Wall Street Journal - April 11, 2005
Eric Bellman, eric.bellman@awsj.com

The amendments to India's patent law have sparked worries that Indian companies will face chilling global competition, and that the cost of medicines would jump in poor countries now supplied by Indian generic drugs. The changes were made under outside pressure, as the World Trade Organization demanded that India observe international drug patents.

But many of India's most innovative companies welcome the stronger patent protections, saying they will trigger further investment and innovation in India. As India's economy opens up, its best companies are innovating to stay competitive. Indian companies applied for nearly 800 patents at the World Intellectual Property Organization last year -- more than twice the number of patents it applied for four years ago.

"The winner used to be the guy who could copy faster," says Shrikumar Suryanarayan, president for research and development at Bangalore biotechnology concern Biocon Ltd. "Now that has completely changed so that companies that don't innovate will die, especially in the pharmaceutical industry."

Last month, India's Parliament approved patent regulations to stop local drug makers from copying new drugs developed by other, primarily Western companies. Previously, companies could copy drugs discovered by other companies by tweaking the process used to make them. The new patent system recognizes registered original drugs as products no matter how they are produced, thus making it illegal to copy drugs still under patent.

Some international medical-aid organizations protested the new patent regime, arguing it could crimp the supply of inexpensive generic drugs made in India. Many Indian analysts and executives say the stronger patent protection is a necessary step in the country's economic development. "The rules are intended to make all sectors stronger," says K. Subodh Kumar, an intellectual-property-rights expert at the CII Andhra Pradesh Technology Development and Promotion Center in Hyderabad. "It makes our intellectual-property-rights system better for pharmaceuticals, software and any other knowledge industry."

The new patent protections also are expected to result in millions of dollars of new foreign investment in research outsourcing in India, Mr. Kumar says. With the stronger patent protection, more international companies will use India's relatively inexpensive engineers, scientists and programmers for product design, drug development and clinical testing, he says.

Companies such as General Motors Corp., Microsoft Corp. and Nokia Corp. already have research facilities in India and more will follow. Some analysts expect the research-outsourcing industry -- where all kinds of companies do part of their research and development in countries with lower labor costs -- to grow to more than $10 billion globally in the next five years.

"You will see an increased interest in foreign companies to move outsourcing and research to India," says Gautam Kumra, a partner at McKinsey & Co. in Bombay.

India's previous patent system, which allowed pharmaceutical companies to copy drugs patented abroad by just changing their manufacturing process, was aimed at keeping medicines inexpensive in India. It also allowed a local pharmaceuticals industry to thrive. By copying drugs other companies spent millions of dollars to develop, Indian pharmaceuticals companies could sell them at as little as one-tenth their original prices.

International aid organizations use inexpensive Indian generic drugs to save money as they save lives. India is a big supplier, for instance, of low-price generic versions of drugs for treating AIDS . Many aid groups agree the new law is less restrictive of current generic versions than they had feared, and that the supply of today's generic AIDS drugs won't dry up. Still, many worry that the need to pay royalties or get licenses may constrict supplies of new drugs, likely to be needed as viral resistance grows.

Some aid workers recently returned from New Delhi are encouraged by a new openness in the government of Prime Minister Manmohan Singh toward addressing AIDS here. The government designated AIDS a national emergency a couple of months ago, and Mr. Singh has agreed to head the country's National Council on AIDS. This, they hope, would prompt it to administer the new patent laws with an eye to protecting public health.

The new patent laws will make it tougher for some Indian pharmaceuticals companies to turn a profit. Still, McKinsey's Mr. Kumra predicts that overall, the industry will continue to grow. He sees India's pharmaceuticals industry doubling in size in the next five years to more than $15 billion in revenue.

As India opens its markets and its companies venture abroad, companies are seeking to ensure that they profit from their own innovations. The list of top applicants in 2004 shows the importance of patents in global competition. Among the top applicants are Sony Corp., Procter & Gamble Co. and DaimlerChrysler AG -- all with more than 300 applications each last year.

From India, the top applicants include such drug makers as Dr. Reddy's Laboratories Ltd. and Ranbaxy Laboratories Ltd. In the past three years, both have more than doubled their research-and-development spending to about 10% of revenue.

--Marilyn Chase in San Francisco contributed to this article.

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