Intellectual Property Drives Biopharmaceutical Innovation in Emerging Markets
Intellectual property drives biopharmaceutical innovation in
By Philip Stevens
Once they were happy to copy existing health products; now China, India and others are showing a stronger appetite for innovation of their own.
Such innovation – often specialized innovation – is now more attractive thanks to the adoption of pharmaceutical product patent regimes in these countries as part of commitments to the World Trade Organization’s agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the support of governments who understand that innovation is the key to sustainable economic development and prosperity.
Emerging countries want a greater share in high-value biomedical innovation markets as part of their overall longer-term economic strategies. While the developed world still accounts for the majority of global bio-pharma sales globally, emerging markets are growing at between two and five times developed market rates.
China’s biotech edge
China’s focus is firmly fixed on innovative biotechnology, particularly genetic and stem cell therapies. A more permissive regulatory regime for cutting edge technologies in these areas has contributed to that. For example, an increasing number of firms are conducting innovation in Recombinant DNA. Innovators also look to traditional Chinese medicine (TCM) knowledge and resources. Chinese companies have developed gene therapies against cancers and there are other frontier drugs in the pipeline. Modernising TCM and vaccine development are also major focuses.
R&D investment in China has significantly increased over the past decade. Planned investment in the coming years is estimated at several hundred billion dollars. Much of that will go on improving R&D capabilities, high-tech institutions and delivering locally discovered and developed novel therapeutics.
India’s niche innovation
India’s generic manufacturing industry has built a global reputation due to the lack of product patents until 2005. Now the industry is setting its sights on innovation, with diabetes, cardiovascular diseases and niche sectors like biogenetics and stem-cell research at the centre of the sector’s R&D efforts. Many homegrown Indian products have emerged over the last few years.
India is becoming a serious player in vaccine innovation, for instance, with Hyderbad’s Bharat Biotech’s innovative H1N1 influenza and rotavirus vaccines and the two anti-malaria vaccines under joint development between Ranbaxy and Bharat Biotech standing out.
Another innovative niche being carved out by India is in monoclonal antibodies products. Domestic companies also promise much in active therapeutic proteins, protein and antibody production and fabrication of diagnostic protein chips.
Its relatively liberal regulatory regime makes India a promising location for stem cell research, cell engineering and cell-based therapeutic R&D. Several Indian companies also now manufacture abroad: Ranbaxy, Dr. Reddy’s and CIPLA all have plants in Malaysia.
In other middle-income countries, there are pockets of innovation, but largely not supported by national policy.
Brazil and South Africa are fixed on import-substitution and reducing healthcare costs, meaning their innovative biopharmaceutical sectors remain undeveloped.
Some South African firms are innovating in medical devices and diagnostic technology. Vision Biotech claims to be second largest manufactuer worldwide of malaria testing kits. Biotech company, iThemba, is doing early stage work for new therapies for HIV and tuberclosis. Other local entreprenuenal companies are looking to commercialise early-stage HIV research.
Although biopharma companies in other sub-Saharan African countries have yet to get into innovation, academic institutes on the continent are developing expertise in early-stage research, in particular for tropical infectious diseases and rapidly expanding non-communicable diseases. Africa’s scientists are engaging more with multinational biopharmaceutical companies through partnerships and collaboration, for example through WIPO Re:Search.
While generics still dominate, emerging markets could one day catch up with the West in innovation, to supply new treatments for the diseases that impact these areas the most.
R&D spending on the up
In India, R&D intensity (spending on R&D as a percentage of sales) in the biopharmaceutical industry has increased markedly since the late 1990s.
Figure 1 (below) shows very little spending on R&D there at the beginning of the 2000s. Research increased steadily to 2005 in anticipation of India upgrading many parts of its national intellectual property law to comply with its WTO TRIPS obligations, in particular the introduction of product patents. R&D intensity plateaued for a few years after that but accelerated again to six per cent in 2014. Although still well below the R&D intensity of the biopharmaceutical industry in the West (around 18 per cent), the figure is a major rise in expenditure from US$2.7m in 1999 to US$107m in 2014 (Figure 2).
Expenditure on R&D as a % of sales in the Indian pharmaceutical industry 
Expenditure on R&D in the Indian pharmaceutical industry 
The power of patents
A lack of R&D intensity data from other middle-income countries prevents direct comparisons but other facts are persuasive.
Middle-income countries – most notably China – are significantly increasing the numbers of
pharmaeutical patents they file internationally through WIPO’s Patent Cooperation Treaty (PCT) (Figure 3).
applications filed under the PCT (applicant’s country of residence)
Source : OECD.stat
The growing confidence of China’s biopharmaceutical innovators has been bolstered by the rise in patents obtained by Chinese applicants in the US, the most advanced country in biotechnological R&D.
USPTO data shows that the total number of US patents for biotechnological inventions with a Chinese inventor or co-inventor increased notably after 2000. By 2013, it had reached 740. Almost half are owned by patentees from the US, EU, Japan and a few other countries, most likely Chinese nationals studying and working in those countries at that time. 
The type of patentee has changed too. Before 2004, the majority of US biotechnology patents were awarded to Chinese universities, public research institutes and individuals; only a handful to enterprises.
From 2005, the first year of full Chinese TRIPs compliance, the share of US patents awarded to Chinese enterprises has more than doubled, from 17% between 1989 and 2004, to 38% between 2005 and 2013.
Pharmaceutical companies dominated India’s top ten filers to the Patent Cooperation Treaty in 2014. “With an increase in IP awareness amongst the Indian companies (which may increase with campaigns like ‘Make in India’), they seem to be taking IP protection more seriously on a global level, and this reflects in the increased filings”, says Adheesh Nargolkar of Mumbai law firm Khaitan & Co. 
The TRIPs patent regime seems to offer more powerful incentives for local innovation and patenting. China and India’s biopharmaceutical companies have responded vigorously.
Multinational R&D alliances
Until recently, emerging market life science companies focused exclusively on formulating, manufacturing, packaging and distributing generic products. These days are coming to and end. In the quest for revenues and longer-term growth, many now place a high value on product R&D in their business models and strategies.
Stronger domestic IP regimes in middle-income countries following the TRIPS agreement have accelerated investment and collaboration between local companies and the international biopharmaceutical industry.
In India, the data shows that Indian firms entering into alliances with foreign partners have developed their innovative arms at a faster pace. Collaboration has either been contract research for international companies, or co-development projects. These involve the joint discovery and/or development of novel technologies between firms and foreign counterparts.
These tie-ups are not limited to India. China is increasingly playing host to distribution channels and manufacturing bases set up by international companies, often in joint ventures with local drug companies. The companies often off-shore some R&D and clinical trials to China.
Biopharmaceutical multinationals reportedly invested a total of more than US$1.25 billion in R&D at their Chinese laboratories in 2012. That’s 57% of total R&D spend in China’s pharmaceutical industry in that year.
For most companies in emerging markets, innovation has been a later add-on to their core manufacturing activities. But some companies have been innovative since their foundation. These firms have subsidised such capital-intensive activity through other revenue-generating areas.
Some have provided development or manufacturing services to foreign companies (e.g India’ s Bharat Biotech and Chinese firms Shenzhen Chipscreen and Shanghai Genomic). Other “pure R&D” companies – they are rare – have gained initial support at the government level: Recepta BioPharma in Brazil; Fusogen Pharmaceuticals Inc. in China and iThemba Pharmaceuticals in South Africa.
IP and innovation
The core intellectual property standards demanded by the WTO TRIPS Agreement have been a significant driver of innovation in emerging markets.
The pre-TRIPS IP regime in India (to 2005) allowed process but not product patents, for example. Domestic Indian firms focused on process innovation and building capabilities to produce generic drugs cheaply.
In India, new IP laws post-TRIPS have fuelled the development of R&D-based business models by domestic organisations. On one hand, they are targeting alliances with innovative biopharmaceutical partners in regulated markets. On the other, it they are increasing patent filings and R&D investments, both at home and abroad.
Medical research is increasingly collaborative. Valuable information on a new medicine under development must be shared with partners long before its launch on the market. Effective IP boosts that collaboration by giving the owners of ideas legal certainty that they can be shared without being stolen by a collaborator.
Without IP, collaboration in R&D between different stakeholders – such as Biocon’s drug discovery tie-up with Bristol-Myers Squibb – would be impossible.
Biocon’s chief, Kiran Mazumdar-Shaw says: “Sharing IP is the way to develop business very fast in today’s world. I don’t mean just buying it, but really sharing it. We have something another company needs; and they have something we need. Put it together and you have this powerful and very exciting synergy.” 
The bolstering of domestic IP laws following the implementation of TRIPS has given innovative companies the legal certainty to collaborate and invest. Much more needs to be done, though.
Section 3(d) of Indian patent law worries local companies. It is intended to ensure only genuine innovations and not trivial modifications are awarded patents. Much of the effort of India’s innovative companies goes into improving existing technologies, such as heat stable forms drug delivery systems, and extended release capsules. There is a danger a blunt interpretation of the law will stop them in their tracks - or force them away from researching diseases relevant to India towards diseases more prevalent in richer countries with more generous patentability laws.
One Indian parliamentarian suggested that patents should be made available for incremental innovations because “Indian scientists do not have the know-how or capital to come up with new chemical entities, but do have the know-how to make improvements.”
While the private sector generally looks favourably on China’s IP laws, the country struggles with IP enforcement. These problems could be caused by its decentralized enforcement regime. Patent infringement cases are generally handled by municipal courts at the jurisdiction of the accused, introducing potential conflicts of interest into the process.
Concerns have also been raised about the lack of a mechanism to stop the Chinese drug regulatory authority from granting marketing approval to drugs that infringe IPRs. There are also worries about judicial independence around IP infringement cases, which may favour local companies at the expense of international competitors. 
Other policy weaknesses
Under TRIPS, countries must start the 20-year term of a patent from the moment it is filed with a patent office. Any delays examining the application and granting the patent can considerably eat into the term, destroying its value.
Such delays are particularly acute in middle-income countries such as Brazil (10 years) and Thailand (up to 14 years). Between 2007 and 2014, India’s patent office ruled on fewer than a third of the 289,571 patent applications it received, resulting in an enormous backlog.
Other traditional weaknesses in emerging economies still linger. They include insufficient life sciences IP protection in areas such as Regulatory Data Protection and patent term extension. And they remain weak in terms of the ability to properly remedy IP infringement and undertake effective anti-counterfeiting actions.
Meanwhile, countries like Mexico make it difficult for their public health system to reimburse innovative medicines, cutting off an important source of finance for local companies.
The prize ahead
The potential for greater biomedical investment in some MICs is immense. There are several attractive aspects of their biomedical environments, not only in terms of low costs and high market demand, but also the existence of an increasingly capable clinical research infrastructure and workforce.
But, on top of market size, demand and costs, the evidence says an economy’s attractiveness for biomedical investment is linked to an effective local policy environment. For instance, a stronger IP environment seems to attract around 9-10 times more clinical trials in a country, according to the 2015 Biopharmaceutical Investment and Competitiveness Survey. 
For emerging markets like China and India, the building blocks for powerful domestic innovative biopharmaceutical industries are there. But these industries will remain at the crossroads between valuable innovation and low-value copying until governments get the policy environment fully behind them.
© Geneva Network, 2016 - Responsibility for the information and views set out in this article lies entirely with the author
 Philip Stevens, founded Geneva Network in 2015. He has worked for the World Intellectual Property Organization (WIPO) in Geneva, where he worked in its Global Challenges Division on a range of IP and health issues. At WIPO, he also coordinated the agency’s cooperation with the World Health Organization and World Trade Organization in these policy areas. Prior to his time with WIPO, Philip worked for several London-based policy think tanks, and has worked as a political risk consultant. Philip is also a Fellow of the South East Asia Network for Development (SEANET). He holds degrees from the London School of Economics and Durham University (UK).
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