Access to Medicines and Performance of the Indian

Article

Access to Medicines and Performance of the Indian Pharmaceutical Industry: Examining India’s Experience in the New Patent Regime1

Journal of Health Management 20(4) 1–16 © 2018 Indian Institute of Health Management Research SAGE Publications sagepub.in/home.nav DOI: 10.1177/0972063418799157 http://journals.sagepub.com/home/jhm

K. Jafar1,2 P. Sajna3 Abstract The advocates of intellectual property rights project strong patent regime as an effective way to promote research and development (R&D) activities leading to innovation while others argue that they may adversely affect local industries in developing countries and result in monopoly pricing that may compromise on larger interests including public healthcare. The process patent regime has enabled Indian pharmaceutical firms to strengthen their technological capability and performance in domestic and global markets. As the country reintroduced product patent protection in 2005, Indian ‘copycats’ could not follow their reverse engineering technology anymore. Being a developing country and ‘pharmacy of the Global South’, India’s experience offers global dimensions to these debates. This article makes an attempt to reflect on India’s experience with the new patent regime; it looks into the pattern of R&D, trade and trend of product patenting in the pharmaceutical sector and revisits public health concerns. Keywords Patent, pharmaceuticals, R&D, public health

Introduction Globally, protection of intellectual property rights (IPRs) has given new dimensions to the debates around production of knowledge and its management. Many believe that a strong IP regime may promote research and development (R&D) activities that lead to innovation, technological advancement and ICSSR, Post-Doctoral Fellow, Council for Social Development, Hyderabad, India. Assistant Professor, Madras Institute of Development Studies, Chennai, India. 3 MPH Programme, Department of Public Health and Community Medicines, Central University of Kerala, India. 1 2

Corresponding author: K. Jafar, Assistant Professor, Madras Institute of Development Studies, Second Main Road, Gandhi Nagar, Adyar, Chennai 600020, Tamil Nadu, India. E-mail: [email protected]

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Journal of Health Management 20(4)

economic growth. It provides exclusive rights to the inventor and limits others from accessing the benefits of innovation. Unlike those countries and corporations who have in-house R&D capability, many developing countries with poor material and intellectual resource base cannot take advantage of strong IP regimes. Thus, debates around IPRs broadly reflect the two different viewpoints: in developed countries, it functions as an incentive for new inventions and technological advancement while it may adversely affect local industries and development strategies in developing countries. Within the country, nature and intensity of innovation influence the way each industry responds to protection of IPRs. For instance, strengthening the patent2 regime may directly affect the knowledgeintensive segments like pharmaceuticals. Studies highlight that previous (process) patent regimes helped the Indian pharmaceutical industry to achieve steady growth; while supplying essential medicines at affordable prices in domestic and international markets, it emerged as ‘pharmacy of the Global South’. Therefore, India’s experience with reintroducing the product patent protection in 2005 offers new insights on the impact of IPRs on development. The article looks into India’s experience during the new product patent regime and makes an attempt to revisit the concerns around its impact on the performance of the Indian pharmaceutical industry, access to affordable medicines and public healthcare.

IPRs and New Patent Regimes in India Broadly, intellectual property refers to creation of the human mind and deals with legal rights governing the use of such creations. The IPRs exclude third parties from accessing the protected subject matter for a specific period and the same may encourage the owner to use or disclose their creation and further engagement in creativity and innovation (Watal, 2003). The Uruguay round of multilateral trade negotiations (from September 1986 to December 1993) under the General Agreement on Tariffs and Trade (GATT) led to the formation of World Trade Organisation (WTO). Apart from the multilateral trade agreements (MTAs) in goods and General Agreement on Trade in Services (GATS), the WTO extended its coverage to the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Since its inception in 1995, WTO showed commitment towards following TRIPS rules and aims at establishing strong minimum standards for protecting IPRs including copyrights, patents, trademarks, industrial designs, geographical indications, semiconductor topographies and undisclosed information. This has made WTO member countries and international agencies revise their laws to comply with TRIPS rules. Along with WTO, a specialized body of United Nations called World Intellectual Property Organisation (WIPO) functions as a forum for promoting strong IP regimes. A strong IP regime may encourage inventors to disclose details of their inventions in exchange for a limited monopoly and promote innovation. However, developing countries argue that IPR legislations as proposed by the WTO have the opposite effects: it can restrict developing countries’ access to new technologies and knowledge that emerge from innovation. When access to foreign technologies plays an important role in facilitating local production in developing countries, a stronger IPR regime may adversely affect local production in developing countries and local companies may face risk of litigation and exclusion from the market (Correa, 2015). Its impact varies across industries and nature of economies. For instance, patent plays an important role in the pharmaceutical industry where innovation-based firms hold large patent portfolios and control production and marketing of their drugs worldwide (Correa, 2011). The new IP regime may affect developing countries in several ways; it may weaken their ‘efforts to improve public health, and economic and technological development more generally, particularly if the

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effect of introducing patent protection was to increase the price and decrease the choice of sources of pharmaceuticals’ (Commission on Intellectual Property Rights, 2002, p. 34). In any country, the net benefit or cost from IPRs depends on its productive profile, R&D infrastructure and other factors and policy space to adapt the IPR regime to local conditions and needs (Correa, 2015). Some see IPRs principally as economic or commercial rights, while others identify them as akin to political or human rights. Thus, access to essential drugs can be seen as a critical part of the fundamental human right to health3 and private IPRs should not take precedence over human rights. To some extent, these concerns influenced the negotiations and scope of flexibilities within the TRIPS agreement and resulted in granting special provisions such as a transition period for developing countries and least developed countries (LDCs) for implementing the full protection in IP regimes.4 Similarly, compulsory licensing5 (on refusal of voluntary license) and parallel trade policies were suggested as alternate ways that can help developing country governments to make essential medicines more affordable to their citizens. Compulsory licensing lowers prices to consumers by creating competition in the market for the patented good. Its impact is similar to the introduction of generic competition at the end of a drug’s patent term—prices come tumbling down; it can reduce the price of medicines by 75 per cent or more. Parallel imports involve imports of a product from one country and resale, without authorization of the original seller, in another, thereby allowing the buyer to search for the lowest world price (Chaudhuri, 2006). Thus, an African company or government agency can purchase HIV/AIDS drugs in a developed country—assuming they are sold for a lower price in a developed country—and then resell them in Africa. Since the price of medicines is sometimes lower in the developed or industrialized countries, parallel imports can be a tool to enable developing countries to lower prices for consumers. Though compulsory licensing and parallel imports are permitted under the international trade rules, LDCs do not seem to use these provisions effectively compared to many industrialized countries, including the USA, Japan and the European Union. During the WTO and TRIPS negotiations, rich countries continue their pressure on poor countries to implement standards that go beyond their TRIPS commitments. Historically, the interests of developed countries or exporters of products and technology conflict with developing countries or importers of products and technology; in some contexts, they represent the interests of the Global North and South. Overall, developed countries participated in the TRIPS negotiations with greater unity and focus. In the case of developing countries and LDCs, the intra-regional difference adversely affected their participation; mostly, their participation was driven by the fear that they may miss something or become marginalized if they do not participate in the negotiations (Watal, 2003). Compared to other domains of IPRs, patents attracted more attention from scholars, policymakers, industrialists and the general public. Patent provides exclusive rights to an inventor to prevent others from making, selling, distributing, importing or using their invention without license or authorization for a fixed period of time. If a product patent is granted to a person over a product, no one other than the holder can make or produce the same for a specified time. Granting of process patent allows more than one producer (for the patented product), since the product can be from different processes or technologies (Chaudhuri, 2006). It gives the patentee exclusive rights to make, sell or otherwise exploit the invention for duration of patent. India also followed the WTO direction in strengthening the IP regime in the lines of TRIPS. In fact, India has a long history of IP regimes, since the first IPR legislation which was enacted in British India in 1856 (Table 1). It was George Alfred De-Penning, a civil engineer, who made the first patent application in India. The Government of India officially declared ‘exclusive privileges’ for encouraging inventions by new manufacturers on 28 February 1856. On 3 March 1856, he petitioned for the same to his ‘Punkah Pulling Machine’ and the application was accepted and granted the first ever IPR in India. Later he was

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Table 1. Milestones in India’s IP Regime Year

Details of Amendments

1852

The British Patent Law

1856

The Act VI of 1856 on protection of inventions based on the British patent law of 1852

1859

The Act modified as Act XV: Amendment as re-enacted the monopoly granted as “exclusive privileges”

1865

British India Exclusive Privileges for 14 years

1872

The Patterns and Designs Protection Act’ (Act XIII of 1872)

1883

The Protection of Inventions Act

1888

Consolidated as the Inventions & Designs Act

1911

The Indian Patents & Designs Act

1957

The Copyrights Act

1970

A more progressive “Indian Patent Act”

1972

The Patents Act (Act 39 of 1970) came into force on 20 April 1972

1999

Patents (Amendment) Act: The Geographical Indication of Goods (Registration & Protection) Act; The Trademarks Act; The Design Act

2002

The Patents (Amendment) Act 2002 came into force from 20 May 2003

2005

The Patents (Amendment) Act 2005 effective from 1 January 2005

Source: Compiled from various reports of CGPDTM.

given several patents by the Calcutta Patent Office, and this gave birth to the firm DePenning and DePenning in 1856 which emerged as the largest attorney firm in the protection of IPRs with an impressive list of clients from many parts of the world (Malavika, 2006). As a developing country, India resisted for many years and utilized the full period of transition to implement the product patent regime in pharmaceuticals and amended its patent law in 2005 with safeguards incorporated—now being followed by many developing countries. In the early phase (1 January 1995), India introduced the ‘mailbox’ system for receiving product patent applications in pharmaceuticals. Such applications could not process for the grant of patent until the end of 2004; instead, Exclusive Marketing Rights (EMRs)6 can be granted under the condition that the patent has been granted or the application has not been rejected in some other WTO member country. This was followed by the compliance from 1 January 2000 and there was introduction of product patent protection in all fields from 1 January 2005. Thus, India amended its Patent Act and the ‘Patents (Amendment) Bill 2005’ reintroduced product patent protection from 1 January 2005 (Business Line, 2004); India introduced product patent protection in all fields of technology including food, medicines and chemicals and led to the revision of some transitional arrangements.

TRIPS and the Indian Pharmaceutical Industry: Prospects and Challenges The Indian pharmaceutical industry is one of the most knowledge-intensive industries with wide-ranging capabilities in the complex field of drug manufacture and technology. The industry maintains remarkable growth rate and enjoys considerable share in domestic and international markets. The process patent regime (1972–2005) has been the key factor that enabled the industry to pass through steady growth and

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reach its current position (Chaudhuri, 2006; Mani, 2006). Prior to 1970, the Indian pharmaceutical industry was dominated by a few foreign firms. Later, especially during the second half of 1970s and early 1990s (with flexible patent regimes), the industry experienced structural transformation and steady growth of the generic drug industry. Large Indian firms emerged as global corporations; they left smaller businesses and succeeded in brand building and international collaboration (Dhar & Joseph, 2014; Dhar & Rao, 2002). The process patent regime gave incentives for Indian companies to reverse engineer their competitor’s products and restricted multinationals’ role and strengthened the domestic industry. From 1970, Indian companies have improved their market share and growth rates considerably (Chaudhuri, 2006; Lalitha, 2002b; Sampath, 2005). For several years, the Indian generic industry enjoyed leading positions (fourth position in terms of volume and 13th in terms of value of production—22% share of the global generic market) in the global market (Planning Commission of India, 2006). Thus, the Indian pharmaceutical industry emerged as a leading exporter of generic drugs and pharmaceuticals across the world; it plays an important role in providing life-saving drugs at affordable prices to many African countries. International development agencies such as the UN, World Health Organization and so on rely on Indian generic medicines and supply essential medicines to the millions of people suffering from HIV/AIDS, TB and malaria (Chaudhuri, 2006; Dhar & Joseph, 2014; Joseph, 2009). The industry showed remarkable growth performance against the existing image that firms in developing countries such as those in India do not necessarily innovate in the sense of doing in-house R&D that results in the release of new products and processes. At best they are assumed to be introducing incremental innovations defined as adaptations of known technologies to local conditions. It is very well understood that process patent regime has enabled the pharmaceutical industry to increase its domestic technological capability (Mani, 2006). As a WTO member country, India had to implement a full-scale patent protection from 1 January 2005 and the new patent regime will not allow Indian ‘copycats’ to follow their reverse-engineering technology anymore. This may motivate firms in the Indian pharmaceutical industry to develop their own R&D activities and attract multinational companies (MNCs) to invest in India’s pharmaceutical sector. It may contribute towards trade and inflow of foreign direct investment (FDI) and thereby promote innovation and technological transfer in the industry (Crispolti & Marconi, 2005; Kumar, 2003). This is very crucial as India faces problems with inadequate resource base to promote domestic R&D activities. The fact that the Indian pharmaceutical industry has managed to attract large-scale inflow of FDI and most of the major pharmaceutical MNCs have their active presence in the country seem to strengthen these expectations (Bhaumik, Beena, Bhandari, & Gokarn, 2003). Studies identify innovation contributing towards economic growth; a firm with good knowledge outperforms the other one with less. The new patent regime allows firms in enjoying the absolute advantages for their innovations and cost of investment in the R&D (Lalitha, 2002a). The creation of innovations in a knowledge-intensive sector like the pharmaceutical industry is essentially a dynamic process. The capability of firms to renew or reconfigure technological capabilities is based on their ability to develop new competencies by acquiring knowledge and integrating it with existing knowledge (Kale, 2005). At the same time, the context in which protection is applied plays a key role in the way stronger IP law affects the market structure and the characteristics of the national innovation system (Correa, 2003). Scholars identify strong IPR regimes as the key element for future growth of any knowledge-based industry such as the pharmaceutical industry (Nedumpara, 2005). The industry has huge potential to collaborate with MNCs as their manufacturing or marketing partners in the context of a dynamic business model. However, issues such as access to infrastructure, quick credible information, ensuring commitment contracts are undertaken and so on may influence MNCs’ decision to invest in or collaborate with research and production units based in developing countries (Maria & Ramani, 2006). The willingness

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of foreign pharmaceutical players to invest in India may be affected either through FDI, technology/ product licensing, contract R&D or manufacturing. In a strong patent regime, there is high probability for growth of the business and patenting activities of foreign drug companies, but if the enforcement is weak, FDI will overtake and companies will confine their technologies to their affiliates rather than outsourcing (Nauriyal, 2006). The knowledge spillover from MNCs’ local R&D activities may benefit domestic firms in the Indian pharmaceutical industry. During the period 1980–1994 where policy environment restricted FDI and provided weak IP protection, the R&D spillovers from MNCs to domestic firms were very limited (Feinberg & Majumdar, 2001). A strong IP regime may change this situation and inhibit diffusion of knowledge and even technology development in countries that are technologically followers, by choking knowledge spillovers from industrial countries to developing countries (Kumar, 2003). The advocates of a strong patent regime argue that product patents may encourage foreign firms to introduce their new products and relocate their R&D units to the country, thereby leading to international technology transfer to India. However foreign firms, given their captive access to the laboratories of their parents, are incurring minimal R&D expenditure in the nature of local adaptation of their products in the country (Chadha, 2006). Due to the introduction of strong IPRs, pharmaceutical multinationals are now advantageously placed to control the knowledge diffusion and integrate the local capabilities of a country like India into their own myopic and narrowly benefiting innovation strategies (Abrol, 2004). The patenting system has a positive effect on level of innovation only if the country has reached a certain level of technological development and the capacity to finance substantial R&D. Thus, developed countries implemented higher standards of IPR protection as they achieved a threshold level of technological advancement (Ekbal, 2005a). Overall, many developing countries believe that strong IPs would cripple the development of local industry and lead to monopoly of MNCs while developed countries argue that the strong patent regime motivates MNCs to invest in the domestic market and enhance diffusion of knowledge in developing counties. Among the developing countries, India with its well-established domestic pharmaceutical industry, strong international position, emerging economy and vibrant civil society was in a position to make use of the flexibility within TRIPS in its domestic legislation. However, the lack of consensus among the various actors regarding the scope of flexibilities remains a challenge (Gopakumar, 2010).

India’s Post-TRIPS Experience: Pharmaceutical R&D, Trade and Patenting There exist different viewpoints regarding its impact on the Indian pharmaceutical industry and access to essential medicines within the country and outside. We may now look into the available evidence to show how the post-TRIPS regime affects performance of the Indian pharmaceutical industry and revisit the concerns and promises around the new patent regime. We may limit our focus on the pattern of R&D activities in the pharmaceutical sector, trends in India’s pharmaceutical trade, the coverage of product patents in pharmaceuticals and its implication on public health. There is hardly any solid empirical evidence even in developed countries to show any substantial increase in R&D activities, innovation and technology transfer that resulted from a strong IPR regime. The existing evidence drawn from developed countries challenges the conventional belief of patents as a driver of innovation; in the case of developing countries, patents are unlikely to foster innovation at early stages of industrialization (Correa, 2015). This fact may be considered while examining the call for

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TRIPS-plus standards and widening the IP regime in developing countries. It may adversely affect local innovation and local competition and result in greater concentration, fewer jobs and less innovation (Correa, 2009a). During the 1990s, the Indian pharmaceutical industry marked impressive performance in almost all fronts; compared to the leading firms with foreign affiliations, generic producers were more active, but the later phase follows a different pattern (Dhar & Joseph, 2014). Since mid-1990s, Indian companies like Reddy’s Laboratories and Ranbaxy Laboratories started investing in R&D for new drugs and the same was followed by others. The later years experienced steady increase in R&D spending by leading Indian companies. Whereas in the new patent regime R&D spending of leading companies such as Reddy Labs, Sun pharma, Glenmark Chemicals and so on declined significantly, companies such as Ranbaxy, Cadila, Wockhardt and so on increased their R&D spending (Table 2). The steady growth in R&D spending resulted in their active engagement in improving new chemical entities and advancement in development of many molecules (Chaudhuri, 2010). At the same time, we see some significant changes in the long-term trend of R&D expenditure of MNCs in India’s pharmaceutical sector. For instance, R&D expenditure as percentage share of their sales followed a declining path for several years and then started falling sharply (Figure 1). In absolute terms too, R&D expenditure has started falling recently; compared to `570.2 million in 2009–2010, these MNCs spent `246.7 million in 2011–2012 and `337.1 million in 2012–2013 (Chaudhuri, 2014b). The R&D expenditure of leading MNCs in India shows that most of them spend less than 1 per cent share of their sales. In the long run, we see a noticeable fall in their R&D activities, especially in the later period (Table 3). For instance, R&D expenditure for Pfizer increased steadily from about `20 million in the early 1990s (reaching a peak of `292.7 million in 2009–2010, i.e., 3.7% of sales) and then started declining (they spent only `175.8 million, i.e., 1.6% in 2012–2013) in the later years (Chaudhuri, 2014b). Compared to this, MNCs follow different strategy in the global market; the global R&D expenditure of Table 2. R&D Expenditure by Major Indian Pharmaceutical Companies (as Percentage Share of Sales) R&D Expenditure (in ` million) Company

2002–2003

2003–2004

2007–2008

Ranbaxy Laboratories

1922 (6.80)

2761 (7.80)

4605.1 (11.29)

Dr. Reddy’s Laboratories

1635 (9.92)

2261 (12.99)

3334.5 (8.82)

Sun Pharmaceuticals Industries Ltd.

658 (7.70)

1077 (10.20)

1443.9 (6.27)

Cadila Healthcare

383 (3.72)

882 (7.52)

1618 (9.43)

Wockhardt

462 (6.23)

604 (7.89)

1267.4 (10.81)

Nicholas Piramal India

185 (1.63)

559 (3.90)

−

Lupin Limited

360 (3.49)

460 (3.90)

1933.7 (7.52)

Torrent Pharmaceuticals

312 (6.98)

397 (8.90)

1131.7 (11.37)

Orchid Chemicals & Pharmaceuticals

278 (5.13)

397 (5.56)

709 (5.73)

Glenmark Pharmaceuticals

306 (9.16)

372 (9.67)

659.1 (4.89)

Dabur Pharma

175 (1.42)

182 (8.50)

−

50 (1.73)

69 (2.20)

−

J B Chemicals & Pharmaceuticals Ltd

Source: Chaudhuri (2006, 2010). Note: Figures in parentheses show R&D as percentage of sales.

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1.4 1.2 R&D expenditure as percent of sales 1.0 0.8 0.6 0.4 0.2

2012–13

2011–12

2010–11

2009–10

2008–09

2007–08

2006–07

2005–06

2004–05

2003–04

2002–03

2001–02

2000–01

1999–00

1998–99

1997–98

1996–97

1995–96

1994–95

1993–94

1992–93

0.0

Figure 1. R&D Expenditure by MNCs in India (as Percentage of Sales [%]) Source: Chaudhuri (2014b).

Table 3. Company-Wise R&D Expenditure by MNCs in India (in ` millions) Company Abbott India Ltd

1994–1995

2000–2001

2005–2006

2012–2013

9.9 (0.4)

22.8 (0.6)

15.1 (0.3)

17.8 (0.1)

AstraZeneca Pharma India

15.3 (2.8)

46.1 (4.2)

21.7 (0.9)

GlaxoSmithKline Pharmaceuticals

48.6 (0.5)

41.4 (0.4)

43.9 (0.3)

24.6 (0.1) 64.2 (0.9)

Merck & Co. Novartis India Ltd. Pfizer Sanofi India. Wyeth. Total for 8 MNCs

NA

4 (0.3)

6.4 (0.2)

16.1 (0.4)

14.6 (0.3)

16.4 (0.4)

16.2 (0.3)

22 (0.9)

142.3 (3.8)

223.6 (3.1)

175.8 (1.6)

91.9 (3.1)

15.2 (0.4)

33.4 (0.4)

41.7 (0.3)

2.2 (0.02)

8 (0.6)

11.6 (0.4)

5.1 (0.2)

10.8 (0.2)

214.3 (0.9)

302.2 (0.9)

375.1 (0.7)

337.1 (0.4)

Source: Chaudhuri (2014b). Note: Figures in parentheses show R&D as percentage of sales.

the MNCs tends to be much larger than what they spend in India. For instance, MNCs spend as much as 15–19 per cent of (amount equivalent to) their global sales against 1 per cent or less in India (Chaudhuri, 2010, 2014b). The details on R&D activities suggest sharp differences in the strategies followed by the domestic and foreign firms. Indian companies tend to allocate substantial part of their R&D expenditure on plant and

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machinery while MNCs do not spend such huge shares on these areas in India and found fall in the real investments by the MNCs. A large number of foreign R&D projects focus on phase III clinical trials and other activities that fulfil their goals; they have little to do with local needs and hence the real effects of FDI remain low (Abrol, Prajapati, & Singh, 2014). Similarly, pharmaceutical firms use multiple strategies to reduce the risk of investing in India and MNCs seem to prefer patenting their products in developed countries and invest in developing drugs that have market among the rich. During the earlier patent regime, the domestic firms evolved as leading players in the country and outside, whereas the new patent regime has helped the MNCs get back their leading positions in the industry. Now, the MNCs have a clear dominance in almost all areas; they enjoy the monopoly over many important medicines and charge exorbitant prices as they did during the pre-1972 product patent regime (Chaudhuri, 2012). On the other hand, there are instances where the Indian pharmaceutical MNCs like Ranbaxy and Dr. Reddy’s enter the European markets as generic manufacturers and succeed in the European market; they manage to emerge as key players to exploit and augment ownership-specific advantages (Kedrony & Bagchi-Sen, 2012). As a reflection of this, India’s trade in pharmaceuticals also passed through different phases. In the early phase of the TRIPS regime, Indian companies managed to continue as the leaders of generic drugs (Table 4). Later, strong players managed to continue their trade into the regulated markets while others focused on semi-regulated or unregulated markets. The composition of India’s pharmaceutical trade shows that there has been some decline in the growth rate of exports of intermediates and bulk drugs and formulations (90.8 % of export of drugs and pharmaceuticals in 2006–2007). The export trend suggests that foreign firms operating in India are not focusing on exports, or the low ration of exports to their sales indicates that they do not want to use India as their manufacturing hub for global production. Instead, they use their production capacities to meet the domestic demands in India (Dhar & Joseph, 2014). Growth in pharmaceutical imports, especially imports of formulations, also challenges the claims over India’s prospects in the new patent regime (Joseph, 2009). Table 4. India’s Exports of Drugs & Pharmaceuticals 1994–1995

Regulated Markets Europe USA Others Semi-regulated Markets Asia Africa Latin America Eastern Europe Others

2007–2008

US D Million

Share in India’s Total Exports

US D Million

Share in India’s Total Exports

351.4

43.9

3160.8

43.6

229.2

28.6

1449.2

20.0

85.8

10.7

1375.4

19.0

36.4

4.6

336.2

4.6

448.9

56.1

4080.6

56.4

206.3

25.8

1369.1

18.9

85.3

10.6

1064.8

14.7

20.2

2.5

572.6

7.9

110.5

13.8

699.1

9.6

26.6

3.4

375

5.3

Source: Chaudhuri, Park, and Gopakumar (2010).

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Table 5. Product Patents Granted by Indian Patent Office: Major Pharmaceuticals Companies 2006

2007

2008

2009

2010

2011

2012

2013*

Pfizer

Companies

26

14

18

7

14

13

11

2

Novartis

21

16

36

61

3

2

8

4

Cipla Limited

5

−

5

6

−

1

1

2

Dr. Reddy’s Laboratories

5

6

7

4

−

−

−

−

Bayer

25

10

21

28

2

3

−

−

GlaxoSmithKline

5

4

14

10

3

1

4

2

AstraZeneca AB

36

16

16

14

14

8

6

1

Hoffman

10

38

47

44

2

3

16

4

Janssen

−

24

16

7

6

1

7

3

Source: Compiled from reports of Controller General of Patents Designs and Trademarks (2005–2013). Note: * Up to 31 July 2013.

In terms of coverage of the patent, we see a steady growth in the number of patented medicines in India. According to the controller general of patents, designs and trademarks, between 2005 and 2014, the Indian Patent Office has granted 4,482 product patents in pharmaceuticals. The distribution of patents across the domestic firms and MNCs also confirms the dominance of MNCs in India’s pharmaceutical sector (Table 5). The intensity of foreign patenting normally depends on the local imitative capabilities available in a country; the innovator companies focus on pharmaceutical patenting when they expect competition of generic drugs while delay the process where local producers are less competent (Correa, 2015).

New Patent Regime and Public Health Concerns The TRIPS flexibilities offer provisions such as compulsory licensing and government use, parallel trade, exemptions from patentability, price control and so on, and these flexibilities are expected to help poor countries in addressing their healthcare needs (Bond & Saggi, 2014; Chaudhuri, 2006, 2013, 2014a, 2015; Mani, 2014). Provision of compulsory licensing can be adopted to reduce the exorbitant prices being charged by the MNCs for some of the products. Providing license to generic companies to produce a patented drug on payment of royalty would strengthen the competition among manufacturers and reduce the price. The royalty paid to the innovators would continue to provide funds and incentives for R&D (Chaudhuri, 2012). At the same time, the evidence suggests that the Patent Act does not use all possible grounds for granting compulsory licensing. For instance, the Patent Office rejected two of the three compulsory licensing applications received during the post-TRIPS era and the one granted was later upheld by the Intellectual Property Appellate Board (IPAB). Similarly, there are issues related to early working, parallel importation, procedural safeguards, licensing agreements, policy constraints and institutional constraints that limit the scope of these flexibilities (Gopakumar, 2014). Though the new patent regime allows countries to limit patent protection only to new chemical entities, the experience suggests that many of the applications in the mailbox are patenting products with frivolous or marginal changes (Gopakumar & Amin, 2005). Studies have highlighted several issues

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related to the patentability criteria and suggest that the economic incentives motivate many firms towards the incrementally modified drugs (IMDs). As the USA’s experience suggests, majority of applications submitted on IMDs (85%) do not carry significant improvement over currently marketed therapies. Between 1995 and 2003 there has been an overwhelming majority of applications in the ‘mailbox’ cover IMD, but only 274 new chemical entities succeeded in gaining marketing approval of the United States Federal Drug Administration (Dhar & Gopakumar, 2006). The new patent bill offers some provisions in protecting public health interest but leaves the space for MNCs to protect their interests. For instance, it permits generic manufacturers to continue producing generic version of new drugs which are in the mailbox. However, this only applies where the generic producer has made a “significant investment” and will have to pay reasonable royalty. The question of “significant investment” poses threat of potential infringement suits as the generic producer would have to clearly show that it has made what would be considered as significant investment in producing and marketing generic drugs. With respect to the ‘reasonable royalty’ it creates the problem of excessive demands from the patent holder and litigation (Ekbal, 2005b).7

The process patent regime encouraged domestic firms, especially the public sector firms entering generic manufacturing. Indian generic firms started producing and marketing the generic versions of first-line triple combinations at affordable prices and reduced the market price of antiretrovirals (ARVs). By introducing fixed dose combinations (FDCs) of ARV drugs, they reduced the number of pills required. Along with this, Indian generic firms introduced paediatric formulations of ARV drugs and reduced the cost of HIV treatment (Dhar & Joseph, 2014). The industry successfully followed the reverse-engineering model so that the generic versions were introduced within 2–3 years from the expiry date of the patent. Thus, Indian companies supplied nearly 70–80 per cent of medicines sold for HIV/AIDS treatment in global market. The critics, especially from the civil society, continued to highlight these factors while sharing the concerns on the public health front and this resulted in adding some safeguards in India’s revised Patent Act in 2005. For instance, the Section 3-D in the New Patent Act has been widely appreciated as a good example to show how national patent acts can be revised within the TRIPS compliance and national interest. Interestingly, the same provision has been the base upon which the Supreme Court explained the importance of ‘significant creation’ and ‘real innovation’ while dealing with the controversial case of Novartis. In the new patent regime, firms need not follow a single strategy; instead, they adopt multiple strategies or combinations to take advantage of the conditions. Both domestic and foreign firms engage in mergers and acquisitions for consolidating their positions in the industry (Dhar & Joseph, 2014). Instead of competition, strong domestic firms may choose strategic cooperation with big MNCs and remain risk averse. Thus, companies like Cipla, with leading positions in production and export of generics especially to HIV patients in African countries,8 prefer strategic cooperation with big MNCs and withdraw from introducing new generic drugs into the market. Similarly, the ‘Hepatitis C’ story describes how ‘Gilead’ gets the deal on the license and allows Indian companies to sell its medicine at low prices in India but on the condition that they will not sell it in other middle-income countries and affect their sale negatively.9 While following the business prospects, pharmaceutical firms focus their innovation on developing drugs which have a greater demand in developed countries. The global disease pattern suggests that the ‘so-called diseases of poverty (i.e., communicable, maternal, perinatal and nutrition-related diseases) contribute to over 50 percent of the burden of disease in low income developing countries – nearly ten times higher than their burden in developed countries’ (World Health Organization [WHO], 2006, p. 3).

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However, leading pharmaceutical firms are not interested in developing drugs for diseases concentrated in poor countries. Therefore, domestic companies or the governments or development agencies have to work towards developing medicines that MNCs have ‘neglected’ in their business strategy (Chaudhuri, 2010; WHO, 2006). The historical experience of developing many important innovations especially major HIV/AIDS drugs through national laboratories and public investment strengthens such proposals. At the same time, this fact can be used to challenge the idea of granting monopoly rights to the invention that uses the existing public knowledge (Shashikant, 2010). The effective use of TRIPS flexibilities in safeguarding the public health interest ‘depends on three factors; (a) the incorporation of TRIPS flexibilities in the domestic law; (b) the manufacturing capability of a country; and (c) the political will to use the public interest safeguards provided in the domestic law’ (Gopakumar, 2014, p. 106). Governments’ engagement with public health concerns plays a key role in adjusting the excessive price of patented medicines and healthcare needs. While discussing the recent decline in USA’s public health spending, studies identify entry of new generic drugs for reducing the cost of treatment in the country (Martin, Hartman, Whittle, Catlin, & The National Health Expenditure Accounts Team, 2014; Sisko et al., 2014). Compared to developed countries like the USA spending a significant share of national budget on public health, public health spending remains low in India and nearly 70 per cent of the healthcare finance is met through out-of-pocket expenditure. Gradually, the private sector emerges as the key source for providing and financing health care; this has weakened the public health system in the country (Selvaraj, 2014; Selvaraj, Karan, Chokshi, Farooqui, & Kumar, 2014). Along with this, low coverage of health insurance, issues related to price and regulatory policy, irrational use of medicines,10 co-existence of communicable and infectious diseases alongside an emerging epidemic of non-communicable diseases and so on remain as challenges in public healthcare (Gopakumar, 2010; Selvaraj & Farooqui, 2014a, 2014b).

Conclusion The article looked into India’s experience during the new product patent regime and revisited concerns around its impact on the performance of the Indian pharmaceutical industry, product patenting, access to affordable medicines and public healthcare. Broadly, India’s experience seems to strengthen the concerns shared by critiques earlier. The process patent regime has been the primary factor that enabled Indian pharmaceutical firms to emerge as the key player in the global market. Now, many of domestic firms lost their dominance in the generic market; it has made some of them commit to long-term R&D activities in the country while others follow cooperative strategies and join with foreign players. The evidence does not confirm the role of IPRs, particularly patents, in promoting R&D, innovation and trade in pharmaceuticals. The pattern of R&D suggests that the benefit derived from foreign projects to the local firms and industry is very minimal or that the FDI need not ensure knowledge and technology spillover to local firms. Instead, the new patent regime weakened the domestic pharmaceutical firms and resulted in the dominance of MNCs in the industry where monopoly pricing and the exorbitant price fixed on patented drugs pose serious challenges to public healthcare and lives of the poor. In terms of trade, there has been some improvement in total volumes and value contributed from the pharmaceutical sector, but the composition shows alarming trends such as growth in import of formulation, fall in share of intermediates and bulk drugs and formulations. As a reflection of this, the new product patent regime experiences steady growth in the number of pharmaceutical patents granted in India. Compared to domestic firms, MNCs possess majority of these patents and confirm their dominance in India’s pharmaceutical sector. Thus, concerns over India’s role

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within the WTO-TRIPS platforms, especially with the scope of flexibilities, capacity to formulate appropriate policy and technical assistance, remain unresolved. In some contexts, the ‘flexibility’ need to be taken beyond reducing protection and increase it, to utilize the provisions effectively. It seems big pharmaceutical companies and other players in the field are strong enough to influence policies related to drug price control, revision of essential medicines, regulation of non-essential medicines and promotion of generic drugs and price of health service available in the country. Poor infrastructure and service in the health sector, low public health expenditure, insurance coverage, irrational use of medicines, high incidence of infectious diseases, lifestyle disease and so on remain challenges in India’s public healthcare system. These factors strengthen our concern over patents and its effects on India’s public healthcare and access to affordable medicines and call for effective and timely intervention. Declaration of Conflicting Interests The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding The authors received no financial support for the research, authorship, and/or publication of this article.

Notes 1. An earlier version of the article was presented at a conference held in Jawaharlal Nehru University, New Delhi, in November, 2015. The discussions and comments received from the same have been very helpful in revising the manuscript. The usual disclaimers apply. 2. ‘Patents give legal rights over process or product inventions that entitle the owner (patentee) to prevent others from unauthorized manufacture, use or sale of such inventions’ (Watal, 2003, p. 86). 3. It calls for a human rights-based interpretation that places public health ahead of economic claims. The private investors may be motivated

to reconcile the need for compulsory licenses or other exemptions with their own investment calculus, including investments in generic production. It could also provide developing countries with a means to justify decisions to privilege policies securing access to medicines over concerns about their international trade commitments or threats from patent holders. (Klug, 2005, p. 492)

4. ‘Doha Declaration on Public Health’ (WTO Ministerial meeting of November 2001) addressed many issues related to access to affordable medicines for HIV/AIDS-related illnesses, malaria, tuberculosis and trachoma. It resulted in extending the transition period given to the least developed countries (LDCs) until 2016. During this period, they do not have to provide patent protection for pharmaceutical products and agreed on a waiver for the LDCs that would exempt them from having to give exclusive marketing rights for new drugs that came in this period. 5. It is ‘an authorization given by a government (through the administration or a court) for the use, by a third party, of a patent (or other intellectual property rights) without the consent of the titleholder’ (Correa, 2009b, p. 274). 6. EMRs are similar to patent rights; they ‘prevent others from making or using the patentable inventions. However, the right holder can indirectly prevent them from marketing products based on such use since they would lack the authorization to do so’ (Watal, 2003, p. 86). 7. Though the rate could be fixed at a particular percentage (the norm being 4 per cent), there are cases where the demand goes to an excessive amount. For example in South Africa, GlaxoSmithKline demanded a royalty of 25 per cent before the courts intervened (Dhar & Gopakumar, 2006). 8. The entry of Cipla reduced the price of antiretrovirals (ARVs) and cost of treatment substantially; Cipla’s triple therapy reduced the yearly cost from $10,000 to $350 in 2001 and now $99 per year for ARVs.

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9. Globally, 160–180 million people require treatment for Hepatitis C; the distribution of patients shows that countries like Egypt have more concentration compared to India. The treatment is very costly such as $1,000 per tablet (Gilead’s ‘sofosbuvir’). As the concentration of patients remains low in India, Gilead grants conditional license to sell the tablets at lower prices in India but protects other markets where more patients are found. 10. India continues to produce and consume a large number of non-essential medicines. In the absence of rational use of medicines, a large number of fixed dose combinations (FDCs) exists in the market and many of them are non-essential or harmful. The central government has recently issued a list banning more than 300 FDCs (a longer list is in the pipeline).

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