The patents ordnance brings in strenuous criticism from Indian and MNC firms, but for different reasons.

Ciprafloxacin, a new generation drug for curing malarial fever was introduced in India in the late eighties. This drug was discovered by a multi national corporation (MNC) and at that time the drug was available at more than Rs80,000 per tonne.

India's patent laws provide intellectual property protection to only product patents and not process patents. That means no drug manufacturer could manufacture ciprofloxacin without paying royalty but they could produce a similar version of it by adapting a different manufacturing process.

In good time, pharma companies like Dr Reddy's Laboratories and Ranbaxy were able to produce similar versions of the drug and market them, bringing the price of the drug down to Rs20,000 per tonne.

Some time later, scores of companies began manufacturing similar versions of the drug and the price fell to Rs6,000 per tonne.

This is how the Indian pharma industry was able to take advantage of the patents regime and produce many essential medicines at affordable costs.

From January 1 2005, the party will be over — bar the shouting. In order to be WTO-compliant, India had assured that it would amend the Patents Act, thereby providing protection to process patents also. To fulfill its assurance, the previous NDA government formulated a draft bill for the new law to become effective from January 1, 2005.

The bill has brought in a sharp divide between the domestic industry and the MNC manufacturers. The Left parties are also against the proposed patents regime, their argument being that such protection will tend to encourage monopolies and lead to prices becoming unaffordable for the common man.

Instead of tabling the bill in the previous session of parliament, the government promulgated an ordinance on December 26, bringing in process patent protection effective from January 1, 2005. The act is likely to be amended in the next session. The government has bought time for negotiating with its Left allies.

The proposed bill does contain a clause that in case of medical emergencies, compulsory licenses shall be granted for manufacturing essential drugs; as for the treatment of AIDS. However, the procedures for granting compulsory licenses are long and cumbersome and it is doubtful if it will be effective in a case like the tsunami tragedy.

Another contentious issue was the proposal in the bill that objections to the grant of patents can be raised only after the patent has been granted, not prior. Moreover, the person or entity objecting becomes a party to the patenting process and is present at all the hearings. This has the potential of opening the floodgates to frivolous objections, litigation and delay the patent granting process, out of commercial rivalry. The December 26 ordinance, however, says that objections can now be raised before a patent is granted but the objector will not be a party to the process. Such a clause seems to be neither here nor there.

Indian pharmaceutical companies are objecting to the inclusion of various chemical entities, which are going to be brought under the ambit of the patents law. MNC manufacturers, on the other hand, are of the opinion that even the drafting of the bill is loose and some companies (read, Indian pharma companies) may take advantage of the loopholes and manufacture medicines by evading paying royalties.

MNCs argue that today 95 per cent of the drugs identified by the WHO as essential drugs will be out of the purview of the new patents law and will be available at affordable prices. Moreover, there is a 'national pharmaceutical pricing authority', which will keep monitoring prices.

Whatever be the merits in the arguments of various parties, the reality of the matter is that the new patents regime is here to stay. Domestic manufactures will now have to take stock and evolve new strategies for surviving and thriving under the new regime.

In the global pharma scenario rising production and R&D costs are resulting in MNCs shifting their production and R&D bases to low cost countries like India through outsourcing. The advantages of low cost capital, raw material and labour, has made India one of the favourite destinations for outsourcing of pharmaceutical products.

Therefore the major areas of growth Indian companies should look at are:

• Top rung companies could target markets in the US and Europe. In fact companies like Ranbaxy have already established themselves abroad.
• Middle level companies have opportunities to partner with MNCs to supply bulk drugs and formulations on contract basis.
• Other players should be in a position to offer contract manufacturing and contract research facilities to international pharma majors in order to help them reduce their costs.
• Indian companies could also enter into license agreements for drugs held under patents by MNCs to market such drugs in India. This would mean companies upgrading their marketing net work to offer value to their MNC partners.
• Copying is no longer an option, so Indian companies will have to get their act together as far as R&D is concerned. Currently, the pharma industry is fragmented and it has to look at mergers and consolidation to improve R&D capabilities.
• Finally, while there are over 5000 patent applications awaiting consideration, it is not as if patents will be granted immediately. Indian patents examiners are relatively inexperienced and granting of patents will take time. Indian companies can utilise this time to catch up.