Microsoft word - annexure 8.doc
A primer on generics
A PATENT gives an innovator a monopoly over an innovation for a fixed period. This is meant to
encourage innovation by allowing the innovator to extract the highest possible benefit during the
In the US, pharmaceutical products receive a 20-year patent. During the patent's life, the
innovator has complete monopoly over the commercial aspect of the patent. For instance, if a
patent drug hits the shop shelf, it cannot be copied for commercial use by any other entity.
Once the life of the patent is over, the drug is open for anyone to make. Competition results in a
drop in prices and, thereby, declining returns for the innovator.
An innovator that is successful in taking a discovery to the shop shelf does so under a brand
name. For example, Prozac is the brand name of a commonly prescribed drug to combat
depression in the US. Fluoxetine is the chemical ingredient that goes into making Prozac.
Once the life of the patent is over, other companies can enter the market to sell Fluoxetine. That
is when Fluoxetine becomes a generic, and returns are lucrative for companies that can garner
Genesis of US generics
In the US, the generic market seemed to take off only in the mid-1980s. Checking rising
healthcare costs seems to have been the motivation for the introduction in 1984 of the Hatch-
Waxmann Act. This opened the field for generics.
The initial objective seems to have been met and in 1998, the Congressional Budget Office
(CBO) found that savings from switching to generics are enormous. The regulatory push towards
generics opened up possibilities for Indian companies.
The patent regulation in the US seems to provide just enough room for innovating companies to
use loopholes to extend the patent. One way this is done is by getting additional patents a little
after the initial patent is granted. The additional patents may seek to cut off the cost-effective
production of the drug, thereby making it less likely for a potential generic competitor to enter the
market soon after the original patent expires.
To add to the complications of the patent laws in the US, even generic companies are given a
Ironically, the limited monopoly is given to the first generic company that successfully challenges
the patent holder in order to encourage generic competitors. Using this tool, Dr Reddy's got a
180-day monopoly for the 40 mg Fluoxetine in August. The returns, thus far, for Dr Reddy's have
There may be more complications in the patent system because a couple of American Senators
have begun to work on new ways to encourage generics.
New doubts about patents
As for Indian companies and consumers, the debate about generic accessibility has gained
prominence over the last year. With the advent of uniform standards on the heels of multilateral
trade agreements, a uniform patent law will exist in most countries, including India, in a few years.
The most important implication of an uniform patent law is that generic companies will lose out to
innovators. In the absence of competition, innovators will be under no pressure to reduce prices.
The issue suddenly engaged the public's interest last year after Cipla offered drugs to combat
HIV at a low rate in Africa. Until the Cipla offer, low-income African countries had to source drugs
from innovators at a price that put them beyond the reach of most of those afflicted.
With new rounds of multilateral trade talks coming up, the issue of generics is probably going to
stir debate again. The new rounds of discussions will be held in the backdrop of the developed
world forcing innovator companies to sell under-patent drugs to public health authorities at a
discount. Against this backdrop, the question of generics assumes an importance that is far larger
than equity investing. But whatever be the outcome of the talks, Indian companies must be
Participating in the US generics market has triggered interest in Indian companies, and led to
investment to upgrade manufacturing facilities. But it is not merely manufacturing facilities that
count. A lot goes into formulating a strategy that can minimise legal complications and, at the
At the moment, while a lot of Indian companies are in the process of putting up manufacturing
facilities, it remains to be seen if they can skirt the legal minefields across the US generics
EDITOR'S END NOTE
This concludes the module on International IP Treaties. While it is very easy for one to go
overboard and include all conceivable IP Acts and Treaties, either in the main text or in the form
of Annexures, some restraint had been attempted and the author has done a very laudable job of
bringing in just the right amount of information. For those interested in pursuing further reading
on the subject you may try the WIPO and WTO web-sites for summaries and full length Treaties.
Information is available at www.wipo.org and www.wto.org.
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