Pharmaceuticals Sector

India’s first compulsory licence – Implications 

The compulsory licensing (CL) provision arms the government with the power to ensure that medicines are available to patients at affordable rates and has so far been used in Brazil, Thailand and South Africa. It gives the government the right to allow a generic drug maker to sell generic versions of patented drugs under certain conditions (limited availability, inaccessibility, expensive), without the consent of the patent owner.

In a landmark decision, India’s intellectual property office allowed Hyderabad-based Natco Pharma Ltd to make and sell a generic version of German drug maker Bayer AG’s patented cancer treatment Nexavar. It’s the first time that an Indian company has been granted a compulsory licence to market a generic version of a patented drug.

The drug, patented by Bayer in India in 2008, is used in the treatment of liver and kidney cancer, and costs INR 2.8 lakh for a month’s dosage. After Bayer rejected Natco’s request for a commercial licence to manufacture Nexavar, Natco in September applied for a compulsory licence to make a generic version of the drug.

The patent office stipulated that Natco price the drug at INR.8, 880 for a pack of 120 tablets (a month’s dosage) and pay 6 percent of net sales as royalty to Bayer1.


The ruling clarified that the decision was made based on the facts that2:

  • Bayer was able to supply its drugs to only 2 percent of the country's patient population and did not meet the 'reasonable public criteria' requirement.
  • Its price was not ‘reasonably affordable’
  • It was imported and not manufactured in the country.


Effect on India’s image as an investing hub
The decision will further wane India’s credibility in terms of a weak intellectual property regime. Innovator companies will not feel secure enough to invest in a country where their extensively researched products (incurring millions of dollars) could be subject to compulsory licensing. During the hearing, the patentee submitted that the cost of making the invention and developing a new medical entity like the drug in the case works out to be about around INR.11,775 crore today, hence lowering the price seemed like a difficult option 3.

Effect on R&D in domestic companies
It could be argued that though the CL provision is aimed at providing medicines at an affordable price, it does hamper research. In essence the Government of India (GOI) has decided to kill the domestic research pipelines with this move, because a company would not risk the huge expenditures involved in research when with a single stroke the GOI can allow another company to copy the product legally at a negligible cost. This move is likely to reinforce the copy cat image of the pharma industry.

Effect on pricing strategies used by MNCs
The decision to grant compulsory licence may force multinational companies to adopt multiple or dual pricing for drugs where medicines are sold in developing countries at a fraction of the cost charged by them in developed markets. It serves as a warning to MNCs that when drug companies are price gouging and limiting availability, the patent office has the power to end monopoly to ensure that the patient has access to life saving medicine.

Benefits of invention must reach those who need it, and the ruling in favour of Natco is a move by the government to send the message that the spirit of public welfare should not be diluted for profit driven means. However, this ruling could have multiple implications on India’s pharmaceutical industry future. This socialist action of the government will have massive repercussions on NCE/New Molecule launches in India; research would be hampered as companies would shy away from investing in new molecule research and development. Experts believe that many molecules with excellent potential may not make it to the market for this reason 4.

The move will strain the relationship between Indian companies and their global counterparts. MNCs are in a better position to deal with pricing strains and low sales, they would focus on acquiring Indian firms (most of which have PE vested interests), this could have an adverse effect on the domestic industry in India which in any event is threatening to become MNC dominated again.

This single ruling might not have considerable monetary implications, considering the orphan status of the disease (hepatocellular carcinoma), however the message that the ruling sends across is massive.

We expect the entire MNC lobby to protest silently and exert pressure on the GOI through diplomatic channels. Measures like CLs cannot be the optimum solution of improving access to innovative/expensive medicines in India, while creating an environment that harnesses innovation and research.

One can argue that the research used by Big Pharma to develop new products is often crucially based on publicly-funded research, and the public should be able to reap the benefits of the invention, especially in a life threatening scenario. However, all the pros and cons should be considered before a ruling of such impact is passed.

In the past, most CL episodes occurred between 2003 and 2005, involving drugs for HIV/AIDS, and occurred in upper-middle-income countries (UMICs). AIDS is a global threat and when health activist lobbies unite against MNCs to ensure the welfare of a majority population, the move can be justified to some extent. In such cases it is important to put public welfare over profits. In the Bayer ruling, in spite of the high cost, the orphan status of the disease dilutes this essence.

This move is most likely to spur other generic manufacturers to apply for compulsory licenses. The future is uncertain at the moment and most analysts believe that a long drawn battle will soon shape the industry scenario for pharmaceuticals in India.


1. Times of India - Should compulsory licensing be allowed - 14 March 2012
2. Live Mint - Natco gets India’s first compulsory licence – 13 March 2012
3. KPMG in India Analysis
4. KPMG in India Analysis


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