Killing competition

Pharma multinationals use the FDI route to acquire Indian companies in order to monopolise the generic market.

A 40 mg tablet of Ranbaxy Laboratories Ltd.'s Storvas, a generic version of Lipitor, a cholesterol-lowering drug, is arranged for a photograph in Mumbai, India, on Thursday, April 3, 2007. Ranbaxy Laboratories Ltd. will fight a challenge by Merck & Co., the third-largest U.S. drugmaker, to prevent it from marketing a generic copy of the antibiotic Primaxin I.M. on grounds the Indian company infringed a patent. Photographer: Scott Eells/Bloomberg News

As the United States-based pharmaceutical company Merck and Co is all set to sell a human immunodeficiency virus (HIV) medication this year in partnership with the Indian company Cipla, the strategy of U.S. drug companies to acquire generic manufacturers and thereby cut down competition has been brought to light.

This deal will allow Merck to use Cipla’s extensive marketing and distribution network to sell its patented product under a different brand name. Merck produces Raltegravir, an important HIV medicine used to treat patients in India who have failed both first and second line anti-retroviral treatment. The patent for this medicine expires only in 2022. The licence deal between Merck and Cipla will curb generic competition between multiple producers that could lead to a lowering of the prices of the drug.

Expiry of patents

At present, middle-income countries pay more than $5,000 per patient a year for the drug. Medecins Sans Frontieres pays $1,700 a patient a year to procure the drug for its programmes in India. As patents on a number of blockbuster drugs are about to expire, pharma MNCs are acquiring generic manufacturing Indian companies through the 100 per cent foreign direct investment (FDI) route in both greenfield and brownfield investments.

As per data released by the Department of Industrial Policy and Promotion (DIPP), FDI in pharma more than doubled in April-December 2013 and most of the investments were in existing facilities in the form of acquisitions. The 110th standing committee report on FDI in pharma observed that multinational corporations were rushing to India because of the big domestic market size and cheaper operating costs, and gaining control of the export market of the Indian pharma industry.

Rising share

The market share of foreign companies on the list of top 10 pharma companies in India increased from 10.5 per cent in 2004-05 to nearly 19 per cent in 2010-11. According to the DIPP, 52 per cent of the FDI in pharma was used to acquire stakes in domestic companies from 2000-12. Also, in case of an acquisition, the acquired company is not allowed to use flexibilities such as patent opposition or compulsory licensing to introduce generic medicines.