Selling Cheap Generic Drugs, India s Copycats Irk Industry

The New York Times.
December 1, 2000.
To anyone else, the room looks like the unprepossessing office of a college science teacher. But to the multinational pharmaceutical giants, it is the lair of a pirate king.
Grinning proudly, he brandishes his trustiest weapon, the scribbled notebooks he has kept since his days as a chemistry student at Cambridge in the 1950’s. Page upon page is filled with dainty hand-sketched lattices representing carbon rings: new molecules being tested in the West. They are the blueprints for plunder that the pirate has gleaned from his magazine subscriptions; his budget for pharmaceutical and medical journals is $150,000 a year.
And just downstairs in the conference room is his treasure hoard, glittering with the pinks and greens of tiny pills, the sheen of gelatin capsules, the sharp glint of injection ampuls. In the room’s glass cabinets are the 400 drugs made by his company, Cipla Ltd. They include Erecto, the company’s knockoff of Viagra; Nuzac, its knockoff of Prozac; Forcan, its knockoff of the antifungal drug Diflucan; Lomac, its knockoff of the ulcer drug Prilosec; Amlopres, its knockoff of the hypertension drug Norvasc.
Some of these compounds make $1 billion or more a year for the Western companies that hold the patents on them. But not here. They are sold by Cipla at one-twentieth to one-fiftieth of the price paid in the United States.
And they are all perfectly legal, at least under Indian law.
”We did a little study,” Yusuf K. Hamied, Cipla’s managing director and India’s most outspoken buccaneer, said during a tour of his headquarters. ”Our turnover is $200 million. If we sold our products at the American-originator prices, our turnover would be $4 billion.”
To pharmaceutical giants like Pfizer, Glaxo Wellcome and Aventis, which invest billions of dollars in research, Dr. Hamied embodies the enemy.
Under Indian law, only manufacturing processes, not the products themselves, are covered by patents. So Indian drug companies can boldly reverse-engineer best-selling drugs and sell copies cheaply. ”I make every Pfizer product,” Mr. Hamied boasted.
The Pharmaceutical Research and Manufacturers of America, or PhRMA, which represents the United States industry, says Indian patent law is ”designed to punish importers of patented technology into India and to coerce local production.”
It calls India’s licensing practices ”infamous” and says the experience of some American drug makers ”has been so negative that most companies have abandoned efforts to obtain or enforce patents in India.”
Exactly how much money Western pharmaceutical manufacturers lose in India and other countries like Brazil, Argentina, Thailand, Egypt and China that fly the Jolly Roger of drug piracy is in dispute. Annual world sales of drugs amount to about $400 billion, and some executives claim that a tenth of that, $40 billion, is lost.
But it is also true that Western drug companies would sell very little in the developing world at the prices they charge Americans and Europeans. Harvey E. Bale Jr., director general of the International Federation of Pharmaceutical Manufacturers Associations, a Geneva-based industry trade group, put the total of lost sales at about $3 billion.
A PhRMA study released in February found that losses in India were $69 million a year, but it covered just 20 common knockoff drugs. Mr. Bale said the total loss figure for India was probably $100 million a year.
Semantics and Ethics.
Iain Cockburn, a professor of management at Boston University who has studied the issue, says there are serious problems with pirates, because some make weak or even toxic counterfeits. Also, some powerful compounds, anti-AIDS drugs for example, must be taken on a rigorous schedule under careful monitoring, yet knockoff drugs may be shipped to impoverished countries where a steady supply and satisfactory medical supervision cannot be assured.
But apart from those concerns, he said, Western drug companies ”just don’t like the idea that their proprietary rights can be got around via the back door.”
”That’s the bottom line,” Professor Cockburn continued. ”It’s a threat to the business model.”
He noted that even if ”the generic companies” were selling in markets that did not attract the Western drug giants, ”the world supply of each molecule increases, so the world average price has got to come down.”
When Professor Cockburn called them ”the generic companies” instead of ”pirates,” he was underscoring an essential aspect of the knockoff drug industry. Some producers are fly-by-night operations making dangerous counterfeits, but others, like Cipla and its chief rival, Ranbaxy Laboratories Ltd., are reputable companies that make much of their money manufacturing ingredients for American and European companies; 70 percent to 80 percent of the key ingredients in American-made generic drugs come from foreign suppliers, as do about 60 percent of those in brand-name drugs.
It is only when the newest molecules, often made in the same factories, are sold in countries where a patent has not yet expired, that a ”generics manufacturer” becomes a ”pirate counterfeiter.”
”It’s a marvelous piece of P.R. to get these companies called pirates,” said Frederick M. Scherer, an emeritus professor of public policy at the Kennedy School of Government at Harvard. ”What they’re doing is perfectly legitimate, until 2005, under the Paris convention and the Uruguay Round of trade talks.”
Under those talks, which set up the World Trade Organization and forged a treaty on intellectual property, India has until 2005 to bring its laws into accordance with the treaty, which recognizes 20-year patents on most inventions. Without patents, which ensure a period in which to profit by being the sole legal seller of an invention, no one would invest in finding new medicines.
India’s current drug laws ignore that reasoning, on the ground that saving Indian lives is more important than profits to inventors. And Parliament, with the country’s drug industry lobbying hard to protect its ability to copy molecules, is taking its time on compliance legislation.
”We don’t need to be apologetic about it,” said Dr. Javid A. Chowdhury, the Indian minister of health. ”We’re a self-contained, developing economy. We live on little, but we survive. Outside of the third world, there’s very little realization of how little money the poor live on. The per-capita health expenditure in India is $10 a year.”
Noting that some Western drug companies have discounted their prices of AIDS drugs to Africa by 80 percent, he added, ”If they can offer an 80 percent discount, there was something wrong with the price they started off with.”
The American pharmaceutical industry — often ranked as the country’s most profitable — disputes the view that its profits are unconscionably high. One PhRMA statement argues that they are ”only slightly above the average for all industries” and blames the higher valuations on the way accountants write off research expenses. But it also argues that ”we need to be profitable in order to attract the capital to sustain innovation.”
The Mechanics of Profit.
Mr. Bale of the Geneva-based trade group says pharmaceutical companies operate in a world in which most new drugs are either costly duds or blockbusters. To stay competitive — and to stay alive in an era of mergers and increasing competition — they rely on profits from their most successful products. ”One or two products make or break the company,” Mr. Bale said. ”They drive those blockbusters to maximize revenues.”
Shannon Herzfeld, a PhRMA spokeswoman, took particular issue with India’s rationale. ”We object to their premise that intellectual property rights are a barrier to access to good medicine,” she said. ”Anyone who says, ‘We have to steal’ is wrong. Stealing ideas is not how one provides good health care.”
In fact, India recognizes Western-style intellectual property rights on most products, including computer software, in which it has a thriving industry. But it does not recognize them on chemicals for medicine or agriculture, a position that dates back to its Patents Act of 1970, for which Mr. Hamied heavily lobbied Prime Minister Indira Gandhi. The law, conceived in postcolonial days when India still suffered famines and the average Indian man could expect to live only about 40 years, was intended to encourage the founding of local industries to break the choke hold of foreign chemical companies.
At the time, India’s drug prices were among the highest in the world. Now they are among the lowest. Access to drugs is one reason that average life expectancy has risen to 64 today, just as cheap pesticides based on foreign formulas are part of the reason India now feeds itself.
An important provision in the 1970 law recognized ”process patents” rather than ”product patents.” That is, an inventor patents the multistep recipe for making the drug, not the molecule itself. If a rival can tweak the recipe slightly but end up with the same molecule, he may patent that and sell the result.
As Indian drug makers point out, many countries have used process patents to develop new industries, as Japan did in the 1950’s. And during the 19th-century Industrial Revolution, Americans freely copied European inventions.
Asked how he feels about being called a pirate, Mr. Hamied tells an anecdote about an American friend who visited India and paid for his trip by buying 1,000 Voltaren tablets, made by Ciba-Geigy, for his mother’s arthritis. The price in America was $2,000. In India, because of stiff competition from imitators, Ciba-Geigy sold the same product for 5 cents a tablet, so he paid $50.
”Somebody had been pirated,” Mr. Hamied said. ”And in this case, it wasn’t by the Indian.”
The Economics of AIDS.
Jag M. Khanna, president of research for Ranbaxy, an Indian company that is Cipla’s biggest rival, was indignant at the suggestion that he was engaging in piracy. ”I have the right to follow the law of my land, and the law says I can reverse-engineer what I like,” he said. ”They call us pirates, but we’re developing our country.”
Mr. Khanna’s company makes generic Zantac, the Glaxo Wellcome ulcer drug, in bulk for $50 a kilogram. ”When it was on patent,” he said, ”the company charged $9,000 per kilo.”
Mr. Hamied makes sildenafil citrate, the active ingredient in Viagra, for 2 cents a pill. He exports it to Yemen and Sudan, where it sells under the Erecto name. Assuming he gets government approval next month, he will sell it for 10 cents in India under the name Eviva or Tarzia.
He also makes fluconazole, an antifungal drug, for an American generic drug company that is testing it for sale in 2002, when Pfizer’s patent on the drug, which it sells as Diflucan, runs out.
Meanwhile, though, Mr. Hamied is making it in bulk for $900 a pound, and selling it in India for 50 cents a pill. He could make a safe, full-strength version for $135 a pound, and sell it for as little as 5 cents a pill, he said. But since he exports to America, the United States Food and Drug Administration imposes stringent cleanliness and safety standards on his factory — small batches, constant testing, sanitized vessels, pressurized air locks, voluminous record-keeping — that drive costs up.
In the United States, name-brand Diflucan is sold to treat toenail fungus, yeast infections including thrush, and other conditions. Pfizer makes about $1 billion a year on it, at a wholesale price of about $10 a pill. At retail, it can sell for $25 or even $40.
But a daily fluconazole tablet is also the only way to save an AIDS patient with cryptococcal meningitis, a lethal brain inflammation.
In Africa, where millions have AIDS and about 10 percent develop the meningitis, Pfizer’s patents keep the price at about $18 a pill — a death sentence for most infected Africans. In April, the company said it would eventually give the drug away free in South Africa, but it has yet to do so.
Cipla makes 4 of the 14 drugs commonly used in AIDS ”cocktail” therapy: zidovudine, lamivudine, stavudine and nevirapine. Depending on how it is formulated, Cipla’s cocktail costs as little as $83 a month, versus $1,000 or more in the West. But Cipla cannot legally sell the drug in many African countries, which have Western-style patent laws.
The big pharmaceutical companies defend their monopolies in even the poorest markets. When Cipla tried to give away some Duovir, its knockoff of Glaxo Wellcome’s Combivir, in Ghana, British-based Glaxo said it would not take action against modest donations but added that it would ”reserve the right to enforce our patent rights against any further acts of infringement.”
Dr. Hamied began reverse-engineering AIDS drugs in 1992 because, he said, he realized the epidemic would hit India hard. ”Lamivudine took four years of my life,” he said.
Cipla keeps lowering the prices of these drugs ”for social reasons,” he said, and the company runs television ads with public health messages.
In part, it can charge less because it keeps overhead low; its headquarters here in Bombay are in a nondescript 35-year-old building behind a church and an apartment house.
Mr. Hamied said he could charge more for his drugs, but then fewer people would be able to afford them. ”If you want to have granite rooms and marble floors, O.K., but it’s not my style,” Mr. Hamied said. ”I can’t eat better than I do.”
That said, he does have homes in London and Mauritius.
His chemists with Ph.D.’s make about $10,000 a year, a good salary in India. The lowest-paid of his 3,500 employees make about $2,400 a year, he said.
Indian Success Story.
Mr. Hamied comes by this mix of motivations — profit, social conscience and nationalism — by birthright. His father was a follower of Mahatma Gandhi’s brand of Indian nationalism whose family chipped in to send him to study chemistry in England, India’s colonial master, in 1924. Instead, he changed ships and went to Germany, then the world’s leader in chemicals. On a Berlin lake, he met a Lithuanian Jewish socialist — Mr. Hamied’s mother. They fled as Germany was shifting into Nazi hands, and the Chemical, Industrial and Pharmaceutical Laboratories, later known as Cipla, was founded in 1935.
The company still keeps a sort of shrine to the day in 1939 that Gandhi visited, writing in the guest book, ”I was delighted to visit this Indian enterprise.”
But, like all Indian companies, Cipla suffers from what is sometimes called ”the liability of Indianness” — a sense in the West that its products are somehow substandard.
To be sure, India has a serious counterfeiting problem. It has more than 20,000 drug companies, and many make poor-quality fakes. But 70 percent of the domestic market is controlled by 20 companies. Some are subsidiaries of multinationals; the biggest, Glaxo India, is part of Glaxo Wellcome. The large independents, like Cipla, Ranbaxy, Dr. Reddy’s, Wockhardt and Sun Pharma, already produce many generic drugs for export to America, Europe and Japan, so they pass regular inspections by visiting regulators from the United States, Britain, Germany and elsewhere.
”They have a better record than some American manufacturers,” said Vihari Purushothaman, an analyst of health care stocks for Chase JF in Bombay. They have to wait so long for Food and Drug Administration inspectors to fly in, he said, ”that they make sure they don’t leave anything to chance.”
Ranbaxy has F.D.A. approval for 20 of its generic products, Mr. Khanna said, and it even owns a factory in New Brunswick, N.J.
Outside the Indian city of Pune (often spelled Poona), Cipla has a brand-new factory where employees in spotless scrub suits cross pressurized air locks to tend expensive drug-making machinery. The factory is on a rural campus whose lawns are watered with the purified output of the effluent plant.
Dr. Hamied says his factories have passed 22 separate Food and Drug Administration inspections.
Even though multinational drug executives know there are reputable Indian companies, they often tar them all by ”confusing the issues by mixing ‘counterfeit,’ ‘bad quality’ and ‘India’ in the same heap,” said Ellen ‘t Hoen, a drug policy consultant to Doctors Without Borders, which pushes for cheaper drugs in the developing world.
Acknowledging the phenomenon, Mr. Purushothaman said there was ”a sort of racism inherent in this.”
Ms. Herzfeld, the PhRMA spokeswoman, denied that such scare tactics were used. ”I don’t know a single executive who’d do that,” she said. ”That’s not based on fact; it’s sort of an urban myth.”
If India abided by Western patent laws, more Western companies would sell there and would price drugs so Indian consumers could afford them, she said.
”We won’t spend $500 million and 17 years to come up with a product that no one will buy,” she said. ”I don’t see why anyone would neglect the Indian market. Our members have been in Africa for decades too. We sell lots of medicine in Africa, for Parkinson’s and heart disease, for example. Our members are dedicated to getting our medicines to people who are sick.”
She also suggested that the Indian government ought to look harder at its budgets, and consider whether it ought to pay more for health rather than for ”submarines or fighter planes.” Since life expectancy is part of development, she said, ”maybe they might put more money in health care than in 10-lane highways or in steel mills.”
Indian drug executives, of course, scoff at the notion that Western companies would price drugs for Indian pockets without being forced to by local competition.
Getting in Line.
Whether they like it or not, however, some Indian companies are beginning to conduct original research. To be accepted into the World Trade Organization, India signed the 1994 Agreement on Trade-Related Aspects of Intellectual Property Rights and has promised to bring its laws into compliance by 2005.
Some Indians, like Amit Sen Gupta, head of the Delhi Science Forum, a scientists’ group, worry that product patents will turn the clock back to the 1960’s, when Western drug companies dominated India, set high prices and conducted little research on tropical diseases that, like leprosy and malaria, do not affect Americans or Europeans.
India’s Parliament, however, is well behind its own 2005 legislation schedule, and the nation’s industry is lobbying hard to be sure the new laws do not hamstring its ability to copy molecules.
The 1994 agreement recognizes that there are circumstances under which product patents can be voided. These might include war, epidemics or antitrust violations by patent holders. One easily exploitable provision is ”failure to work the patent.” Under it, a patent can be voided if the patent holder fails to make or import the product, or even fails to sell it at prices affordable to average citizens. Since the average Indian now spends $3.50 a year on drugs, affordability could be a low threshold.
Mr. Hamied wants the new law to recognize ”licensing of right,” which could allow him to copy any drug he wanted as long as he paid a royalty to the patent holder. He conceded, though, that setting royalties would probably cause constant legal disputes.
Virtually all Indian lawmakers would agree that patents on crucial drugs should be voided if people were dying for lack of them, he said. But what is a lifesaving drug?
”To an asthmatic, an inhaler is lifesaving,” he said. ”Everything that improves your quality of life — Viagra, drugs for Alzheimer’s, mood elevators, tranquilizers — can be lifesaving. You must give people a chance.”
C. Visalakshi, an analyst of health stocks for Kotak Securities in Bombay, said she doubted any new law will go that far. She predicted that the right to copy, under carefully defined circumstances, would still ”definitely apply to AIDS drugs, cancer drugs and lifesaving drugs.” She continued: ”Maybe not for antibiotics. And probably not for lifestyle drugs like Viagra or Rogaine.”
Mr. Hamied is not waiting for a new law. Back at his desk after a tour of his headquarters laboratories, which bristle with expensive equipment from Hewlett-Packard and Perkins-Elmer, he picks up his latest notebook.
”I think this will be a blockbuster drug,” he said, displaying his sketch of Ariflo, an anti-asthma drug that SmithKline Beecham has not started selling yet. ”And this.” He shows an unreleased anti-AIDS drug called calanolide-A.
He is already breaking them down and working on new formulations. ”This is what gives me pleasure in life,” he said with a satisfied grin. ”And it’s my venture capital.”
Earlier articles in this series examinded the financing of a blockbuster drug, how lowercost generic drugs can be kept from the market, the availabiltiy and costs of drugs in the third world, alliances between drug companies and patient groups, and use of computers to influence doctors’ prescrib- ing practices. Further articles will examine other issues related to the business of phar- maceuticals.
Articles in this series will remain available at The New York Times on the Web: www.nytimes.com/drugs.
More In World.
How Violence in Myanmar Radicalized a New Generation of Rohingya.
Concern is also increasing that Rohingya Muslims — both militants and those displaced in recent attacks — will be exploited by international terrorism networks.
With climate change, jellyfish are booming in the Mediterranean, to the point that researchers say there may be little to do but to live with them.
5:59 PM ET Despite a long record of intelligence warnings, there is no evidence that Washington has ever moved with urgency to cut off Pyongyang’s access to a rocket fuel.