Apart from mergers, there is growing evidence that drug companies are using the patent system to establish monopoly control. Often patents are filed for products or chemical substances or now even genes, whose attributes are not fully known, simply to pre-empt the competition and allow for monopoly rents once further research - possibly by others including public agencies - reveals the uses. As Chart 6 shows, the top ten filers of patents include 6 drug companies and two companies specialising in genetic research.

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Such monopoly allows drug companies to charge prices which are as high as they feel the market will bear, without reference to or well in excess of the actual costs of R&D that they may have borne. Thus there is wide variation in prices of the same drug charged not only by different companies but even by the same company in different markets. This is clear from Chart 5. The drug flucanazole, which is used both for AIDS treatment and for some forms of meningitis, is available at a substantially lower price in India and Thailand were generic substitutes are produced. But even Pfizer, which holds the patent, charges different prices in Kenya and South Africa.
 
This use of market segmentation to earn monopoly profits is obviously constrained by the possibility of undercutting by competitors producing generic substitutes. This probably underlies the ferocity of the response of Glaxo to sales of anti-AIDS drugs in Africa by Cipla. After all, the sales of the drug in Ghana are so small as to be negligible to Glaxo. However, one representative of the company argued that ".It's the precedent aspect... The companies are sensitive about a pattern starting to develop where countries use generics."
 
Indeed, this may be a real threat to the monopoly control of the drug companies. As Chart 7 shows, Glaxo's global sales of its HIV-AIDS drugs - which are huge money spinners for the company - declined somewhat in 1999-2000, possibly because of the availability of cheaper generic substitutes and the consequent compulsion to bring its own prices down to some extent.

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The Indian Patents Act, which allowed for only process patents in the pharmaceutical industry, has played a crucial role in allowing the development and production of generic substitutes through reverse engineering, and has been a basic reason for the dramatic growth of the industry. Not only have the number of units in the industry expanded greatly over three decades (as shown in Chart 8) but the production of both bulk drugs and formulations has been increasing at an impressive rate (Chart 9). Furthermore, exports have also been growing fast, as evident from Chart 10.

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This is because of the major price advantage that Indian companies are able to offer, both because of the ability to engage in reverse engineering and because of the more competitive nature of the domestic industry. This allows for very substantial differences in drug prices between India and other developing countries, even after deregulation which has raised drug prices in India over the past decade. Table 2 gives some indication of the vast variation in drug prices between India and Malaysia, where the patent laws did not allow for the emergence of a vibrant domestic drug industry and where there has been greater reliance on multinationals.

Table 2 >> Click to Enlarge
 
It is now much more widely recognised that there is no necessary correlation between socially desirable and necessary R&D in drug development, and a tight patent regime. Indeed, much of the major research in pharmaceuticals and medicine, both in the past and currently, is under the aegis of publicly funded institutions across the world. It is also worth noting that even in many western countries, pharmaceutical products remained unpatentable until the 1980s or even the 1990s, with no adverse implications for research.
 
It is therefore crucially important to retain the positive and progressive features of the existing Patents Act, and argue instead for a rethinking of the severity of the TRIPS agreement especially with respect to drugs and public health, now that the adverse implications are more widely known. Instead of rushing to amend our own Patents Act, the Indian government needs to push for a revision of the TRIPS agreement, for which there is already much developing country support. It is also important to support research into drug development which is much more relevant from the point of view of diseases more widely prevalent in countries like India, in which area the multinational drug companies have already shown themselves to be lacking.