‘’India yet to benefit from the new patent system’’

Reji K Joseph

Strengthening of patent rights would promote innovation only when other elements in the innovation system have grown sufficiently. The experience of developed countries has been that building up of capabilities in human skills, science and technology, financing, etc. which have always preceded strong patent regimes. The contention in India on joining WTO was that whether the country had a vibrant innovation system to reap the gains of a strong patent regime. Proponents argued that the move to a stronger regime would not only usher in foreign investment in R&D but also incentivise those Indian firms, which are otherwise capable of engaging in new drug development but are holding on due to lack of protection of intellectual property. Put differently, the underlying assumption behind the demand for a strong patent regime was that the pharma innovation system in India has grown enough to take advantage of the product patent system.

Although the response of the Indian pharma industry in the first half of last decade gave the impression that Indian firms were indeed taking advantage of the new regime, later developments showed that they were not, as has been expected. In the first half of last decade the R&D investment by Indian firms as percentage of their sales turnover increased suddenly from 1.5 per cent to 5.2 per cent by 2005-06. Leading firms such as Ranbaxy and Dr Reddy’s Laboratories (DRL) also began to enter into a number of out-licensing of molecules deals with MNCs earning millions of dollars as license fee, indicating that Indian pharmaceutical industry is reaping the benefits of new patent regime. But after 2005-06, the R&D investment of Indian pharma industry stagnated. Most of the out-licensed molecules were either abandoned or returned by the partnering MNCs as they were lacking clinical potency. A direct outcome of this set back was reduction in R&D investment by leading firms. R&D investment by DRL came down from the peak of 18 per cent in 2004-05 and Ranbaxy’s from 20 per cent in 2005-06 to about 9 per cent. They also down sized considerably their R&D human resources; for example DRL has now only 30 scientists working on new drug development compared to 280 in the early years of the last decade. Efforts in India to raise venture funds to finance R&D projects also failed miserably.

DRL established India’s first integrated drug development firm ‘Perlecan’ in 2005 in collaboration with Citigroup Venture and ICICI Venture, putting together $52.2 million. But the firm had to be closed down in just three years when Citigroup and ICICI pulled out. Perleccan debacle probably have desisted other leading firms like Ranbaxy, Torrent and Wockhardt which were toying the idea of spinning of R&D venture firms from doing so. All these indicate that unlike the developed world, India has placed the cart before horse by bringing in product patent rights at a time when the drug innovation system is still struggling to put it elements together.

While concluding that the new patent system has not promoted innovation in the country as the proponents of such a regime had argued, one should note that it has created new businesses for Indian firms in the form of contract research and contract manufacturing. With the new patent regime, MNCs feel confident to contract out production of proprietary bulk drugs as well as low end works (in terms of technology sophistication) in the new drug R&D process. These businesses however do not directly promote innovation.

Reji K Joseph is a consultant with Research and Information System for Developing Countries(RIS), a think tank with Government of India. He has worked earlier at Centre for WTO studies in Indian Institute of Foreign Trade, National Commission for Enterprises in the Unorganised Sector and Centre for Development and Human Rights. His current areas of research include public health, pharmaceutical industry, and bilateral investment treaties.