India: The Trickle-Down Effect Of Product Patent In India And On The Developing World

Last Updated: 12 September 2013

Article by Kailash Choudhary and Ritiraj 1

The Indian Patent Regime has been instrumental for the development of the Indian Generic drugs industry, making possible the production and availability of essential drugs at affordable prices. Prior to the WTO and TRIPS the two distinct features of the Indian Patents Act, 1970, i.e. allowing only for process patent and not product patent by virtue of Section 5 of the Indian Patents Act, 1970, are the major factors for the growth of generic industry. The then act was prepared keeping in mind the socio-econimic condition of the country and was largely based on the recommendations of a report of a Ayyangar commission.

The growth of generic pharmaceutical industry due to the favorable patent regime not only had impact in India but also well beyond its borders. India is the main supplier of essential medicines for developing countries. As per the Annual Supply Report of UNICEF, India was the largest supplier country in 2012. UNICEF procured $558 million worth of services and supplies from India2. Further as per the reports of Campaign for Access to Essential Medicines, around 67 % of medicines exports from India go to developing countries, around 75-80% of all medicines distributed by the International Dispensary Association (IDA) to developing countries are manufactured in India. In Zimbabwe, 75% of tenders for medicines for all public sector health facilities come from Indian manufacturers. The state procurement agency in Lesotho, NDSO, states it buys nearly 95% of all ARVs from India3. This is the reason why India is known as the doctor without borders. But the recent change in the Patents Act, 1970 in order to harmonize it with the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement, may leave least developing nations and the developing ones in a big trouble, who were dependent on India's generic pharmaceutical industry.

The Patents Amendment Act, 2005, introduced "Product Patent" in India. The product patent was granted for the new product for a period of twenty years. Earlier due to absence of product patent, only process patents are granted for a new process of manufacturing an already known product or for manufacturing a new product. This has helped Indian pharmaceutical industry to develop generic versions of the new medical drugs without having fear of infringement of patent. This has also helped in achieving a key-objective of policymakers in the developing world to ensure the availability of new medical treatments to save millions of lives by production of cheap generic versions of on-patent drugs. The introduction of product patents is considered as a major incentive for developing new medicines, especially for tropical diseases, not focused upon by the developed nations, it has a snowball effect on the Generic industries with only one saving clause.

The Current Situation

Earlier the Indian pharmaceutical industries by using the process of reverse engineering, various Indian pharmaceutical industries produced generic drugs on mass level of the on-patent drugs, enabling affordable access of these to under-developed and developing nations. The product patents regime means, that Indian generic drugs manufacturers can no longer manufacture drugs by reverse engineering till the time patent is in force. Due to the low per capita income the Indian people may not be able to afford the escalated costs of new entrant drugs developed by the Pharmaceutical giants. For e.g. "Shanvac", a recombinant DNA vaccine for Hepatitis B, indigenously developed by Shanta Biotech of India is being supplied to UNICEF for 50 cents per dose, whereas the same vaccine was being sold for US $ 15 per dose. Therefore, India should be either allowed to reverse engineer or should innovate in order to afford newer and better drugs.

The generic drugs are as effective as the original branded/patents drug because the same active drug molecules was used, and are a lot cheaper than the original branded drugs. The generic drugs are cheaper because the manufacturers of the same don't have to go through the process of drug development, including clinical trials, multitude of test, marketing, promotion etc. Generic drug manufacturers actually cash on the benefit of the previous marketing efforts of the patentee. Almost all drugs produced by generic manufacturers have already been on the market and are well known to patients and providers. After the change in Patent Act, same is no longer be possible, and it threatens the supply of generic drugs to the heavily dependent countries along with the domestic market.

Among Indian industries, the average investment in R&D is only 0.7 per cent which is extremely low by world standards. The lack of R&D investment is largely because of the protectionism and a non-competitive market due to the high import duties imposed on imported drugs. The number of patent applications filed by Indian institutions is very less. Some prominent Indian applicants are Council of Scientific and Industrial Research and National Institute of Pharmaceutical Education and Research (NIPER) and Indian Council of Medical Research. Drug discovery research is still finding its feet in India. Though many companies are investing like Ranbaxy, Nicholas Piramal, Cipla, CadilaPharma and Lupin, however it will at least be a decade before a critical mass is in place and results start accruing. This would mean that most of the pharmaceutical product patents would be owned by MNCs. Almost all of India's drug market consists of second-and-third generation drugs no longer subject to patent protection. This shows that product innovation has not found its ground in India, and we are involved in the production of already existing medicines for diagnosed diseases.

The major pharmaceutical companies of developed nations mainly focus on either global scale diseases or those pertinent to their areas and did not paid attention to the tropical diseases like malaria, tuberculosis etc. these areas i.e. tropical diseases are generally avoided by the developed nations as the return is not very high from the developing nations or least developed nations. This is the main reason behind the introduction of product patent that might after-all encourage research and development in the field of tropical diseases. Product patents are a crucial factor in innovation, ensuring that investor companies will have the possibility of being rewarded for the major investments needed to develop new medicines and cures. This system provides a higher degree of assurance to developers to risk the capital necessary in the research and development process.

The only valid opposition to the product patent is the price of the patented drug. For this a study of system of pricing of the medicines and the patented drugs shows us that it can be made acceptable by using Article 7 of the TRIPS Agreement, according to it "the protection and enforcement of intellectual property rights should be in a manner conducive to the socio-economic welfare of the country, and the flexibilities of the agreement".

Costing of Drugs

The march for product patent rose after declaration of $802 million as the cost incurred for drug development by the 2003 study conducted by Tufts Center for the Study of Drug Development4. Donald Light, professor of comparative health care at the University of Medicine and Dentistry of New Jersey, criticizing the study, says, that it's impossible to determine how far prices are truly rising because of increasing developmental costs, the industry keeps a tight grab on the cost and only part is disclosed at intervals and that to only economists having ties with the industry. Recognizing a trend of rising trial complexity is one thing, accurately estimating how that is affecting the cost of research and development quite another5.

The patent protects the investment, including research, development, marketing, and promotion, by giving the company the exclusive right to sell the drug for patent term. As the patent reaches the near the expiration, generic manufacturers apply to the FDA (Food and Drug Authority) in the US and in India to make and sell the generic versions. As those generic manufacturers don't have to bear the same development costs, they can sell their product at substantial discounted rates. Once the generic drugs are approved due to competition in the market, price of the drug goes down. Today, almost half of all prescriptions are filled with generic drugs and India it is required by the Government to prescribe affordable generic drugs. The US$802- million figure was based on the research-and-development costs of 68 drugs of 10 companies. The data, however, were not made available to other researchers, and drug-industry watchdogs say this lack of transparency is typical. Warburton says it is in the best interests of drug companies, who often lobby governments to loosen price regulations and increase patent protection, to overstate costs and lacking transparency makes things even fishier.

Drug companies are sometimes accused of passing these big numbers on to the media to deflect public criticism about price gouging. Another criticism of studies that produce numbers in the billion-dollar range is that large portions of those estimates aren't out-of-pocket expenses. About half of the 10-figure price tag is an estimate of the profits a drug company might have made, over the course of bringing a product to market, if it had instead invested its capital elsewhere. Calculating forgone profits is, according to Prof. Light, a reasonable way for a company to determine if it should go ahead with a project. "What is not reasonable," he says, "is to then take that estimate, which is a calculation of investment, and claim it as a cost against society6." This represents the condition of double-pricing, i.e. the company is allowed to charge for the patent the other companies buy from it, on the justification that it spent that money on developing the product; again, the company recovers that capital invested in the development of the drug by adding Maximum Allowable Post-Manufacturing Expenses to the cost of the product.

The cost estimate of successful drug development also includes the cost of research that fails to net new products. About two-thirds of true research and development costs, Light says, are incurred in phase III trials, where the odds of success are about 3 in 5. Earlier trials are relatively inexpensive, and most compounds don't even make it to the trial stage. "It is business," says Prof. Light. "It's not unlike marketing the newest version of a cell phone7."

Compulsory Licensing as a Tool to Combat Product Patents

India fought hard against product patents on medicines, however lost that battle, but did score an important victory. It got inserted in the Agreement on TRIPs, a provision whereby member countries would retain the right to issue compulsory license to domestic firms for a patented medicine if the patent holder did not provide the medicine at an affordable price8.

As compulsory licensing can be used only for drugs not available to people at affordable prices, with a company ready to manufacture it at cheap prices, it might not encourage generic industries to the extent as process patent did. Hence, using Article 7 of the TRIPS Agreement, country can make compulsory licensing flexible to provide for its domestic market and perform its responsibility of being the "pharmacy of the world". Considering the dependence of other nations on India's generic drug industry, India needs to provide sustainable and affordable access of drugs to them and its domestic market (considering their inefficiency in satisfying the market at the current rates of patented drugs). For the same, pricing of patented products has to be looked into, its anomalies removed and supported by flexible compulsory licensing.

Conclusion

High prices of the patented products are not the inventive for the innovation of new drugs. In order to survive in the extremely competitive market companies need to innovate or improving the existing ones. Therefore high pricing in the name of further innovation does not hold the ground.

The economic condition of the India can be taken as a standard, if India cannot afford the drugs; nearly three forth of the countries will also not as they themselves dependant on the Indian generic industry. If drugs for cure of tropical diseases like tuberculosis, polio etc. are restricted to patented drugs, the very purpose of their innovation will be defeated, which is to protect people from those diseases. The majority of the people would not be able to afford them. Further new medicines for the cure of cancer or HIV can only extend life, if available, of the prospective millions of patients. These drugs could be just chemicals stored in the containers until and unless made available to the patients.

Footnotes

1 IIIrd year student NLU Delhi

2 UNICEF Supply Annual Report 2012: http://www.unicef.org/supply/files/UNICEF_Supply_Annual_Report_2012_web.pdf

3 "Examples Of The Importance Of India As The "Pharmacy Of The Developing World"- Campaign for access to essential medicines (http://www.msfaccess.org/sites/default/files/MSF_assets/Access/Docs/ACCESS_briefing_PharmacyForDevelopingWorld_India_ENG_2007.pdf )

4 Journal of Health Economics, March edition, 2003.

5 ibid

6 At http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2630351

7 At http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2630351/

8 At http://articles.economictimes.indiatimes.com/2012-05-30/news/31900229_1_patent-act-product-patent-patent-law

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