Pharmaceutical TRIPS and INDIA.

1. Pharmaceutical TRIPS and INDIA. Prepared for AID by Praphul C. Shivnani

2. IP Rights and the Pharmaceutical Industry. • The argument for a stronger patent regime for pharmaceutical companies is often made on the basis of the heavy capital investment costs (for R&D) that goes into the creation of a new drug. • “Most of the value of new medicines and other high technology products lies in the amount of invention, innovation, research, design and testing involved.” – WTO.

3. Myths & Facts: 1 • Myth: Drug companies spend their maximum resources on research and development. • Fact: In 2002, the pharma industry spent only 14% of its revenue on R&D.

4. Myths & Facts: 2 • Myth: The R&D spending is aimed at developing new drugs. • Fact: In excess of 40 per cent of the industry's R&D is aimed at producing minor variations of existing drugs, not at turning out new ones1. • Two-thirds of the drugs approved from 1989 to 2000 were modified versions of existing drugs or even identical to those already on the market, rather than truly new medicines2.

5. Myths & Facts: 3 • Myth: Pharma Companies are the major source of innovative research. • Fact: Taxpayers and Academic institutionsare by far the largest funding sources to research. • Fact: Public researches often tackle the riskiest and most costly research, which is basic research, making it easier for industry to profit. The NIH report discovered that only 14% of the drug industry’s total R&D spending went to basic research, while 38% went to applied research & 48% was spent on product development3. • This begs the question: Who should really own the patent rights for a drug?

6. Myths & Facts: 3 :: The HIV case study4. • In 1984, an NIH lab discovered the HIV virus. The government lab urgently asked drug-makers to send samples of every anti-retrovirus drug on their shelves. NIH spent millions inventing a method to test these compounds. When the tests showed AZT killed the virus, the government asked Glaxo, as the compound's owner, to conduct lab tests. • Glaxo refused. You can't blame it. HIV could contaminate labs, even kill researchers. So NIH's Dr Hiroaki Mitsuya, combining brilliance, bravery and loads of public cash, performed the difficult proofs on live virus. In February 1985, NIH told Glaxo the good news and asked the company to conduct human trials. • Glaxo refused again. Here's where Glaxo got inventive. Within days of the notice, the company filed a patent in Britain for its 'discovery'. Glaxo failed to mention the US government work.

7. Myths & Facts: 4 • Myth: Pharmaceutical sales are not sufficient to cover R&D costs. • Fact: With normal profit margins ranging from 11% to 25% in 2002 for eight top companies, the research based pharmaceutical sector is amongst the most profitable of all industries in spite of research spending1. • Since 1999, the rate of growth in research investment is slower than the growth in net income within the pharmaceutical industry1.

8. Myths & Facts: 5 • Myth: High R&D layouts entitle the pharmaceutical industry to more IP-protection than other industries. • Fact: The pharmaceutical industry enjoys the highest Return On Capital of any industry1.

9. Myths & Facts: 5 (cont’d)

10. Myths & Facts: 6 • Myth: Generic Companies merely copy brand-name products using originator company data, with no R&D costs. • Fact: Generic Companies invest 6%-8% of annual revenues into R&D and never see originator data1.

11. Pharmaceutical Patents in the Global Scenario. • The above data clearly shows that the very premise that drug companies are seriously handicapped in their R&D by the lack of IP protection in the poor countries is flawed. • Poor countries have “need” but no effective demand for drugs like antiretrovirals. The drug companies want to maximize whatever profit they can make in these poor countries by increasing effective demand through the use of aid moneys addressed to health programs5. • In other words, the preferred solution is to get the global aid agencies to give money to the poor countries to buy the drugs at higher prices5. • Not content with having IP rights over important drugs in their own countries, big pharmaceutical companies muscled their way into the WTO in 1994 to pass the TRIPS agreement.

12. TRIPS (Trade Related Intellectual Property Rights) • negotiated in the 1986-94 Uruguay Round under strong pressure from major industrialized countries. • “aims to protect the IP rights of the creator.” - WTO • “IP rights are the rights given to people over the creations of their minds.” –WTO. • “Creators can be given the right to prevent others from using their inventions, designs or other creations — and to use that right to negotiate payment in return for others using them.” – WTO. • Failure to meet a TRIPS standard could result in a reduction of the export quota of the non-complying country.

13. What’s wrong with TRIPS? • The IP issue relates to the collection of royalties on patents and does not belong to the WTO in the first place. • Big Pharmaceutical companies have muscled their way into the WTO and turned it into a royalty collection agency simply because the WTO has the authority to apply trade sanctions. • The optimal patent period must reflect a balance of two forces: on one hand the protection provided by IPP provides an incentive to innovate; on the other hand, it slows down the diffusion of benefits to potential users. …The patent period under TRIPS is uniformly extended to 20 years – a period so long that few economists of repute can be found who would call it efficient in terms of balancing the two opposing forces5.

14. Compulsory licensing in TRIPS • Provision: Compulsory licensing is when a government allows someone else to produce the patented product or process without the consent of the patent owner. – WTO. • Caveat: Compulsory licensing and government use of a patent without the authorization of its owner can only be done under a number of conditions aimed at protecting the legitimate interests of the patent holder. - WTO. • Caveat: “For example: Normally, the person or company applying for a licence must have first attempted, unsuccessfully, to obtain a voluntary licence from the right holder on reasonable commercial terms.” – WTO. • Caveat: If a compulsory licence is issued, adequate remuneration must still be paid to the patent holder. – WTO. • Compulsory licensing … must usually be granted mainly to supply the domestic market. – WTO.

15. The Doha Declaration • At the Doha Ministerial Conference in November 2001, WTO member states agreed that the TRIPS agreement does not and should not prevent members from taking measures to protect public health. • They underscored countries ability to use the flexibilities that are built into the TRIPS Agreement, including compulsory licensing and parallel importing. • And they agreed to extend exemptions on pharmaceutical patent protection for least-developed countries until 2016. • This declaration makes it clear that each member is free to determine the grounds upon which the licences are granted. This, for example, is a useful corrective to the view sometimes expressed that some form of emergency is a pre condition for compulsory licensing.

16. “Paragraph 6”: Importing Under Compulsory Licensing. • TRIPS Agreement says products made under compulsory licensing must be predominantly for the supply of the domestic market. • This applies to countries (like India) that can manufacture drugs. It limits the amount they can export when the drug is made under compulsory licence. • This has an impact on countries unable to make medicines and therefore wanting to import generics. They would find it difficult to find countries that can supply them with drugs made under compulsory licensing. • On 30 August 2003, WTO members agreed on legal changes to make it easier for countries to import cheaper generics made under compulsory licensing if they are unable to manufacture the medicines themselves. The decision waives exporting countries obligations • Any member country can export generic pharmaceutical products made under compulsory licences to meet the needs of importing countries, provided certain conditions are met.

17. The Indian Pharmaceutical Industry. • India is the world's fourth-largest drug market in volume6. • Yet within the worldwide pharmaceutical market, with its turnover of US$350 billion, India's US$3 billion constitutes barely 1%6. • This is an indicator of the cost and the market of Indian drugs. Indian drugs often cost seven to ten percent of what they do in the USA or Europe. • Indian manufacturers currently export generics to 200 poor countries. • Access to antiretroviral treatment in these poor countries has been greatly facilitated by Indian generic competition decreasing the costs of medicines as much as 98%7.

18. The Indian Pharmaceutical Industry (cont’d) • Four years ago, millions of people living with HIV/AIDS could not afford the price of antiretroviral (ARV) drugs. The price was between US$10,000 –12,000 (Approx.Rs.4,50,000 – 5,40,000) per annum. By 2003 the prices had come down to US$ 140 (Rs.6300) per annum. How did this miracle happen? The answer lies in the Indian Patents Act, which provides only process patent protection to pharmaceutical inventions8. • For people with HIV whose current treatment regimen is failing, access to newer, more expensive "second-line" AIDS drugs will be critical. These combinations cost as much as 20 times more than initial combinations. Generic production of many of these medicines will be blocked by India's new patent law7. • In order to meet the 1 January 2005 deadline to make its intellectual property regime WTO-compliant, on 26 December 2004 the Indian government issued an ordinance -- an executive decree not debated in Parliament.

19. HIV / AIDS in India9 • Official estimate of people that are estimated to be HIV-positive is 3.5 million. • Unofficial estimates are as high as eight million. • Eight hundred thousand of these people have already developed AIDS. • No compulsory medical insurance schemes in India. • Cost of individual AIDS-combination therapy > $300 p.m./- • AIDS is particularly common in the lower-income groups with a monthly income of less than US$100.

20. Indian Patent Ordinance8: Whats wrong? • Requires patents to be granted to products, while India's previous patent regime established by the Indian Patents Act 1970 only required patents to be granted to the chemical processes that resulted in the production of a particular drug. • This distinction between "process patents" and "product patents" -- in line with international patent practice before the 1995 TRIPS Agreement -- allowed for the development of a huge generic drug industry built on reverse-engineering brand-name drugs through slightly modified processes.

21. Indian Patent Ordinance: What’s wrong? • Modifies the procedure through which patents can be challenged before they are granted. It limits the grounds on which objections to a patent application may be made. • Furthermore, though contestants can be heard and submit a written argument, they are prohibited from participation in all of the patent proceedings, unlike under the previous system.

22. Indian Patent Ordinance: What’s wrong? • The Bill proposes to do away with the pre-grant opposition procedure. • Currently, there are approximately 6000 applications pending in the mailbox protection. In the absence of pre-grant opposition, these 6000 applications would escape public scrutiny. • Public scrutiny is crucial in light of the fact that less than 500 drugs have been granted marketing approvals in India between 1995-2004. Hence, pre-grant opposition is absolutely essential for blocking trivial patents. • It is also part of natural justice to give an opportunity to interested parties, including civil society, to be heard before granting a monopoly

23. Indian Patent Ordinance: What’s wrong? • The Bill proposes to extend the scope of patentability beyond the TRIPS requirements by amending Section 3(d) of the Patents Act to provide patents to new use of known medicines. • There is no obligation under TRIPS to provide a patent to either new use or new dosage of known medicines. • The product patent should be given only to new chemical entities and not to either new use or dosage forms or any other forms of known molecules. This will limit the number of patent protected drugs.

24. Indian Patent Ordinance: What’s wrong? • The Billhas not properly incorporated the August 30th Decision of the TRIPS General Council, which permits the grant of compulsory licenses for export purpose to countries with no or insufficient manufacturing capacity in the pharmaceutical sector. • The Bill proposes to permit compulsory licensing to a country with no or insufficient manufacturing capacity in the pharmaceutical sector if there is a corresponding patent in the importing country. • This ignores the fact that in many instances, there may not be any patent protection in the importing country because the deadline for Least Developing Countries (LDCs) to comply with TRIPS is 2016. In this case, the Indian drug companies would not be able to export to LDCs in the absence of a compulsory license granted by the LDC. • This will have serious repercussions on the prices of medicines in LDCs which are most effected by HIV / AIDS.

25. Indian Patent Ordinance: Whats wrong? • The compulsory license regime within the present Patents Act contains cumbersome procedures without any time line for the final disposal of the application. • This renders the compulsory license system ineffective to curb abuse of patents because procedural requirements take away the deterrent element of the compulsory license mechanism. • The other safeguards in the present Patent Act, e.g. parallel importation, Bolar provision, and experimental exception, should be amended to make use of the TRIPS flexibility in its full extent.

26. Referrences • “A Bitter Pill to Swallow: Myths and Realities of the Pharmaceutical Industry” - European Generic medicines association in collaboration with Dr Dorette Corbey. • "New Medicines Seldom Contain Anything New” - New York Times – 29 May 2002 – reporting on a study by the National Institute for Health Care Management Foundation • “NIH Contributions to Pharmaceutical development” , Administrative Document - National Institute of Health February 2000. • Keep taking our tablets (no one else's) - Gregory Palast • “In Defense of Globalization” – Prof. Jagdish Bhagwati. • “Facing WTO Deadline, India Struggles With Patent Reform” - Rajesh Mahapatra, The Associated Press, 12-29-2004. • http://www.healthgap.org/press_releases/05/011305_HGAP_AMTC_PR_India_patent.html • http://www.altlawforum.org/ADVOCACY_CAMPAIGNS/AMTC • “How WTO/TRIPS threatens the Indian pharmaceutical industry” – Dr. Richard Gerster. - http://www.twnside.org.sg/title/twr120h.htm