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Patents: Boon or bane? - Views on News from Equitymaster
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  • Feb 16, 2001

    Patents: Boon or bane?

    The era of the patents regime, which is slated to be put in place in 2005 was expected to put western pharmaceutical companies in command of the pharma markets worldwide. After all, they are the ones with the R & D muscle to discover new drugs. The fruits of the latest drug research pertaining to cancer, AIDS, cardiovascular, diabetes and arthritis would no longer be available, via reverse engineering to the Third world population as has been the case till now.

    However, Cipla’s latest move of writing to the international pharmaceutical companies offering a relatively cheaper AIDS drug has opened a Pandora’s box. There has also been a case of a Brazilian company too, which has also offered a relatively cheaper anti–AIDS drug. Cipla, actually has offered to supply the French doctors group Medecins Sans Frontiers, a triple therapy anti–AIDS kit at $ 350 per year per patient, to be distributed free of cost in Africa! (In South Africa alone, every one in four adults is infected with AIDS.) And this, when Western pharma companies are charging anywhere between $ 10,000 to $ 15,000 for the same kit.

    This raises an important issue. Should patent holders be allowed to still hold on their patent rights, even when a large mass of people need the treatment but are not in a position to pay for it? A twenty–year patent for an anti–AIDS drug certainly puts a lot of power in the hands of MNC pharma companies. However, the fact remains that they are the ones who have spent the money in new drug discovery. And a company tests almost 10,000 compounds before one molecule emerges. A new drug costs almost $ 500 m and companies recover the cost of the research from the period of exclusivity that they enjoy via a patent. Not all the research effort reaches its logical conclusion. And hence the cost of research that does not yield any fruits but guzzles up a lot of cash is also written off under the research expenses. This by far is the biggest head of expenses for any pharma company and has been the prime reason for the merger of pharma companies worldwide.

    Cipla, on its part has been arguing for compulsory licensing – a practice whereby the patent holder licenses out the manufacture of his patented drug for a royalty. MNC companies however have not shown any interest. (Glaxo–Wellcome in fact sued Cipla for selling its generic version of a Glaxo anti–AIDS drug in Ghana.)

    However it is quite likely that a middle way would be found. One instance of why this should happen is given by the developments in the media industry. The reception that Napster.com, which offers music online, has been receiving despite court cases by record companies for copyright violations, is a case in point. Infact, one of the international media majors Bertelsmann has actually entered into a royalty agreement with Napster.com indicating a reluctant acceptance for the Napster.com model. Could a similar development happen in the pharmaceutical industry?



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