The Hindu Business Line : Bitter medicine beneath the sugar-coated diplomacy

FRESH on the home-page of the WTO (www.wto.org) is the December 6 decision on changes to the WTO Agreement on TRIPS (Trade-Related Aspects of Intellectual Property Rights). It informs that cheaper generic versions of patented medicines will continue to be available to `poorer countries', thus making `permanent' till 2007 the 2003 `waiver'.

The WTO Director-General, Mr Pascal Lamy, has said: "Members are determined to ensure the WTO's trading system contributes to humanitarian and development goals as they prepare for the Hong Kong Ministerial Conference."

Many developed countries have lauded the decision. And there are hopes that the sop will help contain the protests planned against the WTO Ministerial, scheduled to begin next week.

It was only a week earlier that WTO members had agreed to extend the transition period for least-developed countries, allowing them time until July 1, 2013 "to provide protection for trademarks, copyright, patents and other intellectual property." Least-developed countries had already been given until 2016 to protect pharmaceutical patents, informs the press release of World Trade Organisation.

"Though it was self-interest which prompted the developed countries to push through TRIPS, they maintained that developing countries would also gain from it," writes Sudip Chaudhuri in his new book titled The WTO and India's Pharmaceutical Industry, from Oxford University Press (www.oup.com).

What are the gains, and what the costs? These were not properly evaluated before introducing TRIPS, argues the author, who is professor of Economics, Indian Institute of Management Calcutta. Before plunging into these questions, he introduces one to India's pharmaceutical industry.

Pharma industry in India

There are 5,877 drug-manufacturing units in India, which include 1,333 units in bulk drug manufacturing, he informs. The drug market is fragmented into a number of therapeutic markets, such as `tranquillisers and vitamins, anti-malarials and anti-diabetics".

Competition is within the therapeutic groups, and the `concentration ratios' can be significant, points out Chaudhuri. For example, "in streptomycins, the largest firm accounts for 88.7 per cent of the market, and in chloramphenicols, 53.4 per cent."

Interestingly, "India and Japan are the only two counties where the western MNCs do not dominate." Their share was at 68 per cent in 1970, but now Indian companies have a 77 per cent hold.

Contributory factors, according to the author, are the tradition of `process-technology' by indigenous enterprises, `close association between manufacturers and government laboratories, and `the patent and industrial policies since the 1970s.'

What is depressing is that HAL (Hindustan Antibiotics Ltd) and IDPL (Indian Drugs and Pharmaceuticals Ltd), two public sector companies set up in 1954 and 1961 respectively, are `sick'.

Both these companies gave a tremendous boost to indigenous efforts in the private sector, narrates Chaudhuri. "They created a new confidence that India could also manufacture drugs in a big way." he says.

The six CSIR (Council of Scientific and Industrial Research) laboratories working on the processes for manufacturing bulk drugs are: CDRI (Central Drug Research Institute, Lucknow), IICT (Indian Institute of Chemical Technology, Hyderabad), CIMAP (Central Institute of Medicinal and Aromatic Plants, Lucknow), NCL (National Chemical Laboratory, Pune), and two RRLs (Regional Research Laboratories in Jammu and Jorhat).

It is heartening to read that almost all the top pharma companies and even small-scale firms have benefited from CSIR labs. "Cipla's diversification to anti-AIDS drugs was actually the result of a public-private initiative," notes Chaudhuri.

A chapter devoted to `globalisation of patent laws' discusses `the main flexibilities' developing nations enjoy with regard to TRIPS. `Exemptions from grant of patents' are one such because the agreement doesn't define the terms used in Article 27(1) of TRIPS, such as `new, involve an inventive step and are capable of industrial application'. In the US patents are granted not only for new chemical entities (NCEs) involved in the new drugs, writes Chaudhuri.

Closer home, unlike under the Patents Act, 1970, a patent can be granted even when it is not convincingly settled that it can be granted, rues the author. This system favours the MNCs, he says, making a case for not changing the procedure of pre-grant scrutiny. Another provision of TRIPS providing leeway is Article 30, on providing `limited exceptions to the exclusive rights conferred by a patent'. Early working, parallel imports, and research and experimental use, are `the most significant and common exceptions', informs the book. Limiting data protection, government use, and compulsory licences to non-patentees are other flexibilities.

Niggling numbers

On the `role of MNCs', the book cites a study by Pharmabiz to show that fresh investments took place only in `government securities, private sector bonds, and debentures,' and not in new manufacturing facilities or R&D. "Whereas financial investments have almost doubled, from Rs 3,406.8 million to Rs 6,502.0 million in 2003-04 for seven MNCs, gross fixed assets have gone up only marginally, from Rs 9,166.8 million to Rs 9,255.8 million. Gross fixed assets have actually gone down for GlaxoSmithKline, Merck, and Pfizer," reads a snatch.

In contrast, the Indian private sector has been investing in R&D since the mid-1990s when TRIPS came into effect, writes Chaudhuri. A dozen Indian companies, including Ranbaxy, Dr Reddy's, Sun, Cadila, and so on, spent Rs 10,021 million on R&D in 2003-04 compared to Rs 6,726 the previous year. R&D costs in India are lower than in the US, according to numbers from a McKinsey estimate, cited in the book. "Physical infrastructure and overhead costs are 40 per cent to 60 per cent of the US rates. A skilled PhD can be employed at 20 per cent of the US salaries."

Do you know that to drug-makers diseases are attractive or otherwise depending on revenue potential? Thus, dengue, leishmaniasis, Chagas, leprosy, and so on, which account for 99 per cent or more burden on the low and middle-income countries, are not on the priority list of pharma majors. "Only 10 per cent of global health research is devoted to conditions that account for 90 per cent of the global disease burden — an imbalance referred to as 10/90 disequilibrium."

A chapter on `drug price control' reasons that such control is not a substitute for generic competition. "What is possible to get done under generic competition, is not likely to be done with price control or is very difficult to get done in a product patent regime," declares Chaudhuri.

The vexing question, `Should developing countries provide patent protection in pharmaceutical products?' surfaces in the final chapter. Protagonists contend that such protection stimulates investment in research and innovation. But positive impact on R&D is only one of the economic effects of patent protection, argues Chaudhuri. "The other major concern relates to the negative impact on competition and technology diffusion," he adds.

Niggling numbers from a study by Families USA are that the top 9 MNCs spent 11 per cent of their revenue on R&D but 27 per cent on marketing and administration, and earned 18 per cent profit. "Only about 10 per cent of the R&D is spent on developing new drugs. About three-fourths of the new drugs approved do not provide any therapeutic benefit over the existing products. The MNCs take patents to protect minor developments and delay the entry of generic products after patent expiry." TRIPS needs to be fundamentally altered if not totally abolished, argues Chaudhuri.

Journey through the book to acquaint yourself with the bitter medicine that lies beneath the sugar-coated speak that trade diplomacy engages in.

Economics@TheHindu.co.in

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