Abstract (maximum of 1000 words) should exhibit the communication title,

The development of the pharmaceutical industry in Brazil and India:
technological capability and industrial development
The BRICS – Brazil, Russia, India, China and South Africa – are the five developing countries most analyzed and debated nowadays. Those countries have had a distinguished level of development opportunities during the last years; however, each of them has experienced it in different ways and levels of growth rates. All of these countries have experienced large changes in their technological capabilities and industrial development, in fact, the industrial and technological policies and development strategies were quite different among them. To compare government roles and strategies among the BRICS countries, we take the pharmaceutical industry development in India and Brazil after the Uruguayan Round (1994) and the establishment of the TRIPS Agreement. The aim of the paper is to compare national strategies of Brazil and India related to the industrial development and technological capability of the pharmaceutical industry in these countries. Our contribution is to highlight that the different strategic choices and the industrial and technological policy matter for the development and the success of each country. Key-words: pharmaceutical industry, industrial development, Brazil, India.
The BRIC countries is an expression created by the British economist Jim O’Neill from the Goldman Sachs Investment Bank that stands for Brazil, Russia, India and China, the four largest emerging countries most analysed and debated nowadays. Those countries have had a distinguished level of development opportunities during the last years. They have been studied together as they represented a significant change in the world after starting the liberalisation of their economies during the 1990’s. The world labour force has doubled since then and their exports increased from 20% in the 1970’s to 40% in 2007. The BRIC countries gross domestic product (GDP) is responsible for 43% of world GDP, while Europe and the USA represent together 36%. The emerging countries were also responsible for 70% of the growth of the world 1 Respectively, professor and PhD student of the Economics Innovation Research Group / Economics Institute / Federal University of Rio de Janeiro: Av. Pauster, 250, room 130. Urca - Rio de Janeiro – RJ – Brazil. CEP: 22.290-240. . GDP, while Europe and the USA were responsible for only 20% in 2007 (Arbix & Salermo, However, each of them has experienced it in different ways and levels of growth rates. India and China are the ones with the highest economic growth rates among BRIC countries and became two of the four largest economies in the world in 2005 (World Bank Report, 2007 apud Dangi, 2007). China has been the one with the highest growth rate, 6.7% per year between 1990 and 2003, followed by India with growth of 4.1%. Brazil and Russia had an insignificant economic growth, especially when compared to the first two, respectively 0.8% and a decrease of 1.9% (IEDI, 2006). In the first four months of 2008, all of them had significant economic growth rates, even higher than developed countries as the United States, Japan, France and Germany. The BRIC countries economic growth rates in this period were: 5.8% in Brazil, 8.5% in Russia, 8.8% in India and 10.6% in China (The Economist, 2008a). The industrial production in the BRIC countries was also very significant during the first months of 2008, though they were not the ones with the highest rates. Among those, China and Brazil had the highest growth rates of industrial production, respectively 16% and 10.1%. The increase in the industrial production in India (7%) and Russia (6.7%) was lower than in the first two, but still higher than in other important countries as the USA (-0.1%), Japan (1.9%), France (3.2%) and Germany (4.8%) (The Economist, 2008a). For the economist Paul Krugman (Rodrigues, 2008), the fact that those countries are large developing economies is the only similarity among them, there would be no reason to analyse them as a group of similar countries. For him, the point to be highlighted is that the centre of the world gravity has changed. It is no more Europe and the USA, it is now the emerging countries instead. Krugman’s point of view may not be totally unreasonable. A Brazilian study carried out by Movimento Brasil Competitivo and Câmara Americana de Comércio do Brasil analysed 24 indicators, such as interest rates, political transparency, foreign direct investments and entrepreneurship, in Brazil, Russia, India, China and Mexico. It has shown that Brazil is the least competitive country among the five emerging countries analysed, especially because of its fiscal and operational costs. India is the second most competitive country, after China (Novo, 2006). Another reason for not analysing those countries in bloc would be the significant difference between innovation input and output indicators among the BRIC countries, as shown in Table 1. Although Brazil has a smaller number of researchers in research and development (R&D) activities, in relative numbers India is the one with least intensity of R&D researchers. It is important to notice the very high number of researchers per million population in Russia. In terms of expenditures on R&D, China spent in 2004 almost 4 times the amount invested in Brazil, Russia and India, but in relative figures Brazil and India are the same. Analysing the relation between scientific and technical papers and the number of patents it is possible to notice that China and India have a much better correlation, as they have a large number of papers and patents. Despite the fact that Brazil and Russia have a reasonable level of international papers published, their number of patents granted by the USPTO is quite low. Table 1: Innovation inputs and outputs indicators – BRIC countries (2003, 2004) Indicator
Researchers in R&D, 2003
population, 2004
Spending on R&D ($ billion), 2004
Spending on R&D (% of GDP), 2004
Scientific and technical journal articles, 8,684 15.782 12,774 29,186 scientific and technical articleScientific and technical journal articles per million population, 2003
Patents granted by USPTO, 2004
3 United States Patent and Trademark Office. During last years, all of these countries have experienced large changes in their technological capabilities and industrial development. But, in fact, the industrial and technological policies and development strategies adopted by each country were quite different among them. The paper focuses on different opportunities and specificities of growth and development among sectors and countries. However, instead of analysing the four BRIC countries, we decided to concentrate on the trajectories of India and Brazil in the pharmaceutical industry, especially after the enactment of the Agreement on Trade-Related Aspects on Intellectual Property Rights (TRIPS Agreement) After the Uruguayan Round (1994) and the establishment of the TRIPS Agreement, countries had to follow the intellectual property rights rules minimum parameters settled by it. However, countries had 10 years to make a slow transition without radical changes to their economies. When comparing Brazil and India on this topic, it is possible to find huge differences that lead to the position that the pharmaceutical industry of those countries has today in the world market. While Brazil had a decrease in its national market, from US$ 10.3 billion, in 1998, to US$ 8.3 billion, in 2006, which represented a decrease in the global market ranking, India increased significantly from US$ 3.3 billion, in 1997, to US$ 6 billion, in 2006. Moreover, India had also enlarged its exports from about US$ 700 million to more than US$ 3 billion, together with a stabilisation of imports, during the 10-year-transition period. The result was a positive trade balance and the country self-sufficiency in most drugs and pharmaceuticals. On the other hand, Brazil had an increase in imports from about US$ 2 billion to US$ 3.2 billion, between 2000 and 2006, resulting in a deficit of nearly US$ 3 billion, as the exports did not have a significant rise in the same period (Bermudez et al., 2000; Hasenclever, 2002; Das & Nair, 2005; Mani, 2006b; Secex, 2006; IMS health, 2006; Dangi, 2007). The aim of this paper is to compare national strategies of Brazil and India related to the industrial development and technological capability of the pharmaceutical industry in those countries. The focus lies on the following points: How did they use the time for transition of TRIPS Agreement? Which market are companies interested in? What strategies are the companies pursuing? How do companies finance their R&D and other innovative activities? What is the level of innovation in the pharmaceutical sector in each country? What is the government role in the stimulus to the innovation and local production in the sector? Our contribution is to highlight that the different strategic choices and the industrial and technological policy matter for the development and the success of each country, comparing the pharmaceutical sector in Brazil and India after the TRIPS Agreement. In other words, institutions, such as public policy to industry development and technological capability, together with market liberalisation, technological opportunities, sectoral regulation and macroeconomic aspects are also very important factors to economic performance. The market itself is incapable of guaranteeing a spontaneous trajectory of competitive success. The studies about the development trajectories in the pharmaceutical sector in Brazil and India intend to exemplify that the country’s performance is strongly influenced by its institutions, as studied in Chang (2004), Diniz e Boschi (2007), Diniz (2007), Evans (2003 and 2004), North (1990), Stiglitz (2002). Those authors studied the effects of institutions in countries’ economics performance and change. Stiglitz (2002) highlighted that after the Washington Consensus, the new guidelines to developing countries and the process of fiscal austerity, liberalisation, privatisation and globalisation did not have as many benefits as it was expected. International institutions were established according to developed countries’ convenience and represented large impeditive factors to developing countries. The author enumerates several effects in poorer countries caused by international decision, which did not take in consideration of the countries’ Furthermore, most developing countries followed the Washington Consensus guidelines and established what Evans (2003) called the “Institutional Monocropping” – the imposed Anglo- Saxons ideal institutions based on planning, which ignore national specificities and state that the best answer for bad government is no government at all. Institutions (understood as norms, habits and rules) are deeply ingrained in society and play a major role in determining how people relate to each other and how they learn and use their knowledge (Johnson, 1992 apud Lundvall et al., 2002). As North (1990, p.107) has emphasised in the beginning of the 1990’s, “they (institutions) are the underlying determinant of the long-run performance of economics”. There is no way to develop without the right institutions to lead this 1. The Brazil and India historical and industrial contexts
Brazil and India, both colonies of European countries, had to deal with late development. Both countries have a lot of similarities regarding problems with social development, inequality and poverty, but also quite a few differences considering how they are acting to change their status from developing countries to developed ones. Although Brazil has become independent many years before India it still has lot of the same problems as India related to poverty, inequality and underdevelopment. In 2006, 9.6% of the Brazilian population was illiterate. Although it seems a small amount, it is not. The indicator includes only people who cannot write at least its own name. So if the person can write its name, and only that, he/she is not an illiterate, what is totally different from someone who is educated. The average years of study of the population are 6.8 years, what is not enough to finish primary school (IBGE, 2007b). The tertiary enrolment is only 10% among all of 18-24 year olds (Mello et al., 2008). Despite the constant increasing in the Brazilian Human Development Index (HDI) achieving the 70th position in 2005 with an index of 0.8, which means that Brazil is now among countries with high level of development, poverty and inequality are still very high (UNDP, 2007). In 2006, about 25% of the population was living below the poverty line and 9% were considered indigent. Moreover, Brazil had a Gini Index of 0.56 and was ranked 11th in the world among countries that have the poorest distribution of income (IPEADATA, 2008). In India, despite the decrease in the mortality rate from 77.3/1,000 in 1992 to 55.5 in 2005, there are still 60 million chronically malnourished children (40% of the world’s total). About 28% of the population live below poverty line, though there was a fall of 8% in the absolute number of 4 7th September, 1822. 5 India independence occurred in 1947, more than one hundred years after Brazil. 6 Based on data from 2005, published in 2007. 7 A value of 0 represents perfect equality of distribution and 1 perfect inequality. people leaving below poverty line between 1999 and 2004. In a population of one billion people it represents 320 million people, most part (¾) living in rural zones. Some 65% of the population live on agriculture, which accounts for less than 18% of GDP. It is the 128th country in the HDI ranking with an index of 0.619, which represent a country with medium human development. However, the illiterate figures were better in 1950s than recently; it used to be some fourth of the population, while today it dropped to a 1/3 and many of those are older people. Moreover, tertiary enrolment rate is 13% of all 18-23 year olds, significantly lower than in developed countries (18%), but a little bit higher than the Brazilian one. The GDP per capita in purchasing power parity (PPP) terms in India is US$ 3,500, less than half of the Brazilian. Nevertheless, India has a Gini Index of 0.36, ranked 73rd among the poorest countries, 62 positions better than Brazil (UNDP, 2007; The Economist, 2008b, OECD, 2007). Both countries have also applied similar policies to develop their economies, specially the import substitution regime (1950/1990), which implemented protectionist policies and high average tariff to imports aiming to develop the local industry. The import tariffs at the end of the 1980- decade were very high; especially in India: 106% for agricultural products, 128% for manufacturing products, and the same percentage for the whole economy (Srinivasan, 2001 apud Nassif, 2007). In Brazil, although they were high, the level was much lower than in India; for instance, the highest one in Brazil was the tariffs to manufacturing products equal to 69.7% (Kume et al., 2003 apud Nassif, 2007). In India, from 1947 to the beginning of the 1990’s, there was a mechanism to plan and control the business sector called “licence regime”, in which the creation of a new firm, new plant or an increase of productive capacity required a government permit. In Brazil, during the 1970’s there was a similar mechanism conducted by the Council of Industrial Development (Conselho de Desenvolvimento Industrial – CDI, in Portuguese) to guide new business creation in strategic sectors. Licence and government incentives were given to the creation or expansion of business from strategic sectors to reduce imports. Despite government control, the Brazilian mechanism stimulated new business creation. Moreover, Brazilian export policies were stronger than 8 The Brazilian GDP per capita in PPP was US$ 7,790 in 2003 (IPEADATA, 2008) 9 Considering the opposite order, from the best distribution of income to the worst, India would be in the 54th and Brazil in the 116th positions. Indian’s. For both reasons, Brazil had been able to consolidate a large and diversified industrial base, despite the low innovation level, while India had failed to develop a strong and diversified export base. In 1985, while Brazilian exports totalled US$ 25,6 million (1.6% of world exports), India’s were only US$ 8,9 million (or only 0.5% of world exports) and were strongly concentrated in primary products (Nassif, 2007). Another characteristic India has is that instead of giving a wide support to develop a diverse industrial base, it focused on the enhancement of two specific sectors: pharmaceutical and information technology, at which the country is now one Brazil and India implemented a lot of similar strategies regarding industrial, trade and technological policies from 1950 to 1980. Notwithstanding, the macroeconomic environment and policies were quite different. As a consequence, at the end of the 1980’s Brazil had a fiscal deficit, large external debt, hyperinflation and stagnation. Nevertheless, India had a relative fiscal stability, low inflation rates and a moderate tendency to borrow abroad. It is important to notice that Indian growth started during the 1980’s (Nassif, 2007). At the beginning of the 1990’s, the Washington Consensus recommendations were spread out all over the developing countries, Brazil and India were one of those. However, here is important to notice the difference between these two countries in the implementation of the Washington Consensus recommendations. On the one hand, Brazil has implemented trade and capital liberalisation, privatisation, flexible exchange rates and inflation targets. Moreover, the industrial policy became unimportant for more than 10 years, there were reductions on the amount spent on science and technology (S&T) and a hostile macroeconomic environment for firms. On the other hand, India had also implemented some of the Washington Consensus recommendations, but it has also enhanced its industrial policy focusing on strategic sectors, education and the development of S&T. The coordination of policies was the most significant strategy of the Indian government to become the second country with the largest economic growth rate in the 21st The level of internationalisation of Brazilian and Indian economies are also very different. The flow and stock of foreign direct investments (FDI) are some important data to represent those different levels. As shown in Table 2, Brazil had a faster and more intensive liberalisation than India after the 1990’s reforms. Regarding the relation between FDI flow and the gross fixed capital formation (GFCF), in 10 years, it went from 1% to 28.2% in Brazil. Not only did Brazil have a very fast liberalisation, but it also did not select the type of capital that was entering the country. As a consequence, a lot of speculative capital flooded the economy resulting in an exchange rate crisis in January, 1999. The liberalisation in India was much more restricted and slower, as the relation between FDI flow and GFCF increased only 2 points from 1990 to 2000. Another difference is that in India there was a focus on new investments within the country, not only on the purchase of national companies by multinational companies (MNCs), as it happened Table 2: Brazil and India: indicators of flows and stocks of FDI (1970-2003). Source: UNCTAD, 2005 apud Nassif, 2007, p. 17. Note: n.a.: not available; GDP: Gross Domestic Product; GFCF: Gross Fixed Capital Formation Only at the beginning of the year 2000, the industrial policy became again a government issue in Brazil. The Industrial, Technological and Foreign Trade Policy (PITCE, in Portuguese) was launched in 2003 establishing priority sectors (semiconductors, software, pharmaceutical products and capital goods) and raising a more systematic view of innovation, stimulating especially the interaction between productive and academic sector. The legal and political apparatus to enhance industrial and S&T development continued to increase in the next years with the enactment of the Innovation Law (10.973/2004), which strengthens the technological research and the generation of innovation in the business sector through the knowledge transfer from universities to companies; the Informatics Law (11.077/2004), which stimulates training and competitiveness of the sector of information technology and automation; and the Law 11.487/2007, known as “Good’s Law”, which deals with tax incentives and authorises the automatic tax benefits for companies within the requirements without the need for formal request In 2007, the Ministry of Science and Technology (Ministério da Ciência e Tecnologia – MCT, in Portuguese) launched the Science, Technology and Innovation Plan to the national development between 2007 and 2010 with 4 wide strategic priorities that fall into 21 specific lines of action (MCT, 2007). In 2008, a new industrial policy was enacted – the Productive Development Policy – aiming to give sustainability for economic growth, to increase productive investments and to raise economic growth rates (IEDI, 2008). In India, differently from Brazil, during the 1990’s the industrial policy was not neglected, despite the application of some Washington Consensus recommendations in the macro level. Nonetheless, at the beginning of the year 2000 there were some new industrial policies and programmes. The Tenth Five Year Plan (2002-2007) (MST, 2007) established some goals and trends to the interface between industry, academy and R&D institutions; to the application of S&T for the society; to the international cooperation in S&T and to the development of human resources in S&T. It focused on six strategic sectors: space science, nuclear science, ocean science, biotechnology, science and industrial research, and S&T. The new Indian Industrial Policy, also launched in 2003, had some objectives related to social needs and the development of S&T, such as: (1) to ensure food, agricultural, nutritional, environmental, water, health and energy security of the people on a sustainable basis; (2) to mount a direct and sustained effort on the alleviation of poverty, enhancing livelihood security, removal of hunger and malnutrition, reduction of drudgery and regional imbalances, both rural and urban, and generation of employment, by using scientific and technological capabilities along with our traditional knowledge pool; (3) to vigorously foster scientific research in universities and other academic, scientific and engineering institutions; (4) to promote the empowerment of women in all S&T activities and ensure their full and equal participation; (5) to accomplish national strategic and security-related objectives, by using the latest advances in S&T; (6) to encourage research and innovation in areas of relevance for the economy and society, particularly by promoting close and productive interaction between private and public institutions in S&T. Sectors such as agriculture, water, health, education, industry, energy including renewable energy, communication and transportation would be accorded highest priority. Key leverage 10 There was an industrial policy launched in 1991. technologies such as information technology, biotechnology and materials S&T would be given special importance; (7) to establish an Intellectual Property Rights regime which maximises the incentives for the generation and protection of intellectual property by all types of inventors; and (8) to promote international S&T cooperation towards achieving the goals of national development and security, and make it a key element of our international relations (MST, 2003). 2. After the TRIPS Agreement different strategies and policies for the pharmaceutical
During the 1990’s, one of the most important facts related to the development of innovation, especially in the pharmaceutical sector, were the enhancement of the intellectual property rights with the TRIPS Agreement. Among other statements established by the Agreement, there was no sectoral discrimination in the concession of patents and there was the protection extension for 20 years. It was established 10 years to the signatory’s countries became in total accordance with the Agreement, from 1st January 1995 to 31st December 2004 (WTO, 1994). In the case of pharmaceutical products and chemical products to agriculture during this transition period countries would have to accept patent deposits from innovations developed before the Agreement, but the analysis and decision would occur only after those 10 years. This mechanism was called mailbox and each country would have to find its own way to make it work. The way Brazil and India dealt with this issue is one of the most significant differences among government industrial strategies in those two countries. In Brazil, the adequacy to the TRIPS Agreement started with the enactment of the new Intellectual Property Law (9.279/1996), which enlarged the patentability possibilities to substances and products acquired by chemical processes and to substances, mixes, food, pharmochemical products and any kind of drugs, and their processes. However, the Brazilian government decided not to use the total transition period, but only two years (1996-1997). During these two years, every depositor who had obtained a patent in any other country would be able to request it in Brazil for the rest of the patent period. This new modality to obtain a patent was called the pipeline mechanism. The decision to give the patent was related only to the favourable decision of the first deposit, none technical exams were requested, except on the part of national inventors, which represent a very asymmetric orientation. The pipeline mechanism allowed also a retroactive examination of patent deposits from products that only became patentable after the enactment of the new law (Hasenclever et al., 2008). This mechanism is totally different from the mailbox, used in India, which is a transition mechanism. The pipeline mechanism is, in fact, a The pipeline mechanism had some significant effects upon the Brazilian industrial capability, for instance, on the antiretroviral (ARV) drugs production. Firstly, it stopped the local ARV production and substituted it for imported products from the companies that had the patents of the drugs. Secondly, these imports represented the use of resources that could be invested in national R&D and the purchase of other drugs. Thirdly, most of the patents were given between 1998 and 2000 and three years after the concession there still was no local production, which is an obligation after the patent concession according to the Brazilian Intellectual Property Law. The use of Brazilian law safeguards such as compulsory licence and the article on abuse of economic power has been weak. In fact, only in 2007, after some rounds of negotiation with Merck, the company responsible for the production of the Efavirenz, the Brazilian government decided to use a legal mechanism, the compulsory licence, to complain about the lack of local production and the high prices of this drug and authorised imports from India considering that the drug is a national interest (Hasenclever, 2006; Hasenclever et al., 2008). The problems related to the issue discussed above are not only relevant in terms of industrial capability, because it gives incentives to patenting without the need of new R&D investments, but it is much more relevant and serious in terms of the national health care system. Brazil is known worldwide for its Sexually Transmitted Diseases (STD)/Aids National Programme, which provides all drugs required by the treatment free of charge. Nonetheless, the pipeline mechanism represented quite a large increase in the programme costs, as the patents of some drugs were given by this mechanism. According to Hasenclever et al. (2008), the pipeline mechanism 11 Though, it was necessary to make a new patent deposit. 12 Articles numbers 68 to 74 of the Brazilian Intellectual Property Law n. 9.279/96. 13 As discussed in Hasenclever et al. (2008), in the concession of the pipeline patent the R&D investment award has been already conceded in the first deposits of the patent in other countries. represented an additional expenditure of US$ 35.3 million to the STD/Aids National Programme between 2001 and 2007, considering only 5 drugs among all distributed by the programme. As the number of pipeline patents in pharmaceutical and biotechnology products is around 1,200, the deficit in the health system in the country may be even larger (Bermudez et al., 2000). In terms of industrial and innovation policy, at the end of the 1990’s and mainly at the beginning of the year 2000, some mechanisms started to be developed in Brazil. Regarding the pharmaceutical sector, the main instrument used by the Brazilian government is the funding to purchase machinery and equipment – 58 out of 66 innovative pharmaceutical companies received government support to this end. The second most used finance instrument, the Sectorial Funds, which was granted to 16 companies, was related to the funding of university-industry collaboration to carry out research activities. The support to R&D activities is the third one and was obtained only by 5 companies (IBGE, 2007a). There are two specific funds related to the pharmaceutical sector, the biotechnology and health funds, which financed the pharmaceutical sector between 2003 and 2006 in approximately US$ 146.1 million (Paranhos & Lopes, 2007), an amount lower than the one invested by pharmaceutical companies in R&D activities during the same period, US$ 61 million in 2003 and US$ 130.4 million in 2005. This number represents the weak role of government in the stimuli to the generation of innovation, because it shows that the government enhances especially the university-industry interaction (IBGE, 2005, 2007a). In the World Competitiveness Yearbook of 2008, Brazil was classified in the 43rd position (among 55 countries) in the rank of countries with a favourable environment to the development of innovation (IMD, 2008; Calaza & Duarte, 2008). Only after the enactment of the Innovation Law, government institutions were authorised to give non-reimbursable resources directly to companies. This flexibility of the law allowed the creation of the Economic Subvention Programme, which offers a better support to companies’ needs. After three rounds of the programme (2006, 2007 and 2008), 49 projects for drugs and medicines 14 In a total of 326 innovative companies in the pharmaceutical sector in Brazil (IBGE, 2007a). 15 The Science and Technology Sectorial Funds, created in 1999, are project financing instruments for domestic research, development, and innovation. They are the largest government innovation funding programme and they stimulate the industry-university relationship. There are 15 funds directed to specific sectors and two cross sectorial funds (FINEP, 2007). 16 Fiscal incentive to R&D activities and innovation development (Law nº 8.661, Law nº 10.332 and Law nº11.196). 17 Both created in 2001 and operating since 2002. were approved and received about US$ 50 million in grants to hire master and PhD researchers to technological activities and resources to the development of innovative products and processes The Brazilian Development Bank (BNDES, in Portuguese) also has a programme specific to the consolidation of the pharmaceutical sector, called the Pharmaceutical Productive Chain Development Support Programme. The programme aims at the development of the health industrial complex, leading to interactions between industrial and health policies. The National Health Surveillance Agency, also a regulatory agency, has established rules to increase quality and control over pharmaceutical products commercialised within the country. Good Practices to drugs production were also implemented, though not compliant with Organisation for Economic Co-operation and Development (OECD) rules (Capanema & Palmeira Filho, 2007). Notwithstanding, it is important to notice that imported products do not need to follow those practices, which represent an asymmetric position of the Brazilian government against national companies, leading to an uneven competition. Drugs price regulation in Brazil is controlled by the Market Regulatory Board of Drugs, which has been attacked by private sector companies that complain about the determination of innovative products prices (Falci, 2007). In India, the transition period, permitted by the TRIPS Agreement, was totally used and the government strategies and actions were completely different from the Brazilian government. The Indian Patents Act of 1970, which granted patent rights only to manufacturing processes, oriented the intellectual property regime in India till 2005. This act allowed Indian pharmaceutical companies to perform reverse engineering of branded drugs and sell them as generic drugs. Together with an active industrial policy this act lead the national industry to a great level of development, based mainly but not only on generic drugs. In 1994, India signed the TRIPS Agreement and became a World Trade Organisation (WTO) member, but the act of 1970 continued to be in use until 31st December 2004. As a consequence, local companies increased its market from 30% in 1977 to 77% in 2004. In other words, Indian government made use of the 10-year-transition period through the mailbox mechanism. In sum, not only did India protect its 18 Programa de Apoio ao Desenvolvimento da Cadeia Produtiva Farmacêutica (Profarma), in Portuguese. 19 Câmara de Regulação do Mercado de Medicamentos (CMED), in Portuguese. industry, but it also implemented active industrial policies to enhance local pharmaceutical companies, such as high import tariffs, FDI restrictions and price control. In 2005, India’s intellectual property rights regime changed to be adapted to the WTO rules. It started to analyse product patent deposits that have been done in the mailbox during the transiton period to elect the ones that were able to receive the patent. Nevertheless, they were conceded only in those cases where there was no local production of the drug (Mani, 2006b). It means that Indian companies were able to produce drugs that did not have patents until 1994, as well as, anticipate the production of drugs whose patent deposits were made during the transition period. It shows not only the development of the industrial basis in that country but also the improvement The active industrial policy implemented in India during the TRIPS transition period to enhance the pharmaceutical sector included public policy support, development of private companies and creation of Government Research Institutes (GRIs). Mani (2006b) subdivided public policy support into four groups: overall policy framework, intellectual property rights, price regulation, and product and quality regulations. The first one includes the Indian Pharmaceutical Policy from 1994 which intended to promote R&D intensive companies and pharmaceutical R&D through fiscal incentives, to establish the Pharmaceutical Research and Development Support Fund The most important characteristics of the Indian intellectual property right policies have been explained above, but some comments on the future of the sector in India after 2005 is presented as follows. According to Ramani, Pradhan and Ravi (2005 apud Mani, 2006b), after this year (2005) Indian pharmaceutical companies would have three choices to follow: focus on products that are off-patent drugs (generic market), collaborate with Western MNCs in clinical trials and R&D outsourcing, and focus on innovations in which MNCs would not be interested, such as neglected diseases. Mani (2006b) suggests that the first two are already happening. Regarding 20 There was a litigation problem involving the 2002 policy, so the 1994 continued to be in force, but there is already a Draft Version of a National Pharmaceutical Policy from 2006, essential to the update of the issues related to the sector. 21 The fund is utilised for funding R&D projects of research institutions and industry in the country. price regulation, the country has a lot of advantages that make Indian drugs be among the cheapest in the world, such as low labour costs, local production of machinery and equipment, and a price control regime by the National Pharmaceutical Pricing Authority. Product and quality regulations are subordinate to the Drugs and Cosmetics Acts of 1940 and the Drugs and Cosmetics Rules of 1945, which were added the Good Clinical Practices and the Good Laboratories Practices. The last one (GLP) is compliant with OECD norms and principles. The consolidation of the Indian private pharmaceutical sector occurred based on the two public sector companies stimulus applied on the creation and development of private companies, on the discrimination of MNCs vis-à-vis national companies and on the stimulus to fusion and acquisition of foreign companies by national companies as a market expansion strategy. As a result, among the 20 largest companies in the Indian pharmaceutical market, 16 are national companies. The bulk drugs sector is characterised by small companies, but the formulations segment is dominated by large private sector companies. Moreover, there are quite a few Indian multinational pharmaceutical companies established in several countries. In Brazil, 11 Indian companies were established between 1996 and 2006 and they represent over half of Indian pharmaceutical companies in Latin America (Mani, 2006b; Sweet, 2008). These policies and strategies led the Indian pharmaceutical sector to the status it has nowadays in the world market. India is self-sufficient in drugs, is one of the largest generic producers, has a positive and increasing trade balance, and is able to attract MNCs R&D laboratories, which 3. Results for the pharmaceutical sectors in Brazil and India
In 2006, the ten biggest companies in the pharmaceutical market in Brazil had 43.5% of the US$ 8.3 billion market, but none of them had a market share larger than 7%. It is mainly controlled by MNCs, despite a significant increase in national companies in the last couple of years. Four national companies (Aché, EMS Sigma-Pharma, Medley and Eurofarma) were among the ten largest companies in the country in 2006. The rise in national companies is happening mainly 22 The concentration of the pharmaceutical sector happens in therapeutic classes. because of the production of generic drugs. Between the four companies cited above, three are generic producers. The generic production is increasing substantially, in 2004, it accounted for 5.3% of Brazilian drug market and, in 2006, it rose to 11.4%. In 2005, 151.4 million generic drug boxes were commercialised in Brazil, 23% more than in 2004. About 80% of those are produced within the country and 75% of the sales were made by national capital companies (Capanema & Palmeira Filho, 2007; Pró-Genéricos, 2007; Gadelha et al., 2008). However, the increase in generic market and companies is happening especially within the country, as ports and airports in Brazil are still not compliant with export rules. Not only are companies not able to export, but also most of their raw material is imported. As a consequence, there is a constant deficit on the pharmaceutical trade balance in Brazil, which accounted for nearly US$ 3 billion in 2006 (Secex, The competition within the country increases constantly. Not only are North American and European companies selling drugs and active pharmaceutical ingredients (APIs), but each day Indian and Chinese products become more frequent in the Brazilian market. In the case of ARV production for HIV/Aids, the biggest problem for national companies is that the Public Procurement Law (8.666/1993) does not make any distinction between national and foreign companies. Moreover, there is no quality pre-evaluation of the decision to purchase any product through this legislation; the only factor that counts is the price. These two conditions make national companies development even more difficult (Orsi et al., 2003). National companies have lower market share and lower innovative capability. The increase and development of national pharmaceutical companies have been happening mainly through the generic drug production. However, these innovations, which are new generic drug versions to the market, represent an innovation to the company, but not to the market. A confirmation of this fact is the high level of innovations in the pharmaceutical sector companies informed by the Brazilian Technological Innovation Survey (Pintec, in Portuguese) data. Their rate of innovation (52.4%) is quite superior to the national rate (34.4%), considering all the sectors, and it has been rising during the last few years, 46.8% in 2001 and 50.4% in 2003 (IBGE, 2002, 2005, 2007a). 23 The purchase of the Biosintética by Aché, in October 2005, was important to raise the presence of the latter company in the generic market (Aché, 2007). 24 There were 326 innovative companies among 622 interviewed companies. However, the analysis of the data regarding innovations to the company and innovations to the market shows a relatively significant difference between both of them. In 2005, from 240 product innovations, 78.6% were innovations to the company and 25.2% were innovations to the market. Furthermore, 93% out of 236 process innovations were innovations to the company and only 9.8% innovations to the market. That is to say they diffuse foreign innovations through the production of generic drugs more often than they generate innovation within the country. The low level of R&D investments is the main reason to the innovation results showed above. The world’s average expenditure on R&D in the pharmaceutical sector is about 15%. In Brazil, it is significantly smaller 1.27%, considering internal (0.72%) and external R&D (0.55%), which represent US$ 130.3 million and US$ 56.1 million respectively (Capanema & Palmeira Filho, 2007; IBGE, 2007a). Not only is the amount spent on those activities low, but also few companies perform them. From 2003 to 2005, there was an increase of 77.4% (from US$ 33 million to US$ 74.2 million) in the amount spent on internal R&D activities by pharmaceutical companies within Brazil, however, the number of companies carrying out those activities decreased by 11%. The expenditures on external R&D activities also increased 58% (from US$ 28 million in 2003 to US$ 56.1 million in 2005) during this period approximately, despite the decrease of 40% in companies doing those activities (IBGE, 2005, 2007a). Taking into consideration that companies self-finance 94% of their expenditures on R&D activities, it is possible to say that it is becoming more difficult for companies to develop their R&D activities without appropriate support. It probably means that only few companies are able to self-finance their activities or have access to government support. This last topic strengthens the innovative activities stimuli needs of national capital companies, because it is extremely important to the development of the country and external vulnerability reduction concerning the health care system. International subsidiaries only carry out development activities; they hardly perform basic research or even applied research in Brazil. 25 Pintec 2005 (IBGE 2007a) data were computed in dollar by the average exchange rate in 2005 equal to R$2.43 (IPEADATA, 2008). 26 Pintec 2003 (IBGE 2005) data were computed in dollar by the average exchange rate in 2003 equal to R$3.08 (IPEADATA, 2008). 27 As MNC companies do not tend to perform R&D activities in Brazil it is possible to say that this data is mainly related to national companies. However, their production and commercialisation activities of drugs are very well developed. In spite of the world’s trend of R&D internationalisation and the increasing importance of developing countries, like India and China, in this setting, Brazil has not been one of the options when companies have to choose a country to establish a new laboratory. On the other hand, India is one of the main countries on R&D internationalisation and its pharmaceutical market and companies have been increasing and developing significantly in the past few years. In 2006, the pharmaceutical market in India accounted for US$ 6 billion, an increase of almost 100% in ten years. The ten biggest companies represented 36.5% of this market; among those eight are national companies which were responsible for 28.8% of pharmaceutical market in India. The most significant data is that the MNCs are not the largest ones; there is one in the first position (5.2%), but the other is the eighth (2.6%), positioned after Those national companies are mainly generic producers, as well as in Brazil, but they are much more focused on exports than the Brazilian ones. India exports generic drugs to nearly 200 countries; the value of exports between 2005 and 2006 was US$ 4.7 billion (MF, 2007). About 40% of local production is exported (55% formulations and 45% drugs). Moreover, Indian companies have subsidiaries in some countries like Brazil, where they act as APIs and generic producers. In spite of the great advantage Brazilian companies have because of their proximity to the pharmacy chain, Indian generic producers are the second most important companies in sales and drug registration in Brazil. Furthermore, as Indian companies are also API producers, even when they lose market to Brazilian generic companies, they still have some gain through the API supply to those companies. Indian companies are the second most important API supply (in volume) to Brazilian companies, which import over 97% of these products. Between 2001 and 2007, Brazilian companies imported more pharmaceutical products from India than Indian subsidiaries established in Brazil did (Sweet, 2008). 28 Pharmacists have a very important role in the generic sales as they choose which generic product to offer to clients/patients. 29 Including private and public companies. Mani (2006b) highlights four main factors that led Indian companies to be among the largest generic producers in the world: the Indian Patent Act of 1970, which allowed reverse engineering of new drugs developed abroad; low R&D costs; qualified human resources, especially on chemistry skills; and high number of MNCs manufacturing plants within the country. India became a very attractive country for MNCs to install manufacturing plants as well as R&D laboratories. It is the country with the largest number of US FDA approved manufacturing plants outside the USA. Low R&D costs and qualified labour force are some important reasons for this, but also a huge domestic market and government investments on R&D infrastructure. Government labs work with national and international companies on drug research resulting in a significant number of patents granted to these companies (Mani, 2006b). The government research institutes for pharmaceutical R&D are responsible for 1/3 of the R&D developed within the country. The Central Drug Research Institute is considered to be one of the few public sector organisations in the world which has its own drug development infrastructure. This institute works in collaboration with other 20 laboratories from the Council of Scientific and Industrial Research (CSIR) system and has been responsible for a quarter of both Indian and foreign patents secured by the system (Mani, 2006b). However, the pharmaceutical sector was the one with the largest share of company investments, 19.3% of total private sector expenditure on R&D was invested in the pharmaceutical sector. Even though the total expenditure on pharmaceutical R&D (2%) in India is still much lower than it is invested world-wide, there are already some positive results. Among them is the number of patents granted at the USPTO by Indian inventors from different sectors: 481 patents in 2006 and 546 in 2007, ten times more patents than in 1997. This number is much superior to the Brazilian one, 121 patents in 2006 and 90 in 2007 (Mani, 2008, Mani, 2006b). The Indian pharmaceutical sector has three main characteristics: it is dominated by formulations, but a wide range of pharmaceutical machinery is also available in the country; it is very active in the world-wide generic market; and the country is self-sufficient in most drugs, as shown through 30 The United States Food and Drug Administration. 31 As presented in the last section a growing positive trade balance, which was US$ 2.5 billion between 2003 and 2004 (Mani, Final considerations
The paper showed how different government strategies and policies in Brazil and India led both countries, especially their pharmaceutical sectors, to significantly diverse trends of growth and development. Although both countries had to deal with the Washington Consensus recommendations during the 1990’s and the new WTO rules (which started a new globalised technological regime after the enactment of the TRIPS Agreement in 1994), each one did it in a
Brazil has literally followed both rules liberalising its economy in the 1990’s and adopting the new technological regime only two years after the TRIPS Agreement. The adoption of liberalising rules and the absence of industrial and technological policies made the country fragile in terms of industrial and technological capability, which resulted in several problems in the pharmaceutical trade balance. Moreover, it led to incapability to deal with the increase in health expenditures, especially areas dependent on patented drugs. On the other hand, in India, despite the conformation of macroeconomic policies to new globalisation rules, it strongly kept an active industrial and technological policy during all the 1990’s. This strategy allowed India to develop its technological capability, despite the new rules of the technological regime approved by the TRIPS Agreement. Furthermore, after the implementation of the new rules the strategy enabled the country to negotiate with MNCs and to attract foreign investments to clinical research in India. It also acquired an important position as world supplier of APIs and generic drugs, including to Brazil, whose industry has been having a strong competition from Indian companies, not only as suppliers, but also as local investors. The aim of this paper was to highlight the positive effects and results achieved by the pharmaceutical sector in India due to its government decisions. In fact, the example of the pharmaceutical sector development trajectories represents extremely well the importance of the institutional factor, that is to say technological and industrial policies applied in both countries. Those factors have a great influence on the sector’s performance world-wise, in terms of national demand and international trade performance. As mentioned in the introduction, institutions are the “underlying determinant of the long-run performance of economics”. The comparison between Brazil and India development strategies reinforces North statement. While, in Brazil, there was a fast implementation of the “institutional monocropping” that lead the country to many years of low level of economic growth; in India, the maintenance of institutions, without following the Washington Consensus guidelines completely, allowed the country to have a much better level of economic growth and development over the last decade. The new strategies announced by both countries after the year 2000 seem to indicate that the wind is blowing in the same direction regarding technological and industrial policy relevance as an efficient institutional factor to achieve a good performance in an extremely important sector to national health policies. It is early, however, to indicate a convergence between both countries, or that Brazil is resuming its position in the international setting. References
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