Impact of TRIPS in India

Impact of TRIPS in IndiaAn Access to Medicines Perspective

Prabodh Malhotra

© Prabodh Malhotra 2010Foreword © Shovan Ray 2010

All rights reserved. No reproduction, copy or transmission of thispublication may be made without written permission.

No portion of this publication may be reproduced, copied or transmittedsave with written permission or in accordance with the provisions of theCopyright, Designs and Patents Act 1988, or under the terms of any licencepermitting limited copying issued by the Copyright Licensing Agency,Saffron House, 6-10 Kirby Street, London EC1N 8TS.

Any person who does any unauthorized act in relation to this publicationmay be liable to criminal prosecution and civil claims for damages.

The author has asserted his right to be identifiedas the author of this work in accordance with the Copyright,Designs and Patents Act 1988.

First published 2010 byPALGRAVE MACMILLAN

Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited,registered in England, company number 785998, of Houndmills, Basingstoke,Hampshire RG21 6XS.

Palgrave Macmillan in the US is a division of St Martin’s Press LLC,175 Fifth Avenue, New York, NY 10010.

Palgrave Macmillan is the global academic imprint of the above companiesand has companies and representatives throughout the world.

Palgrave® and Macmillan® are registered trademarks in the United States,the United Kingdom, Europe and other countries.

This book is printed on paper suitable for recycling and made from fullymanaged and sustained forest sources. Logging, pulping and manufacturingprocesses are expected to conform to the environmental regulations of thecountry of origin.

A catalogue record for this book is available from the British Library.

Library of Congress Cataloging-in-Publication DataMalhotra, Prabodh, 1951–

Impact of TRIPS in India : an access to medicines perspective /Prabodh Malhotra.

p. ; cm.Includes bibliographical references.

1. Pharmaceutical industry—India. 2. Pharmaceutical policy—India.3. Health services accessibility—India. 4. Agreement on Trade-RelatedAspects of Intellectual Property Rights (1994) I. Title.[DNLM: 1. Agreement on Trade-Related Aspects of Intellectual PropertyRights (1994) 2. Drug Industry—India. 3. Health ServicesAccessibility—India. 4. International Cooperation—India. 5. Patentsas Topic—legislation & jurisprudence—India. QV 736]HD9672.I52M35 2010338.4′761510954—dc22 2010027535

10 9 8 7 6 5 4 3 2 119 18 17 16 15 14 13 12 11 10

Transferred to Digital Printing in 2011

Softcover reprint of the hardcover 1st edition 2010 978-0-230-27278-1

ISBN 978-1-349-32348-7 ISBN 978-0-230-29074-7 (eBook)DOI 10.1057/9780230290747

ISBN 978-1-349-32348-7

Dedicated to my late parentsKrishna Vati and Sham Lal Malhotra

Contents

List of Tables xii

List of Figures xiv

List of Boxes xv

Abbreviations xvi

Foreword xviii

Acknowledgements xx

1 Introduction 11.1 Introduction and background 11.2 Key issues and key questions 31.3 Organisation of the book 5

Part I Influence of Global Forces on Access toMedicines

2 The WTO and the TRIPS Agreement 92.1 Introduction 92.2 Patents and innovation 11

2.2.1 The case for protection of intellectualproperty rights 13

2.2.2 The case against protection of intellectualproperty rights for medicines 16

2.3 The TRIPS agreement 192.3.1 The role of TRIPS in the pharmaceutical

industry 202.3.2 Flexibilities under TRIPS 212.3.3 Protection of submitted data 262.3.4 Other Articles of importance 28

2.4 Conclusions 30

vii

viii Contents

3 The Global Pharmaceutical Industry and DevelopingNew Drugs 323.1 Introduction 323.2 The industry structure 33

3.2.1 Pharmaceutical sales, companies, andprofits 34

3.2.2 Major pharmaceutical markets,pharmaceutical spending, and generics 37

3.3 Developing new drugs 423.3.1 The process of drug development 433.3.2 Development time 443.3.3 Development costs 463.3.4 Direction of pharmaceutical research 51

3.4 Conclusions 52

Part II Access to Medicines in India

4 Development of India’s Pharmaceutical Industry 574.1 Introduction and background 574.2 Growth of the India pharmaceutical industry 58

4.2.1 The significance of the smallpharmaceutical firms 59

4.3 Exports and imports 614.3.1 TRIPS, India’s pharmaceutical exports, and

access to medicines 634.3.2 Imports 68

4.4 Foreign direct investment 684.5 Emerging business models in the pharmaceutical

sector 724.6 Conclusions 78

5 TRIPS and the Indian Patents Regime 805.1 Introduction 805.2 Impact of regime change on pharmaceutical

industry 815.3 The post TRIPS patents regime 855.4 Provisions to oppose patents 90

5.4.1 Rising litigations 915.5 Uncertainties and ambiguities 99

5.5.1 Access to medicines and the new patentregime 103

Contents ix

5.6 Pharmaceutical innovation 1045.6.1 The role of government in innovation 108

5.7 Conclusions 109

6 Price Controls and Drug Affordability in India: PolicyOptions 1116.1 Introduction 1116.2 Drug price controls in India 112

6.2.1 DPCO – 1995 1136.2.2 Pre-1970 Price controls 1146.2.3 DPCO – 1970 1146.2.4 DPCO – 1979 1156.2.5 DPCO – 1987 1166.2.6 DPCO – 2004 (proposed but not yet

enacted) 1166.3 Continuing search for alternatives 117

6.3.1 Trade margins 1196.4 Market behaviour 120

6.4.1 Price reductions under the voluntaryagreement 121

6.4.2 Examining changes to drug prices(2005–08) 123

6.5 Price control models 1266.6 Conclusions 130

7 Health Insurance in India 1317.1 Introduction 1317.2 The Indian approach to health insurance 131

7.2.1 Private health insurance in India 1357.3 Patient co-payments 1377.4 Conclusions 140

8 Broadening Access to Medicines and Healthcarein India 1418.1 Introduction 1418.2 Providing access to medicines in India 144

8.2.1 Developing the IndiaHealth model 1458.2.2 The proposed model 1468.2.3 Implementing the IndiaHealth model 1478.2.4 Comparing out-of-pocket expenditure 1558.2.5 Benefits of the proposed model 159

x Contents

8.2.6 Costing the IndiaHealth programme 1618.2.7 Funding the IndiaHealth programme 168

8.3 Conclusions 171

Part III Global Perspective

9 Is TRIPS Appropriate for Developing Countries? 1759.1 Introduction 1759.2 Patents in developed countries 176

9.2.1 Introduction of pharmaceutical productpatents 177

9.3 Costs and benefits of TRIPS 1809.3.1 Costs and benefits to developing countries 1809.3.2 Implications for developed countries 1839.3.3 Further implications for developing

countries 1849.3.4 Recent investigations of protection of

pharmaceutical patents 1929.4 Conclusions 200

10 Which Way Ahead? 20110.1 Introduction 20110.2 Alternative models 201

10.2.1 Differential pricing 20210.2.2 Differential patenting 20310.2.3 Donating drugs 20410.2.4 Orphan Drug Act as a model 20510.2.5 Incremental value based rewards 20610.2.6 Advance purchase commitments 20710.2.7 Public–Private Partnerships (PPPs) 20710.2.8 Open access 20810.2.9 Health Impact Fund 21010.2.10 Minimum patenting 211

10.3 Conclusions 212

11 Final Conclusions 21411.1 Introduction 21411.2 Answering specific questions 216

11.2.1 How does the regime change impact onIndia’s pharmaceutical exports, particularlyexports of the low-cost imitations ofpatented drugs to the poor countries? 216

Contents xi

11.2.2 What is the effect of TRIPS on foreigndirect investment (FDI) into the Indianpharmaceutical industry? 217

11.2.3 How is the business model of domesticfirms changing after TRIPS? 218

11.2.4 What impact does the regime change haveon the innovative activities within theIndian pharmaceutical industry? 218

11.2.5 How effective have the price controls inIndia been in providing access to medicinesuntil now and what form of price controlsis India likely to have in future? 219

11.2.6 How can India extend access to medicinesto its entire population? 220

11.2.7 Is the TRIPS Agreement fair to developingcountries? 222

Appendix A 225

Appendix B 238

Appendix C 272

Appendix D 279

Notes 286

References 289

Index 314

List of Tables

3.1 Blockbuster drugs and sales (2000–06) 354.1 Estimates of manufacturing units 1969–70 to 2004 584.2 Exports of India’s pharmaceutical industry (Rs. Million)

(1999–00 to 2006–07) 634.3 Drugs and pharmaceuticals with patent expiry in 2000

or beyond 664.4 FDI into the Indian pharmaceutical sector in Rs. million

(1975–2000) 704.5 Selected foreign acquisitions by India pharma 775.1 Major differences in the pre- and post-TRIPS Patents Act 865.2 Development of drugs by select Indian firms (2006–07) 1066.1 Drug price controls in India at a glance 1126.2 Summary examination of claimed price reductions

(2008) 1226.3 Price changes during two study periods 1247.1 PBS Safety Net thresholds from 1 January 2010 1398.1 Entitlements of IndiaHealth cards at a glance 1508.2 Calculating current health and medicine expenditure

(Rs.) in 2005–06 1568.3 Annual expenditure on medicines under current and

proposed models 1588.4 Estimates of out-of-pocket medicine expenditure

(Rs. million) and population groups (million) 1648.5 Estimates of total out-of-pocket health expenditure

(Rs. million) and population groups (million) 1658.6 Projected distribution of total health expenditure

(Rs. million) (2006–15) 167A.1 Voluntary price reduction – market prices versus

claimed prices 226B.1 Price changes to drugs for cardiovascular diseases 239B.2 Price changes to drugs for central nervous system

disorders 242B.3 Price changes to drugs for infections and infestations 246B.4 Price changes to drugs for malaria 252

xii

List of Tables xiii

B.5 Price changes to drugs for HIV/AIDS 253B.6 Price changes to drugs for Tuberculosis 254B.7 Price changes to drugs for alimentary, musculo-skeletal

disorders, hormones, and genito-urinary system 255B.8 Price changes to drugs for nutrition and respiratory

system 259B.9 Price changes to drugs for ENT, skin, and surgical

anaesthetics 264B.10 Price changes to drugs for cancer and other related

treatments 269C.1 Entitlements of IndiaHealth cards at a glance 273C.2 Calculating health and medicine expenditure (Rs.) 274C.3 Annual expenditure on medicines under current and

proposed models 275C.4 Estimates of total out-of-pocket medicine expenditure

(Rs. million) and population groups (million) 276C.5 Estimates of total out-of-pocket health expenditure

(Rs. million) and population groups (million) 277C.6 Projected distribution of total health expenditure

(Rs. million) 278D.1 Entitlements of IndiaHealth cards at a glance 280D.2 Calculating health and medicine expenditure (Rs.) 281D.3 Annual expenditure on medicines under current and

proposed models 282D.4 Estimates of total out-of-pocket medicine expenditure

(Rs. million) and population groups (million) 283D.5 Estimates of total out-of-pocket health expenditure

(Rs. million) and population groups (million) 284D.6 Projected distribution of total health expenditure

(Rs. million) (2006–2015) 285

List of Figures

5.1 New drugs approved in India (1988–2009) 948.1 The proposed IndiaHealth card 1528.2 India’s population projections (2000–50) 1628.3 Projected population of India by age groups (2000–50)

(share of total population) 1638.4 Variable levels of public expenditure on health relative to

total health expenditure 1698.5 New structure under the proposed model 170

xiv

List of Boxes

5.1 Exclusive Marketing Rights (EMRs) in India 828.1 Different levels of patient co-payments 149

xv

Abbreviations

ABS Australian Bureau of StatisticsAIDS Acquired Immunodeficiency SyndromeANVISA Agência Nacional de Vigilância Sanitária (National

Health Surveillance Agency Brazil)AYUSH Ayurveda, Yoga & Naturopathy, Unani, Siddha,

HomoeopathyBCG Boston Consulting GroupBDMA Bulk Drug Manufacturers AssociationCBO Congressional Budget OfficeCDRI Central Drug Research InstituteCDSCO Central Drugs Standard Control OrganizationCMH Commission on Macroeconomics and HealthCRAM Contract Research & ManufacturingCSIR Council for Scientific and Industrial ResearchDCGI Drugs Controller General of IndiaDGCIS Directorate General of Commercial Intelligence and

StatisticsDPCO Drug Price Control OrderEFPIA European Federation of Pharmaceutical Industry and

AssociationsEGA European Generic Medicines AssociationEMEA European Medicines AgencyEPL Effective Patent LifeFDA Food and Drug AdministrationFICCI Federation of Indian Chambers of Commerce and

IndustryGATS General Agreement on Trade in ServicesGATT General Agreement on Trade and TariffsGOI Government of IndiaHIV Human Immunodeficiency VirusIBEF India Brand Equity FoundationICRIER Indian Council for Research and International Economic

RelationsIDMA Indian Drug Manufacturers Association

xvi

Abbreviations xvii

IFPMA International Federation of PharmaceuticalManufacturers Associations

IMF International Monetary FundIP Intellectual PropertyIPO Indian Patent OfficeIPRs Intellectual Property RightsIRDA Insurance Regulatory and Development AuthorityISM Indian System of MedicinesMHRA Medicines and Healthcare products Regulatory AgencyMNCs Multinational CompaniesNIH National Institutes of HealthNLEM National List of Essential MedicinesNGO Non Government OrganisationNPPA National Pharmaceutical Pricing AuthorityOECD Organisation for Economic Co-operation and

DevelopmentOPPI Organisation of Pharmaceutical Producers of IndiaPBS Pharmaceutical Benefits SchemePharma Pharmaceutical(s)PhRMA Pharmaceutical Research and Manufacturers of AmericaPPP Public–Private PartnershipsRBI Reserve Bank of IndiaTB TuberculosisTGA Therapeutic Goods AdministrationTRIPS Trade Related Aspects of Intellectual Property RightsUNCTAD United Nations Conference on Trade and DevelopmentUNCTC United Nations Centre on Transnational CorporationsUNDP United Nations Development ProgrammeUS United States of AmericaUSPTO United States Patent and Trademark OfficeWHO World Health OrganizationWIPO World Intellectual Property OrganizationWTO World Trade Organization

Foreword

I read this book with great interest both as an academic and in theperspective of a policy practitioner in the emerging economy of India.As a senior policy adviser in Government of India at a time whenArthur Dunkell’s draft was being intensely debated in the then GATT,and Indian society was deeply divided on the desirability of the TRIPSproposal, with one group of stakeholders railed against another andthe politics of consumer interest in drug prices was pitted against theinterests of a group of pharmaceuticals producers in India (and themultinationals present in the country), there was much confusion ofperceptions in policy circles about the right course of action for India.Many of the issues concerning the industry as well as the perceivedinterests of consumers were not properly understood, with very littleguidance available then from received academic wisdom.

The book provides a thorough historical perspective on intellectualproperty rights in the global context and outlines the environment inwhich the GATT operated and played its roles and transformed intothe present WTO, the role of the TRIPS agreement in general and itsrelevance in respect of the pharmaceutical industry, patents, innova-tions, and their attendant aspects. It traces the development of India’spharmaceuticals industry with the government’s political mandate forproviding low-cost drugs and formulations as well as the overall devel-opment policy imperatives for a strong domestic industry, and bench-marks it for other developing countries also. It also provides a very goodreview of the experience of the present group of developed countrieswith respect to intellectual property regimes in a dynamic world andhow they dealt with these issues in the pre-WTO regimes; and the listof cases examined include those of USA, Switzerland, Germany, Japan,and other SE Asian countries in the Pax Britannica world and beyondthrough the GATT years. This provides a very thorough background inwhich the entire analysis of this book is nuanced.

The book gives a very competent statement of India’s intellectualproperty regime for the pharmaceuticals industry and how it has aidedits development during the drug price control regime that started in the1970s subsequent to the British legacy. But it makes the very importantdistinction between drug price control, TRIPS, and their consequences

xviii

Foreword xix

on the Indian pharmaceuticals industry on one hand, and access tomedicines by the masses in the context of widespread poverty and lackof healthcare infrastructure, on the other. It considers various alter-natives to the extant TRIPS regime of the WTO as suggested in theliterature. It goes on to suggest a model of IndiaHealth programme thatmerits serious consideration by policy makers.

This book should have been written sooner, but the thorough researchthat has gone into it, perhaps it could not have been possible earlier.Now that it is available the book should be read by academic researchers,policy makers in Government, and inter-governmental agencies and thecivil society at large for a good grounding on the subject.

Shovan RayProfessor

Indira Gandhi Institute of Development ResearchMumbai, India

10 February 2010

Acknowledgements

Writing this book has been a long and difficult journey full of ups anddowns. The word ‘thanks’ falls well short of the level of gratitude I wouldlike to express to those who helped me get through the difficult timesduring this journey. The loss of my father in 2007 and my own subse-quent serious health problems were but two major setbacks. At times Ifelt very low and wanted to just walk away. I am glad that some peoplehad more faith in me than I did.

First and foremost, I would like to thank Professor Bhajan Grewal forhis professional advice and intellectual support. I am also grateful toProfessor Peter Sheehan for his unparalleled patience and encourage-ment throughout my academic journey. I would like to thank Dr BruceRasmussen and Dr Kim Sweeny for clarifying my frequent queries. I amindebted to Professor Sardar Naz Islam for his guidance with publishingthis book. I would like to acknowledge the friendship and encourage-ment of my colleagues Dr Dexin Yang, Dr Sudath Arummapperuma, andDr Tri Lam. I also feel indebted to Dr Hans Lofgren of Deakin Universityfor sharing his research material with me.

This book has been completed with the direct and indirect help ofmany people. It would be impossible to thank every one of them. How-ever, I would like to express my gratitude to my guru Pandit ChintamanDatar for regularly ringing me up at around 4.30 am and encourage meto continue. My sincere thanks to Dr Anand Kulkarni and his family,Jitendra Bhatia, Ravish Goyal, and Reinhard Schenk for their support.I would also like to thank Dr Prem Phakey for his comments on earlierdrafts. My special thanks to Mrs Usha Phakey and Mrs Pande for theirmotherly role in my life.

I would like to express my sincere appreciation to Mr Ammu Menonof Coimbatore and Mr Rajesh Solanki of New Delhi and many friendsaround the world for their help with the data collection. Thank youeveryone. I would also like to acknowledge Officials at the DirectorateGeneral of Commercial Intelligence and Statistics, Kolkata, for their helpwith the exports data. I am indebted to anonymous reviewers whosecomments helped me improve the clarity of expressions in building the

xx

Acknowledgements xxi

arguments. I am also grateful to the following organisations for givingpermissions to reproduce Tables in this book:

• Department of Health and Ageing, Government of Australia;• Publishers of Indian Journal of Medical Ethics; and• Population Reference Bureau.

I would like to thank my late mother Krishna, who shares her name withthe Lord, for her blessings from heaven. I would also like to express mygratitude to my late father, who unfortunately passed away before thisbook was published. I would like to dedicate this book to my belovedparents.

Writing this book was like climbing a mountain and I would nothave been able to climb it without the support of my family. To mywife Gabriela (Neelam), I say thank you for putting bread and butteron the table every day. To our children Sikander (Mintu) and his wifeSam, Vidhi and her partner Adam, Shekhar and Danny, I would like toacknowledge their support for this book.

Finally, coming from a small village in India, I always dreamt butnever expected to reach this level of academia and publish with PalgraveMacmillan. I didn’t think I had the ability to complete this journey.I firmly believe God’s mercy helped me at every step in reaching thisdestination. Thank You for guiding me in the right direction.