Pharmaceuticals before and after TRIPS

Sudip ChaudhuriProfessor of Economics

Indian Institute of Management Calcutta

BRICS Workshop, Aalborg 12-15 February, 2006

The Context in Pharmaceuticals

• MNCs huge spenders on R&D

• Get new drugs patented and charge high prices

• MNCs consider patents as fundamental for their R&D efforts

But in Developing countries

• the patent system did not play much positive role

• In fact its abolition in India has been highly beneficial

India provided product patent protection in pharmaceuticals till

1972

• This did not have any positive effect because:– the MNCs, who held the patents were not

keen on manufacturing (and R&D) activities; they preferred imports to local production in India and

– prevented the Indian companies from doing so by using their patent rights.

As a result

– On the one hand, because of lack of competition, drug prices in India were very high.

– On the other hand, India was dependent on imports for many of the essential bulk drugs. The import dependence constricted consumption in a country deficient in foreign exchange and inhibited the growth of the industry.

But since the 1970s

• Remarkable growth in the pharmaceutical industry in India

• India and Japan: only two countries where western MNCs do not dominate

• India: net exporter and self sufficient in drugs• Drug prices among the lowest in the world• Source of good quality cheap drugs for the rest

of the world• India has the largest number of US FDA

approved manufacturing facilities outside USA.

Growth of Exports

0

500

1000

1500

2000

2500

3000

3500

1973-7

4

1975-7

6

1977-7

8

1979-8

0

1981-8

2

1983-8

4

1985-8

6

1987-8

8

1989-9

0

1991-9

2

1993-9

4

1995-9

6

1997-9

8

1999-2

000

2001-0

2

2003-0

4

$ m

illi

on

Source: Sudip Chaudhuri, The WTO and India’s Pharmaceuticals Industry: Patent Protection TRIPS and Developing Countries, New Delhi, Oxford University Press, 2005.

India’s transformation

• Using the freedom which countries had before WTO, in 1972, the Patents and Designs Act, 1911 was replaced by the Patents Act, 1970 and product patent protection in pharmaceuticals was abolished

• It was not product patent protection but its abolition which operated as a pull mechanism in India by provided the Indian companies the space of operations and the opportunity to develop and innovate

• Aided by the push programmes of public investments in manufacturing and R&D, what Indian companies innovated are processes for manufacturing. And it is this capability which has permitted India to have an international presence and be a global source of drugs.

But under WTO

• Under the Agreements on Trade Related Aspects of Intellectual Rights (TRIPS), mandatory for all countries to provide product patent protection in all products including pharmaceuticals

One important argument during TRIPS negotiations

• Developing countries too would benefit from stronger patent protection because it will stimulate private R&D investment for developing country diseases e.g., leishmaniasis, sleeping sickness, Dengue fever, which are neglected by the Western MNCs

What is happening in India?

• Indian private sector has started investing in R&D for new drugs since the mid-1990s when TRIPS came into effect.

• At present there are about 15 Indian companies which are involved in R&D for development of new drugs ( see Table)

Table R&D Expenditure by Indian companies involved in development of new drugs

Company R&D expenditure in Rs million, 2003-04

Percentage of total turnover, 2003-04

R&D expenditure in Rs million, 2002-03

Percentage of total turnover, 2002-03

R&D expenditure in $ million, 2003-04

Ranbaxy Laboratories 2761 7.80 1922 6.80 60

Dr. Reddy's Laboratories 2261 12.99 1635 9.92 49

Sun Pharmaceuticals 1077 10.20 658 7.70 23

Cadila Healthcare 882 7.52 383 3.72 19

Wockhardt 604 7.89 462 6.23 13

Nicholas Piramal India 559 3.90 185 1.63 12

Lupin 460 3.90 360 3.49 10

Torrent Pharmaceuticals 397 8.90 312 6.98 9

Orchid Chemicals & Pharmaceuticals

397 5.56 278 5.13 9

Glenmark Pharmaceuticals 372 9.67 306 9.16 8

Dabur Pharma 182 8.5 175 1.42 4

J B Chemicals & Pharmaceuticals

69 2.20 50 1.73 2

Total 10021 7.73 6726 5.55 218

Sources: Company annual reports and websites.

Status of New Drug Development programmes of Indian companies

• Indian companies are not yet ready to undertake R&D independently

• They do not have all the skills and the resources to do so• Developing new molecules and license out these to the

MNCs in the early phase of clinical development• As a result Indian companies are not targeting the neglected

diseases of the developing countries but the global diseases which interest the MNCs

• While some of the molecules developed at clinical trials stages, no new drug has yet been approved for marketing.

Thus TRIPS has not led to much R&D for developing drugs for

necessary for developing countries and neglected by MNCs

So, what is the future?

A Possible BRICS Research Project

• Impact of TRIPS

• Response to TRIPS

• Alternatives to TRIPS

Definition of pharmaceutical Innovation to include

• Developing medicines suitable for the people

• And also making these available to the people

Cross country study very important

• Brazil more successful in making drugs available (e.g., universal ARVs) and using TRIPS flexibilities (e.g., in compulsory licensing)

• Russia: ?? (in the past, USSR help was an important factor in the growth of India’s pharmaceutical industry)

• India more successful as manufacturer of quality drug formulations and active ingredients

• China more successful as manufacturer of drug intermediates and tackling USA + ??

• South Africa: The famous Medicines and Related Substances Control Act and the withdrawal of the law suit by the MNCs

THANK YOU

sudip@iimcal.ac.in