Since India's independence in 1947, its pharmaceutical industry has passed through several crucial phases of development. Until the early 1970s, India's patent regime provided patents for products as well as processes in pharmaceuticals. Multinational companies (MNCs) held all the patents on drugs and pharmaceuticals and dominated the Indian healthcare market. India's domestic pharmaceutical industry was almost non-existent and the local manufacturing of medicines was negligible. India was a net importer of drugs and pharmaceuticals, and the result was that drug prices in India were among the highest in the world. The vast majority of the Indian population lived below the poverty line, and access to medicines was limited to 15—20 percent of the total population (Bhagat 1982). In the 1970s, India introduced an array of protectionist measures including drug price controls and controls over foreign exchange. As a part of these measures, Patents Act 1970 was introduced abolish- ing pharmaceutical product patents but allowing process patents for seven years from the filing date. This change meant that every drug was virtually generic and hence could be legally copied for sale. The new landscape provided Indian firms opportunities to enhance their reverse engineering skills and develop new manufacturing processes. In other words, India followed a model allowing the manufacture of copies of drugs patented elsewhere. Over the next three decades, the domestic firms proliferated making India almost self-sufficient in medicines. The drug prices in India dropped to be one of the lowest in the world and access to medicines increased to around 35 percent of the population. Even at these low prices, access to medicines remained beyond the reach of two-thirds of India's population.
Access to medicines requires improvement in four components of healthcare provision: namely, (1) ensuring rational selection (of drugs), (2) providing sustainable financing, (3) ensuring efficient systems for distribution, and (4) maintaining affordable drug prices.
the absence of sustainable financing as the principal hindrance to access to medicines.
This approach is consistent with the literature on the affordability of drugs.
For example, the World Bank (2002) points out that nearly 25 percent of the poor people in India do not even seek healthcare because of the costs. "Thus, the primary focus of this book remains on how to improve access to medicines by reducing costs of drugs to increase affordability. In Chapter 8, we also undertake sensitivity analysis of the proposed model to consider the long-term sustainability of financing such a programme from the public purse."
During the period of protectionist framework, India also became a net exporter of pharmaceuticals. India's drugs were initially exported to developing countries and the former Eastern Bloc countries. India supplied the poor countries with low-cost imitations of patented drugs as well as off-patent generics. India's exports increased drug availability as well as reduced drug prices in the developing countries. More recently, highly regulated markets such as the US and European countries have also become the destination of India's exports of off-patent generics. Thus, Indian firms have played a major role in significant price reductions after patent expiry in the overseas markets. In 1991, India began introducing policies of economic liberalisation and industrial reforms. As a part of this policy shift, India joined the WTO when it was established in 1994 and as such was obliged to sign the TRIPS agreement. While developed countries implemented the agreement virtually spontaneously, developing countries were given until 2000, and countries such as India, which previously did not pro-
compliant patent regime. Unless the WTO grants further extensions, the least developed countries (LDCs) have until 2016 to introduce the required changes. The TRIPS agreement set out minimum standards for intellectual property protection across all member states. This standard is significantly higher than what the developing nations previously had. For example, TRIPS provides patents for 20 years. Before TRIPS, the protection in the US was 17 years and in the EU was 15 years. The extension of the protection term is more significant in the developing member states. For the developing countries, including India, which previously did not provide product patents, the new regime has effectively raised the protection term from years to 20 years in these countries. 1.2 Key issues and key questions With the implementation of the TRIPS agreement since 2005, India has re-introduced product patents in pharmaceuticals for 20 years. In sim-
re-introduced product patents in pharmaceuticals for 20 years. In simple terms, this change means that patented products can no longer be copied for sale in the domestic market or for exports. But holistically seen, the new regime has wider implications for the domestic pharmaceutical industry, its exports, drug prices, and access to medicines within and outside India. The new industrial landscape severely restricts the competitive environment that existed in India over the last 30 years. This change also
creates monopolies for patent holders which almost entirely are MNCs. Many questions arise in the wake of these changes: How would the change affect availability and prices of patented drugs introduced in India? With the sizeable domestic industry that India now has, is the market likely to return to the pre-1970 MNCs domination? Indian pharmaceutical industry is now faced with unprecedented challenges within its own territory and outside. The industry is undergoing a transformational process and trying new business models. Is the overall number of domestic firms likely to shrink? Are the small local firms likely to survive in the long run? What role would they play in the future provision of India's healthcare? Business models of domestic firms could determine what drugs are manufactured in India, where these drugs are marketed, and at what price? All these factors play a vital role in providing access to medicines. There are general apprehensions that drug prices in India and also in other developing countries will rise significantly due to the regime change. Any rise in drug prices is going to further restrict access to
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