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The Indian Pharmaceuticals Industry

Siddhartha Bhattacharya






Introduction
 
 

‘If you’re not living on the edge, then you’re taking up too much space!’
 
 
 

This seems to succinctly sum up the modus operandi of the World Trade Organisation (WTO), ever since its birth in January 1995. Undoubtedly, a lot has happened ever since; the WTO has managed to leave its mark, just as King Kong did as he strode unabashedly all over New York-leaving behind destruction and despair! But then, this is perhaps too extreme a view. Fred Bergsten, head of the Institute for International Economics, a reputed Washington based think tank, was recently in Mumbai to present a case for another round of multilateral trade negotiations, not later than 2000(the ill-fated Seattle Talks), under the auspices of the WTO. India had little reason to get carried away. It is even yet to fully grasp and absorb the implications of the previous round which led to the formation of the WTO. India’s share in international trade is hardly 0.5% and trade contributes about 15% of her GDP. With this, it would be presumptuous and naive for her to aspire to set the agenda for global trade talks. She need not risk another round of trade talks where she might be saddled with an even tighter Intellectual Property Rights (IPR) regime, genetic patents and capital inflows. It would be useful at this juncture to briefly analyse the history of formation and development of the WTO and more specifically of the Trade Related Intellectual Property Rights (TRIPs).

The debate on TRIPs in the GATT can be traced back to the Tokyo Round (1973-79). At that time, the discussion had a narrow focus on the issue of counterfeit trading. In the Uruguay Round (1994), IPRs became a major topic for discussion. The resultant "Agreement on Trade Related Aspects of Intellectual Property Rights including trade in Counterfeit Goods" (TRIPs), is the most comprehensive international agreement on IPRs ever negotiated and its potential economic implications merit a detailed analysis.

An Overview of the TRIPs Framework

The basic framework of the TRIPs patent system was conceived and shaped in a Joint Statement (paper) presented to the GATT Secretariat in June 1988 by

The IPC is a coalition of 13 Major US corporations dedicated to the finalisation of TRIPs in GATT in their favour. Similarly, the other two organisations of Japan and Europe were represented by powerful business and industry interests world-wide. In December 1991, the GATT Secretariat presented a comprehensive ‘Draft Final Act’ for the Uruguay round, which included a new draft of the TRIPs agreement. This draft final act - often referred to as the Dunkel Draft - paved the way for the completion of the round, even though it would take two additional years of intense negotiation for this to happen.

Broadly, the Agreement addresses:

(a) The applicability of basic GATT principles and those of relevant international intellectual property agreements;

(b) The provision of adequate IPRs;

(c) The provision of effective enforcement measures for those rights;

(d) Multilateral dispute settlement; and

(e) Transitional arrangements.

The TRIPs agreement lays down norms and standards for seven types of intellectual property, viz.,

The Structure of the Agreement on TRIPs

Part I GENERAL PROVISIONS AND BASIC PRINCIPLES

Part II STANDARDS CONCERNING THE AVAILABILITY,

SCOPE AND USE OF IPRs

 1. .Copyright and related rights

2. Trademarks

3. Geographical Indicators

4. Industrial Designs

5. Patents

6. Layout Designs (Topographies) of Integrated Circuits

7. Protection of Undisclosed Information

8. Control of Anti-Competitive Practices in Contractual Licences

 Part III ENFORCEMENT OF IPRs
 
 

1. General Obligations

2. Civil and Administrative Procedures and Remedies

3. Provisional Measures

4. Special Requirements Related to Border Measures

5. Criminal Procedures

Part IV ACQUISITION AND MAINTENANCE OF IPRs AND

RELATED INTER-PARTIES PROCEDURES

 Part V DISPUTE PREVENTION AND SETTLEMENT

 Part VI TRANSITIONAL ARRANGEMENTS

 Part VII INSTITUTIONAL ARRANGEMENTS FINAL

PROVISIONS.

 source: GATT(1994)
 
 

There are three parts to the Agreement on TRIPs, including Trade in Counterfeit Goods.
 
 

Part 1: This part sets out the general provisions and basic principles, notably, a national treatment commitment under which the nationals of other members must be given treatment no less favourable than that accorded to a member’s own nationals with respect to protection of Intellectual Property. It also contains a MFN clause (most-favoured nation), under which any advantage a member gives to the nationals of another country must be extended immediately and unconditionally to the nationals of all other countries.

Part 2: This part deals with the seven areas of IPR individually. We shall discuss at length he meaning and implication of the Patents system, especially with regards to its effect on the Indian Pharmaceutical industry.

Part 3: This part of the Agreement sets out the obligations of the member governments to provide procedures and remedies under their domestic law to ensure that IPR can be effectively enforced, by foreign as well as domestic right holders. There is, however, no obligation to put in place a judicial system distinct from that for the enforcement of laws in general. It is laid down that the agreement would establish a council for Trade-Related Aspects of IPR to monitor the operations of the agreement and governments’ compliance with it. It is also provided that dispute settlement procedures would take place under the integrated GATT dispute settlement procedures as revised in the Uruguay Round.

A rather controversial part of the TRIPs regime is the Patents system and if we stretch the GATT logic a little further, we might as well patent the law of Newton, or the New Atom structure of Rutherford or the steam energy of Stevenson. And since the human soul is priceless, the monopoly copyright holder might make a fortune by selling his enlightenment. This subject of the GATT was found in the multilateral negotiations.

The Indian Patent System
 
 

The public health laws, national drug policy and the patent system are intensely related. This very fact was corroborated by Late Mrs. Indira Gandhi while speaking at the historic session of the World Health Assembly in Geneva on May 6, 1981. In her words: "Affluent societies are spending vast sums of money understandably on the search for new products and processes to alleviate suffering and to prolong life. In the process, drug manufacturers have become a powerful industry. My idea of a better ordered world is one in which medical discoveries would be free of patents and there would be no profiteering from life or death."

At the very outset, I will deal with the exact nature and scope of the Indian Patent regime and then discuss the Patents Act 1970, its main drawbacks and the amendments made to it in the Patents Act (amendment) 1999
 
 

Patents

Patents, which bar others from the unauthorised use, sale or manufacture of the product or process claimed by the patentee, are intended to protect embodiments of inventive activity rather than abstract thoughts. Therefore most national patent laws exclude form protection abstract or disembodied ideas and statements such as formulas and methods of conducting business. Some exclude items offensive to public moral. Others exclude particular products or technologies often out of concern for public welfare. This explains the large number of countries that prohibit patents for pharmaceuticals and other medical applications.

In its strongest form, a patent protects its holder against subsequent discovery of another way to produce or use the patented product. Thus it provides what may be called negative rights, the right to exclude others from using the invention. The patent holder is entitled to enforce that right against unauthorised use by means of legal proceedings. However, virtually all national patent systems limit the patentee’s right of exclusion through a device known as the "compulsory license."

Typically, a patent is granted for 17 to 20 years, although for some products in a few countries the period is as short as five years. Once issued, it can be traded or licensed like other forms of personal property.

The exclusive rights and scope of the patent system are sought to be enlarged in the TRIPs Agreement in Article 28 as follows:

" A patent shall confer on its owner the following exclusive rights:

(a) where the subject matter of a patent is a product, to prevent third parties not having owner’s consent from the acts of: making, using, offering for sale, selling, or importing for these purposes that product

(b) where the subject matter of a patent is a process, to prevent third parties not having owner’s consent from the act of using the process, and from the acts of : using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process."

In order to be patentable, an invention needs to meet the requirement of:

 

Patent Types

The patent system provides for two types of patents, viz. product patent and process patent. Product patent provides for absolute protection in respect of patented product, whereas process patent provides for protection only to the technology and method of manufacture. Process patent system promotes a competitive environment and a strong check on prices, as against monopoly created through product patent system wherein resource power is used for snuffing out competition and fleecing of consumers by certain countries.

As regards the term of the patent, the same has varied from country to country. India has been having a term of only 5/7 years for process patents for pharmaceuticals and other chemical based products and 14 years for other products whereas the US held a uniform term of 17 years for all patents and now it has been changed to 20 years because of the TRIPs Agreement. There were many developing countries who either had no patent system for drugs and medicines or had only the process patent system. This helped them with limited resources to develop new processes for the same active ingredient as the original drug at a much cheaper cost. The TRIPs patent system now seeks a uniform patent law for all member countries of the WTO, irrespective of their stage of development. After the transitional period in Article 65 of the Agreement is over, the national patent system of highly developed, developing and the least developed countries are supposed to be at par.
 
 

Patents System in Developing Countries

Insofar as the developing countries are concerned, the first Patents Act was passed in India in 1856.The straits settlements (Singapore, Wellesley, Penang, Malacca) were made colonies independent of India in April 1867. In November 1871, it received the patent law which substantially followed the Indian law. The basic features of laws in Developing countries followed the principle of encouraging the role of the domestic industry in the field of drugs and pharmaceuticals. In order to achieve this, they had either totally excluded drugs and pharmas from the patent system or had provided for only the process patent. They had also provide for compulsory licensing to ensure that monopolistic regimes are not established by the patent holder.

Thus the patent system has been an instrument of national economic policy for the industrialisation and technological advancement of a country. In the case of developing countries, it is of foremost importance that the patent system does not block the building up of their own industrial and technological capabilities. Due to the TRIPs Agreement, all the member countries have to change their patent system. A simmering debate has been going on about the impact of the TRIPs patent regime.
 
 

The Paris Convention

The history of the patent system would be incomplete without mentioning of the Paris Convention administered by the World Intellectual Property Organisation (WIPO). The Paris Convention for the protection of industrial property was established in 1883 and has been revised six times. The amending Conventions are:

 

All the conventions held at the behest and strong pressures from the developed countries have provided for stiffer provisions granting more protection to the patent holders. The developing countries have been concerned about social obligations from the patent holders whereas the Paris Convention does not provide for any such obligation. It provides for maximisation of individual rights. Article 5(1) of the Convention provides that "Importation by the patentee into the country where the patent has been granted of articles manufactured in any of the countries of the Union (members) shall not entail forfeiture of the patent."

The Paris Convention provides for national treatment for the nationals of Paris Convention member countries in intellectual property protection (Article 2), right of priority for patent applications filed by nationals of any member state in other member states for 12 months (Article 4), independence of patents obtained for the same invention in different countries, conditions for grant of compulsory licences in case of abuse of the patent by its holder (Article 5). These, however, are general principles and the member states have considerable freedom to frame their national patent legislation according to their national interests, to decide the scope of patentability (and to exclude patenting of certain products), duration of patents, among other aspects. WIPO serves as the international bureau or the secretariat for administration of the Union. One advantage of joining the treaties under the Paris Convention is that Indian patent applications can avail of equal treatment of right of priority in all the member states which currently number 147 countries. Until now, these privileges had to be secured through bilateral understandings on a reciprocal basis. Most of the provisions of the Paris Convention are consistent with the Indian Patents Act of 1970, which currently provides the legal framework for grant of patents in India. On the other hand, Indian patents act will need to be amended to comply with India’s obligations to the WTO under TRIPs. These issues have been briefly discussed earlier.
 
 

Patents (Amendment) Act 1999

The TRIPs Agreement subsumes a number of provisions of the Paris Convention. The four major differences between the existing Indian patent legislation and that required by the Uruguay Round Agreement are immediate.
 
 

1. Coverage- Section 5 of the Patents Act, 1970 states, ‘In the case of inventions-(a) claiming substance intended for use , or capable of being used, as food or as medicine or drug ... no patent shall be granted in respect of claims for the substances themselves, but claim for the methods or processes of manufacture shall be patentable.’ Thus, as of now, only process patents are available for food, medicines, drugs and chemicals. The new law will have to cater to both product and process patents for all fields of technology.
 
 

2. Duration- Section 53(1) of the Patents Act, 1970 states, ‘Subject to the provisions of the act, the term of every patent granted under this act shall-(a) in the case of food, drug or medicine be five years from the date of sealing of the patent, or seven years from the date of the patent, and (b) in respect of any other invention be fourteen years for the date of the patent.’ The Uruguay Round agreement however requires that the duration of the patent must uniformly be 20 years.
 
 

3. Working of a patent- In the present Indian legislation, importance of a product is not regarded as the working of a patent in the country. Article 27.1 of the Uruguay Round agreement does not permit ant discrimination between an imported product and a domestic product. Importation is tantamount to the working of the patent in India.
 
 

4.Compulsory licensing- The present Indian legislation has several sectors on compulsory licensing. The Uruguay Round agreement does not rule out compulsory licensing. It is essentially covered by Article 31, particularly 31(b), and these provisions are fairly stringent. They also preclude ant automaticity about compulsory licensing
 
 

There are a number of other finer changes necessary, for instance, concerning the reversal of burden of proof, among others. There are also some differences in respect of the conditions under which a compulsory license could be issued by the government.
 
 

Transitional Issues

The Trips agreement specifies phased schedule of implementation of the agreement according to the level of development of the member countries. The developed countries were provided one year to bring their national legislation in line with provisions of the Accord, viz., by January 1, 1996. Developing member countries had four more years to implement the provisions i.e., by January 1, 2000. an additional period of five years was provided to developing countries that did not provide for product patents in certain areas such as food, pharmaceuticals and chemicals as on January 1, 1995, to provide for these patents. India has till the year 2005 to bring about the changes.

However, till the changes come about, the Agreement specifies some requirements for the transitional period. India was obliged to provide a means for the acceptance of applications for product patents by January1, 1995 which could be examined according to the criteria when the legislation providing for product patents was in place. In the transitional period, Exclusive Marketing Rights (EMR) are to be granted for a period of five years from the date of obtaining marketing approval or until a product patent is granted or rejected, whichever period is shorter. It is almost as if these applications go into a black box. The box will be opened and all applications will be examined when the legislation is changed in 2005, or earlier.

The net effect of these provisions is that the Indian patent law needs to be amended by January 1, 2000 in respect of most substantive provisions of the TRIPs agreement except for the provision of product patents for pharmaceuticals and agro-chemicals. In order to comply with these legislations, the government had prepared the Patents Amendments Bill, 1995 to provide for a mailbox mechanism for accepting product patent applications and to examine and grant EMR’s. The US and European Union put considerable pressure on India for not having complied with its obligations under TRIPs within the deadline period of April 19, 1999. The Patents (Amendment) Act 1999 finally received the assent of the President on 26th March, 1999.
 
 

The Pharmaceutical Industry: A Case Study
 

Einstein, while proposing the theory of relativity, brought out the fact that there is only one thing which is absolute and that is the velocity of light; everything else is in relation to that. Under today’s post WTO scenario, the same analogy may be used by saying that there is only one thing absolute and that is Intellectual Property Rights and the existence of other things is related to that. I will concentrate chiefly on the effect it will have on the Indian Pharmaceutical Industry. I begin with a brief overview of the global pharma business.

Overview and Global Scenario

As per The World Health Organisation (WHO) reports, almost 80% of the worlds population are relying on traditional systems of medicine in one way or the other. Globalisation has opened up opportunities for developed countries to make inroads into the developing countries. Some of the dangers of this trend include biopiracy, patenting of the products of the traditional systems of medicine and converting national heritage into private property. Some recent examples which are India specific include the cases of turmeric, piperine and Basmati rice

Production/Sale of Pharmaceuticals

The global pharmaceutical market has increased dramatically during the past two decades. In 1976, world consumption of drugs amounted to US $43 billion and in 1985 it reached $94.1 billion; thus registering an overall annual increase of 9.1% in the decade. The consumption increased to $260 billion in 1995 and $290 billion in 1996. Percentwise share of the global turnover is as follows:

USA- 33%; Europe- 24%; Japan- 20%; and India- 2%.

In billion dollar terms, the turnover of pharmaceuticals and the population in millions of some important countries are as follows:

Country Turnover(billion $)  Population(millions)
USA

Japan

Germany

Brazil

China

Canada

Korea

Australia

India

 

78.0

53.0

17.0

7.8

6.1

4.7

3.5

2.1

1.8

260

125

81

159

1190

26

67

18

919

 

The forecast for the future is that it will grow at a compound annual growth rate of 6.2% in the next five years to reach $378 billion in 2001 according to the recent IMS Report. Both production and sales are heavily concentrated in the developed countries; the US, Europe and Japan account for about 80% of both production and sales. The regionwise world consumption of pharmaceuticals has been as follows: (Figures in US $ billion, ex-manufacture price)

Region
1976
1985


North America

Western Europe

Eastern Europe

Japan

Oceania

Latin America

Africa

Asia (excluding China & Japan)

China

 

8.761

13.111

6.197

4.020

0.480

3.689

1.268

2.920

2.600
 
 

43.046

28.141

22.000

9.600

14.038

0.700

5.600

2.700

6.600

4.700
 
 

94.079


 

 
The above table indicates substantial increase in consumption of pharmaceuticals in the developed countries, whereas the consumption in developing countries is not growing much even when the actual need, keeping the health care scenario in view, are much higher. During the last decade, both Chinese and Indian markets have registered substantial increases and are likely to provide the largest jump in the market share during the next five years according to the latest Global Pharmaceutical Forecast, 1997-2001.

Per Capita Drug Consumption
 

Another important element to be taken into account while assessing the world drug consumption is the per capita drug consumption in different countries. It helps to give an idea of the discrepancies that exist between the developed countries and the developing countries. The value of drug consumption per capita in individual countries has been as follows :
 

(Value in US $)

Country
1976
1985
1990
India

China

Brazil

UK

USA

Japan

0.8

2.7

10.9

18.3

36.2

35.6

2.3

4.4

10.3

41.4

110.5

116.2

3.0

7.0

16.0

97.0

191.0

412.0

The gap in per capita drug consumption, which was already considerable in 1976 continued to grow in the subsequent decade. This worsening of the situation is due to the slower growth of drug consumption in developing countries and the faster growth of population.
 

R&D in Pharmaceuticals

The pharmaceutical industry is characterised by high R&D which has remained the principal mechanism whereby the society is supplied by new drugs to prevent, control and cure diseases. R&D is also extremely important for pharmaceuticals in maintaining growth and competitive advantage; investment in R&D has to generate products that can be sold in large markets at reasonable profits. Accordingly, economic and social concerns are often in conflict. Leading global companies have their bases in France, Germany, Japan, Switzerland, the UK and the US and spend an average of about 15% of their sales on R&D. The global R&D expenditure in 1995 was $25 billion. The US industry accounted for the largest R&D expenditure. It spent $14.5 billion in 1995.

Expenditure on Drug Development

The cost of research and the time required to transfer a drug from the laboratory to the market has increased substantially. In the US, development time increased from two to seven years and cost from $54 million in 1976 to $75-100 million in 1985. Some industry analysts consider that much of the cost must relate to R&D products that do not succeed. The actual cost of developing a chemical entity must now therefore be far less. The average cost of developing new drugs was $120 million and $600 million in 1987 and 1995 respectively. The cost of drug development has increased for two main reasons :

Only 28 new drugs were approved in the USA in 1995, and only 40 new drugs were introduced world-wide.
 

Case Study of Indian Pharmaceutical Industry

The pharmaceutical industry is a unique in that several phases of product/technology life cycle coexist. Firms have to deal with both embryonic and mature markets, product-process spin offs, early entry barriers and technological uncertainty. Proprietary technology, cost of R&D and access to distribution channels are observed to be the major entry barriers of this industry. On the home front, the Indian pharma industry faces a number of challenges arising from: (I) changes in the IPR regimes; (II) consolidation of multinational drug companies through mergers; and (III) intense competition in the domestic market. These factors are expected to push a number of firms into decline in the face of intensified competition, prompting a reallocation of resources within industry. The Indian pharmas, with an average growth rate of 12%, has been witnessing several changes. From a paltry Rs. 10 crore value of output, the industry has grown to about Rs. 910 crore. Having started off from repackaging and formulating imported drugs, it has progressed to integrated manufacturing complexes. The value of bulk drugs produced in India has grown from Rs. 640 crore in 1989-90 to Rs. 1580 crore in 1994-95. The last couple of years have seen the industry undergoing sweeping changes which have made most of the predictions based on the sole issue of Drug Price Control Order (DPCO) far from real. Some of the issues which seem to be affecting the continuance of Indian pharmas are:

Progress of Pharmaceuticals after Patents Act, 1970
 

The features of the Patents Act of 1970 were constructed on the basis of balancing of rights and obligations and ensuring that patent monopolies are not perpetuated. Due to these features, the Pharmaceutical industry progressed satisfactorily. This is evident from the following analysis:

(a) Process Research: due to the absence of product patents in the field of basic drugs manufactured by the domestic sector. There are nearly 425 basic drugs manufacturers meeting the indigenous demand as well as some for exports to other countries. These range from, Acetazotamide, Amoxycillin, Ampicillin, Analgin, Aspirin, Caffeine, Ephedrine, Heparin, Ibuprofen to Quinine, Salbutamol, Triazolin and Vitamins.

The table below indicates the time lag between the introduction of some of the new drugs in the world market and their introduction in India after the domestic enterprises developed their own technologies to manufacture them.

Drug Introduced in World Market Introduced in

India


Ibuprofen

Salbutamol

Mebendazole

Rifampicin

Cimetidine

Bromhexin

Naproxen

Captopril

Ranitidine

Norfloxacin

Acyclovir

Ciprofloxacin

Astemizole

1967

1973

1974

1974

1976

1976

1978

1981

1983

1984

1985

1985

1986

1973

1976

1976

1980

1981

1982

1982

1985

1985

1988

1988

1989

1988

 
Thus, the pharma industry has been able to produce basic drugs covering various therapeutic groups, achieving near self sufficiency in the production of bulk drugs in the country.

(b) Production: Earnings of eleven leading Indian pharmas grew by 23% in the financial year just ended and their performance in 1999-2000 hinges on domestic sales and the government’s pharmaceuticals pricing policy. Net sales in 1998-99 grew an average of 13.2%. Average profit growth was heavily influenced by Rhone Poulene (India) LTD’s earning, which grew 134.7% and Novartis, which rose 95%. Companies which were exposed to the Russian market were squeezed by its economic debacle; Hoechst Marion Roussel was badly hurt because it had 20% of the Russian market. Dr.Reddy’s net profit was 677.16 million rupees. Ranbaxy suffered a drop in net profit and sales during the first quarter of this year. Glaxo posted 5% sales growth but expects a 15% rise for the full year. Many firms faced the problem of increasing offtake of generic formulations made by small scale industry as opposed to branded formulations.

Ranbaxy, Cipla, Cadila, Lupin and Torrent enterprises have emerged as major Indian companies meeting requirements of all kinds of drugs. Ranbaxy alone exported drugs worth Rs.596 crore out of its production of Rs.1334 crore during 1997-98. Market sales-wise, the Top 10 companies in India during 1997 were:

1. Glaxo

2. Cipla

3. Ranbaxy

4. Hoechst Roussel

5. Torrent

6. Alembic

7. Lupin Labs

8. Knoll Pharma

9. Pfizer

10. Novartis

We now move onto the Implications of TRIPs on the pharma industry.

Implications of TRIPs on Pharmaceuticals

From the point of view of developing countries , weak protection of IPR in pharmas is often explained as an instrument to avoid restriction in the supply of essential products. Implicit in such explanations is the perception of ‘technological innovation’ as public rather than a private capital good. Besides, the resistance to protection of IPR is magnified by ethical considerations. UNCTAD in 1975 recommended that ‘pharmaceuticals are made available to developing countries at marginal cost.’ This would probably require significant external aid as the contribution of the South to the development of essential new drugs has so far been negligible. Very briefly, the costs and benefits that can be identified as befalling a developing country (like India) strengthening its IPR system are:

COSTS

 
BENEFITS
 
Patents versus EMR
 
 

Adoption of the regime of intellectual property protection in conformity with the proposals of the Agreement on the TRIPs has been at the centre of an ongoing debate in India for several years now. Two alternatives are available to the country for meeting its obligations.

The first is the adoption of the Exclusive Marketing Rights (EMR) route. This allows countries which had process patent regimes when the WTO came into being to have a ten year period of transition before they adopt a product patent regime. It is, however, stipulated that during the transition period, product patent applications have to be accepted via the ‘mailbox’ system of delivery. Further, EMR’s are to be granted on these applications for a period of five years, after obtaining marketing approval, or until a product patent is granted or rejected by India (whichever period is shorter).

The second option which India has is to bring forward the date of introduction of the product patent regime from 2005 to 2000, which is the year when developing countries are generally expected to implement their commitments under TRIPs.

Impact and Problem Areas of TRIPs
 
 

There is little doubt that the TRIPs agreement is detrimental to the interests of the developing countries. The inequities in the system have begun to manifest themselves and even Western institutions have sought a review of the Agreement. Does the TRIPs agreement tend to legitimise bio-piracy? Does it permit patenting of traditional knowledge? Does it allow shooting up of prices of essential drugs? Does it kill even the existing marginal competitiveness of underdeveloped countries and make them open markets for MNC’s to exploit with impunity? These fears grip the nation and there are very few who can give answers to these concerns. Some main issues of concern are discussed below:

1. The first problem that the EMR route brings with it is that a patent-like monopoly for a period of five years has to be given to the products covered by the product patent application. On an application made, the Indian Patents Office has to allow EMR without even examining the patentability of the product. Thus, it is possible under this regime for a US patent holder on say, turmeric formulation, to obtain EMR in India and thus effectively block local companies marketing similar products.

In the situation we are placed today, it appears prudent to amend the Patents Act comprehensively allowing for product patents. Instead of going for the mailbox system and EMR’s for product patent applications, if we change the Patents Act straightaway to suit the requirements of the TRIPs agreement without waiting for 2005, it appears that national interests will be better protected as we can then exercise power to question patentability according to our law even for products patented elsewhere. Thus there are possibilities of greater control of abuse of monopoly rights.

On the other hand, a product patent does not confer a monopoly on the pharmaceutical company. The industry has changed a lot since the days of invention of penicillin. Most new drugs are substitutes for existing drugs, with slightly dissimilar therapeutic or side effects. Even if a drug is on patent, there will generally be cheaper drugs that are off patents. The question of monopoly does therefore not arise. Cures for AIDS are often mentioned in this context as possible examples of monopoly. However, the granting of product patents encourages competition and leads to more substitute drugs being found.
 
 

2. Moving on, one of the most important issues in this regard is the price impact of the new IPR regime. Studies say, about 74% of drugs and formulations are under the purview of the DPCO and thus subject to price control. Thus, changes in the regime will not have as much of an impact on prices. At the same time it is also believed in most sectors that drug prices will indeed go up. We analyse why this may happen.

The figures in the following table indicate that the system of process patents encouraged a large number of manufacturers to get into the pharma industry and the resultant competition led to sharp drop in prices. Subsumed in these low costs are expenses saved for not having to spend money on R&D including recouping of costs of failure, and the saving of costs on clinical trials.
 
 

International prices of Selected Drugs In Rupees

Drug Price in India Price in USA Price in Pakistan
Anti-Bacterials

Ofloxacin

Ciprofloxacin

Norfloxacin

Anti-inflammatory

Diclofenac

Piroxicam

Anti-Ulcerants

Ranitidine

Famotidine

Cardovasculars

Prazosin

Atenolol

Anti-Cancer

Vinblastine

Vincristine

Anti-Depressant

Fluoxetine

73.03

53.50

33.61
 
 

5.67

14.04
 
 

29.03

26.24
 
 

16.50

7.86
 
 

108.00

28.80
 
 

341.00

192.39

299.17

613.77
 
 

234.74

591.99
 
 

729.93

711.78
 
 

156.09

223.85
 
 

1080.23

1047.26
 
 

1269.29

151.26

302.75

161.94
 
 

72.00

100.80
 
 

336.00

336.00
 
 

17.60

11.78
 
 

430.77

416.98
 
 

230.40

 

It is essential to note that cross country comparisons of prices are fraught with problems. Such prices depend on several factors and the absence or presence of product patents is not the only variable that needs to be taken into account. This is because of the problem with exchange rates. The reason drugs are expensive in the US is because of the existence of the medical insurance system.

Secondly, there are two categories of drugs - essential drugs and non-essential drugs. If the prices of non-essential drugs go up, it ought not to cause that much concern. As far as the Essential Drugs List published by WHO, which has 350 entries, less than 10% of these are covered by patents world-wide. The rest have all become generic and there is no compulsion to grant a fresh round of patent protection to them. Thus, in the short run, only few essential drug prices will rise. In the long run, as patent protection stimulates more R&D and more competition, the prices of the rest should come down.
 

3. With regards to Research and Development, once product patents are granted, indigenous R&D may be adversely affected. This argument seems to suggest that an enormous amount is spent in Indian pharmas on R&D. The actual figure is 1-2% of drug sales as compared to figures of 15% in Europe and 10% in Japan.

Stronger patent protection thus also tends to encourage R&D apart from stimulating foreign direct investment into the sector which also stimulates R&D. The cost of developing a new drug is estimated to be at least 125 million dollars. Given this kind of figure one cannot but help feeling that what is being done in India is piracy. Product patents can reverse this trend by encouraging multinational firms and larger Indian groups to invest more in R&D. India’s advantage of low cost scientific manpower can then translate into the development of new drugs.
 

4. The TRIPs agreement does not specify the ground for compulsory licensing or non-voluntary licensing and does not require a member to justify the grounds on which it is resorted to. Under TRIPs, there shall be no discrimination between imports and locally produced products. Further, there is the need to make efforts to get authorisation from patent holder and compulsory licensing can be resorted to only if authorisation could not be obtained. The grounds on which compulsory licensing can be resorted to may be if the non-utilisation of the patents cause scarcity, resulting in unduly high prices, or it may be to protect public health and nutrition or promote public interest in the context of socio-economic & technological development.
 

5. In the case of process patents, the burden of proof has been reversed and the defender has to supply the evidence. However, the judicial authorities have the authority to order the infringer to inform the right holder of the identity of third persons involved in the production and distribution of the infringing goods or services and of their channels of distribution. This would mean that the burden of proof will also be on the third party. This can lead to a lot of mud slinging by the competing pharmaceutical producers.

6. On the issue of duration of the patent, under the Indian Patents Act, the duration of patents for pharmas was seven years from the date of application or five years from the date of grant, whichever was shorter. The modal years for granting patents from the date of application in India is 4 years. This means that only 3 years are left to use the patent before it expires. Under TRIPs, patents are for 20 years. Given the delays in granting the patents and the time taken for clinical trials, the effective years of patents is quite moderate.

There is an impression that granting product patents implies twenty year long monopolies for pharma companies. In India, granting of patents takes 5-7 years and another 5-7 years for clinical trials. This leaves 6-10 years for a pharma company to recoup its investments in a new drug. Apart from this, product life cycles have also become shorter and rare indeed is a drug that has a monopoly for more than five years.

Conclusion
 

The determinants of growth for the pharmaceutical industry are still in the nascent stage, a factor that makes the industry, investors and consumers optimistic about the future. For instance, an oft repeated example to highlight the future potential is the low coverage of allopathic medicines among the population.

In a population of about 935 million, only around one third are believed to have access to allopathic medicines. Given this limited coverage, the industrys’ potential is enormous. While other industries may be similarly placed, the sensitive and critical nature of drugs increases the possibility of this industrys’ potential being fulfilled.

The nature of the products has largely insulated the industry from the vagaries of the business cycle. The amendment to the Patents Act definitely marks a watershed for Indian pharmaceuticals. Greater intellectual property protection will entail both costs and benefits India. The economic impact of reforms will tend to depend on the responsiveness of FDI, and of domestic innovators to higher protection, or demand elasticities for protected products, the volume of existing local infringing activity and other factors.

Generally, it should be expected that actual system cost, that is, the cost of introducing and maintaining intellectual property, may not be unreasonably high, particularly when a country opts for registration rather than a full-fledged examination system, and introduces its enforcement mechanism gradually. New R&D activity spurred by stronger intellectual protection may draw resources away from other economic activity. Finally, the risk of anticompetitive behaviour of the intellectual property owner, generally believed to lead to higher prices, and higher entry barriers to newcomers, may be at least partly contained or reduced as in most cases protection does not prevent legal imitation.

One should keep in mind that in the Indian context, the patent regime is only one of a set of complex factors affecting the pharmaceutical sector and the impact of a stronger IPR regime will be conditioned by other factors such as price controls, licensing policy, etc. Because patenting has not been considered a critical function so far, few pharmas have invested in developing best-in-class patenting approaches and capabilities. Pursuing a comprehensive approach to patent writing, defence and litigation requires developing a range of capabilities. As it becomes easier to defend innovation through patenting, patenting will need to shift from a downstream support function to an early and integral strategic capability. Leading-edge companies may choose to name a chief patent officer and will move patenting decisions closer to the center of strategy.

An opportunity which excites many Indian companies is the growing market for generics. With many patented molecules expected to lose patent protection in the developed markets over the next few years, Indian companies are expected to make a big splash there. The generics market is broadly characterised by low unit margins and volume-led business. A few Indian companies like Ranbaxy and Wockhardt are well placed to make good in this environment. The salient feature of their move is the strategy of entering into alliance with companies abroad or in some cases, the acquisition of a company located in the target market.

All in all, the future augers well for the Indian Pharmaceutical industry.
 
 
 
 
 

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