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Wednesday, Nov 17, 2004

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A trick pill?

THE GOVERNMENT DECISION to go in for price pre-negotiation for patented drugs looks like a tactical manoeuvre to get the nation reconcile itself to the realities of the new intellectual property rights regime, after January. The Government is committed to enforcing a product patent regime that confers on the patent holder of a drug molecule protection from commercial exploitation by competitors using alternative manufacturing processes, with all its implications on pricing and the pressures on margins.

The new framework has attracted some opposition as it is going to make drugs more expensive. On the other hand, the new arrangement is part of a multilateral `give and take' in the new global trade order; in return for enforcing a product patent regime in pharmaceutical products, India has extracted trade concessions from the West in such areas as textile quotas or agriculture. Any attempt at going back on the agreed framework, even assuming that indeed were feasible, runs the risk of surrendering the gains in other sectors. In the event, the Government is perhaps trying to sell the notion to the people that even as India keeps its gains in other sectors, there is no real risk of runaway drug prices as some hard negotiations with the patent-holders should keep them in check. But there is no reason why the patent-holders should barter away their right to fix prices, in keeping with their monopoly status, just to enable the Government sell to the public the WTO agreement as a complete package. If there is any agreement through pre-negotiation, it can only be at levels that the manufacturers wanted in the first place.

Though the bulk of the current portfolio of patented drugs would run its course over the next few years, there is no denying the potential for the new regime to dent people's healthcare budget in the short run. But it is an accepted principle that the society is better off letting inventors charge a price that maximises their revenues as an incentive for continued innovation. In the inter play of demand for these products at various price points and the supply of these goods, consumer welfare is maximised even as the producer comes away with the belief that he has got a fair return on his investments. But drugs pose a peculiar challenge for policy-makers. While in the case of other products there is an element of discretion, the use of drugs is forced on the consumer by the very state of his health. It would seem rather inequitable that some economic agents should be allowed to exploit an inherent desire among the people to lead a disease-free existence. But between reasonable restrictions on the right to commercial exploitation and creating conditions of disincentive for innovation is a very fine line the Government has to tread. On how imaginatively that it is able to do so lies the success of getting patent-holders to agree to a fair price that is pre-negotiated.

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