By Sudip Chaudhuri, Professor of Economics (Retired), Indian Institute of Management Calcutta
The TRIPS agreement has been one of the most contentious World Trade Organisation (WTO) agreements. During the AIDS pandemic when patented products were exorbitantly priced, supply of low-priced drugs from India made medicines dramatically more affordable and accessible. After the re-introduction of product patent protection in pharmaceuticals in India in 2005 in line with the TRIPS agreement, considerable speculation and controversy have surrounded the potential impact. Two recent papers provide needed evidence, for the important case of cancer drugs, using a comprehensive database covering all products in the market.
Have prices of cancer medicines been kept higher by TRIPS?
In contrast to claims that there would be, and there has been little negative impact of TRIPs, the first paper demonstrates that firms have started to charge very high prices for some products after TRIPS. The proportion of high-priced products in the overall Indian market is low, hence the impact of TRIPS might appear to be small. These proportions however are low because of the preponderance of low-priced generic products, given India’s history of an absence of product patent protection before TRIPS. Market concentration has gone up after TRIPS and the number of high-priced products is increasing. The proportion of high-priced products is high in several therapeutic groups, particularly in cancer. Cancer is not yet a pandemic like HIV/AIDS. But cancer is now recognized as one of the greatest public health challenges globally and several cancer medicines are much more expensive than the ARV cost of US$ 10,000 per person per year in the 2000s which led to an international outcry at that time. In developing countries such as India where out-of-pocket spending is predominant, most people will have to work for years to be able to fund the cost of treatment and that makes these cancer drugs simply unaffordable.
Product patent protection is one of the factors explaining these high prices and costs. This paper also provides some estimates of the extent to which the products are higher priced because of lack of generic competition. However product patents are not the only reason for high prices and costs. Medicines are typically patented and introduced in the market by the originator companies. When product patents expire or when the products are not patented in a country, generic products may enter the market. But the entry of generics may not be immediate and automatic. In the absence of generics, the originator companies can continue to dominate the market and charge high prices as we find in the paper. Generic entry may be discouraged or delayed not only due to legal patent barriers but due to manufacturing and regulatory barriers. This is particularly true for biologics. This study finds that the prices and costs are high for several not-patented biologic products.
It is recognised that, depending on the behaviour of firms and market structure, prices can be high and unaffordable as a possible outcome of TRIPS. But in such cases it is also widely advocated that government can and must intervene.
So how effectively have government measures controlled prices of anti-cancer medicines in India?
Cancer is one of the leading causes of illness and death in India and the government rightly acknowledges and stresses the importance of making cancer medicines more affordable. On February 2019, Government has imposed a ceiling of 30% trade margins on selected anti-cancer medicines to make these more affordable. The retail price is the sum total of the manufacturers’ charge and the trade margins. While putting a cap on the latter, the government has kept the former untouched. Manufacturers’ prices are already under price control under the Drug Price Control Order, 2013. The second paper analyses how effective government measures have been to control the prices of anti-cancer medicines. The study finds that despite the attempts to fix ceiling prices and to impose trade margin caps on some anti-cancer medicines, the prices have remained high and unaffordable and prices of the same product sold by different manufacturers vary widely. The lower priced products are not necessarily more widely purchased, and even when the prices of some products have fallen substantially, the overall consumer gain has not been significant. This is attributed to some basic inadequacies and weaknesses in the approach to controlling drug prices in India. The formulations market in India is essentially a branded generics market and suffers from market imperfections. The government has not made any attempt to tackle the imperfections. Furthermore no attempt has been made to control the prices of patented medicines. Other methods of making patented medicines more affordable, for example compulsory licensing, have also practically remained unexplored.