By Roger Bate Tuesday, November 24, 2009
Filed under: Boardroom, Economic Policy, Government & Politics, World Watch
During Indian Prime Minister Manmohan Singh’s current visit to the United States, he will no doubt encourage American business to invest in his country, and perhaps contemplate why far more U.S. investment, and notably pharmaceutical investment, goes to China. At first glance it is mystifying, because India is the most interesting pharmaceutical market in the world, containing every imaginable product and producer; but it also contains every kind of frustration for producers and investors, especially foreign players.
It all proved too much for one major player, Novartis, the Swiss pharmaceutical giant. This month its CEO Daniel Vasella earmarked $1.25 billion for research and development activity in China, and apparently pulled $125 million planned for an R&D facility in Hyderabad, India. Although Vasella denied the two decisions were linked, he is certainly sending a strong message about the favored location for investment.
“In principle you can discover in India, you can do research. There has been some progress on the protection of intellectual property but it’s not up to the standard that I would expect to make an investment into discovery-led research,” said Vasella in an interview with Reuters. He continued: “There are significant differences between India and China—in the political system, in the decision-making processes, in the complexities of the processes, and in the continuity. I think India has potential but things take longer to get done.”
Vasella is smart not to rule out further major investments in India because it probably has more potential for innovation than China—freedom of expression and the right to rebel are vital parts of good science. (This is why Jim Watson, Nobel Laureate and co-discoverer of the structure of DNA, told me a few years ago that he believed that until China truly embraced freedom of expression, it would drive few if any new drug breakthroughs.)
For now the frustrations of investing in India are immense. For example, Novartis is in its fourth year of litigation with the Indian authorities over its novel treatment, Glivec. The drug, which has become the treatment of choice for chronic myelogenous leukemia and other cancers, notably gastrointestinal stromal tumors, brings in annual revenues of near $4 billion in worldwide sales.
In 2006, the Indian government ruled the drug was only an improvement on an existing product rather than a patentable innovation. Since then Novartis has challenged ruling after ruling and today the issue is before the Indian Supreme Court, but resolution continues to be maddeningly slow. One judge proposed for the hearing recused himself and no replacement has been chosen yet. One of the main frustrations is that Indian rulings have often been inept. For example, the newly formed Intellectual Property Appellate Board (IPAB) ruled earlier this year that no patent would be granted to Glivec as there was no evidence that a significant increase in therapeutic efficacy had been achieved. However, at the same time, the IPAB decided that new evidence of the drug's efficacy could not be heard. The IPAB also contended that granting Glivec a patent would cause civil unrest because of the high cost of the drug. Yet price is not a matter over which a patent should be judged. Additionally, 99 percent of Glivec administered in India is supplied free of charge through a Novartis patient assistance program.
Novartis's investment decision is probably also influenced by the treatment of fellow Swiss drug giant, Roche. Its lung cancer drug, Tarceva, was granted a patent, but when a large local generic manufacturer broke the patent, Roche received no protection.
Investors in India also risk having their products faked by cheerfully unscrupulous “businessmen” such as Pavel Garg of Haryana Province. This gregarious rascal has been filmed discussing bribing of ministers, and delights in explaining how he adulterates medicines to fool basic quality tests. Fakers like Garg ignore that the medicines they produce can harm individuals and may even build drug resistance for diseases such as tuberculosis and malaria.
China is a consummate counterfeiter, but the authorities have recognized the damage this has caused exports and are taking firm action. Cui Enxue, director of China's State Food and Drug Administration drug safety inspection bureau, promised last month that any Chinese company dealing in fakes would be found and punished. While many problems remain with counterfeiting in China, Western companies' concerns are taken seriously by Beijing.
There is the nagging worry, of course, that China's Marxist leaders could arbitrarily undermine intellectual property, or, perhaps most likely, not provide the right intellectual and personal freedoms required for first-rate science. One has to hope that China eventually becomes a political democracy and entrenches the liberal economic reforms made over the past two decades. As Novartis’s Vasella concludes, intellectual property is “very fundamental to our business and any investment we make without it is a no-go.”
India is a democracy with an independent judiciary, and even though it is sometimes painfully slow in arriving at the right decision, there's every hope that it will. Change is driven by the increasingly excellent Indian companies (Ranbaxy, Piramal, and Reddy in particular), which will be the ones ensuring improved intellectual-property protection. If Indian scientists are allowed the freedoms and protections they demand, India will become the place for future investment and future pharmacological breakthroughs.
Roger Bate is the Legatum Fellow in Global Prosperity at the American Enterprise Institute.
Image by Darren Wamboldt/Bergman Group.
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