Keeping the promise of patent bargain and affordable access to medicines in India

Yogesh Pai, Assistant Professor of Law and Co-Director, Centre for Innovation, IP and Competition, NLU Delhi, in an article which draws from his submissions to the UN High-Level Panel on Access to Medicines (2016), highlights India’s current situation on access to patented medicines in the light of its compliance with IP laws, trade norms and public health

It has been widely noted that India achieved self – sufficiency in pharma drugs by way of a combination of several policy instruments, including the withdrawal of product patents for pharma products (1972-2005), which facilitated strong local generic production with diverse capabilities. However, as of 2015, only 584 Indian generic firms were able to comply with the stringent US FDA regulatory standards to ensure supply of quality drugs. Moreover, the shift from India’s generic prowess in small molecule (chemical-based drugs) business to big molecule biologics (bio pharma) is a rather significant  move that the Indian pharma industry will have to quickly make in the coming years since seven out of top ten selling drugs are biologics. While the Indian biosimilar (copies of biologics) market, valued between $300-400 million is growing, how fast Indian firms manage to overcome the technical and regulatory barriers in order to capture the global export market is yet to be seen. While Indian firms are fast-tracking investments in innovation in the biosimilar space, it is time to reassess the dynamic role of patents in the context of access to medicines in India and the country’s continued ability to pioneer as ‘pharmacy of the world’.

The advent of the pharma product patent system since 2005 has led to a new scenario,  both in terms of challenges to India’s generic industry and in ensuring equitable access to medicines. It has led to a general assumption that patent owning firms would be able to charge prices way beyond what is generally considered as ‘reasonably affordable’ for the Indian patient population. A recent study, however estimates, “a molecule receiving a patent experienced an average price increase of just three to six per cent with larger increases for more recently developed molecules and for those produced by just one firm when the patent system began.” The study further notes, “the presence of substitute goods should moderate the pricing power of firms receiving patent protection.” Hence, text book cases of pharma patents serving as strict monopolies that lead to significant increase in prices must be understood with appropriate caveats and caution in the Indian context. This is not to deny that there could be a steady or significant price increase in specific cases in the future depending on the nature of the drug, nature of the technology, disease burden, market size, domestic capabilities, barriers to market entry, drug regulatory challenges, availability of closer substitutes etc. However, to assume that patents in medical technologies, and particularly pharma patents, are always ‘overpriced’, or that there are no market non-distorting mechanisms to deal with pricing issues of patented drugs is a mistaken assumption.

There are several provisions in the Indian Patent Law that places significant constraint on the ability of patent-owning pharma firms to engage in drug pricing beyond what is considered as “reasonably affordable”. These provisions have significantly benefitted the Indian generic industry and the patient population at large. In fact, it is quite possible that the very threat of onerous regulation may have significant impact on the behaviour of pharma firms in exploiting their patents in a way inimical to public interest. India has remarkably emerged as a key country to experiment new models in balancing access issues by requiring the criteria of ‘therapeutic efficacy’ through Section 3(d) of the Patents Act, 1970 in determining legal standards of patentability for a large class of incrementally modified inventions. The Indian Supreme Court has approved of such an approach in the famous case involving Novartis vs. Union of India (2013). However, it is a matter of fact that this provision has mostly been used in combination with other requirements of patentability (viz., novelty, inventive step and industrial application). Although this provision is designed to contain ‘ever-greening’, it has no doubt opened up early entry of generic drugs in the Indian market. While Section 3(d) has become a cause célèbre, how it plays out as an administratively manageable standard in terms of offering bright-line rules for the patent office will have to be carefully watched.

Similarly, India’s approach towards balancing patent rights and public interest is not divorced from procedural fairness. India is among the few countries which allow both pre-grant and post-grant opposition. These provisions provide broad standing for interested parties, including public health groups. It has led to streamlining of patent litigation where patents that do not muster the strength of patentability and patent-eligibility can be opposed at an early stage at the Indian patent office, without resort to proceedings in the courts and tribunals. Since the patent system is designed to achieve efficiency by aligning it with the market incentives of competitors to challenge patents, such additional avenues indeed help to weed out questionable patents. This improves the public notice function of the patent system and facilitates early entry of generic drugs.

Importantly, Indian patent law limits injunctive relief (but on payment of reasonable royalties) in cases involving infringement of mailbox patents (product patent applications made between 1995 and 2005 due to transition arrangements in TRIPS) where substantial investments were made prior to the publication of these applications. This may be one among the several reasons for the availability competing substitutes for existing mailbox patented drugs in India. Indian patent law provides a broad regulatory review exception (facilitates early entry of generics), research exemption and limited exceptions for importation and use of patented products for and on behalf of the government for the purposes of its own use, including use in hospitals notified by the government in case of any medicine. Of course, there is much to be desired in terms of the
actual scope of these provisions owing to lack of judicial guidance. However, these provisions definitely point towards India’s concern for providing access to patented technologies. India’s patent law distinctly provides for international exhaustion.

India has not only used the threat of compulsory licences to force firms to engage in voluntary licences and price discrimination, it has been actually able to successfully grant a compulsory licence to bring down prices and to induce local working in line with the conditions prescribed in the TRIPS Agreement. These provisions offer a wide latitude for any person interested (with a capacity to exploit the compulsory licence by local manufacturing) to apply for a compulsory licence anytime after three years from the grant of a patent. So far, India has granted one compulsory licence on Bayer’s anti-cancer drug Nexavar (sorafenib). Notwithstanding the presence of an infringing product of ‘Sorafenib’ marketed by India’s generic major Cipla at a competitive price, the Indian courts proceeded to confirm the grant of a compulsory licence. This decision, which has been confirmed by India’s highest court, has far reaching implications on patent holders’ ability to charge unreasonable prices since it has treated grounds for compulsory licensing as amounting to legal obligations on the part of the patent holder in ensuring equitable access.

Importantly, along with the availability of broad based grounds for third party compulsory licences, Indian Patent Law has provisions to invoke compulsory licences in cases of national emergency, circumstances of extreme urgency and public non-commercial use. While there is wide latitude in terms of the actual scope of these provisions, India’s attempt to invoke these provisions is at a preliminary stage. Although India’s Ministry of Health is been seized of the matter since 2013, it has offered little guidance on the class of drugs which could fall within the scope of these provisions leaving patent owning pharma firms to regulatory uncertainty. Perhaps, the threat of a compulsory licence is among the reasons that have led to a host of pro-access measures by certain sections of patent owning pharma firms in India by way of differential pricing and non – exclusive licensing. Apart from its positive impact on affordable access to medicines, these voluntary measures undertaken by pharma firms not only bring new competitive synergies in the market, but are responsible for building sustainable local capabilities. Some firms also engage in patient assistance programmes to ensure access. However, beyond such measures, further empirical studies outlining the actual impact of such voluntary measures will provide evidence into the practices of pharma firms in providing affordable access to drugs.

There is a strong regulatory turn in ensuring affordable access to biologics. Sustainable production of biologics highlights pertinent questions on potential barriers to access created by technical barriers and strong drug regulation. Unlike small molecules, which involves chemical-based drugs, ‘biosimilars’ or ‘follow-on-biologics’ raise complex technical and regulatory questions in balancing quality with equitable access. Unless optimally designed, regulatory standards potentially exclude competitors from the market. Although India has limited capacity in the production of bio-drugs, some firms are making attempts to break the barriers by experimenting new business models to synergise and overcome technical and regulatory barriers. However, litigation in these areas shows that regulation can be formidable a challenge to early entry of biosimilars. Similarly, regulatory pathway for biosimilars in a major export market like the US is still a major challenge for the Indian industry.

It is important to note that not all measures which are termed as ‘TRIPS-plus’ have their genesis in international intellectual property agreements. There is evidence in the Indian context that some of the provisions in her patent law that move beyond the common minimum standards of the TRIPS Agreement were unilaterally designed. They specifically relate to enforcement of patents. In fact, Bilateral Investment Protection Agreement (BIPA) that constrains the regulatory space on several intellectual property issues was liberally signed by India without recourse to its implications on intellectual property standards. India’s recent Model BIT is an example of unilateralism where it has agreed to expose its patent law standards to the test of TRIPS consistency in the context of investor-state arbitration. The reason for legislating such provisions may be have been due to pressure from diverse stakeholders and the continued relevance of intellectual property as a policy instrument to attract foreign direct investment. This is despite recent attempts to restrict regulatory power of States by way of designing TRIPS-plus standards in the Transpacific Partnership Agreement (TPP), to which India is not a party.

The above is notwithstanding the existence of systemic issues of drug innovation and access that move beyond pure questions of misalignment or policy incoherence between international intellectual property norms and other international obligations to ensure equitable access. Such systemic issues are widely noted in the area of neglected tropical diseases. There is evident market – failure in the ability of the patent system to offer enough incentives in the absence of a viable commercial market for neglected diseases. Different policy options have been articulated to delinking R&D costs from product pricing. India’s open source drug discovery (OSDD) programme of the CSIR in the area of anti-tuberculosis drugs is an attempt worth studying in greater detail to understand the advantages and pitfalls of such a model. Another significant issue that has not been addressed by policy makers is in relation to the risk shared by universities and publicly funded research institutes in bringing out valuable inventions and its consequent implications on pricing of such drugs. The existence of structural bottlenecks in emerging economies also contributes to raising barriers to equitable access to medicines. Higher budgetary allocation by states may have positive outcomes on healthcare and in ensuring equitable access. Wide – spread popularity of health insurance schemes can signal positive outcomes for access to medicines. All these options go on to emphasise that patents are not the single most or even a major determinant of economic constraints for access to medicines.  Hence, as we experiment with new models for drug innovation by delinking R&D and pricing, it is doubtful if the patent system stands in the way of such alternative measures to address systemic issues in healthcare since these measures exist outside the scope of formal IP protection.