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Trade and Reform

Exploring Indian Pharma

Professor Lee Branstetter and Chirantan Chatterjee (HNZ'10)

It's a sunny afternoon in Pittsburgh, and Chirantan Chatterjee (HNZ'10) places an order at the Middle Eastern restaurant on South Craig Street. He's soon joined by Carnegie Mellon Professor Lee Branstetter and a lively exchange carries through lunch over their common interest — India's developing pharmaceutical industry.

Chatterjee is a grad student in Carnegie Mellon's Heinz College. Under the guidance of Branstetter, the two have been exploring how fundamental trade and intellectual property rights reforms have transformed the Indian pharmaceutical and biotech industries.

From the early 1970s up until a few years ago, India allowed the legal sale of imitations of patented Western medicines. At the same time, the country's significant restrictions on international trade, investment and foreign exchange hampered its competitiveness in advanced industrial markets.

But a series of international trade negotiations changed that in the mid-1990s. India opened its economy to international trade and investment and reformed its foreign currency regime. The country also ratified the controversial Trade Related Intellectual Property Rights (TRIPs) agreement, which forced countries to enact and enforce patent regimes that offered strong protection to pharmaceutical and biotech products.

India's ratification of the TRIPs agreement has not led to the death of the Indian pharmaceutical industry. Instead, the industry has grown rapidly and become much more research intensive.

"The business model of the major firms was based mostly on unlicensed duplication of Western technology, and the innovative capacity of the Indian industry was quite undeveloped," Branstetter explained. "Stronger intellectual property rights meant that Indian firms could not rely forever on a business strategy of copying Western innovations without permission. Indian firms had to change their business model to survive."

Branstetter continued, "But the trade, foreign direct investment, and currency reforms of the early 1990s also left Indian firms much better placed to compete in Western markets — especially the rapidly expanding market for generic drugs."

The Indian drug industry has now grown to the point where it is beginning to have an impact on the pharmaceutical and biotech industries at the global level.

Western pharmaceutical companies are facing severe economic pressures due to increasingly aggressive competition from generic drug companies — many of whom are now based in or manufactured in India.

Chatterjee, Branstetter and Ashish Arora of Duke University embarked on a "field trip" several months ago where they interviewed executives at 15 Indian pharmaceutical firms across five Indian cities.

"It gave us a sense of the firms' experiences in upgrading capabilities so as to become serious players in global drug markets," Chatterjee said.

They found that the barriers to substantial R&D collaboration are substantial — but the opportunities for cost savings and efficiency improvements in the R&D process could be enormous.

Branstetter and Chatterjee will continue to explore these issues in the coming year as part of Chatterjee's doctoral dissertation.

"It's one thing for a doctoral student to dream of investigating a research question of impact and importance," Chatterjee explained. "It's another to take the plunge itself — keeping the big and the small picture together in mind. For this, I owe a lot to my professors and fellow grad students."

He added, "A strong menu of interdisciplinary courses across Carnegie Mellon's departments also has contributed to my analytical and thought-experimenting skills."

The research is being funded by the Alfred P. Sloan Foundation.

Related Links: Read Their Paper  |  Background  |  About Branstetter  |  Heinz College

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