975 the report of the Committee on Drugs and Pharmaceutical Industry (popularly known as Hathi Committee Report) had observed that in advanced industrial countries, the pharmaceutical industry spends substantial amounts (around 10 per cent of total turnover at that time) on drug research and product development. But these expenditures are relatively less significant in developing countries, including India and by and large, the multinational corporations use their research outlays in the parent company to introduce new drugs/formulations by their subsidiaries in developing countries.

Pricing of patented drugs even during the patent term can be subject to price revision. In other countries, precedents are available. Most recently, in August 2024, the US government mandated price reductions on 10 popular prescriptions drugs which are covered by Medicare. Medicare accounts for almost 18 per cent of the US drug sales. This move was initiated under the Inflation Reduction Act (IRA) and list prices were slashed. Price reduction was 79% for Januvia (of Merck), 76% for Fiasp (of Novo Nordisk), 68% for Farxiga (of AstraZeneca), 67% for Enbrel (of Amgen), 66% for Stelara (of J&J), 66% for Jardiance (of Eli Lilly), 62 per cent for Xarelto (of J&J), 56% for Eliquis (of Bristol Myers Squibb), 53% for Entresto (of Novo Nordisk) and 38% for Imbruvica (of J&J). These drugs have no generic competition at all as of now, and the price cuts are going to become effective from 2026.

Regarding pricing of patented pharmaceutical products in India, norms exist for price reduction in addition to the option of Compulsory Licensing. These are beneficial from the patient’s perspective. Paragraph 19 of the Drug (Prices Control) Order 2013 (DPCO) gives the government the power to ‘fix’ or ‘revise’ the retail or ceiling prices of drugs in extraordinary circumstances and in the public interest.

Compulsory Licensing has been applied only once when the Supreme Court sanctioned the grant of a compulsory license for Bayer’s anti-cancer drug ‘Nexavar’ in 2014 to M/s Natco Pharmaceuticals Limited under the Patent Act, 1970. In December 2010, Natco Pharma sought a voluntary license to manufacture and sell in India the patented drug under its brand name at a price of Rs. 8,800 per month of therapy as against the price of Rs. 2,80,428 per month of therapy charged by Bayer. In this case, Natco pointed out that in respect of the patented drug belonging to the Bayer all the three conditions for the grant of Compulsory Licence were fulfilled/satisfied with regard to the patented drug, i.e., Bayer had not met the reasonable requirement of public nor was the drug reasonably priced and patented invention has not worked in the territory of India.

In India, patent on drugs through indigenous R&D offers protection from price control. Paragraph 32 of the DPCO was brought in through the 2019 amendment and it offered advantage for ‘new drugs’ patented under the Indian Patents Act, 1970. Through this, provisions of DPCO do not apply to (i) a manufacturer producing a new drug patented under the Indian Patent Act, 1970 (product patent) and not produced elsewhere, if developed through indigenous R&D, for a period of five years from the date of commencement of its commercial production in India, (ii) a manufacturer producing a new drug in India by a new process developed through indigenous R&D and patented under the Indian Patent Act, 1970 (Process patent) for a period of five years from the date of the commencement of its commercial production in India, (iii) a manufacturer producing a new drug involving a new delivery system developed through indigenous R&D for a period of five years from the date of its market approval in India.

Higher prices on the expiry of patent period become questionable so innovator pharmaceutical companies are expected to reduce the prices of drugs. On May 11, 2023, the National Pharmaceutical Pricing Authority (NPPA) notified that the ceiling price of the drugs going off patent will be reduced by 50 per cent (Source: The Drugs (Prices Control) Amendment Order, 2023). After one year, the ceiling price shall be revised again based on the market data of the preceding month. This move was to curb profiteering by pharmaceutical companies. It is commonly observed that on expiry of patent, there is significant price erosion in drug prices due to entry of generic players. This has implications on the affordability as well as accessibility of those drugs. Further, this lowers the overall cost of healthcare.

Recently, in July 2024, the Organization of Pharmaceutical Producers of India (OPPI) which has prominent pharma MNCs as their member, sought exemption for patented and orphan drugs from price control. In a way, mandatory reduction of price by 50 per cent as imposed by the NPPA is seen in contrast to the previous option available to pharmaceutical companies where pharmaceutical companies had the option to charge the same price till the entry of generic players through launch of their generic products.

These developments reflect that interest of patent holders is in ‘generation of revenue for investment in R&D and innovation’, and ‘earning profit’, whereas interest of the patient lies in ‘availability, accessibility and affordability of new medicines.’

Dr. Anil Kumar Angrish- Associate Professor (Finance and Accounting), Department of Pharmaceutical Management,  NIPER S.A.S. Nagar (Mohali), Punjab

Disclaimer: Views are personal and do not represent the views of the Institute.