Effects of TRIPS on India’s pharmaceutical industry Effects on drug prices and access to cheap medicines Term paper on Innovation Economics Apalowo Toluth Economics and Institutions 260665 Apalowo@students.uni-marburg.de Toluth Apalowo Apalowo@students.uni-marburg.de I. Introduction A successful patent policy of any developing country is one that strikes a clear balance between protecting the rights of innovators and the availability of goods and services at affordable prices to her citizens. This is the difficult situation faced by Indian policy makers in the wake of the controversial provision of compulsory product patent protection for pharmaceutical invention in the World trade Organization‟s (WTO) agreements on Trade-Related Aspects of Intellectual Property Rights (TRIPS). In order to comply with the conditions of TRIPS, the Indian government reintroduced product patent in 2005 which was not permitted between the period 1970 – 2005 as a result of the 1970 Patent Act that only allowed process patent related to medicines and the patent scope was very limited (Kiran and Mishran, 2009). The 1970 Patent Act as a catalyst for the huge growth in the Indian pharmaceutical industry between this period and the domestic industry could proud itself as one of the largest and most robust generic pharmaceutical industries in the world. Therefore, when the country has to comply with TRIPS agreement made compulsory for WTO membership, the policy makers while carrying out amendments to the 1970 Patent Act according to Gopakumar (2010) were faced with two major concerns. The first concern of the policy makers is the future of the Indian pharmaceutical industry. This is because the boost in the industry is a direct result of the abrogation of product patent that gives way for reverse engineering and allowed for the production of Active Pharmaceutical Ingredients (APIs). Therefore, what is the future of the industry with the re-introduction of product patent regime? The second concern of the policy makers is the access to affordable medicines within the country and other developing countries. There is no denying the fact that the process patent regime in the 1970 Patent Act has made medicines not only available, but also affordable to the Indian population and other developing countries of the world. With the re-introduction of product patent regime which was made compulsory by TRIPS agreement, will these medicines still be available? Will it still be cheap for the citizens? These questions arise because patent regime is believed to favour the Pharmaceutical Multinational Corporation (MNCs) that has the technological and financial capacity to innovate through research and development (R&D) and would benefit from a patent system. Will product patent regime lead to a form of monopoly in the sense that product patent will not allow local pharmaceutical firms to compete with the MNCs thereby leading to increase in prices of medicines? According to a report by The Economic Times, the pharmaceutical industry in India is the world‟s third largest in terms of volume. The industry‟s total turnover between 2008 and September, 2009 was US$21.04 billion and the domestic market was worth US$12.26 billion1. According to Lalitha (2011), India accounts for 20% of the world‟s generic supply and two-thirds of the drugs produced in India are exported to North America, the European Union, Commonwealth Independent States (CIS) countries and West Africa in the same order. Globally, about sixty developing countries 1 Department of Pharmaceuticals of the Indian ministry of Chemicals and fertilizers 1 Toluth Apalowo Apalowo@students.uni-marburg.de do not have any pharmaceutical industry and eighty seven countries only have capacity to make finished product (Cullet, 2005) and the Indian pharmaceutical industry has developed to become the major supplier of these countries in both finished medicines and APIs. The above facts and figures necessitate the importance of the Indian pharmaceutical industry to not only the domestic market, but also the markets of a large number of the developing countries in the world. Therefore, a whole lot of countries are watching to see the effect of the re-introduction of product patent on both availability and affordability of medicines. This study therefore seeks to analyse the effects of TRIPS on India‟s pharmaceutical industry, specifically its effect on drugs prices and access to cheap medicines. We will look into how India has been able to explore the flexibilities within TRIPS, this is because India with its well established domestic pharmaceutical industry, strong international position was best placed to implement these flexibilities and their ability to make use of these flexibilities in their domestic patent law will help raise solution to how other developing countries would be able to incorporate these flexibilities into their respective patent laws. Following the introduction, section II provides a general overview of TRIPS and the resulting amendments in the Indian patent law while making use of the flexibilities within TRIPS, section III focuses on the impact of product patent on access to cheap and affordable medicines to Indians, and section IV provides the conclusion and policy recommendations. II. TRIPS, Amendments in India’s Patent System and notes on Flexibilities in the TRIPS Agreement. The agreement on TRIPS is an international agreement administered by the WTO that provides minimum standards for many forms of intellectual property regulation as applied to the nationals of other WTO members. The agreement was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994. Braithwaite and Drahos (2000) believe that TRIPS was the result of a programme of intense lobbying by the United States, supported by the EU, Japan and other developed nations. After the Uruguay Round, the GATT became the basis for the establishment of the WTO. The acceptance of TRIPS is a compulsory requirement of WTO membership which provides easy access to the numerous international markets opened by the WTO and therefore to benefit from these international market opportunities, member countries must enact the strict intellectual property laws mandated by TRIPS (Banerjee and Nayak, 2014). The TRIPS agreement introduced intellectual property law into the international trading system for the first time and it remains the most comprehensive international agreement on intellectual property to date (Reichman, 2006). However, there has been complaint by developing countries over developed countries insistence on an overly narrow reading of TRIPS and this initiated a round of talks that resulted in the Doha declaration. Leevy (2006) notes that less developed and developing countries lacked the production capacity to produce medicines and depends on cheap import from other developing countries like India that can produce cheap general medicines. However, with TRIPS‟ patent rules, these countries would not be able to produce generic drugs and there will be short supply of cheap medicines to these 2 Toluth Apalowo Apalowo@students.uni-marburg.de poor countries. Leevy (2006) continued that while TRIPS provide some flexibility like compulsory licenses, these countries are being pressured by the powerful rich countries against using such flexibilities. Therefore, the Doha declaration is a WTO statement that clarifies the scope of TRIPS and that it should be interpreted in line with the overall goal of the WTO which is “to promote access to medicines for all”. According to Unni (2012), when the negotiation for setting up the WTO began in 1986, India, Brazil and Argentina strongly opposed it on the fact that protection of intellectual property rights is within the mandate of the World Intellectual Property Organization (WIPO). However, as a result of the intimidating measures taken by the US against other developing countries, India was left alone in its opposition as other countries has changed their stance. Therefore, India, faced with the undesirable option of being left alone outside the WTO system was forced to sign the TRIPS agreement and join the WTO in 1995. Mueller (2007) writes that the adoption of TRIPS by India has resulted into three amendments of the 1970 Patent Act in order to be TRIPS compliant. The three amendments were; Patent Amendment Acts 1999, 2002 and 2005. India along with some other developing countries was given exemptions from implementing pharmaceutical product patent until 2005, but mandated to set up a mailbox facility for product patent applications filed before the 2005 deadline and to assign each application a filing date. Likewise the applicants in the mailbox were to be granted an Exclusive Marketing Rights (EMRs) to market the product in which they have applied for patent for a period of up to five years from the day they are granted. India‟s parliament however failed to pass the law that deals with mailbox and EMRs and this prompted the US to make use of WTO‟s dispute resolution mechanism to address India‟s failure to enact the mailbox and EMRs into law (Okediji, 2003). The WTO‟s appellate body which is in charge of dispute resolution among WTO member countries held in 2007 that India‟s failure to amend its patent law is a breach of article 70.8 (a) of the TRIPS agreement and mandated that the country established a means that adequately preserved novelty and priority of pharmaceutical product application2. As a result of this, in 1999, the Indian Parliament passed the first amendment to the 1970 Patent Act, and formally implemented the mailbox procedure for pharmaceutical product patent application. Mueller (2007) asserts that the mailbox were deposited in a „black box‟ and during the ten year TRIPS transition period, a total of 8296 mailbox application were not taken out for examination until March, 2005. Unni (2012) writes that the applicants whose applications are in the mailbox during this transition period went further to seeking EMRs for their inventions. These EMRs like I said earlier would provide exclusive right to sell and distribute the invention in India for a period of five years from the date of grant until either the patent is granted or rejected whichever was earlier. The 2002 Amendment Act brought numerous changes and the most significant was the extension of the patent term to twenty years. The 2002 Patent Amendment modifies the 1970 Patent Act by ensuring that all patents granted in India was extended to twenty years as against the process patent of five years from date of sealing or seven years from the date patent was granted in the field of 2 Appellate Body Report, India-Patent Protection for Pharmaceutical and Agricultural Chemical Products, WT/DS50/ABIR (Dec. 4, 1997), available at http://www.wto.org/english/tratop-e/dispu-e/caseselds50_e.htm 3 Toluth Apalowo Apalowo@students.uni-marburg.de pharmaceuticals and fourteen years for all other types of patents from the date it was granted. Other changes in the 2002 Act to make Indian Patent Act more TRIPS compliant include new definitions of invention and inventive step. The amendment also paved the way for the patentability of Microorganisms (Unni, 2012). Unni (2012) remarks that the Patent Amendment Act of 2005 provides the last stride in India‟s implementation of the changes required in the 1970 Patent Act to be TRIPS compliant. Through this amendment, Indian law for the first time since 1970 allowed patent protection to substance capable of being used as pharmaceuticals, food, and agro-chemicals. According to Daureeawo (2009), the 2005 Act contains controversial characteristics that have resulted into various disputes. These controversies include; provisions concerning what are and what are not considered patentable subject matter, a new definition of the inventive step criterion of patentability, procedures governing both pre- and postgrant opposition, and a more liberal framework for compulsory licensing. For example, a newly introduced provision in the patent law that has led into famous patent disputes between MNCs and Indian companies is section 3(d). Daureeawo (2009) believes the main objective of section 3(d) is to prevent granting of patent on substances that are only „trivial‟ modifications of existing inventions which is a very common phenomenon among pharmaceutical companies in order to extend patent protection by seeking for separate patents on multiple attributes of a single product. Sen and Ramanujan (2010) opine that it is a bold legislative move that can curb illegitimate „ever greening‟ of patents and may compel other countries to imitate India‟s action in attempting to limit such practices. III. The Impact of TRIPS on Access to Cheap and Affordable Medicines in India. TRIPS have caused the most controversy in the domain of access to medicines because it requires patents on pharmaceutical products which according to Correa (2008), at the minimum 50 developing countries did not offer at the time of its adoption. Kapczynski (2009) opines that patents has the characteristics of generating “deadweight social losses” in the form of higher prices for consumers as a result of the monopolistic tendency of patent. According to Gopakumar (2010), making use of the flexibilities within and outside TRIPS turned out to be the only possible solution available for developing countries including India in a view to addressing the concerns on availability, and accessibility to medicines and this is because TRIPS provides only the minimum standards for the large part of the patent law. India, like some other few developing countries in the amendments of their patent law to be TRIPS compliant developed an implementation strategy to seek means within the patent system to ensure a competitive environment that will help offset the adverse price effect of product patent on their citizens. (CIPR, 2003) Gopakumar (2010) continues that these flexibilities is dependent on the following assumptions; every country has the same level of technological capabilities which includes the manufacturing capacity to produce medicines, all developing countries shares the same understanding in regard to the nature of TRIPS obligation and the technical skill to incorporate these flexibilities into their domestic patent law and that there are no political interference from developed countries to implementing these flexibilities. 4 Toluth Apalowo Apalowo@students.uni-marburg.de Different authors3 have argued that the public health situation in India requires medicines at affordable prices as a result of the co-existence of communicable and emerging epidemic of noncommunicable diseases. One of the most important tools available to the Indian government to ensuring access to cheap medicines for its population is price control which according to Gopakumar (2010) is one of the TRIPS flexibilities as TRIPS does not prohibit member countries from controlling the prices of patented drugs. The government has been making effort to come up with a new pharmaceutical policy in order to reducing the negative effect of product patent regime on access to cheap medicines especially on the poor. Mukherjee (2007) asserts that one of the main points of the policy is to expand the number of drugs under the price control from 74 to 3544. To address the issue of high price of patented drugs, Mukherjee (2007) writes that the Indian government sets up a committee to explore the possibility of price negotiations for patented drugs and medical services. This means instead of the government to control the price of patented drugs, they would carry out negotiations with the patent owners and this is a big problem because it would provide avenue for patent holders to charge high price that no negotiation will ensure a reasonable price cut. Furthermore, it will undermine compulsory licence option; this is because under the Indian Patent Act, high prices of patented article provide a ground to granting compulsory licence. Negotiations will undermine this option and a small cut in price through negotiation will be treated as a legitimate reasonable price. Mathew (2008) reports that Indian patent office granted a total of 460 product patents for pharmaceutical innovations and inventions from 2005 to 2007. Out of these product patents, 392 were granted to foreign applicants and they cover critical diseases like HIV, cancer, renal failures and neurological disorders. Also, examination conducted by Indian Pharmaceutical Alliance (IPA) shows that out of the patent granted in India, 67 out of the 86 patents that were granted in the past four years 5 were in violation of section 3(d) and (e) of the Indian Patent Act. The Indian patent office shows high deficiency in applying the legal safeguards in preventing the patent of known substances. For instance, many patents were granted on molecules invented in 1960, 70, 80 and 90s. Even though, these patents may not affect the availability of medicines as they are already made available in India, it would affect access to the increasing modified forms of these drugs. (Jishnu, 2009) Jayakumar (2006) is of the opinion that though the impact of product patent is not yet felt in India, at least 15 medicines patented are currently available or in the process of obtaining market approval6. The effect is that these patents would block the generic availability of these drugs and the MNCs that own these patented drugs did not make any substantial reduction in the prices of these drugs and because of their importance, without a generic alternative, it will be unaffordable to the 3 Gopakumar (2010), Lalitha (2011) and Chaudhuri (2009) 4 This proposal was opposed by the pharmaceutical industry as they argued that it will affect incentive to innovate and also reduce their profits. 5 As at the time of the report by IPA 6 The therapeutic use of these medicines include; cancer, leukaemia, Hepatitis C, HIV/Aids, Diabetics etc. 5 Toluth Apalowo Apalowo@students.uni-marburg.de majority of the population. Also, the impact of TRIPS is not yet felt on HIV/AIDS as its treatment is currently provided freely through the public sector using different sets of drugs, but these patents will definitely act as barrier in future to providing treatment to those living with HIV whom experts belief would have developed resistance to the current ARV drugs7. The impact of patent is felt directly on drugs for the treatment of cancer. For example, following Gomakupar (2010), GSK charges USD 20,000 per person per year even after discount for its breast cancer drug, Lepatinib, likewise, Roche‟s Hepatitis C drug, Peglated Alfa Interferon are beyond the reach of Indian people because of its high price. It costs between Rs 13,000 to 14,000 (USD 279-300) per dose and these would cost Rs 240,000 (USD 5156) for a 24 week period. The Indian pharmaceutical Industry has been making effort to mitigate the challenges of product patent regime. Some of these efforts include serious R&D on new drug development and patent opposition strategy on existing drugs. While the new drug development are still at infant stage and has not developed to final product, patent challenges and innovation on existing drugs has helped the companies to launch many new drugs that otherwise would have been patented. Other measures used by government to combat price and availability issues include provision of drugs in government healthcare and selling non branded generic drugs in the retail market and this is important because Lalitha, (2009) accounts that 84% of estimated total health expenditure are private out of pocket. IV. Conclusion It is no more news that the Indian pharmaceutical industry has developed into one of the largest generic industry in the world and the main supplier of essential drugs to developing countries. However, with TRIPS and its introduction of product patent, the future of the industry cannot be said to be rosy with the increasing competitive activities of MNCs coupled with the actions of the developed countries for example, the seizure of Indian generics in 2009 by custom authorities at different European ports warns of the extremes to which the intellectual property laws could be stretched (Lalitha, 2011). While the effect of product patent regime may not yet be felt fully by both the citizens and the Indian pharmaceutical industry, the continued increase of patented essential drugs by MNCs pose a big threat to the availability and accessibility of drugs to the Indian population most especially the poor. For recommendations, the government should strengthen the patent office in order to provide credible examinations and to increase its effort to providing leeway through the various flexibilities provided in TRIPS and also providing institutional framework for the patent office and the judiciary as they play a crucial role in translating the TRIPS flexibilities into practice. Likewise, the local companies should up their game and get more involved in R&D most especially on essential drugs in order to create competition with the MNCs as these will bring the prices of drugs down. This of course can be done through R&D joint ventures among these firms as the capital outlay of research without doubt is high. 7 Anti-retroviral drug 6 Toluth Apalowo Apalowo@students.uni-marburg.de V. References Banerjee, Tannista, and Arnab Nayak. 'Effects Of Trade Related Intellectual Property Rights On The Research And Development Expenditure Of Indian Pharmaceutical Industry'. 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