India needs to resist pressure from big drug firms and their backers to change patent laws

India’s intellectual property model is under attack not because it has failed, but because it has succeeded – in balancing private profits with public health.

Often called the “pharmacy of the developing world”, India has long exported high-quality, low-cost generic medicines to the rest of the globe. Its progressive patent system has facilitated a model of local production and entrepreneurship that has allowed India’s generic drugs industry to contribute to improved access to lifesaving drugs across the world, especially HIV medicines. Generic drugs, which are effectively a bioequivalent form of an original branded drug that has gone off patent, represent the vast majority of medicines consumed each year.

Just as India’s generic industry begins to expand this model to more sophisticated medicines and richer markets, its government is entertaining policies that will restrict this growth by introducing unnecessarily stringent intellectual property barriers that effectively hand big pharmaceutical companies the power to keep Indian firms on a tight leash. These intellectual property barriers can reach beyond patent terms, as they also extend to the granting of proprietary status to the clinical trial data on which drug approval and generic entry depends. These provisions address a concept known as data exclusivity.

Furthermore, through so-called “patent linkage” rules that prohibit marketing approval of a drug until patent disputes are fully resolved, developed countries hope to give their pharmaceutical firms additional tools, via patent litigation and appeals, to block generic competition.

Under attack for success

Through formal and informal trade negotiations with developed countries, India is being put under pressure to “reform” its rules. However, India’s current intellectual property model is under attack not because it has failed, but because it has succeeded. This success is viewed as a threat by multinational pharmaceutical corporations, who see generics as eroding the profits of blockbuster drugs. The threat is real: India’s generic-led pharmaceutical exports to the US have increased almost ten-fold in the past decade. With more FDA-registered facilities than any other country outside the US, this trend is expected to continue.

However, the generic drug industry threatens big pharma’s hold on the global market, notably in the lucrative arena of so-called specialty drugs. As a pillar of the global generic industry, India has been facing relentless international pressure, especially from governments that act on behalf of their pharmaceutical industries. This is particularly significant for new cancer drugs that India is capable of producing at low costs and that big pharma prices exorbitantly, and is thus desperate to keep under its control.

The commerce minister of India was in Malaysia in mid-July for a ministerial meeting to negotiate a trade agreement with south-east Asian countries, Australia, South Korea, New Zealand, China and Japan. Leaked texts of the draft intellectual property chapter revealed proposed IP provisions such as patent term extensions, data exclusivity conditions, lowering of patentability criteria and stricter enforcement mechanisms (i.e. increasingly punitive) for intellectual property rights. If accepted, these provisions would further extend the monopoly powers of the multinational pharma companies.

Massive profits

Compulsory licences are a WTO-approved provision that allows governments to give licences to a generic manufacturer to produce a specific drug, without the consent of the patent holder. The generic firm, in turn, must pay a fixed royalty to the patent holder from each sale. These licences are issued in order to address public health emergencies, which include but are not limited to cases of prohibitive drug prices and chronic drug supply shortages. In 2012, amidst considerable controversy, the Indian patent office granted a compulsory licence for the generic production of the cancer drug, sorafenib, whose brand name is Nexavar.

Originally developed by Onyx Pharmaceuticals, Bayer acquired the patent rights for this drug and now markets it. Based on Onyx’s own figures, the drug’s R&D costs were recovered in its first year of sales. In 2012 alone, Nexavar brought in more than $1 billion in revenue worldwide, which is more than five times the drug’s cost of development. At the time the compulsory licence was issued, the Indian market’s price for Bayer’s lifesaving drug was $5,626 per month, a price so exorbitant that only 200 patients in India obtained the drug in 2011. Since the grant of the compulsory licence and the subsequent entry of an Indian generic form of the drug, the price fell to just $108 per month.

While India is a major consumer of drugs by volume, its expenditures account for a relatively small share of the global market’s revenue. By contrast, US drug expenditures account for approximately one-third of the world’s pharmaceutical revenues. In fact, if the US health sector were measured as its own economy, it would be the fifth-largest economy in the world, an amount equivalent to one-and-a-half times the size of the entire Indian economy. In short, the US provides the fat on which the global pharmaceutical sector feeds.

One of 2014’s blockbusters, a new hepatitis C drug called sofosbuvir (brand name: Sovaldi) illustrates this point. Gram for gram, it costs 67 times the price of gold. A 12-week treatment course totals $84,000 for 84 pills; however, each $1,000 pill costs less than $2 to manufacture.

The multinational corporate pharmaceutical industry often attempts to exploit R&D overheads to justify these prices, but the figures rarely add up. This case is no exception. The entire private development of sofosbuvir cost a maximum of a few hundred million dollars, confirmed via tax filings. Compare this with what Gilead Sciences, which acquired the drug during the final stages of clinical trials, made more than $10 billion dollars in revenue in the first year alone.

Furthermore, it is a classic case of the value of publicly financed research being transferred to private hands, via the 1980 Bayh-Dole Act. This law allows universities to patent discoveries made with the nearly $30 billion dollars in medical research grants allocated each year by the US government, and subsequently to license these patents exclusively to a pharma company.

Increasingly, such late-stage acquisitions of innovation are becoming the rule rather than the exception. Even when drug majors acquire patent rights at the early stages of development, i.e. prior to clinical trials, it is becoming common practice for them to outsource both the running of clinical trials and the manufacturing process itself. Notably, the contracted work is often carried out in the developing world. Given the questions raised by big pharma about the quality of the developing world’s pharmaceutical products, this practice generates no shortage of ironies.

Money power

Specialty drugs such as sofosbuvir represent just one in 100 prescriptions in the US and yet, they account for 30% of drug sales. These drugs are the pharmaceutical sector’s equivalent to Wall Street’s “1%”. The enormous revenue generated from these drugs is collected by a handful of firms, which, in turn, leverage a part their profits to fund an army of lobbyists.

In contrast with India’s generics-driven approach, this Western model has failed to yield a balance between corporate profits and concerns of public health. Mobilised by the massive influence of the corporate world’s soft-power techniques, notably through campaign contributions and what is known as the “revolving door” between government and industry, governments of rich countries have consistently bullied governments that have advocated patent policies that seek to maintain an equilibrium between intellectual property and access to affordable medicines.

Unfortunately, a gulf in financial power consistently tips this balance in the interests of multinational corporations and against public health considerations. Consider the following: between the 1997 launch of Pfizer’s Lipitor and its expiration in 2012, this blockbuster anti-cholesterol drug brought in more revenue than what Pakistan and Bangladesh combined spent on all health care over that period. In other words, one drug was able to leverage more financial clout than 300 million people (the average population of the two countries in this period).

This example should hit particularly close to home for Indians, not just geographically but financially as well. Currently, medicines account for 60% to 80% of total household health expenditures in India. Most of those expenditures are financed out of pocket, as opposed to payments via insurance. And while Indians spend 3% of GDP on private health care, the private sector's emphasis on treatment, as opposed to prevention, can lead to inefficient distortions for any health system.

India must decide

Meanwhile, India’s dismal public health expenditure accounts for just 1% of GDP. One may expect that if India’s economy grows, these figures will rise in relative and absolute terms in the coming decade.

However, a growth in financial resources will not necessarily translate to growth in resources for public health. Regulatory barriers that are currently under consideration by the Indian ministry of health would, if implemented, expand the monopoly power that gives big pharma the ability to simply keep prices high, or raise them further, as wealth increases.

Increased prices would cancel out gains from economic growth, effectively draining the ministry’s treasury at whatever rate it happens to fill. Notably, expanded IP barriers are just one of the tools that big pharma employs in its pursuit of monopoly control over markets.

Furthermore, it is important to keep in mind that every dollar extracted by IP-enabled monopolies on unnecessarily expensive medicines will be a dollar not spent on nutrition, education or infrastructure; it would also be a dollar that is likely flowing out of India. If that’s not enough, it’s a dollar you will one day be asked to pay for yourself or for your loved ones — assuming that you are among the fortunate ones that can afford the overpriced medicines in question. If not, the price of limited access could be your life.

Big pharma is attempting to coerce India to relinquish its strict patentability criteria and restrict compulsory licences that are critical in providing access to affordable medicines across the developing world. One should be clear: every stage of the development of India’s generic industry, including the issuance of a compulsory licence, has been in accordance with its obligations under international law. While India has been careful to provide a legal environment for competition’s free hand to build a generics industry, acceptance of the proposals, as highlighted above, would effectively tie its own hands. In both industrial and health spheres, India stands to lose from adopting policies designed by – and for – multinational pharmaceutical companies.

Chase Perfect is working this summer with the Access Campaign of Medecins sans Frontieres. He is temporarily based in New Delhi.

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