After decades in oblivion, India's pharma market now ranks fourth in the world and momentum is growing in its global competitiveness and profitability for both contract services and as a place to set up operations.
Adherence to the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement as of one year ago, and newly-resulting legislative reforms, particularly the enactment of India's Patent Protection Act in 2005 to protect intellectual property (IP), have been the major driving influence in re-igniting India's desirability. However, many firms are still reluctant to dive back into these waters of uncertainty.
A year on, many multinational companies are still not completely satisfied with the scope of the law introduced and are continuing to work with the government to address ongoing concerns.
Concerns include the allowance for companies to make generic versions of branded drugs in certain cases of high-volume demand, such as pandemics.
In addition, the new patent law only extends to products that are in the R&D pipeline and does not cover most products already on the market, leaving many products exposed.
At this stage, no one knows how long it will take for the benefits of the new law to fully take effect and, because India's patent infrastructure in its infancy, there is also a large backlog of patent applications.
The government has been introducing measures to increase resources, train staff and ramp up backlog clearance, including digitalisation of the process, according to a recent report by market analysts Frost & Sullivan, but progress is slow.
In the mean time, the report suggests that Western companies can take their own steps to help protect IP in India by establishing confidentiality/nondisclosure agreements and contracts that clearly outline IP ownership in any business dealings with Indian companies, or by only exposing products that the Indian generics firms would find undesirable or difficult to copy.
In addition to tackling IP, India has also recently modified its Drugs and Cosmetics Act to better control production of drug products in the form of good manufacturing practices (GMP) and an increasing number of Indian firms are now operating under these Western regulatory standards.
"India has the highest number of FDA-approved drug manufacturing plants outside the US. No other country compares," Dr Brian Tempest, chief mentor, Ranbaxy Laboratories said.
Another new draw card of India is that it has been gradually reducing the tax burden from a decade ago, when custom duties reached as high as 90-95 per cent for pharmaceuticals.
However, import duties on raw materials and intermediates are still higher than for finished products, but multinational companies can adjust their business model to take advantage of various governement grants and incentives offered, said the Frost & Sullivan report.
These include manufacturing of goods and services for export in special export oriented units (EOU) or software technology parks of India (STPOI), aswell as conducting these activities in special duty-free enclaves (SEZ).
Furthermore, as of January this year, the country has just begun to operate under a new value-added tax (VAT) system, lowering the average rate of sales tax from 7.5 to 4 per cent, which will undoubtedly prove beneficial for the industry in the long-term.
However, despite all the advances, many investors are taking a cautious approach to India, and many are undecided as to how and when to invest, as many questions still remain on issues that may potentially influence business in the future.
One such cloud hangs over the question as to whether eventual changes in federal or state government would affect the new changes to patent tax laws, considering the fact that much of the scientific innovation and reforms are being driven by the current president, who is himself a scientist.
This "fence sitting" was highlighted in a recent report by Ernst & Young, where only 37 per cent of pharma execs believed their companies' levels of investment would reach $150m in India by 2010, while 51 per cent of non-pharmaceutical companies are planning to spend at least that amount in the next four years.
In addition, 62 per cent of pharmaceutical executives interviewed said that threats to IP still posed a business risk in India and believed their companies risked losing IP rights when trying to integrate their businesses with local suppliers and third party service providers.
And while task forces have been set up in India in attempt to wipe out the practice of drug counterfeiting, it still accounts for about 15-20 per cent of the domestic market and more than 42 per cent of pharma execs surveyed saw counterfeiting and data security as a business risk to their company operations in India.
Cautious investors who are waiting until the country's potential is closer to becoming a reality are opting to simply use India's low-cost structure, highly-skilled workforce and technology expertise to outsource a range of services including R&D, clinical trials, contract manufacturing, business processing and other services.
However, despite all the uncertainties, most of the multinationals that abandoned the Indian market in the 1970s and 1980s are now plunging resources back into India to capitalise on its new growth era.