In most developing countries, TRIPs standards became enforceable only a few months ago; therefore time is too short to have evidence about its implications. But the experience of countries which have adopted pharmaceutical patents in the past decade is relevant in this context. What happened to foreign direct investment (FDI), transfer of technology and (local) R&D? What happened to drug prices?
Several Latin American countries, such as Chili and the Andean countries changed their patent legislation in 1990/1991; pharmaceuticals became patentable.
With regard to FDI, the experience of countries such as Chili, Colombia and other Andean countries is that after the adoption of patent protection for drugs, FDI in the pharmaceutical sector has not increased, except through the acquisition of local companies by foreign companies. But there has been no new investment. In addition, a large number of formulation plants have been closed down. So after the introduction of the patents, many foreign companies have decided not to produce (or formulate) locally any more, but to import. As a result, there was no increase in FDI and the trade deficit in this area has increased substantially due to the substitution of local production by direct import.
With regard to the transfer of technology, unfortunately, the situation is not better. As mentioned, many local companies have been acquired by foreign companies; there is no clear increase in transfer of technology to local companies. In general, in the area of pharmaceuticals, there is little real transfer of technology. License agreements usually mean that the patent holder provides the active ingredient, not the technology for the production of the active ingredient, and the licensee is usually just formulating. Therefore it can be concluded that transfer of technology in this area was never very substantial, and has not increased.
Finally, there is no sign of any increase in pharmaceutical R&D in these countries, nor are there any clear prospects that R&D for diseases relevant to developing countries will increase in industrialized countries.
Italy has introduced patent protection for pharmaceuticals in 1978. At that time, Italy was a reasonably large producer of pharmaceutical products and an exporter with a trade surplus. A number of years after the introduction of these patents, prices for medicines in Italy had increased significantly, almost 200%, and Italy began to be a net importer of pharmaceutical products, going from a trade surplus in pharmaceuticals to a very severe trade deficit in this area.
The first patent law in Thailand was enacted in 1979, and excluded pharmaceuticals. It was revised in 1992; the essence of the revision was the inclusion of pharmaceutical product and process patents. A further revision, introducing petty patents and addressing the issue of parallel import, was enacted in March 1999.
A study7 to assess the impact of the introduction, in 1992, of patent protection for pharmaceuticals concluded that:
• technology transfer in the pharmaceutical sector has been minimal and has been limited to formulating techniques; no increase in technology transfer was seen after the enactment of the 1992 patent law;
• technology that could lead to R&D of new pharmaceutical products in Thailand is not likely to be transferred;
• since the enactment of the 1992 patent act, there has been an increased tendency to import drugs (compared to local production), indicating that foreign companies benefited more from change in patent law than local companies; the share of originator products as percentage of the total pharmaceutical market increased, on average by 4% per year;
• there has not been much foreign direct investment in the pharmaceutical sector since 1992;
• for products already on the market, the study did not reveal any price change, however, due to the selection of products (all selected drugs had competitors in the Thai market) and a variety of interfering factors, the question of the impact on drug prices is in fact not answered by the study.
7 WHO Collaborating Centre for Health Economics, Chulalongkorn University, Bangkok, Study of the Implications of the WTO TRIPs Agreement for the Pharmaceutical Industry in Thailand, 1999.