As Modi Visits US, What Does the Free Trade Pact Mean for India's Pharma Industry?

A Free Trade Agreement with the US will likely result in the amendment of the Patents Act, which could impact the Indian pharma industry. 

Prime Minister Narendra Modi is scheduled to travel to the US on Saturday to attend the annual United Nations General Assembly in New York and will address the high-level general assembly session on September 27. The Indian prime minister is also expected to have several high-level bilateral and multilateral engagements on the sidelines of the UN meeting. Among all his engagements, the one with US President Donald Trump is the most keenly-awaited.

President Trump will be joining Prime Minister Modi in Houston on September 22 for the “Howdy Modi” event, when the latter will be addressing the Indian community. The statement from the White House press secretary says that it will be a great opportunity for the two leaders to “discuss ways to deepen their energy and trade relationship”. The proposed Free Trade Agreement (FTA) between the two countries is expected to be high on the agenda.

Implications of the FTA

What are the implications of an FTA between the two countries for India? Concerns of the US on policies and practices of India in trade issues, highlighted in the ‘National Trade Estimate Reports on Foreign Trade Barriers’ and on the protection and enforcement of intellectual property rights (IPRs), highlighted in the ‘Special 301 Reports’ give an indication of the issues that the US would want to address in the FTA. 

The Special 301 Reports have been raising matters with regard to the Patents Act of India, such as narrow patentability standards – which puts a check on pharmaceutical innovations that do not show therapeutic efficacy – and lack of protection of test data submitted to regulatory authorities (data exclusivity). Resolution of these issues to the satisfaction of the US could lead to the amendment of the Patents Act, but that could impact the Indian pharma industry. 

The Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (TPA 2015) of the US sets clear objectives for its administration and FTA negotiating partners on the expectation of the Congress. In the US, unlike India, the approval of Congress is mandatory for the ratification of trade agreements. TPA 2015 requires the US administration to ensure that trade agreements covering IPRs should “reflect a standard of protection similar to that found in United States law”. 

Impact on pharma industry

The IPR chapter of the re-negotiated NAFTA agreement (NAFTA 2.0), on the lines of TPA 2015, reflects the standard of patent protection in the US, which the administration would seek its FTA partners to have in place. 

There are three key provisions in the IPR chapter of NAFTA 2.0, which if incorporated into the Patents Act, would severely hit the Indian pharma industry. 

One, it provides for patents for all innovations, which includes new uses of a known product, new methods of using a known product or new processes of using a known product. But section 3(d) of India’s Patents Act allows innovations of this nature, in pharmaceutical products, only if the innovations prove therapeutic efficacy.

Section 3(d) not only checks the ‘evergreening’ of patents and frivolous patents, thereby providing more space for generic manufacturers, but also contributes in ensuring the quality of innovations by filtering in only meritorious innovations. An FTA with the US could lead to the removal of this section from the Indian Patents Act; in fact, the US has been making this demand for a long time. 

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A study commissioned by the Shuttleworth Foundation finds that nearly half of rejection of patent applications, in pharmaceutical innovations, by Indian Patent Office is on account of the application of Section 3(d). This shows the crucial role played by this clause in checking ‘evergreening’ of patents in India, thereby ensuring more space for producers of generic medicines. Inspired by this clause of the Indian Patents Act, countries like the Philippines, South Africa, Brazil, etc. have amended their patent laws. 

Two, the intellectual property chapter of NAFTA 2.0 provides for data exclusivity for a minimum of five years for new pharmaceutical products, ten years for biologics and an additional three years for new clinical information – new indication, new formulation or new method of administration, etc.

This is additional protection apart from the patent protection, starting from the application for market approval. This can effectively lengthen the exclusivity period beyond the patent term, when the regulatory approval process is initiated towards the end of the patent period.

Currently, India does not provide for data exclusivity. Introduction of this provision into the Patents Act or the procedure for approval of generic medicines would result in a delay in the introduction of generic drugs. 

Approval of generic drugs now is done based on the production of evidence for bioequivalence of the generic drug to that of the originator drug. Introduction of data exclusivity will mean that the generic manufacturers either wait for the data exclusivity period to be over or repeat the entire clinical trials for the generation of safety and efficacy data again, if they have to apply for marketing approval. All of this delays the entry of generic drugs into the market and will impact the health of millions around the world, and not just in India. 

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Three, the intellectual property chapter of NAFTA 2.0 requires linking of marketing approval of generic drugs to the patent status of that drug (patent linkage). Parties to NAFTA 2.0 are required to notify the patent holder, the one who submitted the safety and efficacy data when companies apply for marketing approval of generic versions of the same drug.

This considerably enhances the monopoly power of the patent holder. Now the market approval system of India, which functions under the Drugs and Cosmetics Act, is not linked to the patent system of India. If there is an infringement of the rights of the patent holder, he/she can initiate proceedings against the manufacturer after the generic drug is launched in the market. Introduction of patent linkage will strengthen the position of patent holder vis-a-vis generic manufacturers and the latter may find it too risky to invest in the production of generic drugs. 

All these three aspects go beyond the requirement of the WTO TRIPS Agreement. An FTA with the US, in all likelihood, will result in the amendment of the Patents Act. India enacted a well-crafted and TRIPS compliant Patent Act in 2005 (Patents Amendment Act 2005), utilising the flexibilities provided in the TRIPS Agreement, aimed at protecting the Indian pharma industry and facilitating affordable access of medicines. 

It should be noted in this context that the National Health Policy 2017 explicitly recognised that incidents of catastrophic expenses on healthcare are a major reason for families falling into poverty. Expenditure on medicines is the single-largest component of healthcare expenditure in India. 

So amendments to the Patents Act at the insistence of the US will pave the way for ‘evergreening’ of pharmaceutical patents in India, thereby curtailing competition in the market. The pharmaceutical industry is one of the few in which India has a price advantage globally, which has earned it the ‘pharmacy of the world’ tag. An FTA with the US will severely shake the foundation stones on which the Indian pharma industry has been built upon. 

Reji K. Joseph is an associate professor at the Institute for Studies in Industrial Development, New Delhi. Views are personal.