India, Pharmacy to the Developing World, Must Honor IP Rights

india_flagThe United States and India are locked in a vitriolic debate over intellectual property rights in the pharmaceutical sector. The tension between pharmaceutical patents and access to affordable medicines took center stage during President Obama’s three-day visit to India in January. For several years the United States has been increasing the pressure on India to adopt intellectual property protections similar to those of the U.S. and the European Union, without avail. According to the 2015 U.S. Chamber of Commerce’s Intellectual Property Index, India ranks 29th among 30 nations in their protection for intellectual property rights. The report scores nations in several IP dimensions, out of a maximum of 30 points. India scored 7.23 points, only Thailand was ranked lower, while the U.S., the highest-ranked country, scored 28.53 points.[1]

Claiming to be the “Pharmacy to the Developing World”, India argues that their lax intellectual property rights regime is critical to their ability to provide low-cost, quality generic drugs. They are wrong on two counts. First, India needs to honor IP rights, because without effective intellectual property rights, new pharmaceuticals will not be developed and the “Pharmacy to the Developing World” won’t have anything to provide to the developing world, or to anyone. Second, given the quality crisis in the Indian pharmaceutical industry, they shouldn’t be the pharmacy to anyone.

In early January 2015, the Indian government rejected Gilead Sciences Inc’s patent application for its Hepatitis C drug Sovaldi. This comes on the heels of numerous other attacks on pharmaceutical patents. As of mid-2014, India had “denied, revoked or otherwise attacked” the patents of 15 of the approximate 45 patented medicines on the Indian market.[2] The result is a regime of protectionism that coddles Indian industry at the cost of U.S. jobs. The pharmaceutical industry is but one of many industries experiencing such treatment. While the United States has welcomed Indian firms, India has shunned innovative U.S. firms. As described in his Pre-Hearing Statement to the U.S. International Trade Commission, Rod Hunter notes that Indian pharmaceutical firms have enjoyed unfettered access to the sizeable U.S. market:

“Approximately 40% of all FDA marketing approvals for generic medicines in 2013 were for Indian products. One of India’s major generic pharmaceutical companies, Wockhardt, has reported generating 52% of sales revenue from the U.S. in the 2012-2013 financial year. Another, Sun Pharma, publicly stated in December 2013 that 70% of Sun’s sales come from the U.S. alone. Dr. Reddy’s Laboratories reported a 76% increase in net profits for the quarter ending September 30, 2013 due to ‘high margin launches in the US market.’ And the Government of India is benefitting from the implementation of this industrial policy – it collects more taxes on pharmaceutical products than it spends on medicines.”[3]

[Kristina]

Indian firms are clearly benefitting from the research and development done by the U.S. pharmaceutical industry. Without the innovation done by U.S. firms, the generic industry would cease to exist. It is the tremendous investment of time, talent and financial resources that facilitates the development of new treatments and cures. It is the protection offered by effective intellectual property rights regimes that incentivizes these investments. Without IP the investments evaporate and the innovations disappear. Intellectual property rights and patent protection are not solely the best way to advance drug discovery and development, they are the only way. It is imperative that India recognize this and honor that IP rights that, in essence, deliver prosperity to their generic firms.

The stakes are particularly high in this case: for India and the U.S., for consumers as well as industry. According to the IMS Institute for Healthcare Informatics, 86 percent of US prescriptions filled in 2014 were for generics, and 40 percent of U.S. generic drug imports are from India. In 2013, Indian pharmaceutical exports to the U.S. totaled $4.5 billion, more than a tenth of the $41.8 billion in goods India exported to the U.S. that year. However, as U.S. patients consume a growing number of Indian generics, their quality is increasingly in question. In 2014, the U.S. Food and Drug Administration banned imports from 21 Indian manufacturing plants, more than in any previous year. [4]

According to the April 2014 U.S. Trade Representative ‘Special 301 Report’, India is “the largest source of counterfeit pharmaceuticals shipped to the United States”. The report went on to state that “reports indicate that anywhere from 10-40 percent of drugs sold in Indian markets are counterfeit and could represent a serious threat to patient health and safety”.[5] Wockhardt, the same firm mentioned above, is now banned from exporting drugs to the United States following F.D.A. inspections at two plants that uncovered serious problems.[6] Ranbaxy Laboratories Ltd, and Sun Pharmaceutical Industries Ltd. have also been subject to F.D.A. import bans, for reasons ranging from quality control problems to data manipulation to sanitation.[7] The result is that some U.S. doctors are recommending that their patients seek out generic manufacturers outside India. According to one U.S. cardiologist, “I’m tending to stay away from India. There’s something wrong. Too many things are happening.”[8]

While all of the energies of the Indian pharmaceutical industry seem to be focused on undermining U.S. requests for effective intellectual property protection in India, arguing that weak, ineffective IP rights are critical for supplying inexpensive generic drugs, they have clearly missed the forest for the trees. If they are to sustain the growth of the Indian generics industry, it is critical that they honor the patents that provide them with the innovative drugs that become their generics, and that they refocus on producing quality products, products that consumers the world over can be confident are genuine, effective and high quality.

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[1] Global Intellectual Property Center, U.S. Chamber of Commerce. GIPC International IP Index, Third Edition, February 2015.

[2] Hunter, Rod. India’s Attack on Innovation: New Delhi’s discrimination against U.S. firms harms jobs and intellectual property, The Wall Street Journal, September 25, 2013.

[3] Hunter, Rod. Statement of Rod Hunter, Senior Vice President, Pharmaceutical Research and Manufacturers of America (PhRMA), Before the U.S. International Trade Commission Investigation No. 332-543, February 13, 2014. Public Comment.

[4] Silverman, Ed. Why More Indian Generic Drugs Will Make Their Way to the U.S., The Wall Street Journal, May 14, 2014.

[5] Malik, Aman. Can Obama And Modi Settle The US-India Feud In The Pharmaceuticals Sector?, International Business Times, January 19, 2015.

[6] Thomas, Katie. Generic Versions of Toprol XL, a Heart Drug, Are Recalled, The New York Times, June 23, 2014.

[7] Reuters. Unease Grows Among U.S. Doctors Over Indian Drug Quality, The New York Times, March 18, 2014.

[8] Reuters. Unease Grows Among U.S. Doctors Over Indian Drug Quality, The New York Times, March 18, 2014.

The Author

Kristina M. L. Acri née Lybecker

Kristina M. L. Acri née Lybecker is an Associate Professor of Economics at Colorado College in Colorado Springs, and Chair of the Department of Economics and Business. She earned a B.A. from Macalester College, with a double major in Economics and Latin American Studies, and received her Ph.D. in Economics in 2000 from the University of California, Berkeley. Dr.Acri's research analyzes the challenges surrounding intellectual property rights protection in innovative industries: incentivizing pharmaceutical research and development especially on neglected diseases, addressing the difficulties of strengthening intellectual property rights protection in developing countries, battling the problems related to pharmaceutical counterfeiting and the unique nature of protection for biotech therapies. Recent publications have also addressed alternatives to the existing patent system, the balance between pharmaceutical patent protection and access to essential medicines, and the markets for jointly produced goods such as blood and blood products. Kristina has testified in more than a dozen states on the economics of pharmaceutical counterfeiting. She has also worked with US Food and Drug Administration, Reconnaissance International, PhRMA, the National Peace Foundation, the OECD, the Fraser Institute, the Macdonald Laurier Institute, and the World Bank, on issues of innovation, international trade, and corruption.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 11 Comments comments.

  1. Anon March 18, 2015 11:58 am

    I will disagree with the first point.

    Whether or not one sovereign nation decides to honor IP has NO merit in whether the fact that other nations do honor IP overrides the pursuit of those rights and drug development in general, or in any other particualr individual sovereign nation. Most such sovereign protection systems do provide import controls.

    This is NOT to say that a sovereign nation which has agreed to a treaty to honor such rights should not be compelled to do so.

    It is to say that there is no such thing as a global patent right, and that patent rights remain strictly territorial and sovereign in nature.

    I stress this point heavily because the view to the contrary is often advanced as part of a larger argument that supports the view that costs are fairly re-allocated on a country by country basis, which leads to the fact that Pharma “gets away with” charging US customers disproportionately because of the deeper pockets here.

  2. K. David Crockett March 21, 2015 10:19 pm

    India honors patents just like the US does: get a patent in the US, and you can enforce it in the US; get a patent in India and you can enforce it in India. Firms that don’t get patents in India have no legitimate complaint about honoring patents, though they might have a complaint about the standards for issuing patents (just like we do here in the US, after KSR and Alice and Mayo).
    So what is Lybecker’s real issue?
    The real complaint is that India has the gall to apply its own test for patentability, which requires an advance in the art in addition to an inventive step which is not obvious.
    As for the economic arguments, it seems that India could draft on the countries that more freely grant patents, applying lower tests for patentability. Innovation in Europe and the US seems robust enough that it does not need patent protection for every modification. And patents not the end-all be-all of pharma policy.

  3. Daniel Cole March 26, 2015 4:30 pm

    What is under the two pro weak patent comments above, and the more general anti-patent thoughts in India? Easy – the belief that health care is a human right and that anything that prices health care out of reach of some people is evil. As long as this idea exists patents for drugs will be fought.

    Anon – wish you had the courage to give your name with your thoughts. No there is no legal worldwide patent right but there is a moral one. Even the declaration of human rights (generally not a capitalist friendly document) recognizes IP rights. Why does this not create a worldwide legal IP right? Easy, the declaration of human rights creates no legal rights and is not really worth the paper it is printed on. Something any honest student of international law will tell you.

    Crockett – Yes the issue is the advance in the art which makes the standard waaay to high and violates India’s duties under the international treaties it has signed. Our anemic patent hating government will not call them on it of course. One more reason to vote republican. “Innovation in Europe and the US seems robust enough that it does not need patent protection for every modification” Are you insane? China is catching up to the west in innovation as is India south America and Europe is catching up to the US. Innovation in the US (the only place I really care about) is no where near robust enough. If patents are not going to pay for the insane costs of drug research and the risk that the research will produce nothing (as 99.99999999999999% of it does) what exactly will? Nothing that has been suggested by India, the UN, or anyone else has any chance of working.

    The only way to get people with money to invest in something with a high rate of failure is to make the rewards of success extremely high.

  4. Anon March 28, 2015 10:37 am

    Daniel Cole,

    I have posted several times in the past on this blog concerning anonymous and pseudonymous posting.

    A shame then, that you display ignorance by assuming that an anonymous poster must be lacking courage.

    As it is, your eagerness to assume that position greatly lessens everything else that you want to share on the topic.

    That being said, I did read the rest of your post. I cannot tell what point it is exactly that you are trying to make. Other than a mere label, you do not address anything that I actually say, so it is not possible to take a next step with you in this discussion directly on the points that I made.

    It does appear that what you care about (“Innovation in the US“) to you means some type of unbridled world wide right to enforce, based on some notion of “morals,” but such a high road is far too shallow when that road drives through the moral right of any individual country to achieve their own self-determination as required by a respect for national sovereignty.

    Your attempt at making the rewards of success extremely high should not assume that your version of morality can disregard that respect. That’s not morality – that’s vanity. Even the most benevolent of dictators remains a dictator, and history is replete with the fallacy of one nation (or group) seeking to enforce its version of morality on others.

  5. K. David Crockett March 31, 2015 1:28 pm

    Daniel Cole:
    Am I insane? If I were, I probably wouldn’t know it, and would probably assume that everyone else is the world was insane and I was the only sane one.
    You are certainly justified in holding that the advance requirement sets the bar too high. Perhaps India is justified in holding that the US obviousness test sets the bar too low. I thought Lybecker’s post was a bit dismissive of India, as though there refusal bow to US corporate dictates was a sign of low intelligence. I also thought that her economic arguments were open to strong counter-arguments: That is, India could reasonably believe that patent incentives in the US and Europe are unreasonably high, and that India need not provide additional incentives to promote innovation. Contrary to Lybecker’s position, drug companies will not stop innovating because India won’t rubber stamp US and EP patents. India did not grant any drug patents before TRIPS, and I don’t believe that suppressed innovation by US and European drug companies.
    You assert that India is catching up to the US in innovation. That means that they are innovating faster that the US (you can’t catch up unless you are going faster than the guy ahead of you). The fact that India is doing this even with a higher standard for patentability undercuts the argument that a lower standard is critical for innovation. Thus, it is not, as Lybecker asserts, imperative that India honor IP rights as defined by US law. India does not need to honor IP rights because, if not, “new pharmaceuticals will not be developed.” New drugs will continue to be developed even if India pulls out of TRIPS and reverts to its prior practice. India’s balance between IP rights for corporations, and availability of drugs at affordable prices, is a rational position. It’s fair to disagree, but it’s not fair, or polite, to refuse to recognize that it is a rational position.

  6. Anon April 1, 2015 7:31 am

    K David Crocket,

    You assume the conclusion that you want to reach – that India is indeed innovating faster.

    Tell me then, what are these plethora of new drugs innovated first in India?

    A discussion with you would be interesting, as I see myself possibly agreeing with some of your premises (for example, India’s choice of its own sovereign bar height will NOT stop innovation elsewhere in the world) at the same time I know that I disagree with the conclusions that you want to draw from those premises (for example, India’s choice will NOT result in drugs at affordable prices, leastwise here for me in the States, because costs are shifted – there is no free lunch).

  7. K. David Crockett April 1, 2015 3:31 pm

    Anon:
    I didn’t assume India is innovating faster! Daniel Cole said that India was catching up in innovation, so HE said India was innovating faster. I just teased him about that.

    I assume Indian drug companies do very little innovation, and just free-loads on us for innovation. If I ran a country with a billion poor people, I might make the same decision that India made. For some maladies, like diabetes, cheap medicine without further innovation is a good short-term and mid-term solution. For other maladies, maybe I want to spur innovation with patents, which in the long term might improve living standards but in the short term keep drugs out of reach for a few hundred million people.

    You may be correct that India’s course, which gets OI (outside of India) patented drugs into India for cheap might mean higher prices for us in the US. Levemir, for example, might be cheaper in India because there are multiple manufacturers, none paying royalties. I don’t remember much from college economics, but I think price is determined by relative supply and demand in the market place, and since the US is a closed market (except for some level of illegal imports), what happens in India should have no effect on prices in the US. India’s lack of patents for big pharma may induce some drug companies to quit innovating, but (a) India is betting that the enticements of the US and EP markets are too big for that to happen and (b) that won’t effect drug prices in India or the US.

    If innovation is the most important thing, can’t we appreciate India’s innovation in the area of patent law? We jigger with patent law all the time, changing our standards of patentability, patentable subject matter, etc.

  8. Anon April 1, 2015 6:30 pm

    You are entirely incorrect as to the cost impact in the US due to what happens in India (and not just in relation to illegal imports).

    I speak from experience from my management days in treating cost factors on a world wide basis. Market segmentation (and the associated cost impacts) are a very real thing.

  9. K. David Crockett April 2, 2015 5:15 pm

    Like I said, I don’t remember much from my economics classes in the 80’s, except that Professor Berkowitz made it all very exciting. Can you (briefly) trace the effect of India’s decision that a drug is not patentable to a price increase for that drug in the US?

  10. Anon April 3, 2015 4:26 pm

    Briefly:

    Non-patent coverage –> lower price,
    Lower price –> smaller region profit
    Make up the difference, Cost –> US

  11. K. David Crockett April 23, 2015 4:27 pm

    Anon: I can see that a drug firm might want to gouge US customers to make up the difference, but I can’t see that it works to maximize profits. Assuming some price elasticity, the optimum price in the US is determined by supply and demand. Any variation from the optimum price results in lost profit. Supply may be limited due to the patent, which should result in higher prices. From this viewpoint, what happens in India does not effect the supply or the demand in the US, and thus should not effect the price in the US.
    You might be interested in David Lazarus’ recent article about Zorivax,at http://www.latimes.com/business/la-fi-lazarus-20150306-column.html. Zorivax sells for $35 in Canada, and $2500 in the US. This can’t be explained by a differential in patent protection (there is no patent), or free market operation, so something else must be happening. There must be some other distortion in the market that is entirely unrelated to lack of patent protection in Canada.