The U.S. International Trade Commission (ITC) investigation of Trade, Investment, and Industrial Policies in India: Effects on the U.S. Economy held its second and third hearing on Friday, February 14. This blog contains notes on the third hearing, which was focused on IP and pharmaceuticals. Witnesses from PhRMA, Sonecon, Bayer, Knowledge Ecology International, Médecins Sans Frontières, and Public Citizen testified. Notes on the ITC investigation’s first panel are here, and notes on the second panel are here. Videos of the hearings have been posted here by Knowledge Ecology International.
Rod Hunter from the Pharmaceutical Research and Manufacturers Association (PhRMA) testified that Indian policies have adversely affected its members, and that they are concerned about the model India is setting for other countries. 15 pharmaceutical products have had their patent rights undermined in India through several policy devices. Section 3(d) of India’s Patents Act narrows the patentability criteria in a way that is inconsistent with its TRIPS obligations. TRIPS only allows three criteria for patentability – novelty inventive step and industrial application – but Section 3(d) adds a fourth criteria, enhanced efficacy. This provision of the patent law only applies to pharmaceutical and biologic inventions, so it discriminates based on field of technology. Section 84 of the Patents Act allows compulsory licenses based local working, which is another TRIPS violation. Other barriers faced by PhRMA members include pre-grant patent oppositions, a failure to protect regulatory data, and lax enforcement of patents when generic companies seek marketing approval during the innovator’s patent term.
Hunter said that patents are not a significant reason for poor access to medicines in India. A lack of infrastructure and inadequate spending on public health are more serious problems, and the government could lower prices by slashing taxes and tariffs. India’s IP policy is mainly designed to promote local firms – though its policies hurt Indian industry by discouraging foreign direct investment.
Robert Shapiro from Sonecon LLC presented a series of rankings of India’s intellectual property environment relative to other countries’ environments. He noted that India ranks 42nd among countries in the Ginarte-Park Index (where it is tied with Ecuador and El Salvador). Another intellectual property index is published by the International Property Rights Alliance, and it ranks India 57th, around Uruguay and Rwanda. The U.S. Chamber of Commerce’s Global Intellectual Property Index ranks India last of 25 countries.
Shapiro said there is a strong correlation between the strength of IPR and the inward flow of foreign direct investment, and the link is strongest in IP-intensive industries. If India improved its level of IP protection, it would enjoy more investment . Research shows that to date, Indian increases in FDI have been correlated with its rising scores in the Ginarte-Park index. Stronger intellectual property protection would have the most benefit for Indian firms, but this would benefit American firms as well, because it would increase exports. The U.S. government should “bring serious pressures to bear” on the Indian government to win stronger IP protection there.
Julie Corcoran from Bayer offered her testimony as a “case study” of how Indian policies have harmed one firm, and warned that India’s industrial policies will be replicated in other markets. She said new drugs have led to longer, healthier lives and have cut cancer death rates in half. They are the product of pharmaceutical research and development, which is a long, risky, expensive process. Intellectual property provides an incentive for companies to take on the expense and risk by preventing copying of the products that emerge from the R&D process. Lax or nonexistent IP is a threat to innovators and to society, which relies on new drugs.
Corcoran said that Nexaver is a life-extending drug for advanced kidney and liver cancer, and it has sales of $1 billion worldwide. Marketing approval for Nexaver was granted in India in 2007, but a compulsory license was granted in 2012. The compulsory license includes a royalty of 7% of net sales. Since the issuance of the compulsory license, our annual revenue from Nexaver has been driven down to a small amount, and our competitors have flourished. This is not TRIPS compliant and compulsory licenses conflict with the need to fund R&D. Innovation can only be funded through patent rights. Corcoran also said that the Indian court system is very slow, and its courts have consistently delayed justice in infringement cases. Pharmaceutical price-setting policies are another problem faced by Bayer in India.
James Love from Knowledge Ecology International described the dramatic fall in prices of AIDS drugs in the 2000s that were the product of a huge struggle over intellectual property and medicines. When barriers to generic competition were removed, prices fell from over $10,000 per patient per year to under $100. Today, we’re back at the beginning of the process with regard to cancer drugs. India has taken some modest steps to address pricing, and Congress is freaking out. A lot of witnesses have said that India is breaking WTO rules, but the U.S. really has no case at the WTO, so instead India’s opponents launched this investigation.
Love noted that Bayer’s Indian price of $65,000 was excessive – based on its ratio to GDP per capita, it is the equivalent of pricing a drug at $2,200,000 in the U.S. According to Bayer, only 2% of people in India who needed the drug were getting it. Love read the recent quote by the Chairman of Bayer that “we did not develop this product for the Indian market, let’s be honest. I mean, you know, we developed this product for Western patients who can afford this product.” He also noted that in 2010, Novartis said it was currently serving 50 million people in India, and aimed to serve twice that. This means that in a nation with 1.2 billion people, Novartis’ goal was to serve only 8% of the population.
Rohit Malpani from Médecins Sans Frontières (MSF) described the crucial role that access to Indian generic medicines plays in their treatment efforts. Generic competition in 2001 reduced HIV/AIDS medicine prices 96% overnight, and they have since fallen further, making widespread treatment possible. Relief agencies such as MSF and governments (including the U.S. government) all rely on Indian generic manufacturers to pay for large-scale treatment in poor countries. There has been a turn towards patenting in India that is good for IP owners but worries MSF. India has issued over 2000 patents for medicines in recent years, and treatment providers are already seeing that newer medicines are priced out of reach, including important second-line HIV/AIDS medicines. Similarly, a new medicine for Hepatitis C, sofosovir, will be unaffordable without generic competition.
Malpani told the Commission that patent law and judicial practices for which India is being attacked are totally in line with its international obligations. Under TRIPS, Members are free to set strict rules on patentability, as India has done with Section 3(d), and which the U.S. Supreme Court has effectively done through its Myriad ruling that struck down patents on isolated genetic materials. Malpani said that compulsory licenses are an internationally recognized safeguard against abuse. The U.S. has issued compulsory licenses for medicines in the past. India had never issued a compulsory license until Nexaver, and it only did so in a case where the drug was priced out of reach for most of the population. MSF hopes that where these access problems exist, you will see more compulsory licenses. We recognize the need to fund research and development, but relying on high prices for medicines is a flawed paradigm. It leads to access barriers, but it doesn’t stimulate R&D for many health needs of the world’s poor.
Peter Maybarduk from Public Citizen told the Commission that in order to get the type of price reductions others have discussed, there is no substitute for generic competition. Industry initiatives alone will not lead to the dramatic price drops like we’ve seen for HIV/AIDS medicines. He told the Commission that when it considers the ‘cost’ to the U.S. economy of Indian policies, they should remember that patent and data rights are not absolute – they are constrained by international rules in a number of areas. There is no guarantee of monopoly rents in the trade rules. He then turned to specific IP policies that had been discussed by other witnesses.
Section 3(d) of India’ patents act is not a “fourth criteria” for patentability. It is a limit on what kinds of subject matter may constitute an invention, and this is an area where TRIPS gives WTO Members discretion. This is why the recent Myriad case (in which the U.S. Supreme Court ruled that isolated genes are not subject matter eligible for patent protection) is not a violation of TRIPS.
Compulsory licenses are allowed in the TRIPS Agreement, and countries can issue them on any types of inventions. They are an established part of patent law.
TRIPS Article 39 does not require data exclusivity. It requires protection of test data from unfair commercial use, and India provides protection.
Maybarduk told the Commission that the “contagion effect” other witnesses had warned about – other countries adopting similar policies – would be a very good thing. The world needs more policies like these to ensure access to medicines for all.
Questions and Answers
Commissioner Kieff asked the witnesses to discuss the enhanced efficacy requirement in India’s patent law. If something is duplicative of an already existing medicine, than why is there so much demand for the new product? If the old product is as good as the new one, why does everyone want to “knock off” the new one?
Malpani said that there isn’t an issue of generics “knocking off” drug patents. In pharmaceutical evergreening, additional follow-on patents create a thicket that prevents firms from entering the market. Love cited the example of taxol in the U.S. After the initial patents for taxol expired, Bristol Myers received a patent on the dosage, and this was the only legal way to prescribe the drug. In Thailand, they received a patent on the coating of the pill. These are cases where the primary drug is the most important, but follow-on patents are blocking access. Another example is the patenting of heat-stabilized forms of medicines for use in countries where refrigeration is not always reliable.
Keiff then said that there is a question of whether or not India’s practices are TRIPS complaint. He would like witnesses to describe in their post hearing statements how something could be both TRIPS compliant and a barrier to trade. He noted that the witnesses seem to disagree over the number of compulsory licenses that have been issued, and he would like them to discuss how the compulsory license(s) have been consistent or inconsistent with TRIPS.
Commissioner Williamson noted that the letter from Congress requesting the ITC investigation specifically instructed the Commission not to investigate matters of law. The Commission needs to determine the economic impact of Indian practices. He asked the witnesses what standards the commission should measure the impact.
Shapiro said that in the field of economics there is “no real controversy” over the impact of intellectual property on innovations that have an economic effect. The relationship is well established between IP and FDI, exports, and growth. The argument should not be about the value of IP. He said that if we want access to lifesaving or life-improving medicines, we need to determine how to finance it. If you don’t finance it through intellectual property, then you run into problems.
Corcoran said that other countries have measures in place to deal with medicine prices, but they respect innovation and have strong intellectual property protection. These countries do not allow local industries to infringe patents at will.
Maybarduk said that no one thinks intellectual property lacks value, but that it is bad to push it to extremes no matter what the effect on society. Limits to excessive IP protection are useful – they prevent abuse.
Malpani said that almost 50% of pharmaceutical research and development is paid for by a combination of the public sector and philanthropists. Paying high prices for medicine is not the most efficient way for the Indian government to support R&D, and adopting that model leads to an outcome in which most of the population does not obtain access to medicines. In the Nexaver case, only 200 boxes of Bayer’s drug were imported – the model of using patents to support R&D was clearly not meeting people’s needs. MSF would rather see the Indian government invest directly in innovation.
Commissioner Pinkert asked the witnesses to consider a hypothetical. If India were to spend more to cover higher amount of R&D costs, would American consumers then cover less R&D, or instead would there be more R&D spending?
Shapiro said the scenario would lead to a little of both – some R&D would be shifted, but not a great deal. In general, you see research spending by U.S. companies increase in countries that improve IP protection.
Malpani said that the private sector has failed to provide research and development into diseases like malaria that primarily affect the poor. That’s why the Drugs for Neglected Diseases Initiative and similar efforts were set up. Love said that just over 8% of pharmaceutical industry turnover is spend on research and development, and about half is spent researching me-too and less important products – so only 4% of global turnover is invested in in meaningful R&D. Because of this, KEI has recommended that the global trade system should have rules related directly to R&D, not to protecting the price of drugs through IP. There should be an obligation for countries to support a certain amount of R&D, and as countries become more developed, their share of the commitment to global R&D grows.
Pinkert noted that some witnesses are testifying that India’s policies are meant to benefit local producers, and others are testifying that they are meant to increase access to medicines. How should the Commission sort it out?
Maybarduk said that the basis for the critique of Indian policy is simply that it has a strong industry. The reasoning behind the policies is found in the court documents, and these focus on public health. Shapiro said the Commission should do a cross-country comparison and try to hold as many things constant as possible (income, disease burden, population, etc.). If the policies were meant to enhance public health, one would expect that countries with comparable health problems would have similar policies. Malpani said that many other countries with high poverty and low access to medicine buy generics from India and many have not yet been required to implement the TRIPS Agreement, so they would not need to have the same policies that India has in order to access medicines through TRIPS flexibilities.
Commissioner Johanson asked for more information on the innovative pharmaceutical sector in India. Malpani promised to provide precise data in the post hearing comments, and said that the generic sector is changing quite rapidly. Many firms are trying to develop new medicines to enter the U.S. market, and American companies here today are investing in Indian companies. The landscape is already changing.
Commissioner Pinkert asked what kind of profits Natco is making from the compulsory license on Nexaver. Love said that they sell it for $27 a week instead of $1000 a week and are definitely making some profit. Indian companies in general are making money. The alternative to this scenario is grim – many people would not have medicines.
Commissioner Broadbent asked Corcoran if she had estimates of lost revenue due to the compulsory license on Nexaver, and if its generic versions of the drug were showing up in other markets. Corcoran said she would try to supply an estimate of losses in the post-hearing statement. She said they have seen some evidence that Natco’s product might be showing up in other markets, and that Cipla might be supplying Vietnam. Love noted that the compulsory license only applies to Natco, and only applies to India.
Broadbent asked if patient access to Nexaver has increased. Once again, Corcoran said she would answer the question in her post-hearing statement, but she noted that they have a patient access program, and $500 is the patient access price. Love said that the Natco price is $27 a week and access to the drug from generic companies has increased. He also noted that Bayer only offered a patient access price when people started talking about a compulsory license.
Commissioner Kieff said that the Commission needs data to base its report upon. He asked the witnesses to discuss situations where larger volumes are offered at lower prices. Have there been successful efforts to do this? Have there been differential pricing schemes? Would MSF like a system where patent owners gave away the drugs foor free in poor countries, but arbitrage was blocked.
Love said he thought that a new hepatitis C drug – the first one to ever cure hepatitis C – is a good candidate for a patent buyout. It will cost $84,000 per course. There are 3.2 million persons infected with it in the U.S., so it would cost $268.8 billion to cure all Hepatitis C in the country. At the going price, this isn’t likely to happen. Globally, there are 150 million people with the disease. A patent buyout where the innovator reaps a reward would allow us to wipe out the disease.
Commissioner Williamson asked if the U.S. generic drug industry was selling its products in Inda. Love said that some of the companies are the same companies. In the U.S., 86% of all prescriptions (by volume, not price) are generics. The Active Pharmaceutical Ingredient is often made in China or India.
Williamson asked Shapiro what the best metric is to measure the current realities of intellectual property on the ground in India. Shapiro said that the most balanced is the Ginarte-Park index, which is heavily used internationally. He further said that harming incentives will lead to less innovation, unless you are prepared to replace the incentives. Somebody has to pay for R&D, and the question is whether or not you pay for it in a way that undermines the incentives to create the next generation of pharmaceuticals. More people will die if we reduce incentives to create more medicines.
Love said that this was a simple explanation. It is qualitatively true that higher prices generally have a positive impact on R&D, but if you break down the data by country, the trend does not hold. To really understand R&D funding you need to consider public sector spending. PhRMA lobbied the government to increase NIH funding because they know the research eventually leads to new medicines.
Commissioner Johanson asked the witnesses if they would call India an “innovative economy” the way people call the U.S. an “innovative economy.” Malpani noted that poor countries often develop through copying developed country technologies, then adopt stricter IP systems once they have achieved a higher level of development. This is what Japan did after World War II. Today, developed countries are asking poor countries to adopt the strict IP regimes before they have had a chance to develop. He noted that India is currently growing rapidly and predicted there will be a time when Americans will complain about the high prices of branded drugs developed in India.
Shapiro said that innovation usually occurs in advanced economies because those economies have the education and other means to carry it out. The best way for poor nations to develop is to open themselves up to foreign investment. This drives growth enormously, and local industries enjoy spillover effects as people learn how to use foreign technologies. This is what Korea and China did. India does this much less because its lack of intellectual property protection discourages foreign investors from establishing a presence in the country.
Love noted that over the past couple of decades the share of patents around the world filed by American inventors has fallen, and the share of patents filed by emerging markets has grown. This shows that emerging markets are innovating. He said that many types of innovation cannot be measured by patent counts. In the software industry, open access is driving growth and innovation.
Maybarduk said that it is imprecise to talk in general terms about intellectual property. Different forms of protection cover different types of goods. Furthermore, there is a difference between having a level of protection necessary for innovation, and having TRIPS-Plus protection. There are no studies saying that TRIPS-Plus rules have any relationship at all to innovation or foreign direct investment.
Broadbent noted that there is growing resistance to existing antibiotics, and that new medicines were needed to take their place. She asked where the capital to drive the necessary R&D will come from if drug companies can’t recoup their costs through sales.
Malpani said that antibiotics are good example of the failure of IP to fuel necessary development. Everyone expects antibiotics to be cheap, so most firms have disinvested from this field. They saw no profitability, and they left. This shows that a system which has long been broken for the world’s poor is starting to break down for the wealthy.
