The Generic Gamble: Developing countries hope India will remain a major supplier of low-cost drugs, despite controversy over patent rules

The Generic Gamble: Developing countries hope India will remain a major supplier of low-cost drugs, despite controversy over patent rules

By Margot Cohen

For now, India remains a leading supplier of low-cost generic drugs.

But even so, the August 5, 2007, ruling in which the Madras High Court rejected a bid by pharmaceutical giant Novartis to tighten the country’s patent laws for brand-name products left many unanswered questions. Chief among them: What will be the impact of India’s newly introduced patent regime? Will dynamic market forces alter the course of the country’s generic drug industry? Public health advocates remain concerned that India could end up hobbled by patent requirements or lose out in the rush to reach a lucrative finish line in generic drug production. At stake is access to medicine on a global scale.

Such fears underscore the vital role played by India in the quest to provide affordable medicine to the world’s poorest patients.

More Bargaining Power for Developing Countries

Not only have Indian companies churned out low-cost generic drugs to treat HIV/AIDS, diabetes, heart disease and other illnesses; the increasing availability and variety of Indian generics in recent years has clearly elevated the bargaining power of developing countries. Multinational drug companies have been compelled to cut prices—in some cases, by dramatic margins. “We know of no more effective means of reducing prices for drugs than robust generic competition,” says Chan Park, senior technical and policy advisor at the Lawyers’ Collective HIV/AIDS Unit, a New Delhi-based group that works to enhance access to treatment.

But this scrappy industry currently faces a complex and seemingly obscure set of patent rules that India adopted to help comply with its international trade obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Moreover, the sanctity of intellectual property is not the only issue on the table. Some activists fear that the very success of India’s top generic drug firms will prompt them to turn their backs on the poor as they pursue more developed markets.

An Uncertain Future

“We are quite worried about how the future will look in terms of India’s ability to provide generics,” says Dr. Tido von Schoen-Angerer, director of the campaign for Access to Essential Medicines at Medecins Sans Frontieres, a Geneva-based organization. “India would be much more focused on profitable generics in the West, rather than taking an interest in serving developing countries with newer medicines.”

It is still too early to speculate exactly how this drama will play out. Yet some analysts predict that the safeguards built into India’s new patent rules are likely to permit a healthy supply of generics while spurring more research and development of new drugs. Meanwhile, market opportunities in the West will not necessarily pre-empt companies from exploring ways to increase bulk sales to developing countries—especially if public health authorities focus on boosting the efficiency of procurement programs for Africa and Asia.

“Organizations that procure drugs in bulk but then sell smaller quantities, usually to nonprofit organizations, can help smaller purchasers obtain the advantages of competitive tendering,” note the authors of the second edition of Disease Control Priorities in Developing Countries, a comprehensive public health guide. “Bulk purchase of generic drugs is the single best way to make a given budget go farther.” In contrast, brand name drugs can be ten times as costly as generics procured in bulk.

Meeting Demand in Developed and Developing Country Markets

At present, it looks like India is pursuing global ambitions that straddle both developing and mature markets, according to analysts that follow the industry on a day-to-day basis.

“It is evident that India’s role will only grow in future as a supplier of low-cost pharmaceuticals,” says Hitesh Gajaria, a pharmaceutical sector analyst based in Mumbai. "India sees tremendous opportunity in unregulated developing markets, where purchasing power is limited and there is huge demand for inexpensive versions of branded drugs. Moreover, most of these developing countries have disease profiles similar to that of India. As a result, Indian players find it easier to cater to these markets."

That view is shared by D.G. Shah, secretary-general of the Indian Pharmaceutical Alliance. “Only 17 percent of pharmaceuticals are available where 80 percent of the [world] population lives,” he observes. “This component has to go up. Demand is going to be huge, including in India.”

By all accounts, the generic drug industry is eager to grow. India’s small companies are looking to jump into the second tier, while midsize firms are mobilizing capital to emulate the success of the most famous Indian players on the world stage, such as Cipla and Ranbaxy Laboratories Limited. India’s pharmaceutical exports are slated to overtake domestic retail sales this year. According to Gajaria, drugs worth approximately $30 to $35 billion are expected to go off patent by 2008.

A Backlog of Patent Applications

Still, public health activists warn that this is no time for complacency. As India’s four patent offices struggle to cope with a backlog of 11,000 patent applications, civil society groups must hone their technical knowledge of the intricate patent regime. Vigilance is required to ensure that officials comply with the safeguards mandated by law.

Indian authorities knew they were walking a fine line when they devised the Patents (Amendment) Act of 2005 and the Patents (Amendment) Rules of 2006. While complying with TRIPS, they did not wish to hand out patents as readily as their counterparts in the US and Europe. Nor did they want to scare off major foreign direct investment in the pharmaceutical sector. Already, multinational companies are rushing to enhance alliances with Indian firms for contract research and clinical trials. This multinational strategy aims to reduce costs of research and development and bring products to market more quickly. Big players including GlaxoSmithKline, Eli Lilly & Company, and Bristol-Myers Squibb are banking on this approach, often aided by Indian professionals returning from research posts overseas.

Decoding Vague New Patent Rules

In this light, the new patent rules represent a rather murky compromise. India unequivocally agreed to grant patents on breakthrough drugs that involve new molecules and those introduced after 2005. But much of the controversy rests on a vague provision known as Section 3(d), which "has no statutory parallel anywhere in the world," according to Alfred Romann, editor of the India Business Law Journal. Basically, 3(d) says that derivatives of a known substance are not considered worthy of patent unless they enhance the efficacy of that substance. But how should India define “efficacy?” This is the question that legal scholars and drug companies would like to see answered.

In the Novartis case, for example, the company maintains that its drug Glivec/Gleevec, designed to treat chronic myeloid leukemia, meets the standard for increased efficacy because this new form allows the body to absorb the drug 30 percent faster. Indeed, Novartis won patents on Glivec/Gleevec in nearly 40 countries. Nonetheless, India’s patent office turned down the request in 2006. An appeal is pending with the newly formed India Patent Appellate Board.

Arguing that 3(d) is broadly unconstitutional, Novartis also filed suit in the Madras High Court. The company based its challenge on the argument that innovation will thrive only if patents reliably reward major investments in research. Such research does not only lead to brand-new blockbuster drugs, but substances that can be modified to heal more quickly and efficiently. “Medical progress occurs through incremental innovation,” said Paul Herrling, head of corporate research at Novartis. “If Indian patent law does not recognize these important advances, patients will be denied new and better medicines.”

Backlash

Whatever the company’s motives, its court challenge triggered loads of bad publicity—along with protests from European government leaders and various Nobel Prize winners. On August 5, 2007, the Madras High Court rejected the notion that the new patent regime leaves too much room for arbitrary decisionmaking on the efficacy question. “There are inbuilt materials. . . which would control/guide the discretion to be exercised by the statutory authority,” the ruling stated. “We find that the amended Section by itself does not discriminate nor does it prohibit the trade being carried on.”

Many activists viewed the decision as a welcome blow against Big Pharma, a label often applied to multinational pharmaceutical companies that are negatively perceived as chasing profits at the expense of vulnerable populations. “Developing countries should not be bullied by pharmaceutical companies and forced to defend themselves in court for correctly using the safeguards legally available to them to protect public health,” declared Celinie Charveriat, head of Oxfam’s “Make Trade Fair” campaign.

Novartis had initially vowed to fight all the way to the Supreme Court. But now the company says it has no immediate plans to appeal the August 5 ruling.

If India’s patent offices hold firm and assert a high threshold for “efficacy,” this could have broad implications for the developing world and its access to generic versions of “new” drugs developed in the West.

For example, the Lawyer’s Collective recently conducted a study of the total 34 “new” drugs approved by the U.S. Food and Drug Administration between 2005 and March 2007. Seventy percent of these drugs “likely would not have any patent protection in India because of the safeguards,” says Park. One reason is that many of the drugs approved in the United States would be considered new forms of old substances that carry patents issued prior to 1995, he explains. Under the new rules, pharmaceuticals patented prior to 1995 are still fair game for India’s generic companies.

For patent applications submitted to India between 1995 and 2005, the rules are more complicated. If an Indian generic company already began manufacturing a version of the drug, it may continue to do so, although it could be required to pay some royalties to the original company that developed the branded drug. How high those royalties might go—and how dramatically they would affect retail drug prices—remains to be seen.

Like other countries, India also allows for "compulsory licensing" of patented drugs in the event of public health emergencies. In recent months, nations such as Brazil and Thailand have grown bolder in breaking patents because they know that they can source generic versions from India.

Compulsory Licensing’s Downside

In reality, though, compulsory licensing is fraught with peril. Drug companies can strike back by refusing to release newer, lifesaving drugs on those markets. Political and economic repercussions can also result. After Thailand’s spat with Big Pharma earlier this year, the United States Trade Representative lost little time in placing Thailand on a watch list of countries that have violated intellectual property rights. Inclusion on the list is perceived as a step toward possible economic sanctions. Given that the United States is such an important trading partner for a host of developing and middle-income countries, compulsory licensing may not serve as a tool to be used lightly.

India’s geopolitical ambitions could also be a factor here. A US-India nuclear deal was struck recently, amidst other signs of growing bilateral warmth. “I would link the willingness of the Indian government to issue compulsory licenses with its broader political alliances in the global arena. India is seen to be moving closer to the U.S.,” observes Amit Sen Gupta, joint secretary of the All-India People’s Science Network, a non-government organization based in New Delhi. He adds: “As Indian companies align with multinationals, their willingness to fight Big Pharma in breaching patents would be compromised to some extent.”

Rather than push for compulsory licenses, some Indian activists believe it could be more prudent to use another novel safeguard in the new patent rules: the right to file petitions opposing patents during the application examination process. Other nations only allow such opposition after the patent has been granted. But getting a patent revoked can prove far more difficult than derailing one before it is issued.

This approach is beginning to win favor elsewhere in the developing world. In the Philippines, where high drug prices have sparked public ire, authorities are now revising patent rules to allow pre-grant opposition and adopt efficacy standards along the lines of India’s Section 3(d). Lobbyists are also approaching various countries in Africa to embrace similar measures. Still, any future success rests on the degree of transparency prevalent within each country’s patent mechanisms.

Looking Ahead

Despite all the uncertainties, international agencies can make a difference in ensuring that generic drugs reach as many poor patients as possible. High priority tasks include:

• Persuading major pharmaceutical firms to engage in fair bargaining with local governments on drug prices;

• Streamlining bulk procurement and distribution;

• Helping civil society groups in developing countries to sharpen their technical skills in reviewing new patent applications and their likely impact on local communities; and

• Encouraging cross-border studies of drug patent laws.

Such steps require a potent mixture of political savvy and economic clout. But ultimately, they could save millions of lives.

 

Margot Cohen is a journalist based in Bangalore, India. She can be reached via email at margot.cohen@gmail.com.