"India's Patent Pirates Give Drug Firms a Headache"
by Donald G. McNeil, Jr.

BOMBAY 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 1950s. The pages are filled with hand-sketched lattices representing carbon rings: new molecules being tested in the West. 

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 ampoules. 

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 anti-fungal 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 in India. 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," said Yusuf Hamied, Cipla's managing director and India's most outspoken buccaneer, 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, Mr. Hamied embodies the enemy. Under Indian law, only manufacturing processes, not the products themselves, are covered by patents. So Indian drug companies can reverse-engineer best selling drugs and sell copies cheaply. 

The Pharmaceutical Research and Manufacturers of America, or PhRMA, which represents the U.S. 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 U.S. drugmakers "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 are lax about patents is in dispute. Annual world sales of drugs amount to about $400 billion. Some executives assert 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 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 in India was probably $100 million a year. 

Iain Cockburn, a professor of management at Boston University, 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. 

Mr. Cockburn said 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." 

His use of the term "generic companies" instead of "pirates" points to an essential aspect of the knockoff drug industry. Some of the producers are fly by-night operations making dangerous counterfeits, but others, like Cipla and its chief rival, Ranbaxy Laboratories, are large, reputable companies that make much of their money manufacturing ingredients for U.S. and European companies. 

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 PR to get these companies called pirates," said Frederick 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 from being the sole legal seller of an invention, no one would invest in finding new medicines. 

India's drug laws ignore that reasoning, on the ground that saving Indian lives is more important than profits to inventors. 

"We don't need to be apologetic about it," said Dr. Javid 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 said, "If they can offer an 80 percent discount, there was something wrong with the price they started off with." 

The U.S. pharmaceutical industry disputes the view that its profits are unconscionably high. One PhRMA statement contends that they are "only slightly above the average for all industries" and blames the higher valuations on the way accountants write off research expenses. 

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," he said. "And in this case, it wasn't by the Indian." 

Jag Khanna, president of research for Ranbaxy, an Indian company that is Cipla's biggest rival, was indignant at the suggestion 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. 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. Pending government approval next month, he will sell it for 10 cents in India under the name Eviva or Tarzia. 

He also makes fluconazole, an anti fungal 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, Hamied is selling it in India for 50 cents a pill. 

In the United States, Diflucan is sold to treat toenail fungus, yeast infections and other conditions. Pfizer earns about $1 billion a year on it at a wholesale price of about $10 a pill. At retail, it can sell for $25 to $40. 

A daily fluconazole tablet is also the only way to save an AIDS patient with cryptococcal meningitis, a lethal brain inflammation. 

India 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 and Ranbaxy, produce generic drugs for export, 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 at Chase JF in Bombay. They have to wait so long for U.S. inspectors to fly in, he said, "that they make sure they don't leave anything to chance."

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