In India, patent theft seems to be in style.  Recently, Novartis’ Glivec, a cancer fighting drug was denied patent status in India.  India claims Glivec is insufficiently novel to deserve a patent.  The claim is at odds with Glivec’s patent protections in large and low income countries that play by the rules, including China.  In another Indian scam, Bayer earned a 2008 patent in India for its “Nexavar” a kidney cancer drug, but is now forced to grant a compulsory license to India’s own generic drug makers.  Patent theft occurs when a government, for mostly economic reasons, denies a patent holder the right to recover its investment.  

The pharmaceutical industry in the US, Europe, and Israel manufactures and markets generic drugs without patent protection and “new” drugs usually with patent protection.  “Generics” firms are usually high-volume, low margin business (e.g. Pfizer’s and Mylan’s earnings per share yields are about 5%).  Investors backing riskier “new drug” companies expect much higher yields, eventually.  Earnings on drugs that are successful offset costs of those that are failures.

A patent protects a drug from being copied by another maker for 20 years.  Drug companies usually apply for a patent from the Patent and Trademark Office when they invent the molecule.  Then they start testing and ask the Food and Drug Administration (FDA) for “exclusivity” of marketing rights for the drug.  This post-invention stage often takes 10 years, leaving just a decade of useful patent.  Patent holders sometimes extend protection for a drug by getting a new patent on an improved form of the drug, or by seeking new exclusive rights for marketing.

Under the World Trade Organization (WTO) Agreements, members must honor patents with a few exceptions.  The WTO’s TRIPS Agreement (trade-related aspects of intellectual property rights) Article 27.2 grants an exception –authority to adjust patent rights to safeguard the public’s health.  This exception can be turned into an excuse for larcenous or populist officials to ignore patents earned by a foreign drug maker.  The U.S. twice has sought correction of India’s mistreatment of patented pharmaceuticals.  Unfortunately, WTO’s stuffy “consultations” move at a glacial pace and decisions can be appealed, further running down the patent clock. 

India does not have nationalized health coverage for its population, and 40% of India’s population subsist on less than $2 per day – far less than needed to buy even the generic drugs that India is intent on securing.  Stealing patents from successful firms will not distract us from noticing India’s own failure to provide health coverage for its most vulnerable populations.  Stealing patents will not secure India’s desired reputation of “pharmacy to the world.”  Instead India’s patent theft clearly steals life-saving inventions from other people in the world. 

When big segments of world demand are priced at just manufacturing cost (the pricing effect of India’s misbehavior on patents), there is no margin left to cover the huge fixed costs of developing patented drugs, nor is there margin to cover costs of the many more drugs that failed in testing. 

 As with many populist governments, India tries to socialize Western successes and privatize its failures.  What passes for political “style” in India actually steals hope from other nations.  Thanks to India, US consumers can expect fewer pharmaceutical breakthroughs and somewhat higher drug prices. 

Alan Daley is a retired businessman living in Florida and following public policy from the consumers’ perspective.