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Of Glivec, Jenny & Anji: Continuing the global debate on affordability of medicines

Chirantan Chatterjee, IIM Bangalore


Death separated them by about eight years, but had they been around, Dr. Jenny Lanjouw and Dr. Anji Reddy would have had mixed reactions witnessing the public debate and policy reactions to the Indian Supreme Court’s judgment rejecting Novartis’ patent application for the cancer drug Glivec. In a sense then, this article is an obituary to two important contributors in pharmaceutical policy making and developments in pharmaceutical firm capabilities of modern times.

When she passed away in 2005, Dr. Lanjouw left behind a deep legacy of compassionate economics through her work at UC Berkeley. Foremost was her contribution to the economics of intellectual property where she influenced the idea of having a divided patent system in the richer and poorer parts of the world, with protection in the former and none so in the latter – as a means to increase access to medicines. Once her recommendation was made, key international institutions debated the merit of this decision – and while nothing has moved since then despite other economists espousing the idea – the Glivec decision might have raised the possibility of revisiting that old suggestion again.

On this issue, Dr. Anji Reddy, founder of Dr. Reddy’s Labs (DRL) in India, who passed away in 2013, might have agreed. After all, he was one among the first in India, who brought drug manufacturing costs down and set precedence in India’s generic capabilities story with his PhD from the National Chemical Laboratories. Yet, he was also a scientist by heart, and among the first entrepreneurs running India’s cohort of reverse-engineering generic pharmaceutical firms who took to drug discovery like fish to water. Balaglitazone was DRL’s first innovative drug and new chemical entity that got out-licensed from its discovery work in the early 1990s much before any other firm could cite a similar success story in the domestic industry.

Sure DRL hasn’t made much more head way thereafter in bringing novel drugs to the market, but it is worth asking today, about 20 years hence, what the Glivec decision might signal to a handful of innovation focused Indian pharmaceutical firms, who wear the hat of a generic infringer by the day to put it metaphorically, and become a drug-discoverer by the night. Will the patent laws of the land signal to them the obliteration of any remaining incentives for innovation to bring a new drug to the domestic Indian market? More worrisome here will be discovery research for diseases that wear a particularly South Asian fabric, epidemiological and biochemical understanding about which might be higher in the domestic Indian firms than in any foreign multinationals.

And how about incentives to innovate for the international market? There too, other patent courts might take a leaf out of the Glivec decision from India and become more restrictive in terms of granting patents citing lack of novelty or by blending in issues around comparative effectiveness. Already there are discussions that the Indian court’s decision could influence future decisions by the US Patent Office and those in the European Patent Office. Also there has been the recent brewing of a patent tussle in India following up on the Glivec judgment. This relates to the validity of the patent on pharmaceutical major Merck’s oral anti-diabetic drug Januvia and its base salt sitagliptin on which Merck has a patent that is being contested by Indian firm Glenmark arguing that sitagliptin phosphate does not infringe on sitagliptin’s base patent. On an aggregate, this could only mean that the world will become more intolerant towards pharmaceutical innovation tomorrow citing an incrementalist rent-seeking attitude. This could only translate to a shot in the arm for the generic-hat-wearing domestic Indian firms but curb their potential future returns from their discovery hat by the night.

Having said that, there is more than a fair share of reason behind the Indian Supreme Court’s decision, especially if, as some have argued, the evaluation is done purely on the merit of the litigation facts and the clause on article 3(d) that India invokes in the post-TRIPs world to grant pharmaceutical patents. And even beyond that, the decision might have come as a blessing in disguise for eroding sources of first mover advantages for drug makers in the country. Economists had already pointed this around 2005, when India formally acceded to WTO-TRIPs; infact an editorial in a leading business daily saw economist Mike Scherer from Kennedy School in Harvard University first raising this as a concern1 citing similar historical experiences from the Italian pharmaceutical industry. The first mover advantage debate is a historical one among economists since the 1960s, the question being, whether the carrot of being the first mover is enough of an incentive required, which need not be ramped up by additional intellectual property protection. Economists Dr. Michele Boldrin and Dr. Daniel Levine brought this to the world’s attention again in their recent Journal of Economic Perspectives article in 2013 titled ‘The Case Against Patents’2. And infact Dr. Scherer also pointed out to a similar erosion of first-mover advantages in the Italian pharmaceutical industry when that country adopted a stronger patent regime in 1978. This only augments the point that other noted economists like Wes Cohen, Richard Nelson and John Walsh had pointed out in their 2000 US-based R&D manager survey3; in this seminal work, the authors report that while in pharmaceuticals and medical instruments 50% of managers indicated that lead-time (first mover advantage) is important to earning a return on innovation, in other sectors only 35% of managers responded with a similar reason. Clearly practitioners too are in unison about the overarching role of lead time and first mover advantage in pharmaceuticals. Thus, the 2013 Indian Supreme Court decision might have done a service to that concern on erosion of sources of first mover advantages that was perhaps ongoing in the Indian pharmaceutical industry since 2005. A recent paper too has started documenting the erosion effects of first over advantages before and after TRIPs in India with an empirical setting in cardiovascular drug sales4.

Moving beyond first mover advantages or incentives for innovation for India’s domestic firms, a final issue needs to be folded into the Glivec debate. And this relates to the presence or absence rather, of a well set up health insurance system in the country, perhaps pushed primarily by the Government of India – ala – Medicare and Medicaid in the United States. Throughout 2000s, some Southern Indian states have experimented with such state sponsored health insurance schemes for the economically poor (those who hold a below-poverty-line card for example). However issues remain about their inadequate take-up, lack of pan-India coverage, the role of drug-bills in the scheme, all of which highlight why healthcare expenditure still remains predominantly out of pocket in the country. It also consequently continues to be a sensitive public policy issue with affordability of medicines an ongoing concern across the country that clouds economic thinking around the incentives for innovation.

To conclude, this might sound like old wine in a new bottle – but the Glivec decision has its trade-offs like most societal choices that are laced with economic ramifications. While at one end it could be detrimental to incentives for pharmaceutical innovation, the little that might be prospected by domestic Indian firms, at the other, it could restore eroding sources of first mover advantages that Indian generic firms have traditionally built over time and prevent an Italy replicating itself in the Indian context. And to complete the circle, it could reignite policy makers’ attention on state sponsored health insurance schemes, such that they could also be used as policy levers to control prices of medicines.

In couple of years, in 2015, Least Developed Countries like Bangladesh & some African nations are supposed to accede to a stronger IP regime just like India did in 2005. The Glivec patent rejection thus offers lessons not just in the Indian context, but also to these nations. If their domestic industry witnesses a similar dis-incentivizing environment (for innovation) as one is witnessing in India, and should at the same time there arises concerns on erosion of first mover advantages or the role of countervailing policy measures like state sponsored health insurance – one can be certain that the debate on affordability of medicines in the international community is far from over.

Had they been alive, Dr. Lanjouw and Dr. Reddy’s wise counsel would surely have been needed in these discussions to make the conversation more policy-relevant.

References

Bhaskarabhatla, A., & Chatterjee, C. 2012. First-Mover Advantages Before and After TRIPS: Evidence from the Indian Pharmaceutical Industry. Available at SSRN 2154510.

Boldrin, Michele, and David K. Levine. 2013. "The Case against Patents." Journal of Economic Perspectives, 27(1): 3-22.

Cohen, W. M., Nelson, R. R., & Walsh, J. P. 2000. Protecting their intellectual assets: Appropriability conditions and why US manufacturing firms patent (or not) (No. w7552). National Bureau of Economic Research.

Lanjouw, J. O. 1998. The Introduction of Pharmaceutical Product Patents in India:" Heartless Exploitation of the Poor and Suffering"? (No. w6366). National Bureau of Economic Research.

Scherer, F. M. 2005. Losing the First Mover Advantage. The Financial Express, 6th April.

Scherer, F. M. 1972. Nordhaus' theory of optimal patent life: A geometric reinterpretation. The American Economic Review, 62(3), 422-427.

1 http://www.financialexpress.com/news/losing-the-first-mover-advantage/129638

2 http://www.aeaweb.org/articles.php?doi=10.1257/jep.27.1.3

3 http://www.nber.org/papers/w7552

4 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2154510

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