Data for leverage

A new front has opened in the attack on generic drugs in the pharmaceutical industry, which could push up the prices of medicines.

FAR away from public scrutiny in the corridors of power attempts are under way to alter the laws that govern the Indian pharmaceutical industry. There is widespread apprehension that the changes proposed would result in a greater concentration of monopoly power in the drug industry, impose barriers to the entry of cheap generic alternatives and generally push up drug prices.

Apparently under pressure from the pharmaceutical lobbies, an inter-ministerial group is considering proposals to amend the Drugs and Cosmetics Act (DCA), 1940, which could incorporate `data exclusivity' (DE) clauses for new drugs and pharmaceutical products. Before any new drug is launched in the market, pharmaceutical companies are required, under the DCA, to submit evidence of its safeness, effectiveness and quality to the Drugs Controller General (India) (DCG-I). This is usually test and clinical data from trials on patients. Currently, if a generic competitor can prove that its copycat drug has the same therapeutic quality as the original (bioequivalence), the DCG(I) can use the original company's test data to judge whether the drug is safe and effective. Data exclusivity would prevent this and provide multinational companies with exclusive rights to the test data they submit to the DGC(I) for a negotiated period of time.

The issue of DE has been in cold storage for over three years and debated and rejected since the alteration of the Patents Act in 1995. Despite the fact that DE is outside the ambit of India's commitments under the Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement at the World Trade Organisation (WTO), the government is still considering DE proposals. Why?

The United States pharmaceutical industry, with the support of its government, initiated discussions with India on DE earlier this year. While President George W. Bush is said to have raised it with Prime Minister Manmohan Singh when he visited India in March, evidence of lobbying has come from two levels: the Pharmaceutical Research and Manufacturers of America (PhRMA) and the U.S. India Business Council, and the U.S. Trade Department, Department of Commerce, and the U.S. embassy.

A confidential PhRMA document, in the possession of Frontline, sets out what the U.S. is looking for: five years of "protection" for new chemical entities (an active ingredient, including salt or ester, which has not been previously approved in any other application) and three years for other products that require clinical investigation.

There are several key points in the document that are worth highlighting. First is the conflation of DE and data protection under the label of `protection'. Second, the period of exclusivity is to begin from the date of first commercial sale in India, not the date of marketing approval, which is not the case anywhere else in the world. Third, an earlier date of approval in any other country is irrelevant to the multinational company's entitlement. (In most other countries, the period of exclusivity is dated from the first date of market approval anywhere in the world.) Fourth, no application for generic drug approval can be submitted during this time, which would further delay generic entry. Finally, the demand for the dismantling of price controls could impact adversely the affordability of medicines.

Representatives from PhRMA, leading multinational pharmaceutical companies, the U.S. India Business Council, the U.S. departments for Trade and Commerce and the Federation of Indian Chambers and Commerce and Industry (FICCI) met in New York on June 23 at the India-U.S. Round Table on Pharmaceuticals. The meeting was co-chaired by Franklin L. Lavin, Under Secretary, U.S. Department of Commerce and S.N. Menon, Commerce Secretary. Records from the Indian Embassy in Washington show that a significant proportion of time was given over to `data protection'.

The cumulative success of the lobbying is evident in the interim report - `The Interim Report of the Committee constituted to consider the steps to be taken by the government in the context of the provisions of Article 39.3 of the TRIPS agreement" - of the inter-ministerial group, a copy of which is in the possession of Frontline. The group includes officials of the departments of Scientific and Industrial Research, Commerce, Economic Affairs, Biotechnology, Chemicals and Fertilizers, Chemicals and Petrochemicals, and the Ministry of Health and Family Welfare.

The report, which suggests a three-year DE period along the lines put forward by PhRMA, reveals a mindset that exaggerates the benefits of DE and ignores the adverse implications for public health. On the issue of data protection, it accommodates the misgivings of multinational companies (MNCs) about the Indian intellectual property regime, and notes that, on the negative side, the U.S. includes India in the IPR defaulters list of countries under the "Special 301 provisions".

The three perceived gains of data exclusivity are an increase in foreign direct investment (FDI) in the sector; gains for the export market; and the arrival of newer medicines for Indian patients. All of these gains, however, are misjudged.

The argument in favour of increased FDI rings hollow because FDI in pharmaceuticals has nothing to do with the level of intellectual property protection. D.G. Shah, CEO of Vision Consulting and Secretary-General of the Indian Pharmaceutical Alliance (IPA), told Frontline: "In India, in 1970, when product protection was abolished, several foreign companies came and made major investments. In 1995, when India signed the TRIPS agreement and agreed to an intellectual property regime by 2005, these very foreign companies divested their manufacturing certificates... and reaped the foreign investment. So this is actually the direct opposite of the argument being made."

Further, K.M. Gopakumar, research officer, Centre for Trade and Development, made the following point in an interview with this correspondent: Since data generated by trials outsourced to India are not even registered with the DCG(I), the protection of trial data is not the overriding concern of multinationals when considering investment. In any case, he said, trial data are adequately protected by the Official Secrets Act and Common Law. So there is no relation between FDI and any increase in clinical trials.

Over the last 10 years, the volume of trials of the number of molecules being tested in India has gone up almost 20-fold. Pharmaceutical companies will continue to invest in clinical research and introduce new drugs in India because there are substantial cost savings (60 per cent, according to one estimate).

The argument in favour of gains in the export market also appears to be on shaky ground. It rests on the hope that other countries may somehow be induced by the U.S. not to implement stringent TRIPS plus provisions so Indian exports of generic medicines are benefited. The U.S. has rarely, if ever, gone out of its way to promote the interests of another nation's trade over its own. Canada, a developed country with a good generic export industry and a five-year DE period, is facing increasing pressure from the U.S. to raise this to eight years. So it is nave to expect any gains in this sphere.

The argument that DE laws will encourage the introduction of new medicines into the Indian market betrays a misunderstanding of their implications. According to Shah, the IPA, which includes many leading domestic pharmaceutical companies and represents about 30 per cent of the domestic pharmaceutical market, is worried that DE would actually provide incentives to delay the entry of new products for two reasons. First, MNCs would prefer to keep prices high in developed markets by delaying their entry into the developing world at lower prices. Second, they can delay generic entry into the U.S. market immediately on the expiry of the patent.

"Big Pharma is feeling the pinch of the aggressive entry of Indian generics in the U.S. market," he said. Big Pharma's protectionist lobby, backed by the U.S. government, has been intense. "Into the last three months the government has seen a delegation from Washington and PhRMA representatives every 15 days. A U.S. embassy official concerned confided in me that DE is a Key Result Area," he said.

The interim report of the inter-ministerial group recognised that the domestic generic industry would object to a tight DE regime. It noted that "Domestic Pharma companies may perceive it [DE] as a barrier for their growth and are likely to raise objections to it." It also noted that finding an alternative way to protect data other than DE would help keep prices down and "avoid giving monopoly rights to the innovator".

Producers of generic drugs operate with very low margins, and depend on volumes. However, DE fosters an anti-competitive atmosphere in which generics are pushed out of the market. The high costs associated with clinical trials would make their operations unviable. Shah believes that Indian generic producers would rather wait for a drug to emerge out of exclusivity than invest in clinical trials. This will put India at a disadvantage if India adopts a DE regime; companies in other countries will have access to an inexpensive and streamlined approval process via their regulatory bodies.

Further, there is an ethical question as to whether a population should be subjected to repeated testing. Multinationals stand to gain twice over at the expense of the same population, first from cheaper costs in the original trials, (the data of which are not passed to the DCG(I) until the companies decide to launch in India) and then by preventing generic competition for three years.

Leena Menghaney, project manager-India, Medicines Sans Frontiers and the Campaign for Access to Essential Medicines, voiced concern that the availability of medicines for many disease areas could be affected by the resulting market monopoly. Furthermore, DE would render redundant the use of compulsory licence, a market exclusivity waiver on patents provided by the TRIPS agreement in the event of a global health emergency. "They will not be able to obtain a market approval for the drug produced. A compulsory licence will have to be coupled with a waiver on the DE clause," she said.

Unless a considerable amount of attention is paid to detail, the following categories of drugs could be affected: those created prior to the 1995 patent agreement but are only now getting market approval; drugs that are not patented because they have been produced through public funding or incorporate knowledge that is part of the public domain; and, importantly, drugs that are not eligible for patent because they are merely modifications, such as new dosages or new dosage forms of existing drugs.

The last category is especially significant since the DCA currently allows a wider scope for new drugs that require regulatory approval than for new chemical entities specified in Article 39.3 of the TRIPS agreement. If DE is enacted for all new drugs thus defined, then companies will enjoy a market monopoly on trivial changes. According to Gopakumar, these are, in fact, the targets of multinationals. They will gain market exclusivity where they would not otherwise because the drugs are not innovative enough to be patented. It would effectively render useless a provision in the Patent Act against such practice.

According to news reports, at its meeting on July 26 the inter-ministerial group agreed that DE was not mandated by the international TRIPS agreement. Advocates of a DE regime insisted that it was being pursued only in the national interest. It appears that national interest just happens to coincide with the interests of Big Pharma, say its critics.

The inter-ministerial group is now considering a `compensatory liability model', in which generic companies would pay a royalty to the originator for the DCG(I) to make use of data filed to it. This is a practice already used in the agrochemical industry, but it would be a world first for the pharmaceutical sector. Royalty payments not only leave intact the problem for generics of operating at low margins, but open a Pandora's box of issues. These include the lack of industry standards of royalty, transaction costs involved, market- and cost-differentiation between countries, disclosure issues when calculating originator costs and whether and to what extent it applies to the export market, and the administrative burden of the scheme. How can these be overcome? R.A. Mashelkar, Secretary, Department of Scientific and Industrial Research, who is the chairman of the inter-ministerial group, did not want to comment. Two other members, G.S. Sandhu, Joint Secretary, Department of Chemicals and Fertilizers, and Rita Teaotia, Joint Secretary, Ministry of Health and Family Welfare, declined to speak to Frontline.

If the U.S. had its way, it would export its own intellectual property regime, known as the Hatch-Waxman regime, to a country with very different income and needs. One of its main proponents, Representative Henry A. Waxman, said at a Congress Committee meeting in 2003 that "to impose such a system on a country without a [health care] safety net, depriving millions of people of life-saving drugs, is irresponsible and even unethical".

If India does not need to implement such stringent measures under the TRIPS agreement, if it brings no gains and is detrimental to both India's generic drugs industry and its public health, in what sense is DE in the national interest? One thing at least is clear: too much is at stake for DE not to be given proper public debate.