THE RESURGENCE OF PRICE CONTROLS IN INDIA

“…pharmaceutical patents are not “bad” per se, as some of the statements in the press would have us believe—rather, as with most other things in life, they are susceptible to “abuse”. In this regard, it is important to strike a distinction between the grant of a patent and the regulation of its “use”. Our fears of a prospective abuse of a patent and excessively high prices should not cause us to deny patent protection to an invention that otherwise merits it”

One such mechanism to regulate the use of a patent and to rein in the perceived ill effects is “price control”, a mechanism widely prevalent in Europe to ensure that drug prices are not excessive. Other mechanisms in this regard include compulsory licensing (under the Indian patent act, a compulsory license can be granted if the price of the patented drug is “excessive”) and even competition law (where an excessive price may be seen as an “abuse” of a dominant position in the market). More recently, in a country famed for it’s “sub solar” approach to patenting (“everything under the sun is patentable”), the House of Representatives passed a legislation effectively permitting the importation of lower-cost drugs from places such as Canada, Australia and Europe. Given the staunch White House opposition to this legislation, one is not certain if it will finally make it. For an excellent coverage of this and other pharmaceutical matters, see Ed Silverman’s blog titled “Pharmalot”.

All of the above is to highlight that in the heat of the debate on patents and the Novartis litigation, we often tend to forget the existence of these ex-post (prospective) mechanisms to control the potential abuse of a patent right. Live Mint carries a very interesting article today on this theme by Brian Druker, chair of Leukemia Research and professor of medicine at the Oregon Health and Science University Cancer Institute. Most importantly, Dr Drucker is recognized as the key researcher behind the discovery of STI571 or imatinib (marketed as Glivec by Novartis). I’ve highlighted some key portions of this article below:

“In 1993, I moved to Oregon Health Sciences University in Portland and had a single goal of finding a company that had the best inhibitor for Bcr-Abl and to bring it into clinical trials. My work in Oregon on a therapy for CML was primarily funded by public sources, particularly the National Cancer Institute. My persistence with scientists at Ciba-Geigy (now Novartis) helped to keep the development of imatinib on their agenda despite uncertainty from product managers. As imatinib progressed through early and late clinical trials and demonstrated outstanding results, scientific and media interest in our discovery increased. The approval of imatinib by the FDA in May 2001 for use in CML was the culmination of a 10-year project for me, something I had dreamed of since medical school.

However, the price at which imatinib has been offered for sale by Novartis around the world has caused me considerable discomfort. Pharmaceutical companies that have invested in the development of medicines should achieve a return on their investments. But this does not mean the abuse of these exclusive rights by excessive prices and seeking patents over minor changes to extend monopoly prices. This goes against the spirit of the patent system and is not justified given the vital investments made by the public sector over decades that make the discovery of these medicines possible.

Public institutions around the world have continuously played a critical role in the research that leads to vital new medicines reaching the market. Without access medical research becomes a luxury good. Most of my colleagues would be very uncomfortable if we felt that this would be the result of our decades of effort.”

In order to appreciate the role that “price controls” are likely to play in India in the coming years, it’s essential that we go back a little in time. I’ve extracted portions of an article that I had written in 2005, upon the passage of the patents amendment act, introducing pharmaceutical product patents for the first time in India:

“When India passed its Patent Act in 1970, it also instituted a Drug Price Control Order (DPCO) under the Essential Commodities Act of 1955 to control the price of drugs and ensure access to the general pubic.75 Under this order, prices of bulk drugs and their formulations were fixed by the government as per a specified formula that allowed a 100% margin on ex factory cost. Price changes of the remaining drugs were also to be monitored. However, over a period of time, as a result of sustained lobbying by the Indian pharmaceutical industry, the number of drugs listed in the DPCO fell from 347 in 1979 to 76 in 1995.

A new pharmaceutical policy in 2002 that sought to relax controls even further was challenged on the ground that, under the policy, certain life-saving drugs had the potential of being excluded from the DPCO. The challenge made its way to the Supreme Court and is yet to be resolved. Going by this history, one is prone to be a little sceptical of the role of price control in India.

However, more recently, there are indications that, in view of the 2005 Act and its expected impact on prices, the government is considering strengthening the price control regime to increase competition and ensure affordable medicines to the general public. To this end, a new Drug Pricing (Regulation & Management) Act is being considered. The proposed Act would, while retaining the DPCO within its ambit, have additional provisions such as end-to-end price monitoring and negotiated settlement of prices of new/patented drugs. It would also lay emphasis on cutting promotional expenses that contribute substantially to the price of the drug.”

If the recent enthusiasm of the National Pharmaceutical Pricing Authority (NPPA) is anything to go by, one can be certain that price controls will begin playing an important role in a post product patent environment in India–it’s therefore critical that we begin engaging in this debate.

Turna Ray, who’s been tracking the Novartis dispute and other pharmaceutical-patent developments in India, carries a very insightful analysis in this regard in the Pink Sheet. I reproduce some of the excerpts below:

India Highlights “Public Interest” To Reign In Prices For Non-Scheduled Drugs
India’s National Pharmaceutical Pricing Authority has imposed a 15-day deadline on 11 drug manufacturers to rein in costs of certain drugs, citing the “public interest” of lower prices for consumers.

NPPA sent notices July 30 to several drug manufacturers – Cadila Pharmaceuticals, Deepti Care Health, Dr. Reddy’s Laboratories, GlaxoSmithKline, Lupin Labs, Mepro Pharmaceuticals, Ranbaxy, UCB India, Wallace Laboratories, and Yash Pharma – highlighting price hikes of more than 20 percent for 11 non-scheduled drugs during selected one-year periods in 2004-2005.

…..Established in 1997, NPPA comprises independent experts charged with setting prices for controlled drugs, as well as monitoring or fixing prices of decontrolled drugs. Provisions under the Drugs Prices Control Order of 1995 empower NPPA to regulate drug prices for a list of 74 commonly used bulk drugs. In addition, under paragraph 10(b) of the DPCO, NPPA may “fix” prices of drugs not on the list, so-called non-scheduled drugs, if it is necessary for the public interest.

….NPPA’s authority to control prices of non-scheduled drugs in the public interest is stipulated under the DPCO, so “unless this provision … is challenged on constitutionality grounds, the NPPA is free to continue imposing price controls,” George Washington University Law School Visiting Professor Shamnad Basheer told PharmAsia News.

Basheer cited the Madras High Court’s recent decision to throw out Novartis’ case challenging the patentability of imatinib mesylate to illustrate the strength of the “public interest” plea in Indian courts.

“The recent Novartis judgment upheld the constitutional validity of section 3(d) [of the Indian Patent Act] that seeks to prevent ever-greening by limiting the patentability of pharmaceutical substances,” Basheer said. “A key reason that propelled the judges to find in favor of constitutionality was the fact that section 3(d) was introduced with a view toward furthering ‘public health’ goals by ensuring an affordable source of generics to the public.”

“In much the same way, the DPCO advances public health aims and is therefore likely to be seen as furthering the aims of the Constitution of India and not contravening it,” Basheer said.

Foreign Firms Unhappy

….In a recent report on foreign trade barriers, the Pharmaceutical Research and Manufacturers of America said that India’s “pricing regime, combined with the lack of an effective patent or other intellectual property protection, makes the commercial environment in India unfavorable for research-based companies.”

In Basheer’s view, the impact of price controls on foreign investment remains unclear.

“Europe has extensive price controls. Has this impacted pharmaceutical investment in Europe? Some would say, ‘Yes’ because a number of European companies have shifted their R&D base to the U.S.,” Basheer posited. However, he noted that while this shift may be attributed to price controls, one can also argue that it may be due to the U.S. having better scientists, universities, and research infrastructure. Another example is China, where multinational corporations continue to invest “despite its not-so-glitzy intellectual property regime,” Basheer said (“The Pink Sheet” DAILY, May 24, 2007).

“Are we missing something here? Or is it reflective of the simple truth that intellectual property is not the sole or even a substantial determinant of foreign direct investment inflow?” Basheer said. “Rather, R&D will be outsourced to countries like India and China, when such countries offer key advantages, such as low costs, highly skilled personnel, infrastructure, [and] a good science/technology base.”

Despite these advantages, big pharma has been known to put its foot down against government intervention in regulating prices in emerging markets. After Thailand’s Ministry of Public Health issued compulsory licenses for three drugs – Bristol-Myers Squibb’s HIV drug Sustiva, Abbott’s HIV drug Kaletra and Sanofi-Aventis’ antiplatelet drug Plavix – Abbott announced it would no longer launch new products in Thailand (“The Pink Sheet” DAILY, July 30, 2007).

But given Thailand’s experience, “we also have to be sensitive to the fact that extensive price controls may boomerang, in that the drug manufacturer may opt to not sell in the Indian market at all,” Basheer warned. “This hurts the consumer more.”