Compulsory Licensing in India Can Change Pharmaceutical Markets

Regulations in India, one of the world’s largest pharmaceutical producers and consumers are changing the industry’s market landscape in ways that are likely to result in greater competition and potentially more choice for patients in Africa and Asia. The impact will be felt globally as multinational companies such as Pfizer and Abbott seek to strengthen their positions in these countries.

Since India passed the Patent (Amendments) Act in 2005, MNLs have increasingly sought out Indian pharmaceutical firms for low-cost manufacturing expertise, and as a way to mitigate some of the risks associated with bringing new drugs to market. This is resulted in a combination of acquisitions and alliances between MNLs and Indian drug and API (active pharmaceutical ingredient) manufacturers such as Dr Reddys, Aurobindo, Strides Arcolab and Claris Life Sciences.

The cornerstone of the Act is the recognition of product (or composition of matter) patents for chemicals (including drugs), and provision of a 20-year term from the filing date of such applications. Previously, patents were only issued for methods of producing products (also referred to as compositions of matter), but not for the products themselves (i.e., pharmaceuticals). This allowed one to commercialize a drug that was a proprietary product of another as long as one’s own method of producing that product was used. Furthermore, the term of an Indian patent for chemicals, food, and drugs was seven years. While patent abuse in India still exists, the Act reduced the risk enough to attract substantial new investments from MNLs.

MNLs are now facing a growing risk in India that could slow future foreign investment in pharmaceuticals, and create new opportunities for emerging Indian drug manufacturers. The Indian government is considering the use of Compulsory Licensing (CL) as a way of ensuring that its growing population of AIDS and cancer victims has access to low cost treatments. CL essentially allows a government to choose one or more companies to manufacture and supply a drug whose patent is owned by another party, if it believes that the patent holder is not providing the drug cost-effectively, or to those who need it.


The use of CL is sanctioned by the WTO, and governed by a number of agreements including TRIPS (Trade-Related Aspects of Intellectual Property Rights) and the Doha Declaration of 2001. These agreements provide for royalties to be paid to patent holders in the event of a CL, however the rules are fairly broad and subject to interpretation by each participating country.

The increasing potential for CL use in India poses the threat of substantially decreased revenue for MNLs that are seeking to market their drugs in India.  It will not stop new alliances between MNLs and Indian drug manufacturers, but could slow them down until it becomes clearer how and when the Indian government will apply CLs. 

New opportunities for smaller businesses that are able to manufacture a patented substance under CL may also emerge. Should enough such opportunities be created, companies that take advantage of CL could become strong competitors inside of India while generating cash to increase their export capabilities, resulting in a larger number of global competitors and greater market fragmentation. It is likely that the external focus of Indian companies who benefit from CL would be on emerging Asian and African markets, resulting in lower drug prices and greater choice in those regions.


Some established competitors already are looking for ways to use CL to their advantage. Cipla, who has been accused of patent violations by a number of MNLs, currently provides its versions of patented drugs domestically at a low cost and is ready to “share the technology with the government to meet local demand.” Tapan Ray, director-general of Pharmaceutical Producers of India (OPPI), an industry body representing foreign drug maker present including Roche and Bayer said, “As patent itself means sharing detailed information about the innovation and the technology for producing any new chemical/ molecular entity with the government, irrespective of the seriousness of any disease, I am afraid I could not make out what is really new in this approach.”

Investors in pharmaceutical companies everywhere would be well-advised to keep an eye on India's CL policies , as they are large and influential enough to set the tone for other emerging pharmaceutical markets. Investors also would be well-advised to watch smaller Indian companies like Healthy Life and evaluate how they may fit into India’s CL strategy.