Similar sentiments have been echoed in the past in a 2006 paper published in the Wharton School, University of Pennsylvania, which suggests that consequent to the passing of the Generic Law in 1999 by Brazil, the overall market share of generic manufacturers increased to 9.05% in terms of dollar value by 2006. Reportedly, there have been instances in the past when the Brazilian government threatened to invoke compulsory licensing to browbeat foreign drug firms into offering huge discounts. For instance, in 2006, Brazil’s minister of health threatened to violate Abbott Laboratories patent on Kaletra, an anti-retroviral drug used as part of anti-AIDS medication. Abbott labs not only lowered the price by 46%, but also distributed the drug free of cost to 1,63,000 HIV carriers, which is about 27% of the total number of HIV patients. Another key issue which has troubled multinationals everywhere has been the problem of counterfeit drugs. This probably explains why Big Pharma has been “leery” of developing nations. However, The Economist says the signs are that all this is set to change. The relevant excerpt of the article reads thus:
“….But consider the story of Moksha8, a new drugs firm launched last month with money from Texas Pacific Group, a private-equity outfit. It aims to capitalise on Big Pharma’s neglect of many emerging economies by striking licensing deals for branded drugs which it, in turn, intends to market to affluent customers in those countries. It already has some two dozen drugs under licence for Brazil from Roche and Pfizer. Fernando Reinach of Votorantim, a Brazilian firm that also invested in Moksha8, expects its annual sales to top $1 billion within a year or two.”
The article also states that saturation of markets in developed nations combined with “patent busting” tactics of governments in developing nations (haven’t we come across this term before in SpicyIP?) have driven MNCs to look for hitherto unexplored vistas in developing nations. Added to that, conservative yet optimistic estimates by McKinsey have pegged the value of the Indian drugs market at $20 billion in 2015 and a much more optimistic figure for our north-eastern neighbour who these days is clamouring for a “finger” in the Sikkimese pie-China. To prove this attitudinal change, the article cites the reorganization of the top brass in GSK to cater to emerging markets in developing nations. So from a low-cost manufacturing base, developing nations are increasingly seen as the markets of the future. This naturally means that multinationals have to evolve strategies, which acknowledge and factor variables that are relevant to the local conditions and marketing strategies can make all the difference in these markets.
Differential pricing as a marketing strategy has been employed to best effect in countries like India as some our earlier posts would reveal and the article too advocates the same. The article quotes Prashant Yadav of MIT, who goes a step further and says:
“Firms must price differentially not between OECD and developing-country markets, but within each developing-country market.”
It appears that GSK and Novartis too share a similar opinion. However, the article raises a few issues which need to be addressed before one furthers differential pricing as the solution. It asks isn’t there a possibility that drugs intended for the poorest will be pilfered and sold at a profit to the urban middle classes, or shipped overseas to rich countries? Changing the colour of the pill has been suggested as a way out. Dr.Yusuf Hamied, Chairman of Cipla disagrees with the entire concept of differential pricing and believes it to be cosmetic. Apparently, he believes that “only generics-makers like his firm provide genuine competition to Big Pharma, which he insists should have no patent rights in poor countries.”
Hoping that he hasn’t been misquoted, one cannot agree in entirety with this view. Countries may be rich or poor, but arent their rich people in poor countries and poor people in rich countries? That apart, in countries like India, Thailand and Brazil, compulsory licensing has been used effectively in the recent past to fight exhorbitant drug prices which Cipla itself is too familiar with. Also with the NPPA regime in place, it may not be accurate to state that the only way of securing affordable and accessible health care for patients in developing nations is to deprive Big Pharma of their patent rights. Without doubt, Dr.Hamied has put to practice his Gandhian philosophy on several occasions in the past and there is no denying the fact that he has the best interests of patients when he calls for scrapping of patent rights for multinational drug companies. Notwithstanding that, such a move may prove to be detrimental since it might dissuade companies from investing in India. Ideally speaking, atleast until the time Indian entities establish themselves as innovators of new drugs, it is in the best interests of Indian consumers to have both multinationals which bring in new drugs and generic manufacturers who force them to reduce their prices.
Hi there,
Some quick questions:
1) How would it be ideal to have both branded and generics together to fulfill the best interests of the Indian consumer if generic industry has capacity to produce any drug at cheaper prices through reverse engineering? Isn’t perfect competition what generates consumer surplus? Isn’t Consumer surplus, for urban or rural, good for India/Indians? Remember, Shamnad rightly asked in one of the blogs as to what goes into the mind of the judge while deciding cases based on prices. The judge probably thinks how much his counterpart earns for being able to spend as much on drugs with same prices everywhere!
2) How is FDI linked with stronger patent rights? This link has never been established by scholars. Conversely, doesn’t China attract more FDI even considering soft IP enforcement?
3) Which specific case did you have in mind when you said that CL has been used effectively in India in the recent past to fight exorbitant drug prices?
4)Do you have specific cases to show that NPAA price regulations have been effective?
Would be interesting to have your thoughtful views on these intricate questions. Probably, answering them could well justify the blanket statements you have made in this post.
Whether Hamied holds Gandhian or Friedman’s thought is of less importance.Extremism on either side is bound to fail. For now, fair competition from generics is the need of the hour.
Hi,
Interestingly, the first two issues were the subject-matter of correspondence between Mr.Basheer and me a few months back. On the first two counts, probably presenting selective data with no syllogistic basis to support each other’s arguments might not be helpful to either of us.
On one hand, one might say that absent patents logically innovators might be “disincentivised” from introducing new products, but given the kind of reverse engineering skills we possess, would that make any difference at all to us could be the counter to it. This would again force us to ask if patents solely propel entry into a particular market when one could probably point to countries where despite the presence of full-fledged patent protection, the consumer base doesn’t sufficiently enthuse a producer to foray in that country. In other words, in countries where bare minimum subsistence of the population is itself a huge question, to talk about patents would be a cruel joke. Then again, someone would probably point to instances where general quality of life and spending capacity of the people may not present a lucrative market to MNCs, yet such countries could be significant players in R&D. To support such an observation, one might cite Cuba where the quality of life has steadily witnessed a calibrated decline yet the progress in research on cancer and AIDS has been very significant.
However, all this verbiage aside, given that we (as in India) are so keen on soliciting investments from abroad in general, to err on the side of caution probably would better appeal to our rational faculties. Assuming that we scrap patents for Big Pharma altogether, are you saying that the principle of insularity would cocoon the rest of the foreign investors from thinking twice before attempting to wet their beaks in the Indian market? For that to happen, the sheer volume of the Indian market should tempt investors to put their money here notwithstanding soft or no IP protection (which probably explains investments in China). However, since your argument assumes that generic manufacturers are more than a match for MNCs sans patent protection, why would any investor even think of hurting himself? Even in a scenario where the market conditions are favourable to foreign investors and there exists what we often call a level-playing field, there is no denying the home ground advantage to the local players. Reason? Regardless of IP protection, any foreign player would have to modulate his strategies according to the local conditions which in itself might add to his costs even if the laws and environment are favourable to him. But where counterfeiting combined with asymmetry of information and zero IP protection add to his already spilling cup of woes, it certainly does not give him an equal opportunity as the local players.
To cut a long story short, if we are to arrive at an informed decision, would we rely on deterministic models or statistical models? If it is the latter, is it not more of a numbers game rather than a syllogistic model? I am not sure for if one were to try and build a syllogistic model, how many factors would we consider? Of these factors, how many would be linear and how many non-linear? We could go on with this and gloat at our ability to raise questions which are inherently open-ended in the absence of authentic numbers and yet offer no satisfactory answers. This is akin to arguing on issues which are the vanishing point of jurisprudence. At best, both of us might end up dealing in hypotheticals with no conclusive and comprehensive end to the discussion and that would probably take us away from the rest of the 2 issues which may be answered in a relatively objective and sure-footed milieu (which reminds me of a situation in the Da Vinci Code where Langdon meanders to such an extent that Sophie forgets the starting point of the discussion).
Moving to the rest of the two issues, I believe you have answered the question yourself. You said, “For now, fair competition from generics is the need of the hour.” This means the subject here which is “competition” is qualified by the predicate which is “fair”. Perfect, no one’s denying that; from the very beginning this has been my contention. Let us be fair. On one hand, you ask for patent rights to be scrapped ONLY for Big Pharma (by the way, on what basis or criteria will you identify them?) and on the other, you ask for fair competition from generic manufacturers. Am I missing something here??? How is it fair to scrap patents only for Big Pharma? Even otherwise, how is it that invariably in such discussions, proponents of generic makers always take a sanctimonious stand? Has everything been hunky dory with the style of functioning of generic makers? If the answer were to be in the affirmative, why would we be discussing NPPA in the first place? I hope by questioning the effectiveness of NPPA, you do not seek to put a question on its very existence. As for its effectiveness, I hope we are not referring to the organizational inertia which is characteristic of most government bodies. Apart from that, take the case of NPPA stepping in to control the price of insulin this month or cracking the whip in cases of overcharging by companies (which thus far has meant generic manufacturers). Prudence prevents me from naming entities; the pertinent information is available in the open literature. Kindly scourge the net for more information.
Also, entities from abroad bring along with them a certain degree of respect for the process of law and this may compel the rest of the players to follow suit. Again, kindly do not tweak this out of context; I do not mean that local players have no respect for rule of law. Since most foreign players more often than not resort to the processes of the Court, this would mean that the reasons for arriving at a particular conclusion or settlement are out in the public domain lending a semblance of transparency to the whole process. More importantly, this gives an opportunity to the Courts in India to develop their own jurisprudence on such issues, which is a welcome development. Also, generic manufacturers too need competition from outside their group. How else would one justify a stagnant R&D scenario during all those years of process patents? Compare that with the sudden spurt in investments in R&D and increased emphasis on basic research. There’s another perspective to this; today, we ask for scrapping of patents for MNCs in the pharma sector, will not the players in other sector too seek the same? Even after the implementation of the product regime, detractors about our TRIPS compliance abound; if we do away with patents only for a particular group in a particular sector which puts them at position of distinct disadvantage, will not accusations of violating TRIPS fly fast and thick? As for the issue of compulsory licenses, Mr.Basheer’s posts have been pretty informative, incisive and insightful. Kindly go through them.
I shall be delighted to hear from you on all these issues.
Wishes,
J.Sai Deepak.
Hi again,
Yes! Presenting selective data with no syllogistic basis to support arguments is not helpful. But my argument was at a conceptual level and about deterministic tools that we need to use for arriving at an informed decision. If Pareto optimality- i.e. a certain change in allocation of efficiencies where some individuals are made better off with no individual being made worse of- is the object of an economic system (to be very specific the current economic system/ideology that we all subscribe to- me not being an exception) then we would tend to apply this to pharma patent debates and see how such efficiency could be obtained. Patents even if per se does not create a market monopoly (this being the current antitrust thinking, esp. in the US), in pharma markets it is largely accepted that the unique conditions of prescription drug markets does fail to create effective substitutes. This naturally allows the patent holder to have a say in prices that he can charge due to lack of effective substitutes and due to asymmetries of information in prescription drug market (see why the EU competition commission has ordered an inquiry in the Pharma sector). Hence, keeping in mind such an utilitarian perspective- as is the current norm on IP, one would presume that an industry which is seeing a catch up phenomenon should be allowed to maximize it strengths for capital formation through imitation of drugs innovated by MNC pharma. Here it would not amount to worsening of the situation for MNC innovative pharma as they recoup their costs through cream markets in the US and EU. Whether or not the current legal scheme under TRIPS allows this is entirely a different question and legal perspectives are not helpful to analyze policy issues of such magnitude. Btw, I swear by TRIPS Article 27, so this is all for policy arguments only!
A valid point you have raised is how would we justify a stagnant R&D scenario during process patents? Then we should probably ask another appealing question: how would we justify the stagnant R&D scenario during the years of product patents prior to 1970? (Note that product patents were available without discrimination to both Indian and Foreign Pharma, and there was no policy restraint on FDI). And what did the Iyenger committee realize? They realized with good statistics to support that MNC pharma had used this option for exploiting the markets and using the importation right. Of course, I don’t think that has much relevance in the current situation where we have seen investments coming and we assume that much more is yet to come. But again, I cannot present any statistics as to how much has come to pharma industry, and what quality of foreign investments are we seeing, for e.g, how much investment is used for facilitating marketing, facilitating manufacturing, and how much into actual R&D? Thus we readily assume that FDI that we are currently seeing will only grow if patents are strongly maintained and enforced. There lies the crux of the issue. And this is where I tried to draw an analogy with the Chinese situation that irrespective of weak enforcement, they are seeing more investments. One pertinent question would be if India would have signed TRIPS (for product patents) even in 2010, sans any pressure? It means that the current product patent regime is an example of reactionary perspective and not based on an evolutionary perspective where the industry acquires substantial R&D strengths and demands greater protection. This has happened in countries where patents and other forms of IP have an evolutionary history based on necessity.
So, back to your question as to why we had stagnant R&D during process patents (I trust we never had any R&D worth boasting before that). It was precisely because industry was at a very nascent stage and needs time to acquire skills, money to move up the value chain. This rightly highlights the importance of capital formation needed for competitive R&D, which I find still missing among the top generics that have started investing in R&D only in the 90’s when they saw TRIPS was a reality (and imagine, the same companies had opposed it a year before that- this has been the history of the debate on the treatment of pharma patents i.e. tripping, ripping and gripping as Mr. Basheer rightly puts it). The point is precisely that through the use of our conceptual deterministic tools we know not if this gripping is best attained by competition through imitation or through collaboration. Due u think the current R&D investments of these companies are something worth to boast about in having these companies a competitive advantage (or by recalling Ricardo’s famous comparative advantage theory)? And here we can rely on some statistics (see Sudeep chaudhri’s papers, we may all disagree with his conclusions though). And this is the reason why we see that there are arguments that the very idea of giving equal opportunity to foreign players is flawed. See if this has historically happened- to mean that foreign players where given equal opportunities without considering the interests of a local r&d industry? And was there any strong foreign competition in the first place? See, what flexibilities countries enjoyed in designing their patent laws? See what the intensity of local R&D investments was when countries adopted product patent regimes. See how the US pharma companies willfully infringed German patents after WW II. All these factors, I believe have to some extent contributed the growth of giant pharmas who have competitive R&D and can now play globally. They have grown in the guise of protectionism, then prevailing economic condition and level of foreign competition. And now, it is expected that these budding local R&d units should collaborate and not compete through imitation (From a utilitarian perspective, I still believe that imitation is also a form of FAIR competition). FAIR competition does not mean that you shouldn’t discriminate; it means how much gains and efficiencies are produced when such discrimination is done. So I wanted you to precisely see how technology transfer, consumer welfare, and increase in R&D capabilities and ensuring adequate geographical price competition have conceptually happened in history considering the deterministic tools that were then used. What is the reason for us to use a new set of tools that were not used in past? Am I missing something here? And then we may arrive at “informed decisions” that we all essentially need to! We need not argue it until the vanishing points of jurisprudence. Let’s leave it to the guys at Yale Univ. 🙂
And thanks for mentioning those cases taken up by NPPA. I will have a look at them in greater detail. On compulsory licensing, I was inquiring if there are any cases you have come across apart from the Doha style licenses and Mr. Basheer’s exposé of judge made compulsory licenses? Has any CL been granted under provisions of section 84?
Finally, lets understand that different stakeholders have different interests. A good patent policy is a myth. So let’s not straight away castigate certain views as being totally irrelevant. We may genuinely differ, but its not that other views are wrong in themselves!
Dear Sai,
Not sure if you have come across this classic report authored by the EPO. I think it is very well balanced and introduces the reader to different perspectives. And I genuinely think that we need competing perpectives for an “informed debate”.
http://www.epo.org/topics/patent-system/scenarios-for-the-future.html
Cheers…:)