By K M Gopakumar, Research officer, Centad

Defeat brings various types of responses including the threat of grave consequences. The pharmaceuticals giant Novartis did the same after an ‘adverse' judgment by the Madras High Court in response to its challenge of a provision in the Indian Patents Act (for details of the case see earlier report ‘Indian court rejects Novartis' patent challenge'). After its defeat in the legal battle, Novartis issued a press release titled ‘Novartis concerned Indian court ruling will discourage investments in innovation needed to bring better medicines to patients'.

Novartis' options

Generally speaking, Novartis had two options on the legal front: it could either approach the Indian Supreme Court or it could impress upon any WTO member country to approach the WTO disputes settlement body to challenge the compatibility of Section 3 (d) of the Indian Patents Act with the TRIPS Agreement.

Realising it had little chance of success in the Supreme Court, Novartis stated that it “likely will not appeal to the Supreme Court”. The other option was also not easy. Under existing circumstances, no WTO member state, including the US , is likely to approach the WTO disputes settlement body. The very day after the judgment, the Federal Councillor, Department of Economic Affairs for the Swiss Confederation, stated: “We must have a reliable TRIPS system and the one in India is good enough. The Swiss government never gets involved in any judicial pronouncements of other countries.” Hence Switzerland, Novartis' home country, effectively ruled out the possibility of approaching the WTO disputes settlement body.

Reading the writing on the wall, Novartis attempted to shift its battle from judicial forums to law and policymaking forums. The best way to attract the attention of law and policymakers is to threaten them with adverse consequences.

It is a worthwhile exercise to analyse the quotation of Paul Herrling, head of corporate research, Novartis, which states: “It is clear there are inadequacies in Indian patent law that will have negative consequences for patients and public health in India. Medical progress occurs through incremental innovation. If Indian patent law does not recognise these important advances, patients will be denied new and better medicines.”

Two components to Novartis' threat

According to observers, there are two components involved in the threat. The first is that Novartis will not introduce new medicines in the Indian market and therefore patients will not be able to access new drugs. The second is that Novartis will not make any research and development (R&D) investments in India. The following paragraphs attempt to analyse the merit of these components.

Under existing circumstances, Novartis cannot deny new medicines to Indian patients.

In order to deny new medicines, Novartis can do the following. First, it can patent the medicines in India and not register the medicines with the Drug Controller General of India. Second, Novartis can ignore the Indian market completely by deciding not to apply for patent as well as market approval.

In both cases, Novartis cannot achieve its objectives. Unlike many developing countries, India has a vibrant domestic pharmaceuticals industry which is good in reverse engineering and process technology. Therefore, Indian pharmaceutical companies can develop the new drug without too much delay. Hence, the question is whether patent law in India allows Indian companies to manufacture the drug even in the absence of a licence from the patent holder.

The compulsory licence provisions in the Patents Act are very clear in this regard. A compulsory licence can be issued on the ground of non-working of patented invention in India, under Section 84 (c) of the Patents Act. Further, the Act also states that reasonable requirements of the public with respect to a patented invention shall not be met if the patentee refuses to issue a licence on reasonable terms and which may prejudice the establishment or development of commercial activity in India (Section 84 [7] [a]). In addition, Section 100 and 101 permit government use of patented inventions. Thus, issuance of compulsory licence, or government use, can effectively take care of the non-introduction of a patented drug in the Indian market.

Also, Section 107 (a) permits parallel importation. Moreover, the present regulatory regime in India allows the registration of drugs by generic companies even in the absence of the originator's registration. Therefore, the threat of non-introduction of new drugs will have little effect on patients in India .

R&D investments by MNCs in India

On the question of R&D investments in India, one should examine the current R&D investments of pharmaceutical MNCs in India. Pharmaceutical MNCs always hold the position that a strong intellectual property regime is a pre-requisite to R&D investments. However, there is neither empirical evidence nor legal reasons to support this view. Generally, the outcomes of R&D, including Intellectual Property Rights (IPR), are protected through contracts and hence the level of IPR protection in the country where the R&D laboratory is located is insignificant.

Further, the evidence from India reveals an opposite trend. The tables below show that the contribution of MNCs to R&D in India is negligible, and also shows negative growth during 1999-04, the period during which India strengthened the level of IP protection.

Table 1 shows the actual R&D investments of the top 11 pharmaceutical MNCs in India during six financial years, from 1999-00 to 2004-05. It shows that with the exception of Pfizer, there is no noteworthy increase in the R&D expenditure of pharmaceutical MNC s. It is also noticeable that Novartis' R&D investment displays a steady decline during this period and stands at a meagre $ 0.15 million.

The second table shows R&D expenditure against the sales of 11 top MNC s in India, a well recognised parameter to assess R&D investments. According to this table, only two companies are spending 1% or more on R&D -- Pfizer (3.41%) and Astra Zeneca (1.27%). Here too, Novartis' share is diminishing every year, showing only 0.14% as R&D percentage of sales. These tables show that Novartis is steadily reducing its R&D investments in India.

Experts also point out that most of the R&D investment of MNCs in India is on low-level R&D activities, not on drug development. The only exception is said to be Astra Zeneca's R&D on tuberculosis. Experts believe that in the coming years international pharmaceutical companies looking for cost-effective R&D cannot ignore India. They point out that even Novartis has to come to India for clinical trials, especially for R&D related to tropical diseases. It is also a fact that Novartis has already opened an R&D centre on tropical diseases in Singapore. Therefore, there is little chance of India attracting fresh R&D investments in this segment.

The above analysis shows us that there is no element of truth in Novartis' threat, and that law and policymakers would do well to ignore it. Indeed, a clear policy choice from India's lawmakers will prevent pharmaceutical MNCs from issuing such empty threats. Our law and policymakers should make it clear to the rest of the world that while making choices, the government will choose 1.13 billion people over a few billion dollars.

Table 1

R&D expenditure: 1999-2000 to 2004-05 (million US $)

Source: Provos Database

Table 2

R&D % of sales: 1999-2000 to 2004-05

Source: Provos Database

(This article was first published in Lawyers , the magazine brought out by Lawyers Collective. The author is grateful to Reji K Joseph for the data on R&D)