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By KM Gopakumar
Research Officer, Centad
Introduction
The pharmaceutical industry in South Asia, with the exception of India , is still in its infancy.
A study commissioned by the United Nations Industrial Development Organisation (UNIDO) in 1992 classified countries into five groups on the basis of their capability in the pharmaceutical industry:
- Sophisticated pharmaceutical industry and research base.
- Innovative capabilities.
- Reproductive capabilities for active ingredients and finished products.
- Reproductive capabilities to make finished products from imported ingredients.
- No pharmaceutical industry.
According to this study, only 10 developed countries have a full-fledged vertically-integrated pharmaceutical industry that can successfully introduce new chemical molecules in the market.
There are 17 countries that have the innovative capacity. These include India and four other developing countries.
Bangladesh , Nepal , Pakistan and Sri Lanka belong to the fourth category of those countries that have the reproductive capability to make finished products (formulations) from imported ingredients (bulk drugs).
Bhutan and the Maldives fall in the last category of countries that have no capability in the pharmaceutical industry.
Pakistan meets 90% of its bulk drug requirements through imports from China , Japan , the UK , Germany and India , and Bangladesh imports mainly from India , China and Europe . Sri Lanka meets 98% of its drug requirements through imports mainly from India .
Although Bangladesh , Nepal , Pakistan and Sri Lanka can produce formulations, only Bangladesh and Pakistan have self-sufficiency in the formulation segment.
Thus we see that only India has the capability to produce both bulk drugs and formulations in the South Asian region.
Pharma industry in Pakistan
There are 400 licensed pharmaceutical companies in Pakistan , including 26 multinational corporations (MNCs). There is a strong MNC presence in Pakistan 's pharmaceutical market. All top 20 pharmaceutical companies in Pakistan are MNCs, which control 50% of the pharmaceutical market.
Pharma industry in Bangladesh
There are nearly 200 pharmaceutical manufacturers in Bangladesh , and the country produces 95% of formulations. Even though domestic companies control 65% of Bangladesh 's pharmaceutical market six MNCs are in the top 20 companies.
Pharma industry in Sri Lanka
There are only 10 pharmaceutical manufacturers in Sri Lanka . Nine are in the private sector and one in the public sector. Of the nine private manufacturers three are fully-owned subsidiaries of foreign companies and six are owned by local companies.
Pharma industry in India
In the last 30 years, the number of pharmaceutical manufacturers in India has grown to 24,000. The domestic industry controls 77% of India 's pharmaceutical market.
However, there are five MNCs among the top 20 pharmaceutical companies in India . This shows the strong presence of pharmaceutical MNCs in the region.
In such a context, the introduction of a product patent would eliminate competition in most of the new drugs and increase the share of MNCs in the South Asian pharmaceutical market.
In the absence of a product patent regime, countries in the region (with the exception of India ) cannot make much headway in the pharmaceutical industry. Currently, the Indian pharmaceutical industry is one of the largest generic pharmaceutical industries in the world.
Role of product patent protection
The absence of product patent protection has played a significant role in this phenomenal growth. In recent years, India has emerged as a major supplier of generic drugs (bulk drugs and formulations) for certain new and critical diseases like HIV/AIDS. The generic version reduced the price of antiretroviral (ARV) drugs from US$ 10,000 to US$ 140.
According to Medicine Sans Frontieres (MSF), 50% of people who access ARV treatment for HIV/AIDS in developing countries depend on generic drugs from India .
As one of the most underdeveloped regions, public spending on health is extremely low in South Asia . As a result, the majority of people spend their savings on healthcare. For instance, private expenditure on total healthcare spending in India and Pakistan is 84% and 77% respectively (WHO, The World Medicines Situation , 2004).
Hence, any increase in the price of medicines has a direct impact on people's personal savings. In other words, any rise in the price of medicines results in the denial of access to medicines.
There is already an acute crisis with regard to access to medicines in the region. In India alone, 600,000 people need ARV treatment for HIV/AIDS and the central government is targeting 180,000 people under its free treatment plan by 2010.
In the normal course, the introduction of product patents restricts the manufacturing activities of local companies to non-patented drugs. Since most new drugs would be under patent protection, generic versions of these drugs cannot be produced without resorting to compulsory licence or government use. Introduction of the product patent in India would also cut the major source of global generic supply. Thus, it hampers accessibility to new drugs, not only in India but also in other developing and least developed countries.
According to a report by the Commission on Intellectual Property Rights (CIPR), “the impact of introducing patent systems is likely to be most strongly felt in the group of countries that have developed strong generic industries, with a degree of competition that has kept prices low” ( Integrating Intellectual Property Rights and Development Policy , 2002).
Hence, the impact of a product patent regime would be felt in India , Bangladesh and Pakistan more strongly than in the rest of the region.
Studies on the potential impact of product patents in India conclude that there would be substantial welfare loss not only in terms of higher prices but also in terms of less product variety.
These studies also predict the closure of many small manufacturing units and loss of employment in India (see Products Patents: Implications for Pharmaceutical Industry and Consumers , UNCTAD, 2005).
A strong product patent would hamper the technological growth of the pharmaceutical industry in the region by creating barriers to technology transfer.
The Doha Declaration says: “The Agreement can and should be interpreted and implemented in a manner supportive of WTO members' right to protect public health and, in particular, to promote access to medicines for all.”
Therefore, there is legal freedom as well as an obligation to implement TRIPS in a manner that ensures access to medicines for all. The Doha Declaration also insists that implementation of TRIPS should consider Articles 7 and 8. Article 8 specifically refers to the need to regulate intellectual property rights to protect public health. Making use of flexibility is one of the most effective ways of doing this.
Use of TRIPS flexibilities
Although use of TRIPS flexibilities is not a substitute for the absence of product patents, it provides a limited, but effective, space for countries to safeguard public health in certain circumstances.
Countries that have zero or insufficient manufacturing capability in the pharmaceutical industry have expressed their concern that these flexibilities will have no meaning in the absence of similar flexibilities in the potential supplier countries. For instance, Pakistan and Sri Lanka cannot use flexibilities such as compulsory licence effectively without supply from India , China or Brazil .
Therefore, countries like India that have a strong generic industry should implement the TRIPS flexibilities to the fullest extent, not only to ensure access at the domestic level but also at the international level.
In this context, the obligation mentioned in the Doha Declaration becomes relevant because it obliges states to implement the flexibilities to the fullest extent.
At the same time, national patent legislation should implement TRIPS flexibilities irrespective of manufacturing capability in the pharmaceutical industry, because in the absence of domestic law any future attempts to ensure access to medicine become futile.
Non-incorporation of these flexibilities to the fullest extent would reduce the future bargaining power of developing countries.
There are attempts to prevent countries from using these flexibilities at the global level by imposing a TRIPS-plus standard through various bilateral free trade and investment treaties. The failure regarding the incorporation of flexibilities would accelerate those efforts. The success of flexibilities also depends on the existence of certain institutions and monitoring mechanisms to assess the impact and trigger the use of flexibilities. However, in the absence of an adequate legal framework, these institutions cannot function properly.
The impact of a product patent regime on access is well recognised by India , Pakistan and Sri Lanka .
In a submission dated June 29, 2001, these three countries along with other developing countries stated: “The TRIPS Agreement does not in any way undermine the legitimate right of WTO members to formulate their own public health policies and implement them by adopting measures to protect public health.”
Therefore, the countries sought “common understanding that confirms the right of governments to ensure access to medications at affordable prices and to make use of the provisions in the Agreement whenever scope and exercise of IPR results in barriers to access to medicines”.
These three countries were in the forefront of the process which resulted in the Doha Declaration. Hence they have a moral responsibility to implement the flexibilities to the fullest extent, at the domestic level.
India carried out three amendments to its Patents Act 1970, in 1999, 2002 and 2005, to comply with its TRIPS obligations. The first amendment introduced Exclusive Marketing Rights (EMR) as part of transitional arrangements. The 2002 amendment ensured compliance with all TRIPS obligations, except the product patent regime. Product patent was introduced through an ordinance in December 2004 and later incorporated as an amendment in 2005.
In 2000, Pakistan replaced its old Patent and Design Act 1911 with the Patent Ordinance 2000. This ordinance was further amended in 2002.
Sri Lanka replaced its old legislation with a new Intellectual Property Act in 2003. This legislation follows the WIPO model law. Further, it reflects the spirit of the US-Sri Lanka bilateral agreement on protection of intellectual property, which was concluded in 1991.
Even though these countries recognised the impact of patents on access to medicines, at the WTO, they refused to admit this fact at the domestic level.
For instance, a press release by India 's minister of commerce and industry on the promulgation of ordinance states that a feature of patent protection is that it spurs research so that constant alternatives keep appearing in the market -- and often the alternatives are better ones. Thus, price control is inherently built in.
And so, India refused to accept the adverse impact of patents on medicines. Further, the statement boasts about the opportunities of the product patent regime by making the following assertion: “By participating in the international system of intellectual property protection, India unlocks for herself vast opportunities in both exports as well as her potential to become a global hub in the area of R&D-based clinical research outsourcing, particularly in the area of bio-technology.”
Again, the National Health Policy (NHP) of India states: “Global experience has shown that the introduction of a TRIPS-consistent patent regime for drugs in a developing country results in an across-the-board increase in the cost of drugs and medical services. NHP-2002 will address itself to the future imperatives of health security in the country, in the post-TRIPS era.”
Thus, the health policy recognises the problem but refuses to spell out the options clearly.
Likewise, Pakistan 's health policy and Sri Lanka 's Draft National Medicinal Drug Policy are both silent on the impact of intellectual property on drug affordability.
The patent ordinance issued by the Government of India to introduce the product patent regime contained certain TRIPS-plus provisions, which were subjected to widespread criticism. International organisations and civil society organisations requested the government to reconsider the TRIPS-plus provisions. In a letter, UNAIDS termed the ordinance “potentially devastating”.
Responding to the criticism, certain provisions of the ordinance were amended while obtaining the approval of Parliament.
Criticism against the patent ordinance forced the Pakistan government to introduce an amendment to the ordinance, in 2002. The purpose of the amendment was to introduce certain safeguards to ensure access to medicines.
It was the intervention of the Supreme Court of Sri Lanka that forced the Sri Lankan government to change the original version of the legislation to incorporate certain safeguards against patent abuse. The Supreme Court said: “The provisions of the TRIPS Agreement cannot be applicable to developed and developing countries equally without attributing due consideration to such rights with particular reference to mitigatory provisions in the Agreement.”
In the absence of any justification for not considering the flexibility provisions of TRIPS, the Supreme Court ruled that the provisions of the Bill were inconsistent with the Sri Lankan Constitution.
Conclusion
These instances show that there is lack of spirit in the implementation of TRIPS flexibilities in South Asian countries.
(This article is an edited excerpt of the author's paper ‘TRIPS
Implementation and Public Health Safeguards' in Centad's South Asian
Yearbook of Trade and Development 2005. To download the full paper,
with
tables and references, in PDF format, click here. )
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