Drug Innovation and Local Manufacturing Under, Make in India

The Rules are articulated with the utmost pragmatic approach. It became effective from the date of notification superseding Part XA and Schedule Y of Drugs and Cosmetics Rules, 1945 (Expect Chapter IV – Ethics Committee for Biomedical and Health Research, which shall be notified post 180 days). The primary aim of the new Rules is to fast track clinical trial approval process under a robust regulatory supervision.

As per the Rules, an application by a person or institution or organisation to conduct clinical trials shall be either approved or rejected or processed by way of communication to rectify any deficiency of the application within ninety (90) working days from the date of application. The time period to approve a clinical trial shall be further reduced to thirty (30) working days, if:

The drug is discovered in India; or Research and development of the drug are being done in India and also the drug is proposed to be manufactured and marketed in India.

In case of no communication from the Central Licensing Authority, it shall be considered as deemed approved. These provisions ensure time bound approval and promotes indigenous research and development by the manufacturers.

Public Procurement Order

Prior to the enforcement of the above Rules, Government had issued Public Procurement Order [1] to encourage ‘Make in India’ and to promote manufacturing and production of goods and services in India with a view to enhancing income and employment. The order notifies that purchase preference shall be provided by all Government Procuring Entities to local suppliers of Pharmaceutical Formulations in various dosage forms, as per the minimum local content prescribed in the order.

Patent Box Regime

Innovation must be protected and inventor shall be rewarded. Taking this as a premise, Indian Patent Act, 1970 (“Act”) grants a patent for 20 years to a process or product [2] if it meets the criteria as per the Act from the date of application. However, there is a trend among multinationals that the patent developed in India is registered in other territorial jurisdictions to save tax. This results in shifting of profits to other countries and India was not able to reap its full benefit.

The OECD [3] also recognised the fact that preferential intellectual property regimes are prone to misuse and recommended nexus approach under Action Plan 5 (deals with countering harmful tax practices) in its Base Erosion and Profit Shifting (BEPS) project which involves Global 20 countries including India. As per nexus approach, income arising from exploitation of intellectual property should be attributed and taxed in the jurisdiction where substantial research and development activities are undertaken rather than the taxing it only in the jurisdiction which has legal ownership of intellectual property.

Thus to retain the patent developed here and promote indigenous research and development, the Government has introduced a Patent Box regime through Section 115BBF of Finance Act 2016. The Patent Box Regime is basically concessional taxation regime for income from patents. It incentivizes Indian resident patentee (eligible tax payer) on the gross amount of any income earned out of royalty with respect to worldwide commercialization of its patent which is developed and registered in India at the rate of 10%. However, the catch is, at least 75% of the expenditure is incurred in India by an eligible taxpayer for invention and royalty income shall include income from use of any patent, imparting information for working/ use of it, transfer of rights in respect of the patent. Royalty Income excludes income in the nature of capital gains or consideration for sale of product manufactured with the use of patented process or the patented article for commercial use. This entails that a pharmaceutical manufacturer will be taxed at the lower rate only if it earns a fee for licensing the patented drug to another entity and not by selling the drug or patent.

These rightly timed provisions are in line with Make in India policy. The regulatory landscape is conducive for local pharmaceutical manufacturers to take a leap into drug innovation and reap the benefits for years to come.

Reference:

1- Order No. 31026/4/2018 – Policy dated 1st January, 2019
2- Post TRIPs in 2005
3- OECD/G20 Base Erosion and Profit Shifting Project, Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5: 2015 Final Report

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Source: ME

Image Courtesy: ET

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