Policy Wise

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The Mashelkar committee report on Indian patent laws has raised much controversy. Apart from being anti-national, it has been accused of plagiarism as some lines were lifted ad verbatim from a report by Shamnad Basheer. Whether inadvertent or deliberate, the charges of plagiarism have only damaged the credibility of the committee and I am glad that pending revision, Mashelkar has chosen to withdraw the report. In this game of allegations, counter-allegations and character assassinations, the debate has turned emotive and has lost track of patents-an issue of national importance.

But, should there be a debate on patents at all? The answer is an unequivocal yes, there is little doubt that without patents, drug prices would fall drastically affecting the bottom line of pharmaceutical companies. Normally, this should be of no concern to us and is best left to market forces, however since patents are a public policy tool, it is essential that they are debated and their efficiency examined.

It also has to be accepted that drug companies exist to make profits. To blame them for earning their money at the cost of sick or poor might be useful for it’s theatrical appeal, beyond that it serves no purpose as far as deciding the public policy is concerned. I am not arguing that such accusations are completely useless, they serve to keep the drug companies on their toes as public image is extremely important for their business. However, we should not let them impact the crucial policy debate.

We should also be clear about why patents exist and were adopted in the first place. They serve one and only one useful function: promote research and innovation. They are not a tool to guarantee the profits of the pharmaceutical industry. This distinction is important even if the policy tools employed to promote research seemingly guarantee huge profits for the industry. If a company comes out with a blockbuster drug, it’s profits should not concern us, by the same yardstick if it fails to innovate, patents should not guarantee it’s continuous existence. No doubt, this distinction is frequently blurred and hence it is essential that evergreening is not allowed. It not only costs a lot of money but also defeats the very purpose of patents-why would company invest in costly drug research if money could be made more easily by minor modifications to the chemical?

Coming to the more substantive issues, WTO mandated shift from process to product patents has raised some genuine concerns about high drug costs affecting their availability to the poor in the developing world. Generics which cost a fraction of brand name drugs offer an enticing alternative, the potential savings can be huge, for example while ‘AIDS cocktail’ costs $3000-4000, Cipla is prepared to offer it’s generics for merely $200. So are generics a no brainer? Hardly.

First, even at reduced rates, the drugs are beyond what the poor can afford to pay. India’s per capita income is around 700$ which puts even generics beyond the reach of the poor who would still need government and international aid.
Second, a strong patent regime is in the interest of the Indian pharmaceutical industry. With the rising cost of drug developmentin the West, large Indian companies are uniquely placed to partner the West in the drug development process. Even otherwise, if India has to develop as a knowledge economy, it needs a strong patent regime to protect and promote Indian intellect and knowledge.

Third, it allows the government to ignore the very real problems of the Indian health care system, with the ‘evil big pharma’ providing an escape route. To give just one example, lowering the cost of anti-retroviral drugs would be just one part of the solution, it would also require trained medical staff and an efficient delivery mechanism. Focusing solely on drug prices is nothing but pandering to those of who have little understanding of how the health care system works.

This is not to argue that the Indian government should pay whatever prices the pharmaceutical companies demand, however we must explore ways in which we can ensure access to drugs without compromising intellectual property. So what is the solution?

a) Understanding what the Big Pharma wants- It is common myth that the Western pharmaceutical companies want to make money of the developing world. As a matter of fact, only 2.5 % of the total profits of the ten largest pharmaceutical companies comes from the developing countries; they realize that there is simply no money to be made of the poor. What really worries them is the lost of the lucrative markets in the West to generics. Already, their decision to give Anti-retroviral drugs for below cost price in Africa has led to similar demands in the West, from powerful constituencies like the elderly. By ensuring a strong patent regime, the Indian government can address these concerns and in return demand lower prices.

b) Leverage the numbers- It is essential that the government enters into direct negotiations with the pharmaceutical companies-buying in bulk almost always guarantees cheap prices. An example would be suffice to illustrate this point. Hospitals in the West bill customers according to what is known as ‘usual and customary charges’. This is based on costs and their idea of a reasonable rate of return. However, large insurers and Medicare/Medicaid, by threatening to throw out a particular hospital network negotiate deep discounts to the ticket price. An M.R.I will cost an individual close to $ 4200, a typical insurance company would pay somewhere between $600 to 700. While this is useless when only one drug is available, there are plenty of diseases where alternatives exist.
c)Negotiations- The Doha Declaration allows countries to override patent laws in the case of public health emergencies. The government can use this as a threat to drive down prices. However, it would be useful to remember that even if the government pays a premium as compared to generics ( which have paid none of the drug development costs) it is still worth it as it would achieve the twin objectives of low prices and a strong intellectual property rights. Quite clearly, there is a trade off between the two and a balance needs to be struck.

d) Invest in drug development- Why isn’t the Indian government investing in drug development? The Department of biotechnology is woefully underfunded and it needs to be increased. Recently, a few Western countries and the Bill and Melinda Gates foundation came together to launch a new initiative called Advanced Market Commitment to fund the development of vaccines for the children in the developing world. Why isn’t the Indian government participating/funding such ventures? Without this commitment, the government of India lays itself open to the charge that all it wants is to hitch a free ride.

Another important point to be noticed here is the lack of indigenous drug development. Cynics are quick to dismiss the claims of the pharmaceutical industry that drug development is a costly and risky affair, what they fail to explain is the lack of new drugs from Indian companies. Why have the Ranbaxies of the world failed to make earth shattering discoveries? In fact, the least developed countries are exempt for amending their patent laws till 2016, however, since they no culture of research and innovation, they are unable to take advantage of it.
e) Reforming the health care sector- For all it’s talk of socialism and welfare society, India has the most privatized health care system in the world where the government pays only 21% of the total health care costs; compare it with Japan and America where the government share is nearly 45%. Not only the government spends less than 1% of G.D.P on health, most of it is utilized to pay salaries. Hence, I find this angst over patents slightly misplaced, only those who have never stepped inside a primary health care center or even state medical colleges where often even surgical gloves and needles are unavailable would worry so much over patents. In fact, much of this debate is largely a red herring which only serves to draw attention away from the real problems.(See this excellent paper by Amir Attran) While Indian health care reforms are beyond the scope of this piece, suffice to say a) there is urgent need to increase government spending in health care b) there is an greater need to understand that publicly-funded and publicly-run health care systems are two entirely separate things, one need not necessarily lead to the other. Unless India is willing to enhance it’s funding of health care, it’s concern for poor lacks credibility.

Finally, the whole controversy is about recognizing incremental improvements. Under the patent laws, section 3(d) allows patents to be granted only if the improvements are significant-this is an adequate safeguard against evergreening as long as we have a properly regulated patent system manned by trained professionals. Perhaps, we should focus our attention in these areas.(1)

Patents are not a zero-sum game, it is entirely possible to have a strong patent regime while still keeping the drug costs at a manageable level.

All it would require is less of rhetoric and chest-beating and more of correct policy interventions.

(1) Patent laws are hugely complex and I am not an expert, so I am willing to be corrected as far this particular issue is concerned.

(Cross posted from here)

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