AFTERMATH POST PATENT ACT ‘70

1) Actual Impact on the Market

This part analyses whether the actual impact of grant of patent led to such drastic results in the industry as
predicted by the economists. The data used for the analysis has been acquired from IMS MIDAS, which
contains sales figures of approximately 85 % of the pharmaceutical market of India. 1

a) Modest Price Changes

Figure 12

1 MS Health, The Global Use of Medicines: Outlook through 2015, (2012) available at: http://www
.imshealth.com/deployedfiles/ims/Global/Content/Insights/IMS%20Institute%20f or%20Healthcare
%20Informatics/Global%20Use%20of%20Meds%202011/Medicines_Outlook _Through_2015_Report.pdf. <last
visited 20th April, 2019>.

2 ibid.
The question, which arises for consideration, is why the price change was not as drastic as estimated
before the grant of patent. One reason could be that the demand for drugs in India is such that the patent
holders will not increase their price significantly due to the fear of losing demand for their products. 3

). Following the grant of patent, the average price increase is small, however, it is continuous. As per the
figure, the average price change after the grant of patent has been 3% to 6%.Fig. 1 presents the average
price of drugs for 8 quarters preceding and following the grant of patents. The drugs used in the study
were those, which were present in the period before and after the amendment to the Patent Act. The
period before the grant of patent is represented by -8 to 0, it can be seen that the change during the period
witnessed smaller changes ranging from 0 to 0.02 on the Y axis (amounting to 0 to 2% change

The second reason could be the availability of direct substitutes for pharmaceutical products. These
substitutes are in two forms: 4

a) Direct substitutes: These substitutes that contain the same molecules as those used in the patent
molecules. They are allowed such usage based on compulsory licensing (discussed in the next
part of the paper).

b) Therapeutic Substitutes: These are substitutes of drugs comprising of patented molecules, which
use other non- patented molecules but yield the same result as their patented substitutes.

These close substitutes ensured that the price effects are mediated despite the monopoly granted through
strong intellectual property rights.

b) Drastic Reduction in Quantity Sold

In a regular economic model, increase in price leads to a decrease in the quantity. As seen above, the
increase in price is modest and hence, based on the economic theory of demand and supply, the fall in the
quantity will also be modest.5 However, the structure of the market leads to a substantial fall in the sale of
drugs, even though, the price increase is relatively smaller. The nature of change can be attributed to the
fragmented structure of the Indian pharmaceutical market. The fragmentation is a result of the existence

3 Shubham Chaudhuri, Gia Panle & Pinelopi Goldberg, Estimating the Effects of Global Patent Protection in
Pharmaceuticals: A Case Study of Quinolones in India, 96(5) AMERICAN ECONOMIC REVIEW 1514 (2006).

4 ibid.

5 William Nordhaus, Invention, Growth and Welfare: A Theoretical Treatment of Technological Change,
CAMBRIDGE MASS-MASSACHUSETTS INSTITUTE OF TECHNOLOGY PRESS (1969).
of a large number of firms (indulged in manufacturing similar drugs). These firms supply their drugs to
agents who in turn supply it to the stockists from where it reaches retail pharmaceutical stores. 6 As per a
data estimate of IMS in 2009, there are approximately sixty-seven thousand stockists that trade with over
five lakh retail pharmaceutical stores.7 While there existed modest price increase, threat to Indian pharma
companies and significant decrease in quantities of drugs sold in the immediate aftermath of product
patent, there was also a substantial progressive impact in the longer run. The next part explores the benefit
derived from the introduction of product patent in pharmaceuticals.

Decrease in the number of domestic manufacturers owing to a sudden increase in competition due to
product patents led to a reduced access to retail channels. Therefore, after the grant of patent, based on a
study conducted by IMS, there was a decrease of about 26% in the volume of standardized dozes sold. 8

6 Eric Langer, Pharmaceutical Distribution in India, BIOPHARM INTERNATIONAL (2008).

7 Eric Langer, Pharmaceutical Distribution in India, BIOPHARM INTERNATIONAL (2008).

8 Mark Duggan & Aparajita Goyal, The Market Impacts of Pharmaceutical Product Patents in Developing
Countries: Evidence from India, NATIONAL BUREAU OF ECONOMIC RESEARCH (Cambridge, 2014).