US-India War over Pharmaceuticals Heats Up

Influential, deep-pocketed American drug manufacturers with powerful lobbies in Washington, DC are pushing the US government to raise the pressure on New Delhi to modify policies on intellectual property rights in pharmaceuticals.

The issue has been wrinkling up Indo-US bilateral commercial ties since 2012 and was a topic of discussion both when President Barack Obama visited Delhi in January and when Prime Minister Narendra Modi visited Washington last year. The main bone of contention is a section of the Indian Patents Act of 1970 that sets a higher and narrower standard of patentability than is prevalent in developed markets like the US and the European Union. Indian law bars patents for inventions involving new forms of a known substance unless they differ significantly in properties.

Critics of the US drug industry have long complained that big drug companies get around the maximum period during which a patent can remain in force by “Evergreening” – subterfuges through which they take out new patents on slightly different formularies that are essentially the same drugs, keeping the patents in place for far longer periods of time than stipulated in the law.

Prices for branded drugs obviously run far higher than for generic ones. According to an industry survey, the cost of generic drugs averages 40 to 60 percent below the cost of the innovator or brand name drug. In some cases, the difference can be jaw-dropping. In a 2012 case, India’s patent office ruled that the German pharma manufacturer Bayer AG had failed to price a cancer drug to make it affordable and accessible to Indian patients. The generic version dropped the price from US$5,500 per month to US$175 – a reduction of nearly 97 percent.

The US industry justifies the enormous cost by saying research and development to bring new drugs to market is so expensive that longer patent periods are necessary. However, in 2014, two market research companies found that US companies spent US$57.4 billion on marketing and promotion and only US$31.5 billion on R&D in 2004, the last year for which statistics were available.

While US drug companies are demanding more leeway to manufacture patents for the Indian market, India says its intellectual property rights act is an internal matter, not open to meddling. Indian health activists fear that moving to a tougher regime would put life-saving drugs out of reach of the poor in a nation in which nearly half the population subsist on less than US$2 a day. This demographic depends on generics, rather than the imported and prohibitively-priced originals manufactured in the West.

"India has prioritized public health and its generic drug producers over the profits of foreign companies, " said Rajeev Chakradhar, an intellectual property rights lawyer and a consultant with the Reliance group of companies. “Drug manufacturers must prove that their products are innovative and provide new benefits to receive a patent.”

India, Chakradhar said, has been justified in refusing to grant or revoke patents on lifesaving cancer medicines and other drugs that are simply new formulas or spinoffs.

"The government's position is that it's not in the business of fattening the wallets of rich global drug manufacturers but to protect the health of its poor," he added.

Indian generics manufacturers are also jittery that if India adopts US-style patent protection skewed in favor of the inventors of new drugs, it will not only restrict the availability of cheaper generics but also shrink their businesses.

The Indian government has denied at least 19 US and European pharmaceutical companies – such as US-based Gilead Sciences Inc and Swiss major Novartis International AG – patents for their drugs since 2012. The US Food and Drug Administration has responded by blocking shipments from Indian generic drug makers, cutting into Indian pharmaceutical exports to the US, which in 2013 amounted to US$4.5 billion, or over a tenth of the $41.8 billion worth of goods India exported to the US that year.

India-based Indian pharmaceutical companies such as Cadila Pharmaceuticals Ltd, Sun Pharma, Smruthi Organics Ltd and Marck Biosciences Ltd have also been warned by the FDA about violations for deviating from manufacturing norms or for their failure to pay the annual fee under the Generic Drug User Fee Amendment in 2014.

India in turn has expressed its growing unease over what it called the FDA’s “disproportionate penalties” on generics companies that the government says were unfairly subjected to a string of import bans without being given a sufficient opportunity to clarify details.

India's reluctance to toe the line of US drug firms also led the latter to make out a case for downgrading India to Priority Foreign Country. In April 2014, a US Trade Representative ‘Special 301 report’ on intellectual property protection alleged that it infringed on US patent laws. Although countries such as China, Chile, Pakistan, Indonesia, Russia, Thailand, Venezuela, Argentina and Algeria, were also on the list, the report referred to India as “the largest source of counterfeit pharmaceuticals shipped to the United States.”

The report further said: “Reports indicate that anywhere from 10-40 percent of drugs sold in Indian markets are counterfeit and could represent a serious threat to patient health and safety.”

Given this backdrop, it is still unclear if the new and business-friendly Modi government will relent to the escalating pressure from the United States. During his September US visit, Modi was quoted telling US businesses leaders that, "I understand that you want to be compensated for your investments in [research and development]. At the same time, India needs medicines that are affordable for its population."

The Pharmaceutical Research and Manufacturers of America and the Biotechnology Industry Organization raised their demands in their submissions to the US government last week, which is currently reviewing the intellectual property environment in different countries as part of its annual exercise.

The American government also deferred a decision, opting for an out-of-cycle review of India's IPR policies last October, where it chose not to downgrade the country, mainly in the light of improved relations with the new government led by Modi.

The US Trade Representative Mike Froman told lawmakers during last month's congressional hearing that, “We’ve got a good dialogue going now with the new government on intellectual property, and we’re committed to working to achieve concrete progress in this area.”

Pharma companies in both countries are hoping that Modi and Obama's personal chemistry, evident during the latter's visit to India last month, will help resolve the issue. But to what extent the business-friendly Modi administration will bend to accommodate the US official position remains to be seen.

Can India, the “pharmacy of the world” tread the fine line between protecting its pharmaceutical patents and access to affordable medicines without driving away foreign investors? Pharma companies in the United States and in India are holding their breath.

New Delhi-based Neeta Lal was a nominee for the SOPA Awards 2014 & World Media Summit Awards 2014.