Nursing the big boys

As international patent standards come into force in India, its widely hailed pharmaceutical industry is facing turbulence that will likely dramatically raise the price of medicine, at least for the short term.

India's global commitments towards intellectual property rights are dictated largely by the contentious Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) – an agreement between 125 countries, reached in 1994. On account of its status as a developing country, India was entitled to a transitional period until 1 January 2005 to bring its intellectual property regime into compliance with the minimum requirements imposed by TRIPS. Following the promulgation of the Patents (Amendment) Ordinance in late December 2004, India concluded the process of amending its domestic laws so as to meet its TRIPS obligations. The country's pharmaceutical industry has been among the first to acutely feel the ramifications of this new paradigm.

Before the TRIPS agreement came into effect, patents in the pharmaceutical sector represented perhaps the starkest contrast between the policy approaches of the global South and North. Developing countries have long preferred 'process patent' approaches, where only the process of manufacture of the pharmaceutical drug – and not the product itself – can be the subject of a patent. This approach allowed pharmaceutical firms in the developing world to specialise in the manufacture of cheap, generic versions of patented drugs (by reverse-engineering products developed in the North) for supply to their domestic markets, as well as for export to other countries with similar regimes. As a result, drug prices were kept relatively affordable for the largely impoverished populations of the developing world.

Developed countries, on the other hand, typically followed the 'product patent' approach, which entitled patent-holding companies to a legal monopoly over the drugs they created. This then enabled them to price their products well above 'marginal cost', the cost required to continue producing the product. As such, drug companies can more easily recover the large, fixed, research and development costs incurred in developing new drugs.

The superior negotiating strength and economic resources of the North, however, resulted in the minimum obligatory standards under TRIPS more closely approximating those existing in developed countries. Furthermore, patent protection is stipulated to last for at least 20 years from the date of filing the application. For Indian drug makers, TRIPS implied a shift from a patent approach that had previously granted only 'process patents' that lasted for seven years, to one that now provides 'product patents' for 20 years.

Since people in developing countries spend a much larger percentage of their health expenditures on pharmaceutical drugs, the question of affordability of the patented drugs is of vital importance. That aside, the implications of an HIV/AIDS pandemic have focused attention on issues of access and affordability of lifesaving drugs. Not surprisingly, the possible implications of the TRIPS regime have heightened fears that pharmaceutical prices will skyrocket across the developing world, making necessary drugs unaffordable to a large percentage of the population.

Doha flexibilities

One positive element of TRIPS has been to acknowledge that the agreement can be interpreted so as to strike a balance between the short-term interest of maximising access to patented products, and the long-term interest of promoting creativity and innovation. The measures that less-developed countries like India might adopt in the new TRIPS environment to enhance low-cost access to the newest drugs – retaining benefits they enjoyed pre-TRIPS – include several policy options. The most notable of these are compulsory licensing, utilising parallel trade, tiered or differential pricing, enforcing price-control regulations, encouraging the donation of vital medicines, promoting artificial competition to reduce prices, and cooperating in international drug procurement efforts. All of these might be adopted without running afoul of the obligations imposed by TRIPS.

Compulsory licensing refers to a situation in which a government allows an agent to produce a patented product without the consent of the original patent-holder. Parallel importing is a scenario wherein the government allows the importation of a patented product that is marketed elsewhere, but at lower prices than in the original market. Tiered or differential pricing implies that drug prices be set close to marginal cost in the least-developed countries, with a progressive increase of prices as one moves from low- to high-income countries. Drug price control regulations can be used by governments to legally limit drug prices within a particular range, independent of the larger issue of product or process patents. In addition, donation drives of vital medicines for countries that require them, promotion of competition between pharmaceutical manufacturers, along with participation in international drug procurement efforts, are other non-direct mechanisms by which affordable access to medicines can be promoted.

In response to fears that TRIPS may make some drugs difficult to obtain for patients in poor countries, developing countries succeeded in getting WTO trade ministers at the Doha Ministerial Conference in November 2001 to adopt a landmark declaration. The Doha Declaration subsequently affirmed that public health takes precedence over private patent rights, and reaffirmed the rights of governments to use WTO public health safeguards and other available measures to gain access to cheap drugs.

The declaration also contained a number of important clarifications regarding the flexibilities contained in TRIPS. On the issue of importing under compulsory license, the Doha Declaration assigned the TRIPS Council the task of sorting out how to ensure extra flexibility, to ease the process of obtaining copies of patented drugs produced elsewhere. This issue in particular had been contentious, given that another TRIPS article had stipulated that products made under compulsory licensing must be "predominantly for the supply of the domestic market". Although WTO member governments had been in deadlock over the issue, this was broken in August 2003 with agreement on an 'interim waiver'. Last December, the members agreed to transform this waiver into a permanent TRIPS amendment.

The South's medicine cabinet

This decision will significantly impact India's pharmaceutical industry, with its well-established capabilities for the production of generic drugs. Several analysts have subsequently pointed out that the Indian pharmaceutical industry is a prime example of a growing, successful, high-technology industry that is being forced to re-conceptualise its long-term strategies in light of India's decision to open its markets to global trade.

In the past, copied drugs were typically introduced in India soon after they appeared in their original markets. This implies that pharmaceutical multinationals did not enjoy a substantial advantage for having been the first to introduce the drugs; nor did they have a monopoly to establish high prices in selling a newly developed drug in the Indian market. Despite this availability of cheap generics, India – with a large part of its population living below the poverty line, high out-of-pocket expenses towards health care, and highly unsatisfactory overall health indices – still suffers from a significant health crisis. In the short-term, this situation will only be further exacerbated once the full ramifications of the TRIPS regime take effect.

Pharmaceutical patenting in India is also of special relevance to public health across the developing world. Indian drug firms, after all, have been important suppliers of both low-priced pha-rmaceutical ingredients and finished products to developing countries everywhere. While it is clear that India has a lot of work ahead of it in simply improving the quality of its health delivery systems, Southasian policymakers, particularly in New Delhi, should use the flexibilities available within the TRIPS system to keep medicines as affordable as legally possible, both domestically and when exported. In this, India will undoubtedly have to exercise great care, so as to avoid being dragged into the formidable WTO dispute-settlement process, or into the sights of unilateral economic sanctions by developed countries.

In terms of the Indian pharmaceutical industry, the future could well be bright. Any characterisation of the country's drug companies solely as 'copiers lacking innovativeness' is increasingly inaccurate. Analysts have subsequently predicted that Indian pharmaceutical firms could well become major participants in the global marketplace, including the regulated markets of the US and EU. In the long term, TRIPS and the product-patent regime it has established will undoubtedly stimulate more research, more development and more competition, thereby eventually reducing drug prices. The trade-off is that, for the moment and possibly in the near future, the prices of newly patented drugs in India and the developing world will indeed rise perceptibly. Reduced short-term public access to affordable healthcare across the developing world subsequently remains a stark reality from which we cannot escape.

The damage done

It is well documented that low-income countries enjoy higher relative economic welfare when they can 'free-ride' on pharmaceutical innovations made and patented in the first world. Global welfare would also benefit from such free-riding, as opposed to the impact of uniform patent laws. Although one of TRIPS's articles urges developed countries to encourage technology transfer to lesser-developed countries, this has not been happening. Instead, most of the developing world remains dependent on products designed to meet the healthcare needs of a few developed countries.

Concerns also remain that diseases like malaria, tuberculosis and dengue – prevalent primarily in the southern hemisphere – will not receive the due research and development attention they need, simply because the people affected by these diseases are not 'profitable'. Despite these obvious shortcomings of the TRIPS regime, moves are already underway from several developed countries to set more stringent intellectual property standards, and to further standardise global patent laws.

TRIPS represents the most significant step in a move towards uniform global patenting laws. These are aimed primarily at maximising profits of pharmaceutical manufacturers, and are undeniably skewed in favour of the interests of the developed world. The damage already done to public health can only be ameliorated through constant vigilance and focused international negotiation on the part of developing countries.

And several positive possibilities do exist. Available flexibilities must be strengthened, public-health exceptions must be further protected, mandatory reviews of the TRIPS regime must be emphasised, and the commitment to technology transfer must be more effectively implemented. Such emphases should remain of utmost priority when the WTO next focuses on TRIPS-related issues. The breakdown of multilateral WTO trade talks in Geneva in June, primarily on account of US intransigence to slash trade barriers, represents a grim portent of the difficult road ahead in amending existing global regimes under the WTO. Towards this end, it remains vital that the developing world presents a unified front, and argues a convincing case for improved access to public health.

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Himal Southasian