Monday, November 24, 2014

India’s Patently Wise Decision

NEW YORK – The Indian Supreme Court’s refusal to uphold the patent on Gleevec, the blockbuster cancer drug developed by the Swiss pharmaceutical giant Novartis, is good news for many of those in India suffering from cancer. If other developing countries follow India’s example, it will be good news elsewhere, too: more money could be devoted to other needs, whether fighting AIDS, providing education, or making investments that enable growth and poverty reduction.

But the Indian decision also means less money for the big multinational pharmaceutical companies. Not surprisingly, this has led to an overwrought response from them and their lobbyists: the ruling, they allege, destroys the incentive to innovate, and thus will deal a serious blow to public health globally.

These claims are wildly overstated. In both economic and social-policy terms, the Indian court’s decision makes good sense. Moreover, it is only a localized effort at rebalancing a global intellectual-property (IP) regime that is tilted heavily toward pharmaceutical interests at the expense of social welfare. Indeed, there is a growing consensus among economists that the current IP regime actually stifles innovation.

The impact of strong IP protection on social welfare has long been considered ambiguous. The promise of monopoly rights can spur innovation (though the most important discoveries, like that of DNA, typically occur within universities and government-sponsored research labs, and depend on other incentives). But there often are serious costs as well: higher prices for consumers, the dampening effect on further innovation of reducing access to knowledge, and, in the case of life-saving drugs, death for all who are unable to afford the innovation that could have saved them.

The weight given to each of these factors depends on circumstances and priorities, and should vary by country and time. Advanced industrialized countries in earlier stages of their development benefited from faster economic growth and greater social welfare by explicitly adopting weaker IP protection than is demanded of developing countries today. Even in the United States, there is growing concern that so-called hold-up patents and me-too patents – and the sheer thicket of patents, in which any innovation is likely to become entangled in someone else’s IP claims – are diverting scarce research resources away from their most productive uses.

India represents only about 1-2% of the global pharmaceutical market. But it has long been a flashpoint in battles over expansion of pharmaceutical companies’ global IP rights, owing to its dynamic generics industry and its willingness to challenge patent provisions both domestically and in foreign jurisdictions.

The revocation of patent protection for medicines in 1972 greatly expanded access to essential medicines, and led to the growth of a globally competitive domestic industry that is often called the “pharmacy of the developing world.” For example, production of anti-retroviral drugs by Indian generic manufacturers such as Cipla has reduced the cost of life-saving AIDS treatment in Sub-Saharan Africa to just 1% of the cost a decade ago.

Much of this globally valuable capacity was built under a regime of weak – in fact, non-existent – protection for pharmaceutical patents. But India is now bound by the World Trade Organization’s TRIPS agreement, and has revised its patent laws accordingly, causing widespread anxiety in the developing world about the implications for global provision of affordable medicines.

Indeed, the Gleevec decision is still only a small reversal for Western pharmaceuticals. Over the last two decades, lobbyists have worked to harmonize and strengthen a far stricter and globally enforceable IP regime. As a result, there are now numerous overlapping protections for pharmaceutical companies that are very difficult for most developing countries to contest, and that often pit their global obligations against their domestic obligations to protect their citizens’ lives and health.

According to the Indian Supreme Court, the country’s amended patent law still places greater weight on social objectives than in the US and elsewhere: the standards of non-obviousness and novelty required to obtain a patent are stricter (especially as they pertain to medicines), and no “evergreening” of existing patents – or patent protection for incremental follow-up innovations – is allowed. The court thus reaffirmed India’s primary commitment to protecting its citizens’ lives and health.

The decision also highlighted an important fact: Despite its severe limitations, the TRIPS agreement does have some (rarely used) safeguards that give developing countries a certain degree of flexibility to limit patent protection. That is why the pharmaceutical industry, the US, and others have pushed since its inception for a wider and stronger set of standards through add-on agreements.

Such agreements would, for example, limit opposition to patent applications; prohibit national regulatory authorities from approving generic medicines until patents have expired; maintain data exclusivity, thereby delaying the approval of biogeneric drugs; and require new forms of protection, such as anti-counterfeiting measures.

There is a curious incoherence in the argument that the Indian decision undermines property rights. A critical institutional foundation for well-functioning property rights is an independent judiciary to enforce them. India’s Supreme Court has shown that it is independent, interprets the law faithfully, and does not easily succumb to global corporate interests. It is now up to the Indian government to use the TRIPS agreement’s safeguards to ensure that the country’s intellectual-property regime advances both innovation and public health.

Globally, there is growing recognition of the need for a more balanced IP regime. But the pharmaceutical industry, trying to consolidate its gains, has been pushing instead for an ever stronger and more imbalanced IP regime. Countries considering agreements like the Trans-Pacific Partnership or bilateral “partnership” agreements with the US and Europe need to be aware that this is one of the hidden objectives. What are being sold as “free-trade agreements” include IP provisions that could stifle access to affordable medicines, with a potentially significant impact on economic growth and development.

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    1. CommentedG. A. Pakela

      Why would investors or "big pharma" project managers spend the tens of millions of dollars over many years to develop, test and seek FDA approval for block buster drugs if any generic manufacturer can develop a generic version of that drug and sell it at its marginal cost of production. There would be no hope for that capital recovery. Now it is the case that drug manufactures can game the rules by seeking patent extensions for trivial improvements, but that is not what the professor is arguing here.

      This essay would be brutally dispatched in almost any graduate level economics seminar.

    2. CommentedRoy Zwahlen

      I would respectfully like to see your citations for the "growing consensus among economists that the current IP regime actually stifles innovation." Economic literature surveys I have seen are either neutral or tilt the other way. I recognize its not easy to import citations into articles like this but it seems like a statement that should be substantiated.

      I am also curious as development economists what your take is on the fact that the Indian government spent an appalling 1.19% of their GDP in 2010 on healthcare according to World Bank data. Botswana (6%), Angola (2.39%), Congo (3.35%), Gambia (2.89%), and Burkina Faso (3.4%) governments spent more than double on healthcare.

      Considering that that almost 70% of the population lives on less than $2 a day, I wonder if strong or weak IP is of any consequence as the vast majority of the population can't afford generics (most drugs are paid out of pocket in India even if you have insurance) nor can they afford the trip to the hospital in the first instance as 65% of Indian's do not have access to modern healthcare facilities at all.

      I would appreciate your thoughts on how these numbers square with the sentiments in your article especially when the data suggests that only about 100 million people in India (who have equal or greater wealth than the West) are the only ones who benefit from IP cancellations. Should they really be the ones paying prices meant for Burkina Faso?

    3. CommentedLeo Arouet

      Bello artículo. En la India, África y en muchos otras partes mucha gente muere debido a las enfermedades y esto debido a que están excluidos y se les niega el acceso a las medicinas necesarias, que son muy costosas e inasequibles.

    4. CommentedLeo Arouet

      Es verdad sobre los recursos que se puedan destinar a otras enfermedades... Me da mucho gusto escuchar esto.

    5. CommentedRitesh Kumar Singh

      Intellectual Property Rights should promote innovation but TRIPS plus provisions seem to promote the interest of large pharma corporations and make access to life saving medicines away from the reach of common people.

      It also adds to cost of public health programs in developed countries like US or UK- a major cause of their fiscal problems. Thus, India's Supreme Court's decision on Gleevec seems to be just in keeping with India's WTO/TRIPS obligations.

      However, there should be a balance between interests of pharma companies which invest huge sums in R&D activities and interests of common people who use the medicines.

      In my opinion, WTO TRIPS agreement fairly protects IPR and we don't need TRIPS plus provisions....which are being pushed by large pharma comapnies.

      To tight IPR protection can stiffle R& D instead of promoting it.

    6. Commentedjack lasersohn

      While it is true that the global IP system for medical innovation needs to be seriously rethought, the Indian patent decision on Gleevec is clearly wrong.
      The court basically held that the improvements to an older and unpatented version of the drug were not significant enough to justify a patent on the new version.
      In that case why doesn't India simply use the older unpatented drug?
      The answer, which demonstrates the venality of the Indian court's decision, is that the older drug does not in fact work well at all and the improvements that Novartis was trying to patent were critical to its efficacy. The Indians, as usual, are simply unwilling to pay Novartis for inventing a drug that actually works.
      Beyond Gleevec, the system which supports worldwide medical innovation is failing. The United States has long subsidized virtually all medical innovation in the world by being willing to pay extremely high prices for new drugs and devices. These prices are routinely two to three times higher than prices in the rest of the developed world (set through monopsony purchasing systems) and vastly more than the OUS 'average price' which includes prices near zero in kleptocratic states such as India. The rest of the world free rides on this American subsidy, as the authors clearly know and implicitly endorse.
      Unfortunately, the American public can no longer afford this subsidy, and it is obvious that as the subsidy is removed , innovation will decline. American venture capital investment in medical innovation has already declined by 70% in anticipation.
      The solution to both providing drugs to poor populations while simultaneously supporting the huge cost of innovation is for the US to force a worldwide drug pricing system that reduces US prices, raises them in the rest of the developed world and allows reasonable (not zero) income adjusted pricing in the third world.
      This is likely to emerge as a major fair trade issue in the future.
      There is sufficient aggregate demand and income across the world at large to pay for medical innovation if everyone will pay their 'fair share', but not if monopsonists in Europe and kleptocrats in India will not.

        Commentedjack lasersohn

        I will try to respond to your note as if you intended it to be a reasonable and useful contribution to the substantive problem of how we actually continue to pay for medical innovation now that the US has decided that it cannot fund it alone.
        The reality is that the VC system in the US funds the vast majority of early stage drug and medical device development. Eleven out of thirteen new breakthrough drugs and all such medical devices approved last year, were funded by the VC system. Those are the facts. Larger companies have 'offshored' their key RD activities to the VC community because it is simply too risky for them and because we do it better. The return on capital in this sector of the VC industry has been low relative to other risky investment, suggesting that the profit levels for drugs and devices are not excessive. This activity must be paid for somehow. Historically it was paid by the US consumer in the form of high prices, with those high prices subsidizing the availability of those drugs to the rest of the world.
        My perfectly reasonable suggestion was that we replace that subsidy, which will soon disappear, with a fairer worldwide cost sharing system that would eliminate 'free riding' by those who can pay (the first world) and set affordable, but not zero, prices for those who cannot pay much. India is somewhere in between, but can surely afford to shoulder some non zero portion of the cost of such innovation. The argument that we should subsidize the profits of the generic drug industry in India, by allowing them to simply steal the drugs does not seem reasonable.
        As the American people and Congress come to understand the extent of the free riding and outright theft that has been occurring, the reaction could be very damaging to trade with the developing world. It is in everybody's interest to find a practical solution to this impending disaster.

        CommentedProcyon Mukherjee

        Jack, your treatise is little off-balance driven by the rhetoric that MeDIC (Medical Innovation and Competitiveness Coalition) spreads, which while it espouses a scathing attack on FDI reform process in U.S. is silent on the prices that Americans pay for such innovation. The respondents that MeDIC chooses to further their agenda seem to all point to a shift towards Europe and Asia for development and marketing of products citing FDA reforms as the single most reason. This can be at best a negotiating point with Washington, none else. Prices of drugs, needs to be the more potent issue and how it could be made available to people should be the agenda; not furthering the cause of venture capital, which in all its ascendancy has made such a devastating impact on prices of drugs for almost two decades.

    7. CommentedZsolt Hermann

      This paragraph is the key to the whole global crisis, the whole imminent social, economical and financial catastrophe the world is facing:
      "...But the Indian decision also means less money for the big multinational pharmaceutical companies. Not surprisingly, this has led to an overwrought response from them and their lobbyists: the ruling, they allege, destroys the incentive to innovate, and thus will deal a serious blow to public health globally..."
      At the moment we are educated, brought up, brainwashed to the notion that the only way to motivate somebody is to give them more profit, money, material profession, dominion, fame.
      This leads to exploitation, destructive competition, which has led humanity into the dead end we are in today.
      We completely disconnected from and ignore the natural system we evolved from, and in which natural system we still belong.
      In a global, integral natural system the primary motivation is to help sustaining the system, since the life, the well being of each cell, organ, creature directly depends on the well being of the whole system.
      Since we completely forgot about it what it means to exist in a natural, interconnected and interdependent system, and since we realize through up to date scientific research and the daily events of the crisis that in fact we still exist in such a natural, global, interconnected and interdependent system, we have to re-educate ourselves what it means to be a well adjusted, adapted part in such a system.
      In a natural system there is no private property, but on the other hand those who contribute to the system more deserve more from the system reimbursing their necessities and effort.
      In an ideal, mutually cooperative and complementing system everybody gives 100% of their ability to the whole and receive 100% of what they need for their optimal state.
      This should be humanity's future optimal state and we have to start progressing in that direction today, before our present setup collapses completely.

        CommentedEdward Ponderer

        Further proof to Mr. Hermann's point is the latest, and shrewdest movement in corporate outsourcing -- both in effectiveness and bottom-line savings. This being "crowdsourcing," where the expertise of the general diversity of the inhabitants of cyberspace is called upon. The question is thrown out to the crowd, and statistically, all sorts of perspectives arise leading rapidly to a slew of solutions from which cream of the crop can be sorted out.

        The corporation makes a lot of money on this free service of the general public. But is it free? No, they get paid all right. How? Purely through self-esteem and social acknowledgment. And even though this is totally virtual (the corporation doesn't even have to shell out for an awards dinner or a plaque!), the payment is sufficient to get plenty on the hook.

        No, people with plenty of money they don't even use would be happy to buy prestige and acclaim for it. And despite the prize money, very few Nobel laureates struggled years for their breakthroughs for that relative pittance pot of gold which most would only use to further their research anyway (as the prize money is ideally intended for). No, its intellectual achievement, a feeling of contributing to human advancement, and permanent societal acclaim that is there aim.

        A strapped-for-cash plumber must be paid in cash, but there are a combination of motivating factors available for the all ready well-to-do entrepreneur. How many won't just retire to the golf course when financially well able to do that because they don't want to give up the thrill of running their empires. Well, why don't we give them an even greater thrill -- becoming heroes of a new mutually responsible society.

        I would highly recommend concerning this, reading the recent book, "The Benefits of the New Economy: resolving the global economic crisis through mutual guarantee" (Michael Laitman, ARI (Institute Dept. of Economics), 2012). Specifically see p. 133 ff, "From predators to prosocial - the positive role of tycoons in the new economy."