This study contributes towards understanding the continued role of India as a supplier of affordable medicines five years after having complied with the Trade-related Aspects of Intellectual Property Rights (TRIPS)

In 2005, the UN Special Envoys of the UN Secretary General on HIV/AIDS in the Asia Pacific and Africa collaborated for the very first time to write to the Indian government highlighting the importance of generic HIV medicines from India to the achievement of universal access to treatment goals.

Along with the UN Special Envoys, the world was watching closely to see how India would balance its obligation to comply with the TRIPS Agreement deadline to amend the Indian Patents Act, 1970 with its role as the leading supplier of safe, effective and affordable generic HIV medicines. The substance of the original Indian Patents Act, 1970 abolished product patent protection in pharmaceuticals in order to ensure that medicines were available to the public at reasonable prices and was largely based on the recommendations of a report of a commission chaired by the jurist Rajagopala Ayyangar in 1959 which stated that laws “have to be designed, with special reference to the economic conditions of the country, the state of its scientific and technological advance, its future needs and other relevant factors…so as to minimize if not eliminate the abuses to which a system of patent monopoly is capable of being put.”

The resulting Indian law did not provide patent protection for pharmaceutical products and as a result, India’s generic manufacturers were able to offer triple-combination anti-retrovirals (ARV s) at a fraction of the price being offered by patent-holding multinational pharmaceutical companies. The lack of patent barriers also allowed Indian generic companies to manufacture fixed dose combinations of ARV s that have become the weapon of choice in the global scale up of ARV treatment. But to comply with TRIPS, India amended her patent laws and re-introduced product patent protection in pharmaceuticals from 1 January 2005 leading to global concerns about the continuing ability of Indian generic companies to supply these medicines.

These concerns were taken seriously by the Indian Parliament, which aware of its responsibility not only to Indians but to patients across the world adopted the only pragmatic solution available — to utilize flexibilities available under TRIPS in an attempt to secure the availability, affordability and accessibility of medicines Five years after India changed its Patent regime this Study examines the impact of these safeguards on access to medicines analyzing the impact of TRIPS on the Indian Pharmaceutical Industry as well as the response of the legal system. The Indian Pharmaceutical Industry after TRIPS, Sudip Chaudhuri The Indian pharmaceutical industry occupies a special position among developing countries having demonstrated strong innovation capabilities, strength in developing cost-efficient processes and significant capacity in setting up manufacturing plants for drugs satisfying international quality norms, earning worldwide recognition as the ‘pharmacy of the developing world’.

This study examines how Indian generic companies are responding to the new policy environment of the TRIPS regime, the impact on their growth and the fruition of the promises of the TRIPS regime to deliver increased, more relevant R&D. The analysis of the performance of the Indian pharmaceutical industry is largely based on a sample of 166 large and medium sized Indian companies. The study explores changes in the domestic and export markets as well as in the research and development area. In terms of the domestic market, the study finds that Indian companies continue to maintain their dominance though there is renewed interest from MNCs. Changes in the domestic patented market are yet to take effect fully and will be heavily influenced by the manner in which India’s amended patent law is applied.

The Indian companies are taking various responses including filing oppositions to ensure the robust application of India’s patent law, exploring voluntary licensing, engaging in patent disputes and resisting the enforcement of greater patent rights in order to restrict the scope of the patented market. The domestic generic market, which comprises the bulk drugs market and the retail formulations market on the other hand, has seen significant changes. For bulk drug manufacturers, TRIPS hardly makes a difference as they already operate in a very competitive environment and will continue to do so even after patents expire. In the post-TRIPS situation large firms that cannot initiate the manufacturing of new drugs as they did earlier will be the most adversely affected.

Anticipating the shrinkage in domestic operations due to TRIPS, Indian companies have been introducing new products and promoting these aggressively resulting in the expansion of the retail formulations market. Market concentration is also rising with negative implications for pricing. The market share of the top 20 companies has increased while more than half of the small-scale pharmaceutical units operational in India have closed down in the last two years. In terms of exports, the study finds that the export market is larger than the domestic market not only for large companies but also for smaller companies.

However, only a small number of companies have been able to undergo the full transition to exports to regulated markets. For the larger companies, there is an increasing interest in developed markets like the US (which is now the largest export partner in both bulk drugs and formulations) and their role in these markets ranges from supplying generics where patents have expired to an increase in their own patenting practices and patent challenges.

Exports to developing countries including LDCs is an area that will be most affected after the TRIPS regime when patents are granted in India and to utilize India’s capability and capacity for enhancing the access to essential medicines in developing countries, compulsory licensing or other measures will be of vital importance. To facilitate their international operations, Indian companies have also set up subsidiaries and acquired companies abroad.

Some of these acquisitions however have caused severe financial strains for some companies. They are also facing MNCs as competitors in the generics market. Certain policy initiatives and actions at the behest of MNCs and developed countries are also jeopardizing exports such as the seizure of several consignments of Indian exports meant for Africa and Latin America at European ports on allegations of the violation of intellectual property rights at the transit point. Relationships between the generic industry and foreign companies are also changing including tieups for marketing and distribution, increasing mergers and acquisitions as well as contract research and manufacturing. For instance, recent acquisitions include Ranbaxy by Daiichi Sankyo and strategic alliances have been reported between Pfizer and Aurobindo and between GSK and Dr. Reddy’s.

The Study finds that in the pre-TRIPS situation, because of competition in patented drugs in India, both consumers and Indian producers were able to benefit from the policy environment. After TRIPS, the new policy environment has led to collaborations between Indian companies and MNCs that are restricting competition and both of them are gaining at the cost of consumers. The study also specifically explores the claim that strong patent protection will be beneficial for India. The TRIPS negotiations were driven by specific claims that TRIPS-compliant patent protection would prompt developing-country companies to conduct greater R&D for the development of new drugs more suited to local needs. The study finds that among a sample (see Annex I) of 166 companies only 37 were major R&D spenders (increasing steadily from 3.89 percent in 2001 to 8.35 percent in 2005/06) while the rest maintained their R&D expenditure around 1 percent.

As seen above, the Indian pharmaceutical industry is highly export oriented. Significant R&D efforts are directed towards developing processes and products to get regulatory approvals for entry and growth in patent–expired generic markets in developed countries. Thus much of R&D by Indian pharmaceutical companies is not related to TRIPS. It is the result of increasing export orientation of Indian pharmaceutical companies and diversification to the regulated markets, particularly to the US. While for the R&D spenders there has been a significant amount of investment, no NCE developed by an Indian company has yet been approved for marketing in India. For companies that invested heavily in NCE development there have been significant setbacks to the extent that eventually these companies have had to reduce their R&D expenditure and some have de-merged their NCE R&D business.

The study also finds that the anticipated benefit of TRIPS that the product patent incentive will prompt local companies to put resources in developing drugs more suited to developing countries has not materialized with NCEs being developed by Indian companies aimed at global diseases that have lucrative markets. While the Indian pharmaceutical industry has performed well since the beginning of the TRIPS regime it is also very heterogeneous. The larger and export oriented companies have done much better than the smaller and domestic market oriented companies. However there has been a sharp decline for the medium and smaller sized companies. Even for the larger companies, the figures hide some important differences. Highlighting these differences, the study presents case studies of the strategies of key Indian generic companies including Ranbaxy, Dr. Reddy’s and Cipla. Ranbaxy and Dr. Reddy’s have pursued a ‘high-riskhigh- gain‘ strategy investing in NCE R&D, while Cipla, the other company in the group of “Big three”, opted for a ‘safer” strategy.

Interestingly enough, in the post-TRIPS situation, Cipla, which is more critical about the advantages of TRIPS, has done much better than Ranbaxy or Dr. Reddy’s, with Ranbaxy having reached a point where it was sold to Daiichi Sankyo, a Japanese multinational company. The general picture that comes out from the case studies is that companies which have been able to expand in the domestic market and which have avoided high risks in foreign markets and in R&D have done well. Analyzing the findings the study concludes that little has changed to dispute the conventional wisdom that developing countries should not grant product patent protection in pharmaceuticals. They are already paying the cost of high prices of patent protected products without having seen the supposed concomitant technological benefits. While R&D activities have diversified, efforts in the full development of NCEs are yet to succeed and are focused on lucrative developed country markets; there have been several setbacks and the partnership model has not always worked properly. What Indian companies have really demonstrated is the ability to develop generics — an ability acquired and improved during the pre-TRIPS period. Industry gains are evident in the new relationships with MNCs.

But from a public health perspective these can hardly be a justification for a country such as India to grant such patent protection. The author accordingly recommends as follows: • Policy Implications: The Government must continue to play an important role in the development of the pharmaceutical industry in India as it has in the past and adopt policy initiatives that ensure a larger space of operations to generic companies which will in turn drive down prices. • Preserving generic competition: In the immediate context, the Government should utilize fully the flexibilities provided under TR IPS, and reject TR IPS-plus measures including those being pushed through Free Trade Agreements (FTAs). In particular the Government could introduce an easy to use compulsory licensing system. In this regard the procedure in the Indian law is overly complicated as it allows patent holders to delay the process.

A significant step to improve access to essential medicines without violating TR IPS is to revive and utilize the capacities of public sector units to manufacture patented drugs and supply these through public health care facilities on a no-profit basis. • Addressing pricing: Controlling the prices of patented drugs as well as the improvement of public healthcare and insurance facilities are also required. • TRIPS review: Finally, the Indian experience as evidenced in the study, along with that of several other developing countries and LDCs, provides sufficient evidence for a proper review and renegotiation of TRIPS. Indeed, with fifteen years of experience with the TRIPS regime, such a review is overdue. The Interpretation of TRIPS by the Indian Legal System The ‘Interpretation of TRIPS by the Indian legal System’ was done through two separate studies. In an effort to gauge the potential reach and impact of the safeguards in India’s patent law, a review of ‘mailbox’ applications pending before the Patent Offices was conducted. Separately, to determine how these safeguards are being applied by the Indian Patent Office, a sample of the pharmaceutical product patents that have been granted since the introduction of the product patents regime in 2005 was reviewed and analyzed.