In today’s Wall Street Journal Ronald A. Cass asks “does India want drug innovation or not?” That question, which he answers himself in the appearent negative, is in response to a recent Indian High Court decision rejecting Bayer’s case against Cipla to market a generic version of the Bayer anti-cancer drug Nexavar. The article concludes with the ominous warning that India is wasting away its future by diluting patent protection from anything but the absolute:
Activists, generic producers and their allies will applaud trading future gains for access to cheaper drugs now. India’s government, however, should look at the nation’s longer-term interests. Apart from living up to the country’s international commitments, decisions like the High Court’s Nexavar ruling will deter investments in innovations that will help secure India’s future—doing more for the nation’s health and economy than copying can. After all, access to copies isn’t worth much when there’s nothing to copy.
Breaking down the argument
Mr. Cass’s conclusion is based on a series of arguments that must first be recognized and that go something like this – national health is heavily influenced by the availability of new drugs, drug innovation is driven by investments in R&D, R&D investment is tied to patent protection, and patent protection must be absolute for it to encourage R&D investment. Since the HC decision weakens (in Mr. Cass’s interpretation) patent protection, it results in reduced drug innovation and hence puts at risk the country’s state of healthcare.
There are four arguments in this causal chain and each of them is at least partly wrong. Let us take them in turn.
What was the HC decision about?
First, does the HC decision weaken patent protection? No. In fact, the case was not about patent protection and the court did not even consider whether Cipla had a patent for its generic copy of the drug. Rather, the question being addressed was whether a company needs to have a patent to receive marketing approval from the drug regulator (the DGCI). As BNET reported, “The high court’s ruling suggests that the DCGI should look only at safety and efficacy in granting approvals, and leave patents to the courts.”
Bayer, in its case, had tried to prevent the DGCI from granting a license to Cipla on the grounds that the drug may be “spurious.” But as the court pointed out not all drugs made in India are spurious nor does a patent guarantee safety. It is the DGCI’s job to ensure a drug is safe. Patents, however, are to be enforced in court.
Therefore, this decision does not weaken existing patent protections. What it does do is prevent multinationals from raising patent protections beyond what has been provided for in existing law – which according to the WTO is very much within the provisions of the TRIPS agreement.
Does patent protection increase R&D investments, which increases drug innovation?
The next two causal steps in Mr. Cass’s thinking are that patent protection would lead to increased R&D, which in turn would lead to increased innovation. Yet, this is clearly wrong. It has been known for quite some time that drug R&D investment by big pharma is driven not by patent protection, but by expected returns. While patent protection does help ensure expected returns, the primary variable is the size of the market. This was known as the 10/90 gap. Today it is visible in the lack of investment by big pharma into TB, malaria, Chagas’ disease and other tropical or developing world diseases. In other words, no amount of patent protection will get big pharma to invest in the diseases that inflict billions of India’s poor – simply because they do not constitute a viable market.
Nor does increased R&D investment and protection lead to drug innovation. A study from Thailand “found no increase in technology transfer and foreign investment as a result of increased patent protection.” On the contrary, increased patent protection can lead to perverse incentives that actually reduce drug innovation, encouraging companies to invest not in R&D but in protecting their patents.
What improves national health?
The last argument Mr. Cass makes is that national health is tied to drug innovation and availability. On this he is certainly partly right. National health will improve as drugs become available to tackle diseases prevalent in the local context. However, he overlooks two critical aspects of his argument.
First, healthcare delivery issues aside, drugs for many diseases will never be available in India till people are rich enough to afford them. And second, that drug availability is not simply a matter of innovation but of price. In other words, national health will improve not only if a drug has been created for a disease, but if it is also affordable for the local population.
How much patent protection?
It would appear each of the four assumptions Mr Cass makes are partly or entirely wrong, rendering the article invalid. Mr. Cass also ignores a growing body of evidence, including scientific studies, that suggest that the patent system is reducing innovation in general and drug R&D in particular.
In view of this, the HC judgement seems to be a good balancing act. It retains the letter of the law and does nothing to reduce patent protections. But it does clarify the division of labor between the courts, the DGCI, and the Intellectual Property Appellate Board. Most important, it prevents multinationals from trying to raise patent protections through judicial action, rather than by legislation.
Mr. Cass, who is Chairman of the Center for the Rule of Law, should have been elated at the judgement. Instead, he is content to condemn India’s poor to death for the benefit of a future not yet certain (and for Bayer’s profit). This may be an easy tradeoff to make ensconsed in Boston. But I would go with the judge’s interpretation of the case.