IPR And Patent Laws In India Economics Essay


There was little protection for patent holders between 1970 and 2005. Consequently, many domestic manufacturers reverse engineered patented drugs developed after extensive R&D and produced the generic versions using alternate processes of production. This was much cheaper and profitable with the financial risks associated minimal. This changed with TRIPS (Trade related aspects of IP rights), adopted in 1995 by the WTO specifies that all member nations enforce laws to permit patenting of both products and processes. In essence, TRIPS aims to allow extension of patents to an international level. The India parliament passed 'The Patents ( 3rd Amendment) Act' in 2005 with modification from the act of 1972,which exempted pharmaceuticals from process patents in attempt to develop indigenous industry (allowing several Indian manufacturers to produce drugs already in the market using a different process). However, the delay in adopting TRIPS allowed Indian manufacturers to produce and sell low cost drugs to India and other developing countries. The industry grew at a rapid pace prior to the introduction of product patents and several of the drugs that were protected in the western world were reverse engineered.

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The amendment in the act granted CL (compulsory license) for a patented drug in cases when the drug was not obtainable in sufficient magnitude, and priced unreasonably and not produced domestically. This, in essence, has presented the generic producers with a loophole that they can exploit. Section-84 of the act allows a domestic firm to apply for a CL at the IPO if the company that holds the patent does not produce the drug nor does it allow the applicant to produce the drug (on payment of royalty)..

Since the adoption of TRIPS, several global firms have reentered India through joint ventures or wholly owned subsidiaries. It forces domestic players to focus on R&D and innovation as the market becomes more competitive. It has also allowed global research to gain a strong foothold in India and several pharma R&D centers have been setup in India by MNCs. However, there have been several disputes in several incidents the Indian courts have turned down appeals from MNCs to disallow domestic competitors from marketing products that are close variants of their own. These developments send bad signals to the world on the limitation of patent protection in India. Several medicines for terminal patients as Novartis' Glivec (cancer), Roche's Tarceva (cancer), Bayer's Nexavar and Gilead's Viread (HIV) have not been able to receive protection from IPO (Indian Patent Office) or the judiciary. In response to criticism, Indian regulators and companies have hailed the patent offices in US and other western countries as too lax and accused them of granting patents in the absence of noteworthy innovation.

Apart from products patents, TRIPS agreement required standards on protection of data that is given to the regulatory agencies for obtaining marketing license. Another issue was the case of generic manufacturers. One who currently manufacture the drug and whose product patent file lies in the 'mailbox'. They would have to stop marketing the drug if product patent was granted to a competitor.

Another notable area in IPRs is provision for the 'Bolar exemption' which essentially tries to make such regulations as to allow generic manufacturers to produce the drug as soon as the product patent expires. This exemption allows generic manufacturers to start the marketing approval process to produce generic versions of a patent that is soon to expire. Since the introduction of TRIPS, several major generic firms have sprung into action and are eager to compete. India witnesses consolidation of several firms since early 90s till the next decade. R&D spending of Indian firms has increased tremendously led by companies as Ranbaxy and Dr Reddy's. This increase in R&D spending has helped them market more number of drugs in countries like US and UK. Both the companies have forged relationships for R&D and testing with the best in the world. India is being seen as an attractive destination for contract manufacturing and research. A large number of pharmaceutical giants have formed joint ventures with Indian generic producers.

The introduction of TRIPS and the introduction of product patents in India has led to the industry being much more competitive. One can argue that it has hurt the domestic industry and benefitted the MNCs. However, domestic manufacturers, which were primarily producing generic drug in the pre-TRIPS era, have become much more dynamic and competitive. The R&D sector has been booming like never before and there is substantial increase in the quality of research in the country. This has attracted latest advancements in technology to India and R&D giants have been setting up research facilities in India. These advancements have enabled Indian firms to compete in not only in developing markets as Africa but also developed markets as US, UK and Europe. Several Indian players have filed and obtained patents outside of India and are competing with big pharma on their own turf. In all essence, changing regulations have helped the globalization of the Indian pharmaceutical industry.

Patents in the US

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Patents in the United States are regulated by the US Patent and Trademark Office (PTO). The PTO allows patenting for both, the drug's chemical formula as well as the production process i.e. patenting of the product and the process. However, in contrast with other nations, patents in the US were granted to the first inventor and not to the first applicant of the patent. This was amended recently in 2011 to follow a 'first to file' system. Also, only an individual inventor of the drug can apply for a patent in the US. It is commonplace for the individual patent holder to subsequently transfer the patent to an organization for a nominal token amount. The US patent system also contrasts with other countries in disallowing opposition to patents.

In the United States, drug patents are given preferential treatment over other patents. For instance, patent extensions are more frequent for such patents, as also for longer validity periods. The Waxman-Hatch Act provided for extension of a patent's validity period by up to five years to compensate for exclusivity period lost due to delay in regulatory processes. For encouraging pharmaceutical patents, R&D in the industry is provided 20% tax credit.

The WTO-initiated General Agreement on Tariffs and Trades (GATT) increased the exclusivity period of US patents from 17 to 20 years. The US Patent Act itself provides for a 3 year extension to manufacturers for undertaking further studies on change in dosage and exclusivity for 7 years for orphan drugs for uncommon diseases. The maximum period for which a patent can be extended is limited to fourteen years.

However, the Waxman-Hatch Act dilutes the purpose of extension of patents by allowing generic drug manufacturers to test the product for the purpose of developing alternatives. Such alternatives can be developed even during the extended patent period. Such manufacturers are even granted an exclusivity period of 180 days in certain cases, with just one manufacturer allowed to produce the generic version, such as in the case of Ranbaxy for the drug Lipitor. This provision is often misused by manufacturers to prevent other manufacturers from venturing into the drug.

32% of patents filed by Indian companies in the US relate to pharmaceutical drug manufacturing and composition. Of the top 10 Indian companies which files for patents, five releated to the pharmaceutical industry, with Ranbaxy laboratories and Dr Reddy's Research Foundation leading the list.

Evergreening of Patents

'Evergreening', or extending the patent life of a drug, is common in the pharmaceutical industry for manufacturers to safeguard their right to their patents and prevent such generic manufacturing of drugs. Manufacturers often adopt extensive litigation to restrict development of the drug by competitors. Both Sun Pharmaceuticals and Ranbaxy Laboratories have been sued by US pharmaceutical companies for challenging their patents. Drug companies may also make incremental developments to the drug and patent these to create an alternate patent with a later expiry date. Prominent manufacturers have used nanotechnology to develop advanced versions of the same drugs and patent them. There are approximately 2000 nanomedicine patents reserved for development by generic manufacturers after expiry of exclusivity period.

Clinical trials

Clinical trials constitute a key component of the drug development process that ensures the safety of a drug. Although there are strict guidelines laid down for conducting clinical trials, sometimes it is looked as an area of humanitarian concern. As part of the WTO agreement, India is seen as an attractive country to conduct clinical trials. Reasons for that include a larger population, wide range of diseases, availability of skilled professionals, lower cost and IP & patent laws. Clinical trials are either conducted directly by companies or through contract research organizations (CROs). CROs in India are gaining popularity because of local specialization, worldwide reach and lower pricing. Several international CROs have setup operations in India for the same reason.

There are, however, a number of hindrances that include safety of the patients'. Others are the regulatory framework, issues related to ethics, quality of data and unavailability of qualified personnel. These issues are common to most developing countries and need to be addressed. A segment of critics believe that clinical trials constitute a grave threat to the society. For reasons such as patent safety, regulatory conformity, unscrupulous trials and issues pertaining to training and infrastructure.

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Rights and safety of patients: The drug development process takes approximately 10-12 years to reach the marketing stage. Clinical trials allow terminal patients to enjoy the benefits of the drug before it enters the market. In case of terminal patients, they may provide advanced health care well before it is actually available in the market. By tweaking of the eligibility criteria, clinical trials can provide otherwise inaccessible healthcare to patients that need it the most. In fact, a well designed and executed trial is generally more safe that normal medical procedures. The clinical trials process is divided into phases. Phase-2 only commences after the 1st is complete and so on. Thus patients in later stages of the trial are that of minimal risk for the subject.

Regulatory framework: In India, there exist several roadblocks in infrastructure at regulatory body level. Despite these several CROs and multinational pharmaceutical companies have been able to conduct high quality testing because of high standard of personal ethics and concern for health and safety of the patients. There has been a change of mindset from situational ethics to holistic ethics.

Illegal and unethical trials: Indian authorities have been setting up teams to monitor and control illegal and unethical trials. This problem is not specific to India - the FDA in the US has been doing so for quite some time. Indian clinical investigators have been subject to several trials and time and again have proved their competence and compliant with international standards.

Infrastructure and training: The development of the clinical trial industry has helped aid development of infrastructure in India. Hospitals in India being increasingly competent in managing trials both from technical and ethical standards. Further, Indian manufacturers were used to generic drugs with little development of indigenous research. The introduction of clinical research has exposed Indian scientists and doctors to global expertise which can be used to develop care and cure for several local ailments. Clinical trials thus have played a major part in lifting Indian medical research, in attempt to be at par with international standards.

Pricing: Premium drugs constitute about ten percent (by value) of the market while the other ninety percent comprises of off-patent drugs. These off patent drugs have several generics available and prices are low. Clinical trials will help increase use of premium drugs in India and will bring down healthcare costs.

Health Insurance

Huge potential exists for both public and private sector in the health insurance space. Health insurance, in fact, is the second largest among non life insurance segment in the country. It accounts for about 20% of the general insurance sector and around 3% of the overall insurance sector. However, it accounts for only 5% of the total healthcare expenditure. The penetration has increased from 0.07% in 2011 to 0.19% in 2011. Only 15% of the population has access to any form of indirect or direct health cover. Post liberalization in 2000 and further in 2007 when IRDA did away with the tariff on general insurance, this sector has witnesses tremendous growth and is expected to grow at CAGR of approximately 30% for the coming years. On an average, 80% of the medical spending is derived out of the patient's pocket. Several factors are responsible for this - rise in average income, growth in GDP, increase in spending power of the middle class, urbanization, increase in families with double income, increase in FDI allowed and the ever expanding distribution system among others.

Public sector dominates this space, however, private players are fast catching up. Last 5 years have seen the total market share by the top 6 of the firms has increased from 17% to 29%. Government has been pushing to increase coverage with several schemes being introduced and formulated. Many experts, however, believe that the expansion of health insurance would lead to a marker where there no distinction between branded generic products - something that is seen as a key success element. Although, the spread of insurance would make the drugs more accessible and affordable, many argue that it will lead to a fall in price owing to greater institutional sales.

The reshaping of the health insurance sector, however, has several roadblocks. First is the concept of adverse selection - only the unfit or one who knows that he/she will fall sick will try to acquire health insurance. This will drive up the costs for insurance companies and consequently increasing the premiums that the consumers will have to pay. This might make the premiums too high for a larger chunk of the population and growth will be hampered. Second is (and has been) the low coverage in both diseases and hospitals. Third is lack of centralized databases and systems to make the facility 'cashless' for the patient. Claims after the patient has paid for the medical service will discourage adoption of health insurance. Several other problems haunt the health insurance industry currently. Despite these, the sector is showing robust signs of growth and it is driving other sectors as pharmaceuticals, medical devices etc in its strides of growth.

Challenges faced by the industry

1. IPRs and patents

Despite the onset of the product patent regime, several issues plague the industry. The level of trust in the government's regulatory policies is not very high. One prime reason is that India does not provide effective data protection . China, with a larger domestic market, hand has a superior patent protection regime and consequently India is losing out on investment to the worlds' largest population. Compulsory licensing is another issue that haunts drug companies. Elsewhere in the world, CL is given only in cases of national emergencies or endemics. Other areas of concern includes limiting the patentability only to New Chemical Entities (NCEs). Early action by regulators is key in building confidence in pertaining issues.

2. Pricing

At present 40% of the drugs sold in retail are regulated by the DPCO (Drug Price Control Order) with NPPA (National Pharmaceutical Pricing Authority) being the regulatory body. The government affordability for the masses as the primary reason for heavy price regulation and plans to take the number to 60% - which would account for almost 80% of the retail sales. Further, The Ministry of Chemicals and Fertilizers plans to freeze prices of drugs currently under control and change the limit annual price hike for unregulated drugs from 10% o 15%. Industry is opposing this move citing low prices (which stand at approximately 10% of that in the US) and market sustainability as issues. They also claim that this move would discourage R & D expenditure by companies. This move will affect the MNCs and major domestic players - who produce premium drugs - the most and it could hamper FDI in this sector.

3. Regulatory issues

Data protection, tax incentives, patent protection and clinical trials are key areas of concern for the industry. The government has been criticized for its lax policies in data protection which has led several generic manufacturers to take advantage and reverse engineer patented products. The government has begun focus on clinical trials and investment has been made in this sector. There is still need for tax incentives to attract foreign investment and outsourcing opportunities. Government also needs to focus on PPPs rather than price control to provide access to low cost drugs.

4. R&D expenditure

Indian pharmaceutical companies spend approximately 6% of its total sales on R & D. The figure for major domestic players are: Lupin -7.5%, Biocon - 7.5%, Glenmark Pharma - 7.25%, Dr. Reddy's - 6.8%, Cadila Healthcare - 6.4%, Ranbaxy - 6.1%, Sun Pharma - 5.4%, Cipla - 4.2% , and IPCA Labs -3.8%. This, however, is much lower than the global players which spend from 10-20% of their sales on R & D. India ranks 8th worldwide with $ 30 billion spent on R & D in the previous year. Another point to note that while global pharma spends mainly on NCEs (new chemical entities), their Indian counterparts spend mostly on generics development. There are some companies such as Glenmark and Biocon which have pledged to develop more original drugs and have allocated almost 60% of their R & D budget in the cause. Recently, smaller companies have also started investing in new drug development which is a good indicator for the industry as a whole. Yet there is a long way to go for Indian pharma to catch up with the global innovators.