Why India Should Not Bring A Vaccine Developed By Private Sector Under ‘Compulsory Licence’; History Suggests It Might

As the Covid-19 pandemic continues to ravage healthcare systems and economies across the globe, the eyes of governments are firmly on the pharma industry.

Nearly 100 vaccine candidates are currently under development with a handful already having entered human trials. GSK, Sanofi, Pfizer and other pharma giants are all in the race to bring a vaccine to the market.

While an approved vaccine is still a few months away, there is growing debate over whether Big Pharma has a moral obligation to prioritise public health over intellectual property rights.

After all, we are in the midst of a black swan event with no parallel in the post-World War era. If a viable vaccine is developed and deemed fit for human consumption, should the creator of the vaccine hand it over on a platter to governments?

Policy actions world over already indicate a shift in that direction. The Dutch government forced Swiss pharma major Roche to share the formula of its coronavirus test with other manufacturers. Brazilian lawmakers have introduced a legislation that will allow for the suspension of all patents for drugs/vaccines related to Covid-19 and during any future health emergency declared by the government.

At a time when China’s pre-eminence in the global supply chain is being reexamined geo-politically, India finds itself well placed to become the next global manufacturing hub.

The government should not squander the opportunity by resorting to regressive and paternalistic economic intervention. If and when a vaccine for Covid-19 becomes available, India should desist from picking the lazy option of forcing compulsory licences on the pharma sector.

The likelihood of India going down this road is quite high, given the well-documented history of regulatory overreach in the said sector.

The debate should never be about having to choose between public health and protecting intellectual property.

This is a straw man that is routinely propped up whenever the need for a robust IPR regime is discussed. The two are not mutually exclusive. In a developing country like India, they always go hand-in-hand.

Compulsory Licences In India

A compulsory licence allows a third party to utilise commercially a patented invention without obtaining the patent owner’s consent. This is often done in return for a fee, which is fixed either by law or via non-judicial arbitration. [Sec 84-92, Chapter XVI, The Patents Act 1970] .

In 2012 the Indian Patent Office granted a compulsory licence to Natco Pharma to manufacture the liver cancer drug Nexavar. The compulsory licence allowed Natco Pharma to manufacture and sell ‘Sorafenib Tosylate’. This compound was patented by Bayer Corporation. Its brand name was ‘Nexavar’.

It will be relevant to examine the circumstances under which this happened. The licence was granted to the Indian manufacturer on the grounds that Bayer Corporation had created an artificial scarcity of an essential drug by throttling supply. Bayer had a monopoly over the liver cancer drug market in India by virtue of its patent.

Nexavar was also priced steeply and was out of reach of the general population — $69,000 a year. But the above scenario is a textbook case of market failure. The demand curve was rigid. There was an inadequate provision of a good due to restricted supply and there were no substitutes available.

One might argue that the government’s decision to grant a compulsory licence can be seen both from the perspective of fulfilling social obligations towards its citizens and its role as a regulator in correcting market failure.

The Indian manufacturer was allowed to produce and sell the patented compound under a different brand name that is as a generic drug. The new drug was priced significantly cheaper, $177, and thus became more accessible. The decision of the Patent Office was challenged by Bayer in court. But it was upheld by the Mumbai High Court and the Supreme Court.

By adopting this course of action, the state in typical fashion abdicated its responsibility of being the healthcare provider of first choice and imposed an obligation on the private sector to do it for free. This was a reactive approach where the state failed to foresee a scarcity. Why was there a market failure in the first place?

What stopped the state from incentivising local manufacturers to find a substitute? Why was no effort made to procure the drug from Bayer and subsidise it for the end user? Yes, the drug did become more accessible. But intellectual property theft sanctioned by law is still theft.

Unfortunately, such short-sighted decisions have a number of long lasting external consequences. Firstly, the grant of a compulsory licence is detrimental to the patent owner.

Development of a new complex compound involves years of research and enormous amount of financial investment. The investments are recouped by pricing the patented drug appropriately. Compulsory licences eat into the market share of the patent holder. Innovation is stifled and foreign investors are deterred from investing in the country.

Why will an investor sink millions of dollars and set up research or manufacturing facilities in India if the output of painstaking, cutting edge research is going to be snatched away under the pretext of fulfilling welfare obligations?

What happens when the next big pandemic comes around? No pharmaceutical company should pay the price for the state not investing adequately in science and research. If an organisation has invested money on research, it should be allowed to monetise its patents.

After all, it has to pay its scientists, employees and has an obligation to pay dividends to its shareholders and investors. The grant of compulsory licences has also negatively impacted bilateral trade. The USTR Report 301 continues to place India under the “Priority Watch list” due to its “adversarial” intellectual Property regime. India is in the (in) glorious company of China and Russia. The European Union has also continued to push India to standardise its IPR regime in line with global standards.

What Happens When A Vaccine Becomes Available?

When the Covid-19 vaccine does become available, and if the patent is owned by a private manufacturer, India should not resort to compulsory licensing or even price caps.

There is absolutely no doubt that the vaccine itself should be made available for free. But that is the responsibility of the state. The private sector should not be made to bear the cost of optimising the availability of healthcare resources in the country. The union and state governments must collectively work on a nationwide Covid-19 immunisation programme.

The vaccination costs must be borne by the Centre and states. The vaccine must be procured at market costs from the original manufacturer and disbursed to the public via existing healthcare delivery channels.

If the manufacturer does not have sufficient manufacturing capacity, then state governments must procure a time bound licence for smaller manufacturers, from the patent holder, so that supply side gaps are plugged via generics.

In an ideal world, government funded research labs would be at the forefront of cutting-edge vaccine research. Any vaccine when developed will invariably be made available at an affordable price. But funding for applied research in India continues to be woefully inadequate.

Till the day that is addressed, India will have no option but to rely on the private sector. All the talk of replacing China in the global supply chain will remain hollow if our babus take recourse to antiquated socialist era laws and bully investors into parting with their intellectual property for free.