US, India face off on IP yet again
As we await the US Trade Representative’s annual Special 301 Report, stakeholders on both sides of the fence seem to be hardening their stance. Even as a senior representative from Pfizer shot off yet another complaint, this time to India’s ambassador to the US, officials in India might just be ready to take the matter to the World Trade Organisation (WTO).
Reports of a high level meeting called by Cabinet Secretary, Ajit Seth on April 21 (http://www.financialexpress.com/news/india-may-drag-us-to-wto-in-case-of-unilateral-ipr-action/1242726) hint at a tough stance by officials like Amitabh Kant, Secretary, Department of Industrial Policy and Promotion (DIPP) and Lov Kumar Verma, Health Secretary.
Though the Indian Ambassador to the US, S Jaishankar had suggested that the Indian government engage with US pharma firms on this matter, these officials are against such a stance and stressed that the country’s IP laws were in compliance with global laws, including the WTO. The rationale is that it is time to settle the dispute once and for all, taking recourse to the dispute resolution mechanism of the WTO.
The Special 301 Report has three categories for country identification: the Watch List, the Priority Watch List and the Priority Country Watch list, with the most stringent action being reserved for the last. According to information culled from year-wise reports, (http://www.keionline.org/ustr/special301), from 1989 onwards, India has been in the priority watch list. However, from 1991 to 1994, India was in the priority foreign country list. If India is placed in the last category of the 2014 listing, it will mean withdrawal of certain privileges like the Generalised System of Preferences (GSP), under which Indian goods entering the US markets benefit from reduced tariffs.
While it remains to be seen which side will blink first in this face off, Dun & Bradstreet’s India Outlook Report, 2014-15 for the pharmaceutical sector gives a clear picture of what’s at stake. Though sales growth of domestic pharma companies have been in single digits since Q4 FY13 to Q3 FY14, the sector’s CAGR over the past five years was a robust 14 per cent.
With a growing ageing population and low healthcare penetration, India continues to be an attractive market, according to the report. Global pharma companies, while protesting India’s IPR regime, seem to be anticipating a return to double digit growth even while matured markets continue to stagnate in the lower single digits, if not dipping below.
As of March 2013, India has 323 US FDA approved facilities, the highest outside of the US and while the recent spate of import alerts and bans has been a downer, regulators from both sides are working to increase industry awareness of and compliance with quality norms. On the anvil are a series of training workshops, jointly organised by the US FDA and its Indian counterpart, the Central Drugs Standards Control Organization (CDSCO). The first such one is scheduled on May 5 at Hyderabad to be held in association with the Indian Pharmaceutical Alliance (IPA).
Besides the IPR plank, global pharma is revamping its own model to ward off future threats. While diversification was a revenue bridge to cope with patent cliff issues, today’s mantra seems to be a return to core competencies, which are being further sharpened. Alliances too are being used to maximise reach as well as share risks and rewards. Pharma MNCs continue to stake out their turf, choosing their battles and allies very carefully.
The portfolio swap between Novartis, GlaxoSmithKline and Eli Lilly is a prime example of the latest strategy reboot. Novartis will sell its vaccine business (except its flu portfolio) to GSK for $7.1 billion, buy GSK’s oncology products for $14.5 billion. In addition, it will sell its animal health arm, to Eli Lilly for around $5.4 billion, in a further bid to focus on the high margin/value categories like oncology and exit lower margin/value products like vaccines and animal healthcare.
The deal catapults all three companies to improved global rankings in these chosen segments. Novartis will move to second place in the oncology market, while Eli Lilly becomes the second largest animal healthcare company. Likewise, GSK gets to builds up its vaccine portfolio. Novartis takes the revamp further with the creation of a joint venture with GSK, for the consumer healthcare division. GSK will have controlling stakes in the JV. We are sure to see many more such alliances, especially in the OTC and consumer healthcare segments where IPR does not have as much play.
Mirroring these global shifts, we see domestic majors revving up for a stronger play. Sun Pharma’s acquisition of Ranbaxy in early April could be a precursor to further consolidation in the pharma space within the country. In the generics space, building scale and capabilities is crucial because it will lead to increasing credibility within the global landscape. Will this consolidation bulk up major domestic players so that they can challenge big global generic majors? That’s another face off in the pipeline.