Academic journal article Indian Journal of Economics and Business

Trips-Compliant New Patents Act and Indian Pharmaceutical Sector: Directions in Strategy and R&D

Academic journal article Indian Journal of Economics and Business

Trips-Compliant New Patents Act and Indian Pharmaceutical Sector: Directions in Strategy and R&D

Article excerpt

With the much awaited amendment in the Patents Act in March 2005, retroactive to Jan. 1, 2005, India has finally met its obligations under the TRIPS agreement. However, this has set a new debate not only in India but also in other developing countries, especially from the African subcontinent, regarding its fallout on the affordability of drugs to poor nations. Within India, the opinions are divided regarding its implications for the survival and growth of the pharmaceutical industry. This article traces the history and the current profile of the Indian pharmaceutical industry, taking note of the prominent changes in the new Act over the last Patents Act of 1970 and presents an analysis on the impact of such changes on the Indian pharmaceutical sector in terms of strategy choices and R&D directions. The study concludes that most dynamic Indian pharmaceutical players are likely to adopt a combination of 'cooperate and compete' strategies to ensure a smooth transition from reverse engineering based to research-based pharmaceutical firms. The analyses also suggest that there may be considerable inflow of outsourcing business to India in the realms of clinical trials, contract research and manufacturing.

INTRODUCTION

With the substantial amendment in the Indian Patents Law in March 2005 in compliance with the TRIPS (Trade Related Aspects of Intellectual Property Rights) agreement, much debate has centered around the impact of the product patent on the survival and growth of the otherwise booming Indian pharmaceutical sector and its implications for the overwhelming proportion of the poor population's access to medicines in India and other developing countries. It may be noted here that under the TRIPS agreement of WTO, all the signatory states are obliged to provide strong intellectual property rights (IPR) protection to both domestic and foreign entities, and the latest Indian Patents Act is a move towards compliance of TRIPS obligations within the agreed upon timeframe. It may be further pointed out that the importance of IPRs is not universal in nature. They are especially valued in regard to dynamic knowledge sectors such as pharmaceutical and biotechnological products that are costly to develop, easy to replicate and where market spin-off is not considered to be fast enough to ensure a reasonable reward (Mansfield 1994). In the absence of alternative means of appropriation of the benefits of innovation in the pharmaceutical sector and weak patent laws in most of the countries, global production of medicines turned into a geographically highly concentrated activity, with around 93% of world production located in a few high-income countries where the patent protection has been strong. In fact, five countries--the USA, Japan, Germany, France and the UK--account for two-thirds of the value of all medicines produced (WHO 2004). It may be further pointed out that not only is the learning process involved in the development of pharmaceutical products much more complex (Nogues 1990), the success rate is low as drug discovery is purely a process of trial and error, thereby adding uncertainty regarding the magnitudes of investment as well as returns. The emergence of multiple drug resistant strains of diseases has further added to the unease of policy makers as the discovery and development of new drugs have become the issues of vital concern for national governments and international agencies such as WHO.

The basic objective of this article is to assess the impact of the Indian Patents Act 2005 on the structure and direction of commercial operations of the Indian pharmaceutical industry. Since the latest amendment has much to do with the pharmaceutical sector, the article exclusively focuses on the impact of the latest amendment on this sector. The article is divided into two main sections. Section I deals with the history and current profile of the Indian pharmaceutical industry. It also discusses, though in brief, the points highlighting the fundamental changes in the new patent law over the old one. …

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