Tuesday, May 02, 2006


Patents story

For 23 years independent India adhered to the principle of intellectual property protection under patents—especially in medicine. The government hoped to receive not just essential medicines but also a transfer of technology for making such medicines. Instead drug multinationals only set up their own subsidiaries to market their own products and made no investments in the domestic industry. India was forced to sell drugs at unaffordable prices to its poor population and had to remain dependent solely on imports for its essential medicines. Only the former Soviet Union transferred the fermentation technology needed to make penicillin.

In 1970 the government of Mrs. Indira Gandhi aimed to make the country self-sufficient in medicines (as it also did in agriculture and industry) and began diluting the provisions of the patent laws. There was also a need for developing the capabilities of the indigenous pharmaceutical industry so that medicines could be available at low prices. Under the advice of some of these local companies the government enacted the Patent Act, which recognized process patents in food and medicine, and not product patents.

Essentially the method of producing a chemical compound was given protection but the compound itself could not be patented by any company. This act allowed Indian companies to reverse-engineer essential patented medicine from the west and sell very cheap generic copies in the country. By the 1990s Indian pharmaceutical companies had developed a good developmental base and India was a major exporter of cheap medicines to several Asian and African countries.

In the US drug MNCs freely appropriated the research of scientists in drug development until the Bahye Dole Act of 1980, which facilitated cooperation between research and educational institutes and private companies, and which created a system of profit-sharing and the payment of royalties.

In 1982 at the World Health Assembly Indira Gandhi famously declared, “The idea of a better-ordered world is one in which medical discoveries will be free of patents and there will be no profiteering from life and death.” Of course like the MNCs Indian companies were not in the business for charity purposes and they profited immensely from the government policy both in the domestic market and in exports. Because of their cost advantage these companies could sell cheap medicines, but there was also cut-throat competition among them, which actually forced down the prices of medicines. At the same time the Indian government neglected the development of a National Health Service and positively discouraged cooperation between research institutes and private companies.

In the US, the Food and Drug Administration (FDA) promulgated the Hatch-Waxman Act in 1984 to encourage the producers of generic copies of medicines. The innovating company could apply for an Abbreviated New Drug Application (ANDA) if it could prove that the patent of an existing drug was either invalid or expired. The first company to file for an ANDA would get 180 days of exclusive market access in the US if it won the case against the patent holding company. This provision opened a huge generic market for Indian companies but they did not have the financial muscle to access this market or to fight the legal battles until the mid 1990s.

In 1994 the Trade Related Intellectual Property rights (TRIPS) was introduced into what would go on to become the World Trade Organization (WTO). India and other countries had to introduce a system of product patents in medicine by 2005, which lead to fears of high drug prices returning to India as in the first two decades of independence. But by this time the Indian pharmaceutical companies had enough drug-producing capacity and financial muscle to take on the MNCs.

The TRIPS also contained a proviso for data exclusivity, which meant that the information on the chemical compound of a drug for which the patent had been filed by an MNC in India would have to be protected. Or in effect reverse-engineered drugs by Indian companies would be banned by law until the period of patent protection expired—effectively delaying the entry of cheap generics in US markets. Since the US itself did not grant data exclusivity and since it violated all norms of drug development this dubious clause was rejected by India.

As explained above generics are a huge market for Indian companies especially since many patented drugs are going off-patent. This has also reduced the profit margins of MNCs even as the cost of research and development in drug is climbing. So to protect their margins form being eroded the MNCs have used a clause in the Hatch-Waxman Act to sell authorized generics as soon as their patent expires. Such a generic can be produced in-house or by another local company—this drives down the drug price and erodes the profit margin of the foreign generics producer who has been challenging the patent legally.

Another form of this ploy is to make the off-patent brand an over-the-counter (OTC) drug, which can be bought directly by a customer without requiring a prescription. Since the brand is well-known to the customer and is easily procured, the generic version even though it is cheaper will not be able to enter the market. This is what nearly broke the finances of Morepen Labs, an Indian generics producer that was set on providing a cheaper alternative to the anti-histamine drug Loratadine produced originally by Schering. But they were not challenging the patent, which was due to expire in 2002, and had only filed an ANDA. However Schering persuaded the FDA to make Loratadine an OTC drug after the patent expired—Morepen which had invested millions in producing a generic saw its share price sink and subsequently piled up a huge debt burden.

In spite of such examples and other cases of patent wars there is a great scope for off-shoring the expensive research and development by MNCs to companies in India and other places where this work can be done efficiently and with substantially lower costs. This is one reason why India has signed on to the WTO. There is also scope in transferring expensive clinical trials since India has a diverse genetic pool among its people and different strains of viral and bacterial diseases.

The past mistakes of non-cooperation should not be repeated.

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