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We are extremely grateful to Pete Lanjouw for bequeathing Jenny Lanjouw�s background material on
India�s pharmaceutical industry to us, and to Daniel Lederman for help in obtaining the proprietary data
from IMS Health. Thanks to a number of Intellectual property rights lawyers and industry Tenormin Price experts, in
particular Tahir Amin, Ramesh Adige, Usha Rao, Manoj Kamra, Sudip Chaudhuri, Jayashree Watal for
explaining the institutional details of the pharmaceutical market and legal implications of TRIPs reform
in India. Funding from the World Bank Research Support Budget, and the World Bank executed Trust
Fund on Trade is gratefully acknowledged. The views expressed in this paper are those of the authors and
do not necessarily reflect those of the World Bank, its Board of Directors, or the countries they represent.
Contact: Aparajita Goyal at World Bank, 1818 H Street, NW, Washington, DC 20433, Email:
agoyal3worldbank.org; Mark Duggan at the Wharton School of the University of Pennsylvania, 3620
Locust Walk, Philadelphia, PA 19104, Email: mdugganwharton.upenn.edu
Government policy towards the pharmaceutical sector differs significantly both across
countries and within individual countries over time. Such policies potentially affect
innovation incentives as well as the utilization of available treatments. While there has
been considerable work on policies affecting the pharmaceutical sector in the U.S. and
other industrialized countries, relatively little empirical work has been done on
developing countries, which is surprising given the profound changes affecting the
pharmaceutical market in developing countries in recent years.
One type of policy that has recently been implemented in India, China, and Brazil, and
is currently being considered in many African countries, is an increase in patent
enforcement. Throughout the 1970s, 1980s, and 1990s in India, for example, patents
were issued on the process of manufacturing a product, rather than on the product itself.
This meant that a slight modification in the synthesis of a molecule yielded a new
patent and thus allowed several firms to produce essentially the same drug, implying
that generic firms could essentially reverse-engineer a product by slightly changing the
production process. Indeed, copies of global brands like Pfizer's top-selling cholesterol
drug Lipitor and Eli Lilly�s popular anti-depressant drug Prozac were manufactured and
sold in India by generic firms within two years of being introduced in the United States.
The policy controversy over the impact of stronger intellectual property rights (IPRs) in
developing countries is stark. A weak IPR regime might benefit developing countries
by allowing domestic firms to imitate foreign technologies to enhance access to
pharmaceuticals (Fink and Maskus 2004). On the other hand, it would reduce
incentives for R&D investments on drugs that could differentially benefit developing
countries (Arora, Branstetter and Chatterjee 2008). Perhaps partly because of this latter
point, the World Trade Organization (WTO) recently started to require member
countries to change their enforcement of patents. The Generic Tenormin implementation of the Uruguay
Round agreement in 1995 entailed the implementation of a system of product patents
and legal protection to all Trade-Related Intellectual Property Rights (TRIPs), including
pharmaceuticals. As a result, beginning in January of 2005, firms in India (and China
and Brazil from 2002 and 1997, respectively) could no longer reverse-engineer
The debate about the merits of TRIPs implementation has been contentious in the
economics literature as well. Tenormin Tablets On the one hand, patent enforcement is likely to lead to
higher prices of drugs, which might lower utilization and adversely affect health.
Several recent academic papers have echoed these concerns, using theory and empirics
to forecast the potential welfare losses affecting current and future consumers,
especially in countries like India, through higher drug prices (Dutta 2010, Chaudhuri,
Goldberg, and Jia 2006, McCalman 2001, Cockburn and Lanjouw 2001). On the other
hand, prices may not rise if most drugs affected by the patent reform have therapeutic
substitutes and thus face substantial competition from other products. In addition, the
innovator patent holder might be somewhat more efficient at production than generic
imitators, and thus their lower costs might to some extent offset the market power
In this paper, we explore the effects of introducing product patents for one particular
therapeutic segment of the Indian pharmaceutical market - the market for CNS (Central
Nervous System) drugs. The CNS market is the second largest therapeutic category in
terms of retail sales in the world and is one of the fastest growing segments in India
(Goldberg 2006). We use proprietary data on pharmaceutical sales in India1 from 2003
to 2008, and link these data on when product patents were granted. We differentiate
between two types of product patents. As described by Hemphill and Sampat (2010), a
product patent claiming the active ingredient is generally the strongest and is likely Tenormin Cost to
prevent any use of the same drug. In contrast, ancillary patents on chemical variants,
alternative formulations, delivery systems, and relatively minor aspects of the drug may
not exclude generic entry, since a local manufacturer may be able to employ a different,
non-infringing mechanism for accomplishing a similar incremental drug innovation.
Our identification strategy exploits the differential timing of product patents across
drugs during the 2003 to 2008 time period. Our key identifying assumption is that the
timing of the patents is not correlated with other unobserved factors that might affect
the price and utilization of the drug. Our findings suggest that the introduction of
product patents was associated with a significant increase in the share of total quantity
sold by the innovator, especially for patents granted to the drug compound. The share
did not increase to 100 percent in most cases because innovator firms could still grant
voluntary licenses to generic firms to manufacture Tenormin Mg and sell their products. We also find
an increase in average prices after the introduction of stronger product patents, although
there is no detectable significant effect on utilization. The analysis underscores the
importance of investigating the type of product patent granted by the government.
The findings contribute to the growing theoretical and empirical work on the effect of
patent policies on the pharmaceutical industry. For instance, price responses to generic
entry in the markets for generics and brand-name drugs that have lost patent protection
in the United States have been studied by Caves et al. (1991), Grabowski and Vernon
(1996), Frank and Salkever (1997), Berndt (2002), Wiggins and Maness (2004), Reifan
and Ward (2005), Ellison and Ellison (2007), who find that market entry by generics
resulted in heterogeneous responses in price based on the segmentation of the
Several studies have also used explicit models of consumer and firm behavior to
simulate the welfare losses implied by patent protection in developing countries (Challu
(1991), Fink (2000), Maskus and Konan (1994), Nogues (1993), Subramanian (1995),
Watal (2000)). The paper most relevant to our study is by Chaudhuri, Goldberg and Jia
(2006) who analyzed the effects of patent enforcement for a sub-segment of antibiotics
in India using a structural approach to compute own and cross-price elasticities of
demand as well as the marginal costs of production. While their findings (and the
findings in previous literature) are ultimately limited by the fact that the potential
This data is similar to the data used for the U.S. market in Duggan and Scott Morton (2010).
impact of patents is simulated using estimates of demand characteristics and market
structure from other settings, the model yields important welfare predictions that can be
tested using the data at hand. The fact that we now have access to data on actual
pharmaceutical product patents granted by the Government of India gives us the
opportunity to examine empirically the impact of product patents on pharmaceutical
prices and utilization. The purpose of this paper is to provoke discussion on some of the
preliminary findings from using these data. In forthcoming work we extend the analysis
to all therapeutic segments of the Indian pharmaceutical market, and explore in greater
detail heterogeneous effects by sub-therapeutic segments and welfare implications
using the demand and supply parameters estimated by Chaudhuri, Goldberg, Jia (2006)
for the Indian pharmaceutical market.
The rest of the paper is organized as follows. Section II provides background on the
evolution of India�s pharmaceutical industry and the details of the TRIPs reform. The
data and findings are discussed in Section III, and Section IV concludes.
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