Transcript Options Under TRIPS Agreement and Accessibility of

Industrial Policy, Globalization
and India’s Pharmaceutical
Industry
Sudip Chaudhuri
Indian Institute of Management Calcutta
Conference on 'Post Liberalisation
Constraints on Macroeconomic Policies',
organised by IDEAS and UNDP, Muttukadu,
Chennai, 27-29 January, 2006
India’s Industrial policy success in
pharmaceuticals is well known:
 Product patents in drugs abolished in 1972
 Remarkable growth of pharmaceutical industry
since then
 India and Japan: only two countries where
western MNCs do not dominate
 India: net exporter and self sufficient in drugs
 Drug prices among the lowest in the world
 Source of good quality cheap drugs for the rest
of the world.
Status of India’s Pharmaceutical
Industry
• Size of India’s pharmaceutical market is $ 4.9 billion
(2003). This constitutes about 1% of the global
pharmaceutical sales and about 10% of total generic
market in the world.
• In value terms, India is the 14th largest market in the
world. In volume terms, India’s share is around 8% and
is the 4th largest after USA, Japan and China
• India is among the top five bulk drugs manufacturers of
the world. India has the largest number of US FDA
approved manufacturing facilities outside USA.
• India exported drugs worth $ 3.2 billion to more than 65
countries. India is the 14th largest exporter of drugs in the
world
To Comply with TRIPS, India has
amended Patents Act, 1970
• Patents (Amendment) Act, 1999
• Patents (Amendment) Act, 2002
• Patents (Amendment) Act, 2005
The Patents (Amendment) Act,
2005
• Has introduced product patent protection
for pharmaceuticals from 1 January, 2005
• Hence unless otherwise authorized, Indian
generic companies cannot produce new
drugs developed abroad
It is widely believed that the
Global product patenting of
medicines will:
• Enhance the monopoly power of the
MNCs and
• Result in higher prices and lesser access
of medicines
But those in favour of TRIPS
argue
Countries such as India with
developed generic companies can
gain economically
How are Indian generic
companies responding and what
are the economic implications?
Options for Indian companies in
post 2005
• Develop new drugs
• Collaborate with MNCs as
manufacturing and/or marketing
partners for the new drugs developed
by the MNCs
• Produce off-patent drugs:
– In the domestic market
– For exports
We concentrate here on …
Generic exports
It is often argued that …
•Product patent protection will not
have any negative consequences.
•In fact it will have some beneficial
effects
Remarkable growth of pharmaceutical exports
“is the result of the confidence built up in our
industry due to our progressive adherence to
our IP commitments.”
“Some 60 billion dollars worth of drugs are
going off patent in the next few years. Indian
industry can grab a lion’s share of this –
provided we are a bona fide member of the
international trading community.”
(Press Statement by the Minister on December 27, 2004)
Growth of India’s pharmaceutical
exports
• Not the result of “progressive adherence to
our IP commitments”
• As the chart shows, it was only after the
abolition of product patent protection in
1972 that the export market developed
Growth of Exports
3500
$ million
3000
2500
2000
1500
1000
500
2003-04
2001-02
1999-2000
1997-98
1995-96
1993-94
1991-92
1989-90
1987-88
1985-86
1983-84
1981-82
1979-80
1977-78
1975-76
1973-74
0
Source: Sudip Chaudhuri, The WTO and India’s Pharmaceuticals Industry: Patent
Protection TRIPS and Developing Countries, New Delhi, Oxford University
Press, 2005.
Patents Act, 1970
• Provided the Indian companies the
opportunities to gain the necessary
experience and earn/mobilize resources to
enter and grow in the export markets
“India developed as the home
country for us and provided the
financial base and skill sets to
expand internationally.”
• (Letter of the CEO & Managing Director
Of Ranbaxy to Shareholders in Annual
Report, 2001, p. 10).
Growth sequence
•
•
•
•
Production for the domestic market
Exports to un-regulated markets
Exports to regulated markets other than USA
Exports to USA
Motivation at each stage: larger market and higher price
realizations
Acceleration of pharmaceutical
exports since mid-1990s
• Not the result of TRIPS but a response to it
• Anticipating shrinkage in opportunities of reverse
engineering of new drugs for production in
domestic market in the post-TRIPS regime
• Larger Indian companies have been
aggressively focusing on generic exports since
the mid-1990s, particularly to regulated markets
such as USA
Export Intensity of selected Indian
companies, 2002-03
Company
Exports as % of total sales
Ranbaxy
65.6
Dr Reddys
60.1
Cipla
39.4
Aurobindo
50.6
Orchid
82.5
Lupin
39.0
Ipca
60.0
Shasun
69.9
Indian Generic Companies
• Are also increasingly targeting the export
markets for patent expired drugs
particularly in developed countries.
In Developed Countries
• Even when patents for the new chemical
entity in the drugs expire
• Secondary patents prevent delay generic
entry
Types of Patents
• New Chemical Entities (NCEs)
• New formulations, i.e., new dosage forms
or routes of administration
• New combinations of existing NCEs
• New salts or esters of existing NCEs, i.e.,
new chemical derivatives of existing NCEs
• New uses of existing NCEs
• New processes of manufacturing
The Case of Omeprazole
• AstraZeneca obtained the patent for the anti-ulcer drug, omeprazole,
the active ingredient in Prilosec on April 5, 1979.
• (In India Omez (Dr Reddy’s price – Rs 25/- for 10 tablets 10 mg, i.e.,
less than a $. In USA, the price has been several times more)
• Patent supposed to expire in 1999
• Two formulations patents of AstraZeneca, which were filed in 1987,
i.e., 8 years after the patent on the active ingredient was taken and
hence expires later (in 2007).
• The formulations patents relate to the coating of the pill, which
prevents drug from being degraded by stomach acids.
• Dr Reddys was prevented from entering into USA even after 1999
because the MNC argued that Dr Reddy vilated its formulation
patent on the coating (another generic company proved that its
formulation patent is independent and hence got the approval to
enter.
Indian generic cos actually
contributing to affordability in USA
• A number of Indian companies are
involved in patent challenges to hasten
entry of generics
• Tremendous competition among Indian
companies
Indian generic companies
• Are increasingly fighting patent cases on
these secondary patents
• Resulting in earlier generic entry
• And hence contributing to affordability of
drugs in developed countries
Patent challenges in USA by Indian
cos
• Fluoxetine (Dr Reddys against Eli Lilly)
• Cefuroxamine axetil (Ranbaxy against
GSK)
• Amoldipine maleate (Dr Reddys against
Pfizer)
• Loratidine (Morepan/Geneva against
Schering plough)
Competition among Indian bulk
drugs exporters to USA, 30/9/2003
No of Indian
cos with
DMFs
10
9
8
6
5
4
3
Bulk drugs
Cefuroxamine
Ranitidine
Fluconazole
Ciprofloxacin, Metformin etc
Ibuprofen, Clarithromycin etc
Trimethoprim, Omeprazole etc
Cephalexin, Famotidine etc
$ 60 billion off-patent market is exaggerated
• As generics enter, prices fall sharply. Assuming
realistically that the prices would fall by about 90 per cent,
a $ 60 billion market effectively becomes $ 6 billion
• Bulk drugs account for about 15 per cent of the price.
Hence the total bulk drugs market, where primarily the
Indian exporters are involved would be around $ 0.9
billion during the five year period, or $0.18 billion per
year. (India’s current exports about $ 3 billion).
• Then there is competition among the Indian exporters and
also from other countries such as Italy, Switzerland,
Taiwan province of China, Brazil, Argentina and
particularly China.
• Hence the beneficiaries would actually be the consumers in
USA and other developed countries
Another factor
• Remarkable export growth of the larger
Indian companies in recent years has been
accompanied by equally remarkable
domestic growth
• The top 15 Indian companies, for example
have been growing at about 20% per annum
in the domestic market in recent years
Annual compound rate of growth of
domestic retail sales, 1996-2004 (%)
•
•
•
•
•
•
•
•
•
Cipla:
Ranbaxy:
Nicholas Piramal:
Sun Pharma:
Dr Reddy's:
Zydus-Cadila:
Aristo Pharma:
Alkem Labs:
Lupin:
Source: ORG-MARG
18.7
16.6
26.1
32.2
31.6
18.1
20.2
21.9
13.3
Under TRIPS
• When Indian companies are prevented from
producing the new drugs, their domestic growth
will be adversely affected
• A steady and stable home market is of
fundamental importance for success abroad
• It will be very difficult for Indian companies to
sustain the export dynamism in the absence of a
growing domestic market.
Thus
• Domestic space of operations is important
• In a product patent regime, this can be provided by
an easy to use compulsory licensing system
• In such a licensing system, not only will the
growth of the generic companies be faster both in
the domestic and export markets
• Competition will drive down the prices of new
drugs and make these more accessible
But Has India Used the
Flexibility Under TRIPS to
Introduce a Proper Compulsory
Licensing Regime?
Article 31 of the TRIPS
agreement dealing with CL
 Does not place any restriction on the grounds
under which a CL can be given.
 In case there were any doubt, the Doha
Declaration has made it clear that:
 “Each member has the right to grant
compulsory licence and the freedom to
determine the grounds upon which such
licences are granted”.
Conditions listed in Article 31:
 that authorization of such use will have to be
considered on its individual merits
 that before permitting such use (except in such
cases as situations of national emergencies,
extreme urgency, public non-commercial use), the
proposed user will have to make efforts over a
reasonable period of time to get a voluntary
licence on reasonable commercial terms
 that the legal validity of the CL decision and the
remuneration will be subject to judicial or other
independent review
Not difficult to tackle these
problems
 the grounds and the procedure can be so
specified as to make these conditions less
onerous than what these appear to be
 Guidelines can be issued for “reasonable
terms”
 The maximum time period can also be
stipulated
 The review can be a simple administrative
process
Amended Patents Act has
elaborate provisions on CL
• General provisions
• Also special provisions on notification
by the central government
The Amended Act provides
details of
• General principles applicable to working of
patented inventions
• Grounds for grant of CL
• Matters to be taken into account by the
Controller of patents while considering
applications for CL
• The procedure for dealing with CL applications
• General purposes for granting CL
• Terms and conditions of CL.
The text of “General principles”
includes excerpts from
• Article 7 of TRIPS on Objectives
• Article 8 of TRIPS on Principles
and
• Para 4 of the Doha Declaration
“General principles”
• “that patents are granted to encourage inventions and to secure that
the invention are worked in India ..”
• “that they are not granted merely to enable patentees to enjoy a
monopoly for the importation of the patented article”
• “that the protection and enforcement of patent contribute to the
promotion of technological innovation and to the transfer and
dissemination of technology, to the mutual advantage of producers
and users of technological knowledge and in a manner conducive to
social and economic welfare, and to a balance of rights and
obligations”
• “that patents granted do not impede protection of public health and
nutrition and should act as an instrument to promote public interest
specially in sectors of vital importance for socio-economic and
technological development of India”
• “That the patents granted do not in any way prohibit the Central
Government in taking measures to protect public health”
But …
• These have not been operationalised to have a
simple and easy to administer CL system
• Article 1 of TRIPS - member countries are “not
obliged to implement in their laws more
extensive protection than is required by this
Agreement ...”.
• But the government has preferred to adopt a
stricter CL regime than what is required under
TRIPS.
Difficulties
• the procedure specified is cumbrous. The procedure
is open-ended without any time limit imposed for the
grant of CL
• the copy of the CL application will have to be
advertised in the official gazette, though this is not
required under TRIPS
• the patentee or any other person may oppose the
application and will have to be given adequate time
for doing so
• the Controller will decide only after giving both the
parties an opportunity to be heard.
• A CL granted by the Controller can be opposed. Such
appeals will be considered by an Appellate Board
before a CL is ultimately permitted.
Difficulties
• the grounds of “reasonable requirements of the
public” or “reasonably affordable price” can easily be
challenged by the patentees.
• then arguments and counter-arguments will follow.
After all these are heard by the Controller and then by
the Appellate Board, in case of an appeal, it may be
years before a CL is granted, if at all.
• The entire process is excessively legalistic and
provides the patentees the opportunity to manipulate
by litigation. The huge expenses involved in fighting
the large pharmaceutical companies holding the
patents may dissuade the non-patentees from
applying for licences in the first place.
Not mere theoretical
possibilities
• The current CL procedure has been
inherited from the British Act of 1911
• Till 1972 when the Act of 1911 was in
force, there were only five CL cases:
– Granted in only two cases
– Refused in two cases
– Ultimately, application withdrawn in one case
Special CL provisions
• Any time after the sealing of the patent, an
application for a CL can also be made under
Section 92 for a patent notified by the Central
Government.
• Such a notification can be made in
circumstances of national emergency,
extreme urgency, or public non-commercial
use
• The procedure mentioned need not be
followed if the emergency, or extreme
urgency or public non-commercial use is due
to public health crises related to AIDS,
tuberculosis, malaria or other epidemics.
Section 92 is a potentially
important provision.
But no simple and easy to use
procedure has been
elaborated in the Rules
A National CL Policy
• Rather than adopting a case by case approach,
the Central Government may notify the list of
medicines eligible for CL in public health crises
• The inclusion of any drug in the list cannot be a
ground for opposition and appeal. Guidelines
may be issued for the royalty to be paid to the
patent holders in case of CL.
• For any drug in the public health list, the
Controller may immediately after receiving an
application, grant the CL, fixing a royalty rate
using the royalty guidelines
• Any opposition or appeal against the grant of a CL
in this case can only relate to the royalty rate fixed.
• The opposition to the rate fixed should not hold up
the use of CL. While this is being adjudicated, the
non-patentee could begin to use the patent on the
basis of an undertaking that the royalty rate finally
decided will be paid in full
• The case by case consideration of the royalty rates
payable and the opportunity to oppose and appeal
against the royalty rate fixed will satisfy the Article 31
clauses (a), (i) and (j) relating to consideration of
individual merits and review of the CL decision.