June 2009USI NDI ABusinessCouncilThe Value Of Incremental Pharmaceutical Innovation:Benets For Indian Patientsand Indian BusinessA Report Prepared for theUS-India Business CouncilWhite & Case LLPANDDUA ConsultingTABLE OF CONTENTSIntroduction..................................................2I.The Nature Of Incremental Pharmaceutical Innovation.......................3A. Radical vs. Incremental Innovation in the Pharmaceutical Industry...............3B. The Clinical Value of Incremental Pharmaceutical Innovation................... 6C. The Social and Economic Value of Incremental Pharmaceutical Innovation...........6II. The Benefits Of Incremental Pharmaceutical Innovation For India And The Need For Adequate Incentives................................ 7III.Incremental Pharmaceutical Innovation Under Section 3(d) Of The Indian Patents Act .... 9A. Background: Pharmaceutical Products Under Indias Patent Laws Prior to 2005........9B. Section 3(d): New Forms of Known Pharmaceutical Substances................ 10C. The Meaning of Efcacy..................................... 12D. Section 3(d) in International Context ............................... 13E. Implications of Section 3(d) for Incremental Pharmaceutical Innovation in India .......14IV.Reforming The Patents Act To Realize The Benefits Of IncrementalPharmaceutical Innovation ......................................16Conclusion.................................................. 18Endnotes................................................... 19Appendix................................................... 212 IThe Value of Incremental Pharmaceutical Innovation: Benefits For Indian Patients And Indian BusinessagenciesandroughlyUS$17billionof newretailprescriptiondrugspending between 1995 and 2000 in the US alone. Incrementalpharmaceuticalinnovations thus represent substantial annual revenue for pharmaceutical firms and an important return on R&D investment.9Notwithstandingthedemonstrablevalue of incremental pharmaceutical innovation, Indias present patent law does not promote or protect such innovation. Under Section 3(d)ofIndiasPatentsAct,incremental pharmaceuticalinnovationsincluding newformsofknownpharmaceutical substancesarenotpatentableunless theyresultinsignificantlyenhanced efficacyoftheactivesubstance.By limitinginthismannertheeligibilityof incrementalpharmaceuticalinnovations forpatenting,Section3(d)discourages R&D into such innovations, including new routesofadministration,newdosage forms,andotherinnovationsthatwould result in the development of drug products that are well-suited to the needs of Indian patients.Moreover,Section3(d)actsas adisincentiveforIndianpharmaceutical companies who might otherwise capitalize on the economic opportunities presented by incremental pharmaceutical innovations inIndiaandabroad.Section3(d)also discouragesforeigndirectinvestment into India that would substantially benefit theIndianeconomy.Indeed,despitethe increasingharmonizationofintellectual propertynorms,Indiastoodaloneasthe onlycountryintheworldtoexcludethe fullrangeofincrementalpharmaceutical innovationsfrompatenteligibilitywhenit adopted Section 3(d) in 2005.10ThechiefrationaleforSection3(d)is theconcernthatpatentprotectionfor incrementalpharmaceuticalinnovations willencouragepatentevergreening, or,theattempttocircumventpatent expirationonadrugproductby seekingadditionalpatentcoveragefor modifications of the product. Supporters ofSection3(d)arguethatpatent evergreeningpreventsinexpensive as4.8%by2004.By2006,Indias threelargestpharmaceuticalfirms Dr.Reddys,SunPharmaceuticals,and Ranbaxywere investing approximately 1218%oftheirannualsalesrevenue inR&D,alevelcomparabletoleading globalinnovatorfirmssuchasPfizer andGlaxoSmithKline.5Toprotecttheir innovations, Indian pharmaceutical firms beganfilinganincreasingnumberof patentapplicationsinIndiaandabroad directedatnewdrugdiscoveries,6 newdrugdeliverysystems,andnovel manufacturingprocesses,amongother innovations.Animportantimpetusfor this increase in innovative pharmaceutical activity was provided by the amendment of Indias patent law in 2005 to permit the patentingofpharmaceuticalproducts, whichsince1970hadbeenprotected onlythroughmethodorprocess patents.Thisparadigm-shiftinIndias intellectualpropertypolicyprovideda crucial incentive for Indian companies to engage in new drug R&D and reinforced the emergence of a vibrant and dynamic research-basedsectorwithinthe domestic pharmaceutical industry.AsubstantialbottlenecktoIndia becomingamajorsourceofglobal innovation,however,remainsitspolicy towardsincrementalpharmaceutical innovation.Amongotherthings, incrementalpharmaceuticalinnovations involvethediscoveryofnewformsand usesofexistingchemicalcompounds orsubstances,whichleadtothe developmentofsafer,moreefficacious andmoreusefuldrugsthatarebetter-suitedtoparticularpatientprofilesor needsandresultinimprovedpatient compliance and greater overall well-being.7 Incrementalpharmaceuticalinnovations alsoprovidethebasisforthediscovery ofbreakthroughdrugs,asthousandsof smallerincrementalinnovationslaythe foundationuponwhichblockbuster drugsarediscovered.8Inaddition,in recentyears,incrementalpharmaceutical innovations have accounted for as much as 65% of new drug approvals by regulatory INTRODUCTIONIndiaisfastemergingasamajorglobal hub of innovation. Since it embarked on a periodofeconomicliberalizationin1991, Indiahasexperienceddramaticgrowth ingrossdomesticproduct(GDP), achievingannualGDPgrowthratesas highas9.6%by2006-7.1Thissustained economicgrowthhasbeendueinpart toasubstantialincreaseindomestic investmentinresearchanddevelopment (R&D), which grew seven-fold between 1991and20042andledtopronounced innovativeactivityacrossabroadrange offields,includingbiotechnology, pharmaceuticals,automotiveparts andassembly,aerospacetechnology, informationtechnologyandsoftware. Theresulthasbeenthedevelopmentof new,high-qualityproductsandservices andthetappingofnewmarketsthrough innovative, low-cost delivery mechanisms. Indiasexportshave,moreover,risen steadilysince1991,reachinganannual growthrateof16%by2007,indicating thatIndiancompaniesarecompeting successfullyontheglobalstage,aided bysuchadvancesininnovation.3By fuelingIndiasmassiveeconomic growth,innovationhascontributedto the expansion of Indias middle class and decliningpovertylevels,andhasthus beenakeydriverofIndiasrecentsocial and economic transformation.Recent changes in Indias pharmaceutical sectorhavebeenemblematicofIndias transitionfromanimitatortoan innovatornation.Untilthe1990s,the domestic Indian pharmaceutical industry wascharacterizedbyastronggeneric sector,butlittleinvestmentinnew drugdevelopment.R&Dinvestment byIndianpharmaceuticalcompanies wascorrespondinglyverylow,and typically focused on reverse engineering andnovelprocessdevelopment. Beginningintheearly1990s,however, pharmaceuticalR&Dasapercentage ofsalesjumpedfrom0.4%toasmuch 3Despitethetendencytothinkof radicalandincrementalinnovationas twofundamentallydifferenttypesof innovation, it is important to recognize that theyareofteninterrelatedanddepend ononeother.Radicalinnovationsoften result from many, smaller improvements carriedoutbydifferentindividualsand organizationsovertime.Forinstance, electriclightaparadigmaticradical innovationwastheproductofan attempt to provide a form of lighting that improved on existing methods for lighting the home, gas light (which constituted a firehazardindomesticsettings)and electric arc-light (which was too dazzling fordomesticuseandsufferedfrom controlandmaintenanceproblems). Subsequent,incrementalmodifications of an original innovative product, process orsystemmay,moreover,havevastly greatereconomicorsocialimportance thantheoriginalproduct.Forexample, itwasnotuntilincrementaladvancesin breakthrough microcomputer technology ledtothepersonalcomputerrevolution inthe1980sandbeyondthatthesocial and economic implications of the original inventionbegantoberealized.Indeed, theUSNationalResearchCouncilhas recognized that [t]he cumulative effect of numerous minor incremental innovations cansometimesbemoretransformative andhavemoreeconomicimpactthana fewradicalinnovationsortechnological breakthroughs.11Incrementalinnovationhasbeenan importantsourceofIndiasrecent economic growth and the recent success of Indian companies. A study of the role ofinnovationintheIndianeconomy carriedoutbytheNationalKnowledge Commission(NKC)in2007,which involvedextensiveinterviewsof representativesofpharmaceuticaland other companies, determined that while 37.3%ofIndiancompanieshave introducedbreakthroughinnovationsin recent years, no fewer than 76.4% have introduced incremental innovations. The genericversionsofapatentedproduct fromenteringthemarket,whichinturn keepsdrugpriceselevatedandreduces accesstomedicinebyIndianpatients. Asdiscussedbelow,however,concerns regardingpatentevergreeningaremore effectivelyaddressedthroughrigorous applicationoftheexistingpatentability requirementsinIndianlawi.e.,the requirementsofnovelty,inventivestep, andindustrialapplicationthanthrough thewholesaleexclusionofanentire categoryofpharmaceuticalinventions from patent eligibility. Moreover, contrary totheprevailingview,apatentsystem thatcreatesincentivesforincremental innovation can in fact lead to decreases in costs and increased access to medicines by, for example, reducing overall treatment costs, reducing hospitalization and worker absenteeism,andreducingdrugprices due to increased price competition. Such asystemcan,therefore,improveoverall qualityoflifeinIndia.Byencouraging investment into domestic pharmaceutical researchandskilldevelopment,such asystemcanalsoplayanimportant roleinfosteringIndiasemergenceas amajorpharmaceuticalproducerand thetransformationofIndiancompanies intomajorpowerhousesintheglobal pharmaceutical industry.In what follows, we outline these and other benefitsofincrementalpharmaceutical innovationtoIndianpatientsandIndian businesses and suggest reform of Indians patentlawtoenableIndianpatientsand Indian pharmaceutical companies to realize thefullextentofthesebenefits.Among othersources,wedrawuponstudiesof the impact of incremental pharmaceutical innovationsontheeconomiesof developed and developing nations as well as current case law in India regarding the scopeandapplicationofSection3(d).In addition,ouranalysisreflectstheresults of interviews of key stakeholders directly orindirectlyassociatedwiththeIndian pharmaceuticalsector,includingpolicy formulators;academicsandresearchers; NGOs,pressuregroupsandcivilsociety groups; Indian pharmaceutical companies; and subject-matter experts such as patent attorneys, scientists, and journalists.I.THE NATURE OF INCREMENTAL PHARMACEUTICAL INNOVATIONA. Radical vs. Incremental Innovation in the Pharmaceutical IndustryInnovationthedevelopmentofnew ideas,methods,orproductsis commonlydividedintoradical andincrementalvariants.Aradical innovationmaybeunderstoodasanew product,processorsystemthatresults fromatechnologicalbreakthrough,or theapplicationofatechnologyhavinga far-reachingimpact.Theadventofthe cellular telephone is a recent example of a radical innovation. Incremental innovation, ontheotherhand,involvestechnical modificationsofanexistingproduct, processorsystemthatresultsinsome improvementorenhancementthereto. The development of cell phones that are capable of taking photographs is thus an exampleofanincrementalinnovation, whichresultedfromtheincremental combination and modification of existing technologyintwopreviouslydiscrete industrial fields.In 2005, India stood alone as the only country to exclude the full range of incremental pharmaceutical innovations from patent protection.4 IThe Value of Incremental Pharmaceutical Innovation: Benefits For Indian Patients And Indian BusinessItisnotuncommonfordrugsbasedon incrementalpharmaceuticalinnovations tobedisparagedanddismissedas me-too drugs that provide little, if any, addedvalueoverexistingdrugs. However, a study conducted in 2007 of themedicinesontheWorldHealth Organizations(WHO)EssentialDrug List found that over 60% of the drugs on the list reflect incremental improvements of older drugs.12 Notably, the criteria for inclusiononWHOslistofessential drugsincludesevidenceofefficacy and safety, as well as disease prevalence andcomparativecost-effectivenessof drugs.13Indeed,therearecountlessexamplesof incrementalpharmaceuticalinnovations acrossdifferentdrugclasses andtreatmentcategoriesincluding antihistamines, beta-blockers, non-steroid anti-inflammatorydrugs,diabeticdrugs, anti-psychotics,treatmentsforhepatitis C,rheumatoidarthritistreatments,and oralcontraceptives,amongothers whichdemonstratethepotentialclinical andsocialandeconomicvalueof suchinnovations.14Thefollowingarejust a few instructive examples:Controlled-releasedrugdeliverynsystemusingmicrospheres.This innovationinvolvesthenoveluseof glass-like microspheres made of sugar forthecontrolled-releaseofknown drugs and vaccines. The microspheres areformedfromsugarssuspendedin non-water containing liquids, which are dissolvedandreleasetheactivedrug very slowly over a considerable period of time. Among other advantages, the microspheresarecapableofsurviving temperaturesashighas55Celsius formonths,unlikenormalvaccines. Forexample,incrementalinnovationhas playedanimportantroleinimproving treatmentsfordiabetespatients.Dueto peaksandtroughsininsulinlevels, diabetics must be cautious in the timing of insulinadministration.Short-andlong-acting formulations have been developed that offer diabetic patients greater flexibility in their treatment schedules. The onset of action for short-acting insulin analogs can be as little as 15 minutes, compared with the 30 45 minutes of lead time required for regular insulin. At the other end of the spectrum, long-acting insulin analogs offer 24-hour peakless levels, thereby requiring onlyonce-dailyinjectionsbythepatient. These analogs, developed by substituting specificaminoacidsinregularinsulin, significantlyimprovethepatientsquality of life, offering enhanced flexibility in their dailyroutinesand/orfreedomfrom multipleinjections.Similarly,the discomfort and health hazards associated with injection-based treatments, including injection-siteinfectionsanddifficultiesin administeringfrequentinjectionsto childrenandthefrailandelderly,has recentlyspurredinterestinthe developmentoforalandinhalable formulationsofinsulin.Theseare incrementaladvancesininsulin formulationsthatwouldgreatlyimprove the quality of life of diabetics everywhere and would be especially valued in regions wheretheincidenceofdiabetesishigh, such as the Indian subcontinent.NKC further found that more than half of theinnovationintroducedbylarge companies in India that is new to world (i.e., that has never before appeared in any market) has been incremental in nature.Likeinnovationinotherfields, pharmaceutical innovation has both radical andincrementaldimensions.Radical pharmaceuticalinnovationinvolvesthe oftengroundbreakingdiscoveryofnew molecules,andtypicallyresultsinthe creationofnewdrugclasses,or, groupingsofdrugsonthebasisofa mechanismofaction.Incremental pharmaceuticalinnovation,ontheother hand,typicallyinvolvesmodificationand improvementofexistingdrugs,resulting inagreaternumberofdrugswithina given drug class. While the breakthrough discoveryofpenicillinisanexampleofa radicalpharmaceuticalinnovationthat gave rise to powerful new treatments for bacterial diseases and initiated a new field ofpharmaceuticalresearchfocusingon antibiotics,theincrementaldiscoveryof antibiotics derived from penicillin, such as ampicillin,whichofferedagreater spectrumofactivitythantheoriginal penicillins,orotherantibioticsthatare effective against types of bacteria that are resistanttootherformsofpenicillin, representincrementalinnovationsthat havehadpowerfulimplicationsforthe treatmentofdisease.Incremental innovations in the pharmaceutical industry alsocommonlyappearasnewdosing formulations, e.g., once-daily formulations, ornewdeliverysystems,e.g.,time-release delivery, for existing drugs, which canreducetoxicityandside-effectsand otherwise improve the effectiveness and/or convenience of such drugs.The National Knowledge Commission determined that while 37.3% of Indian companies introduced breakthrough innovations in recent years, no fewer than 76.4% introduced incremental innovations. 60% of the drugs on the World Health Organizations Essential Drug List reflect incremental improvements of older drugs. 5inwhichtheactiveingredientis releasedfromtwolayers.Thefirst releasesciprofloxacinintotheblood withinhours.Thisisfollowedby asecondextendedreleaseofthe activeingredienttoallowsustained levelsovertwenty-fourhours.The novel formulation is more convenient forpatientsandresultsingreater patient compliance.18H2-receptorantagonists. n The developmentofH2-receptor antagonists(H2RA)forthe treatmentofpepticulcerdisease, gastroesophageal-refluxdisease, dyspepsiaandothergastric conditions demonstrates successive wavesofincrementalinnovation leadingtoabreakthroughdrug.In the1960s,itwasdiscoveredthat histaminestimulatesthesecretion ofstomachacid.Afterextensive experimentation,itwasdiscovered thatburimamidewasanH2RA; however, it was insufficiently potent fororaladministration.Further modificationofburimamideleadto thedevelopmentofmetiamide, whichwaseffectivebutalso associatedwithtoxicityandside-effects.Furthermodifications resultedinthediscoveryof cimetidine,whichbecamethefirst commercializedH2RA.Further modificationofcimetidineleadto thedevelopmentofranitidine (commercialized in the US as Zantac), whichhadfeweradversedrug reactions,longer-lastingaction,and ten times the action of cimetidine.19These examples indicate that incremental pharmaceuticalinnovationcanimprove theusefulnessandeffectivenessof existingdrugproductsandresultin lessexpensiveandmoreaccessible treatments.Assuch,incremental pharmaceutical innovation has important clinical and social and economic benefits, which we discuss below.when researchers discovered that the compound sulfonylurea obtained from the antibiotics induced hypoglycemia, orlowbloodsugar,inexperimental animals.Thesecondgenerationof sulfonylureasweredevelopedby changingthechemicalstructure oftheside-chains.Modifyingthe side-chainsdidnotalterthebasic efficacybutsignificantlyenhanced theselectivebindingofthese second-generationsulfonylurea drugstothepancreaticcells,which in turn resulted in greater potency at lowerdrugdoses.Further,theside-chainmodificationofthesecond-generationsulfonylureasreduced drug-druginteractionsandthereby loweredtheincidenceofadverse events,whichconferredsignificant benefitsonpatientsreceivingmulti-drugtherapy.Asaresultoftheir improved potency and safety profiles, second-generation sulfonylureas have been adopted widely throughout the world,includingIndia,asthedrug ofchoiceinthiscategoryofanti-diabetic agents.Cephalosporinantibiotics. n The developmentofcephalosporin antibioticsdemonstratesclearlythe beneficialpotentialofincremental innovation.Thefirstgenerationof cephalosporinswasdeveloped inthe1960sinordertorespond totheemergenceofantibiotic-resistant bacterial strains. Successive generations of cephalosporins, arrived at through incremental modification of thebasiccephalosporincompound, areeffectiveagainstdifferenttypes ofbacteriatodifferentdegreesand indifferentdosageforms.These differencesenableaphysicianto calibratetreatmenttotheneeds andcircumstancesoftheindividual patient and the underlying disease.17Once-dailyciproflaxin. n Ciproflaxin isabroadspectrumantibiotic. Aonce-a-dayformulationof ciproflaxinwasrecentlydeveloped Inaddition,themicrospheresmay beusedsimultaneouslyformultiple vaccines,makingpossibleinjection ofseveralvaccinesatonce.Ithas beenestimatedthatthisinnovation couldsaveuptoUS$300millionper yearinglobalvaccinecostssimplyby eliminatingtheneedforrefrigeration. Moreover,theabilitytosurvive extremeheatconditionscouldenable morechildreninremotetropicalareas toobtainvaccinationswhereuseof normal vaccines might previously have been difficult.15Al ternativesal tformsnofpyro loquinolinesand benzoquinolizines.In1983, patentswereissuedrelatingto theseantibacterialcompounds, whichweredescribedaseffective againstbacteriathatwereresistant to conventional antibiotics. However, thepatentedactivesubstances hadthedisadvantageofhaving undesirablesolubilitycharacteristics inaqueoussolutions,whichmade itdifficulttoformulateadrugin tabletorcapsuleformorinmaking injectableformulations.Itwaslater discovered that certain salt forms of theoriginalactivesubstanceshave greaterstabilitycharacteristicsover thepriorknownsubstanceinthe presenceofhighhumidityclimates suchasthoseprevalentinIndia, aswellasmorefavorabletoxicity values,amongotherbenefits. SeveralUSpatentshavebeen issueddirectedtothesevaluable incremental innovations, which have self-evidentpublichealthbenefits inIndiaandothersub-tropical developing nations.16Sulfonylurea anti-diabetic agents n . Sulfonylureasarekeymedicationsin the treatment of diabetes and act by binding to ion channels on pancreatic cells, thereby stimulating the secretion ofinsulin.Thefirstgenerationof thesedrugswasdevelopedby modifyingsulfonamideantibiotics 6 IThe Value of Incremental Pharmaceutical Innovation: Benefits For Indian Patients And Indian Businessforms of a drug.26 Having an array of drugs withinagivenclass,eachwithdifferent drug-druginteractions,adverse-effect profiles,adversedrugreactions,and dosingschedules,allowsaphysician tocalibratetheirprescriptiontothe responsiveness and needs of an individual patient.27Multipledrugswithinagiven therapeuticclassalsoprovideimportant back-upincaseadrugistakenoffthe marketdueto,e.g.,unacceptableside-effects.28C. The Social and Economic Value of Incremental Pharmaceutical InnovationInadditiontotheclinicalbenefits discussedabove,incremental pharmaceutical innovation has important socialandeconomicbenefits.These includeincreasedresourcesfornew drugdiscovery,reducedhealthcareand othersocialcostsandincreaseddrug price competition.29Accordingtoseveralestimates,the current cost of developing a breakthrough drug from discovery to market today may beasmuchasUSUS$1billion,ifnot more.30Moreover,thisfigurehasbeen increasingasaresultofincreasinginput costsassociatedwithclinicaltrialsand otherR&Dexpenditures.31Newdrug developmentisthusextremelycostly;it is also highly risky, given that a drug that has been in development for several years mayprovetobeunsafeorotherwise failtoobtainregulatoryapproval. Commercializationofdrugproducts based on incremental innovation provides thepharmaceuticalindustrywithcrucial revenuetosupportnewdrugdiscovery programsandmitigatetherisksofnew drug development. According to one study, the number of drug products approved by theUSFoodandDrugAdministration (FDA)between1989and2000based onnewusesornewformsofknown substancescomprisedapproximately 65% of all drug products approved by the FDA during that period.32 Indeed, patents notedabove,over60%ofthedrugson theWHOslistofessentialmedicines reflectincrementalimprovementsof older drugs.Increasedeffectivenessoftenisthe resultofincrementaladvancesindose delivery systems and dosage forms, such astransdermaldeliveryandextended releaseformulations,whichcanoptimize therateofabsorptionofamoleculeand therebymaximizeitstherapeuticeffect, while reducing toxicity and side-effects.23 Advancesindosedeliverysystems anddosageformsmayalsoresultin moreconvenientdosingschedules, whichimprovepatientcompliance andthus,indirectly,therapeuticvalue. Reformulations of existing drugs may also result in new applications for such drugs, whichwouldextendtheirusefulness. Forexample,thereformulationofthe corticosteroidbudesonide,anasthma drug,intoaninhalationsuspension enabledthedevel opmentofanasthma treatmentforchildren.Priortothis advancement, no inhalers were available for children with asthma.24Byincreasingthenumberofdrugsthat existwithinagivenclass,incremental innovationsmayresultingreaterdrug selectivity.Itisknownthatdifferent people react differently to the same drug. Indeed, for some drug classes, response ratestoindividualdrugsmaybeaslow as50%.25Thisistrue,forexample,of selectiveserotoninre-uptakeinhibitors and non-steroid anti-inflammatory agents. Pharmaco-genomicstudiesshowthat geneticfactorsplayanimportantrole indeterminingtheefficacyofanygiven drug.Thus,differentpopulationsmay havevaryingresponsivenesstodifferent B. The Clinical Value of Incremental Pharmaceutical InnovationIncrementalpharmaceuticalinnovation canhavethefollowingclinicalbenefits: increasedeffectiveness,extended usefulness, and greater selectivity.20Incrementalpharmaceuticalinnovations frequentlyresultinincreased effectivenessoverpriorknowndrug products.Breakthroughdrugsoften exhibitside-effectsandotherlimitations thatleadtotheirreplacementbymore effective,incrementallyimproved versions.Between1960and2003, approximately one third of all drugs based onincrementaladvancesapprovedby theU.S.FoodandDrugAdministration (FDA)includingnewformulations, newcombinationsofactiveingredients, andnewsaltsorestersofapproved compoundsreceived a priority rating fromtheFDA,whichindicatesthat suchdrugsdemonstratedsignificant improvementoverexistingdrugsin oneormoreofthefollowingways:(1) evidenceofincreasedeffectivenessin the diagnosis, treatment or prevention of adisease;(2)eliminationorsubstantial reductionofatreatment-limitingdrug reaction;(3)documentedenhancement of patient compliance; or (4) evidence of safety and effectiveness for a new patient subpopulation.21 This number, moreover, likely underestimates the extent to which the original breakthrough drug is not the best-in-class drug, as the FDA is unlikely toissueapriorityratingforarelatively modestimprovementinanexisting chemicalorpharmacologicalclass.22As New drug products based on incremental pharmaceutical innovations accounted forabout $17 billion or about 38% of all newspending in the retail prescription drug market.7introduced between 1995 and 1999 were launchedatadiscountovertheprice leaderand65%werediscountedfrom the average price for the class of drugs as awhole.Onaverage,incrementaldrugs wereintroducedata26%discountover the price leader and a 14% discount relative totheclassaverage.39Thedatafurther suggests that the price-constraining effect ofincrementalinnovationondrugprices islikelytobegreaterinmarketswhere price-competition is generally stronger.40Finally,byexpandingthenumberand diversity of drug products on the market, incrementalpharmaceuticalinnovation alsobenefitsthegenericindustryas itmakesavailableagreaterrangeof productsforpotentialgenericmarketing onceapplicablepatentprotection,ifany, has expired.II.THE BENEFITS OF INCREMENTAL PHARMACEUTICAL INNOVATION FORINDIAAND THE NEED FOR ADEQUATE INCENTIVESTheprecedingdiscussionofthe clinical,socialandeconomicbenefitsof incrementalpharmaceuticalinnovation suggeststhatsuchinnovationcanhave importantadvantagesforIndianpatients and Indian businesses.class.36Assuch,drugdevelopmentis best understood as development races betweenpharmaceuticalcompaniesas opposedtoafter-the-factimitationof provendrugs.37Newmoleculediscovery and incremental pharmaceutical innovation thus increasingly occur in tandem.Incrementalpharmaceuticalinnovations haveseveralotherimportantsocial andeconomicbenefits,includingthe reductionofhealthcareandothersocial andeconomiccosts.Attheindividual patientlevel,incrementalpharmaceutical advancescanreduceoveralltreatment costsbyincreasingdrugbioavailability andreducingthedosingfrequency. Incrementaladvancesimprovepatient compliancebyreducingside-effectsand toxicityandcreatingmoreconvenient formulations, which in turn reduces costs associatedwithextendedtreatment schedules.Inaddition,moreeffective treatmentoptionsandimprovedpatient compliancecanresultintheneedfor fewer hospital stays or physician visits.Atthemacrolevel,incremental pharmaceuticalinnovationscanreduce employeeabsenteeismandmitigatethe impactofillnessonlaborproductivity.38 Incrementalpharmaceuticalinnovation canalsoincreasecompetitionwithin thepharmaceuticalindustryandreduce drug prices. One study of the US market demonstratedthatasmuchas80%of new drugs based on incremental advances onnewmoleculesrepresentonly10% ofthetotalnumberofpharmaceutical patentsissuedannually.33Between1995 and2000,newdrugproductsbasedon incrementalinnovationsaccountedfor approximatelyUS$17billionofnewretail prescriptiondrugspendingintheUnited States,orapproximately38%ofallnew spendingintheretailprescriptiondrug market.34 Commercialization of incremental pharmaceuticalinnovationsthuscan generate revenue that can help research-basedpharmaceuticalcompaniesfund thehighcostofnewdrugdevelopment. InvestmentinincrementalR&Dcanalso haveaspillovereffectinthatR&D undertakenwithrespecttoincremental pharmaceuticalinnovationmayresultin efficiencies with respect to new molecule discovery, and vice versa.35Recent studies of the economics of drug development confirm the interrelatedness ofbreakthroughandincremental innovation.Onerecentstudydetermined thattheaveragelengthoftimefroma new drug approval to the launch of drugs based on incremental innovation has fallen dramatically, from 10.2 years in the 1970s to 1.2 years in the late 1990s, and that the majorityofincrementaldrugscreatedin the1990swereinclinicaldevelopment priortotheapprovalofthebreakthrough drug.Thestudyconcludesthat,asa practicalmatter,thedistinctionbetween breakthrough drugs and incremental drugs maybemeaningless,astheprevailing drugdevelopmentparadigmisonein whichanumberoffirmswillpursue investigational drugs with similar chemical structuresofthesamemechanismof action before any drug in the class obtains regulatorymarketingapproval.Oneof thedrugswillwintherace,andthenbe viewedasthebreakthroughdrugforthe About 65% of all drug products approved by the FDA between 1989 and 2000 were based on new usersor new forms of known substances.As much as 80% of new drugs based on incremental advances introduced between 1995 and 1999 were launched at a discount over the price leader and at a 26% discount.8 IThe Value of Incremental Pharmaceutical Innovation: Benefits For Indian Patients And Indian BusinesssubstantialshareofthismarketpotentiallyasmuchasUS$7billion. Assuch,incrementalpharmaceutical innovation can be an important source of revenueforIndiancompaniesandakey stepping stone for Indian pharmaceutical companiestobebecomeleadersinthe discovery of new compounds.Fifth,incrementalinnovationcanhelp reduce healthcare and other social costs inIndiabyimprovingthequalityand selectionofdrugproductsandthereby reducingdemandsonscarceresources resultingfromextendedhospitalstays andfrequentdoctorsofficevisitsand diminished productivity due to illness and worker absenteeism.Sixth,incrementalpharmaceutical innovationcanincreasedrugprice competitioninIndia,especiallygiventhe highlycompetitivenatureoftheIndian pharmaceuticalmarket,andthusreduce priceandincreaseaccesstomedicine. Incrementalinnovationcouldalsobenefit theIndiangenericindustryasmore products would be potentially available for generic marketing.Torealizetheseandotherbenefits, however,Indianpharmaceutical companiesmustbewillingtoengagein incrementalpharmaceuticalinnovation inthefirstplace.Thereisageneral perceptionthatincrementalinnovations are based on easy or trivial modifications ofexistinginventionsandthatthey involve no real risk or effort to develop.42 Fromtheirsheeringenuityalone,the examplesofincrementalinnovation discussedabovesuggestthatthisis notthecase.Economicanalyses confirmthatincrementalpharmaceutical innovationinvolvesconsiderable investmentoftimeandmoney.One studyofthecostofdevelopingnew drugsestimatesthatR&Dassociated with improvements and modifications of adrugconstitutemorethan25%ofall out-of-pocketR&DexpendituresofUS First,incrementalpharmaceutical innovationcanimprovethequalityof drugproductsinIndia.Forexample, incrementalinnovationcanresult informulationsanddrugdelivery systemsthatarebettersuitedtoIndias climate,suchasthoseinvolvingthe useofmicrospheresinvaccines orsaltformsofpyroloquinolinesand benzoquinolizines,whichmaintain stability under high humidity.Second,incrementalpharmaceutical innovationcanpotentiallyleadtothe developmentoftreatmentsfordiseases prevalentinIndia,suchastuberculosis, malariaandothertropicaldiseases,for whichnewdrugdiscoveryiscurrently limitedorotherwiseinadequate,based on the investigation of new forms or new uses of known substances.Third,byincreasingthetreatment optionswithinagiventherapeutic class,incrementalpharmaceutical innovationwouldincreasethelikelihood that,foreverytherapeuticclass,there willbeatreatmenttowhichanIndian patient will respond.Fourth,engaginginincrementally innovativeactivitycanenableIndian pharmaceuticalcompaniestodevelop theirinnovationexpertiseandtobenefit from R&D spillover effects and synergies astheymoveincreasinglyintothe discovery of new compounds. Moreover, thecommercializationofincremental innovationsbyIndianpharmaceutical companies will provide revenue that can helpfundthedevelopmentofresearch labs devoted to new compound discovery andfurtherincrementalinnovation. Asnoted,drugproductsbasedon incrementalinnovationsaccountforas muchasone-thirdoftheretailmarket fornewdrugsintheUnitedStates.The Indian pharmaceutical market is expected tobeworthasmuchasUS$20billion by2015.41Incrementalpharmaceutical innovationscouldthusaccountfora Some Of The Benefits Of Incremental Pharmaceutical Innovation For IndiaImproved quality of drugnproducts in India, including products that are better suited to Indias climate.Development of treatments nfor diseases that are prevalent in India for which new drug discovery is currently limited or otherwise inadequate.Increasing likelihood that nfor every therapeutic class, there is a treatment to which an Indian patientwill respond.Development of the R&D ncapacity and expertise of Indian pharmaceutical companies.Reduction of healthcare nand other social costs in India through improved drug quality and selection.Increased access to nmedicine as a result of price competition.9numberofdrugmanufacturingfacilities grew from 2,257 in 1970 to over 23,000 in2005.46ThePatentsActof1970 providedlittleincentive,however,for pharmaceuticalcompaniesinIndiato performoriginalresearchanddevelop newdrugs.Between1970andthe 1990s, Indian pharmaceutical companies spent on average less than 0.2% of their salesonresearchanddevelopment.47 Much of this investment was, moreover, directedlargelyatreverse-engineering ratherthannewproductdevelopment. Nor did Indian pharmaceutical companies file patent applications during this period, eitherinIndiaorabroad.Asaresultof thechangesbroughtbythe1970Act, thenumberofpatentsgrantedperyear fellbythree-quartersoverthefollowing decade, from 3,923 in 1970-71 to 1,109 in 1980-81. Between 1980 and 1984, Indian inventors accounted for only 0.09% of all pharmaceutical patents issued by the US Patent Office.48In1995,Indiabecameafounding memberoftheWTOandapartyto theWTOsTrade-RelatedAspectsof IntellectualPropertyRights(TRIPS) Agreement.Amongotherthings,the termsoftheTRIPSAgreementrequired Indiatoprovidepatentprotectionfor pharmaceuticalproductsbyJanuary 2005.Indiapurportedtocomplywith thisandotherTRIPSobligationsthrough anumberofpatentlawamendments culminating in the passage of the Patents (Amendment)Act,2005onApril5, 2005,withretrospectiveeffectfrom January 1, 2005.Amongotherimpactofthe2005 amendments, the number of patent filings inIndiaforpharmaceuticalproductshas increasedsteadily.Thetotalnumberof patentsgrantedinIndiajumpedfrom 1,911in200405to4,320in2005 06,withthenumberofpatentsissued toIndianresidentsincreasingbynearly 100%.49Since2005,roughly33%of A. Background:Pharmaceutical Products Under Indias Patent Laws Prior to 2005India enacted its first patent law in 1856 whilestillunderBritishrule.Though itwasamendedseveraltimesduring thecolonialperiod,Indiaspatentlaw consistently provided for the patenting of pharmaceuticalproducts.Aftergaining Independencein1947,however,India undertookasystematicreviewofits patentlawaimedatdevelopingits domestic pharmaceutical industry, which culminatedinthePatentsActof1970. The1970Act,whichcameintoeffect in1972,limitedpatentrightsinseveral importantways.Mostimportantly,the 1970Actprecludedthepatentingof pharmaceuticalproductstheAct providedthatforinventionsrelating tofood,medicine,drugsorchemical substances,onlypatentsrelatingtothe methodsorprocessofmanufactureof such substances could be obtained. The 1970Actalsopermittedanapplicantto patentnomorethanasingleprocess formakingapharmaceuticalproduct andreducedthetermforsuchprocess patentsfrom14yearstotheshorter offiveyearsfromthedateofpatent approval or seven years from the date of application.Inaddition,thePatentsAct providedforbroadcompulsorylicensing ofpharmaceuticalprocesspatents startingfromthreeyearsafterthedate of issuance with payment of a royalty.Withpatentprotectionstillavailable formethodsofmakingpharmaceutical products,underthe1970Act,alarge genericpharmaceuticalindustry emergedinIndia,whichdeveloped theabilitytoreverse- engineer pharmaceuticals developed and patented outsideofIndiaanddesignnew processesforproducingsuchdrugs. Underthisnewpatentregime,the pharmaceutical companieson average, US$140millionoutofUS$540million.43 Anotherstudyestimatesthat30%of USindustryR&Dspendingisdevoted tonewormodifiedusesforexisting products.44Athirdestimateproposes thatR&Dexpenditureassociatedwith incrementalpharmaceuticalinnovation canbeestimatedatbetween25% and50%oftheR&Dexpendedon newdrugdiscovery.45Asinthecase ofnewcompoundresearch,the continueddevelopmentofincremental innovationsinthepharmaceutical industryrequiresadequateincentives for companies to undertake the required levelsofinvestmentandrisk.Aswe shallseebelow,Indiaspatentlaw regardingincrementalpharmaceutical innovation provides little, if any, incentives forIndiancompaniestoundertakesuch effort and investment.III.INCREMENTAL PHARMACEUTICAL INNOVATION UNDER SECTION 3(d) OF THE INDIAN PATENTS ACTIndiaspatentlawrecentlyunderwent amajortransformationresultingfrom IndiasmembershipintheWorldTrade Organization(WTO).Amongother things,thisresultedintheestab lishment ofpatentprotectionforpharmaceutical products.Whilethishasplayedand willcontinuetoplayanimportantrole infacilitatingIndiasemergenceasa globalinnovator,Indiasreluctance toprovidepatentprotectionfor incrementalpharmaceuticalinno vation deprivesIndiaofthefullbenefits ofsuchinnovationdiscussedabove andthreatenstoholdIndiabackfrom continued economic expansion.10 IThe Value of Incremental Pharmaceutical Innovation: Benefits For Indian Patients And Indian BusinessthatboththeIndianpatentofficeand Indian courts take the view that efficacy istobeunderstoodnarrowlytomean therapeutic efficicacy.AtthetimetheIndiangovernmentwas preparingtoimplementitsobligations under TRIPS, opponents of pharmaceutical product patents argued that product patents wouldreduceaccesstolife-savingdrugs andwouldpermitpatentevergreening. ShriSureshKurupexpressedthisview duringtheparliamentarydebatesinthe Lok Sabha:SHRI SURESH, KURUP (Kottayam): Respected Deputy-Speaker, Sir, ever sincethisPatents(Amendment) Ordinancewaspromulgated, widespreadapprehensionswere expressedbygroupsconcernedin Indiaandalsooutsidethecountry about the provisions of the Bill. The concernwasduetothefactthat itwillpreventthecommonmanin ourcountryandalsooftheother developingandleastdeveloped countrieshavingaccesstothelife-saving medicines.***Onemajorareawhereallofus haveraisedourcriticismwasthe provisionwhichhelpsthepatent holdermultinationalcompanies forevergreeningofpatents.Sir,a companywhichobtainsapatent by changing their chemicals, before theexpiryofthepatent,theywill againapplyforapatentandagain getapatent.So,inthisway,they will continue to get a patent for the same medicine.57ProponentsofSection3(d)arguedthat thesectionwasnecessarytoprevent patentevergreeningandtopreventthe escalation of Indian drug prices.subjectmatterthatiscontrarytopublic morals;mathematicalmethodsand scientifictheories;plantsandanimals;a methodofagriculture;andamethodof medical treatment.54Section 3(d) of the 2005 Act added to the list of non-patentable subject matter new forms and new uses of known substances. Specifically, Section 3(d) provides that the following is not patentable:[T]hemerediscoveryofanew formofaknownsubstancewhich does not result in the enhancement oftheknownefficacyofthat substanceorthemerediscovery ofanynewpropertyornewuse foraknownsubstanceorofthe mereuseofaknownprocess, machineorapparatusunlesssuch knownprocessresultsinanew productoremploysatleaseone new reactant.55TheExplanationaccompanyingthis provisionindicatesthatSection3(d)s exclusionfrompatentablesubjectmatter is meant to apply broadly to all derivatives ofaknownsubstanceunlesstheydiffer significantly with respect to efficacy:Forthepurposeofthisclause, salts,esters,ethers,polymorphs, metabolites,pureform,particle size,isomers,mixturesofisomers, complexes, combinations and other derivativesofknownsubstances shallbeconsideredtobethe samesubstance,unlesstheydiffer significantly in properties with regard to efficacy.56Whilethestatutedoesnotdefinethe termssignificantlyorefficacy, underSection3(d),anyincremental pharmaceuticalinnovationinvolvinga newform(orotherderivative)oranew useofaknownsubstancethatdoesnot meet the standard implied by these terms isnotpatentable.Asdiscussedfurther below,thereisgoodreasontobelieve allpatentapplicationsfiledinIndia havebeendirectedtochemicalsand/or drugs,andfiveofthetoptendomestic filersofpatentapplicationsareIndian pharmaceutical companies.50 In addition, thenewprotectionsforpharmaceutical productsandotherprotectionsprovided by the 2005 amendments have increased foreigndirectinvestment(FDI)in theIndianpharmaceuticalsector.In anticipation of the new law, pharmaceutical FDIincreasedsharplyin2004,declined in2005andthenreboundedin2006.51 Strategicalliancesbetweenforeign anddomesticcompaniesintheareas ofclinicaltrials,newdrugdiscovery, andthemanufactureofdrugsanddrug components have also increased.52B. Section 3(d): New Forms of Known Pharmaceutical SubstancesDespitetheapparentparadigm-shift reflected in the 2005 amendments, those amendmentsdidnotuniformlyprovide patentprotectionforallpharmaceutical innovationinIndia.Onthecontrary, the2005amendmentsprecludepatent protection for new forms or new uses of knownpharmaceuticalsubstancesthat do not result in the enhancement of the known efficacy of that substance.53InordertoobtainapatentinIndia,an applicant must demonstrate that his or her claimedinventionconstitutespatentable subjectmatterandmeetsthreebasic requirementsofpatentability.With respecttopatentabilityrequirements, theapplicantmustshow,first,thatthe claimedinventionisnovel;second,that theclaimedinventionisnon-obvious orinvolvesaninventivestep;andthird, thattheclaimedinventionhasindustrial application.Inadditiontomeetingsuch patent abilityrequirements,anapplicant must also show that the claimed invention constitutespatentablesubjectmatter.In India,thecategoriesofnon-patentable subject matter include the laws of nature; 11molecule, a new thing it costs much cheaper in India. Therefore, we can attractforeignershere.Theycan come and make India a hub.Iwillbeverybriefontwopoints. Iwillnotmakealongspeech. Theveryfirstthingisincremental innovations.Mostofthetime wesaythatpatentswillbecome evergreen.Itisbecauseprobably somebody who has got a patent on somemolecule,maygoforsome newusage.TheHon.Minister hasexplainedinhisamendments withregardtothosethings.Iam opposingit.Mypointhereisthat the cost of medicines was cheap in India. It was only because of reverse engineering.Therewasaprocess patentavailableinourcountry.So, ifanyforeigncompanyproduced anymedicine,ourscientistscould found[sic]outadifferentmethod ofproducingthesamemedicine atamuchcheapercost.That iswhythemedicinesaremuch cheaper here. It was not very easy to do that. This reverse engineering processwasnotsoeasy.Hadit been so easy, every country would haveadoptedthismethod.Itwas possiblebecauseourscientists wereintelligentenoughtotaketo thisreverseengineeringandmade itsuccessfulallthetime.This incrementalinnovationisonlyone or two steps away from that. If we do not allow it and say that we will goonlyformolecules,howmany companiesarecapableofbringing outnewmolecules?Forbringing outanewmolecule,yourequire Rs.6,000crore.HowmanyIndian companieswillhavethismuch ofmoney?So,ifweallowthese incrementalinnovations,itisnot only the multinationals, but also the Indiancompanieswhowillbenefit out of it.58Incontrast,thosewhoopposedSection 3(d)andwereinfavorofbroadpatent protectionarguedthatpatentprotection for incremental pharmaceutical innovation wouldbenefitIndianpharmaceutical companiesbycreatingincentivesfor such companies to invest in incremental innovation and become global leaders in this area. This perspective was advanced byShriKharabelaSwainduringthe parliamentary debates:SHRIKHARABELASWAIN: Iverystronglysupportthat Indiashouldhaveaverystrong patentregime.Itisnotto protectthepatentsofthe multinationals,butitistoprotect thepatentsoftheIndiansandthe Indian companies.Sir,thepointisthatIndiarequires averystrongpatentregimeto attractFDI.Withoutit,wecannot attainsustainablegrowthofeight percentovertheyears.So,we requireit.Mostofthetimewe oppose[productpatents]with thethoughtthatpatentbelongto themultinationals,andithasgot nothing to do with the Indians. It is nottrue.ItistheIndianswhoare puttingalotofmoneyinresearch anddevelopmentwithregardto medicines,bio-technology,rocket-making,etc.Thesehavetobe protected. If we do not have a strong patentregime,themomentwe inventsomethingnew,foreigners will copy that. Do you not want that ourscientistsshouldbebenefited? Doyounotwantthattheirpatents shouldbeprotected?Theyshould alsoearnsomemoneyoutofthat. Doyounotwantthat?Wewanted thatIndiacouldalsobeahub ofresearchanddevelopment.It ispossiblebecausethecostof research and development is much lessinIndia.Ifyoudevelopa Section 3(d) statesthat the following isnot patentable:[T]he mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at lease one new reactant.The Explanationthat accompaniesSection 3(d) states:For the purpose of this clause, salts, esters, ethers, polymorphs, metabolites, pure form, particle size, isomers, mixtures of isomers, complexes, combinations and other derivatives of known substances shall be considered to be the same substance, unless they differ significantlyin properties with regard to efficacy.12 IThe Value of Incremental Pharmaceutical Innovation: Benefits For Indian Patients And Indian BusinessWith respect to Novartis challenge to the TRIPS-complianceofSection3(d),the MadrasHighCourtruledthatitdidnot have jurisdiction over the issue, and noted thattheWTODisputeSettlementBody wouldbetheproperforumforsucha dispute. Novartis did not pursue the issue further and this remains an open issue.Initschallengetotheconstitutionality ofSection3(d),Novartisarguedthatthe usage of terms such as enhancement of knownefficacyanddiffersignificantly inpropertieswithregardtoefficacy, withoutaccompanyingguidelines, renderedSection3(d)vagueand arbitrary.Novartisfurtherarguedthat becauseofthelackofsuchguidelines astothescopeofsuchterms,Section 3(d)vestedtheIndianpatentofficewith unfettereddiscretiontodeviseitsown policy as to what constituted a significant enhancement of efficacy. The High Court, however, rejected these arguments on the basisofestablishedIndianconstitutional principles,finding,amongotherthings, thatanydeterminationemployingthe challengedstatutorylanguageislikelyto bebasedonmaterialssubmittedbythe applicanttothepatentofficeandwould beappealable,andthatwhatamounts toasignificantenhancementofefficacy dependsonthefactsofeachspecific case.Inreachingthisdecision,theHigh Courtrelieduponaparticulardictionary definition of the term efficacy in terms oftherapeuticefficacy.Forexample, theCourtstatedthatifthediscovery ofanewformofaknownsubstance mustbetreatedasaninvention,then thePatentapplicantshouldshowthat the substance so discovered has a better therapeutic effect.62TheHighCourtsdecisionincreases theprobabilitythatSection3(d)willbe interpretedrestrictivelybyIndiancourts andtheIndianpatentofficetopermit patenting of an incremental pharmaceutical innovationonlywhenitresultsin significantlyenhancedtherapeutic efficacy,butnotiftheinnovationhas some other advantage or beneficial effect, Novartishasobtainedapproximately40 patentsaroundtheworldcoveringthe active ingredient in Glivec.61In 1998, Novartis filed a patent application in India relating to the active ingredient in GlivecpursuanttofeaturesofIndias patentlawthatenabledapplicants claimingpharmaceuticalinventionsprior to2005tobefiledandstoreduntil examination in 2005so-called mailbox applications. Novartis launched Glivec in Indiain2002andalsoappliedforand receivedanexclusivemarketingright relating to Glivec pending the grant of its patent.Afterthe2005amendments werepassed,Novartismailbox applicationwasopenedandexamined. Severalgenericdrugcompanies,among others,opposedtheapplicationon numerousgroundsincludingthatthe claimedinventiondidnotdemonstrate significantlyenhancedefficacyrequired underSection3(d).TheAssistant Controller of Patents rejected the patent application on this and other grounds.Duringtheseproceedings,Novartis arguedthatitsapplicationwasnot barred by Section 3(d) because the active ingredientinGlivec,thepolymorphic, salt form of imatinib, was more effective thantheknownimatinib-freebasein sofarasitwasabsorbedmoreeasily intothebloodstreamandthusdisplayed betterbioavailability.Specifically, Novartisarguedthatthenewformof imatinib increased bioavailability by 30%. However,theAssistantControllerheld thatthisdidnotconstituteasufficient increaseinefficacyunderSection3(d), withlittleexplanationoranalysisof Section 3(d) itself.In 2006, Novartis launched an appeal to the MadrasHighCourtseeking(1)areversal oftheAssistantControllersrejectionof Novartisapplication;and(2)anorder declaringSection3(d)unconstitutional and in violation of TRIPS. The High Court transferred the first issue to the Intellectual Property Appellate Board (IPAB), which is currently pending.Opponents of Section 3(d) further argued thatencouragingincrementalinnovation bydomesticpharmaceuticalcompanies wouldleadtothedevelopmentof drugproductstailoredtotheneeds ofIndianpatients.59Nonetheless,the proponentsofSection3(d)wonthe day,andthatprovisionwasenacted asapoliticalcompromisetotemper what anti-intellectual property advocates arguedwerethenegativeeffectsof pharmaceutical product patents.60C. The Meaning of EfficacyThe first significant application of Section 3(d)occurredshortlyafterthe2005 amendmentswereenacted,whenthe AssistantControllerofPatentsrejected Novartisapplicationforapatentrelating to the drug product Glivec, used in treating chronicmyeloidleukemia(CML)and gastrointestinalstromaltumors(GIST). ThecourtdecisionsrelatingtoNovartis patentapplicationforGlivecconfirmthat thescopeofincrementalpharmaceutical innovationsthatconstitutepatentable subjectmatterunderSection3(d)is severelyrestrictedandhighlightthe narrow meaning of efficacy as it is used in the context of Section 3(d).Inthe1980s,aftertwodecadesof research, Novartis scientists discovered a drug compound, imatinib, that targeted a cancer-causing enzyme involved in CML butwithoutdisruptingotherenzymes inahealthycell.Novartisappliedfor aUSpatentonthiscompoundandall pharmaceuticallyacceptablesaltsofthe compoundin1993.Furtherresearch intoimatinibleadtothediscoverythat aparticularpolymorphicformofa particular salt form of the compound was the most stable version of the compound. Thisversion,thebetacrystallineform ofimatinibmesylate,becametheactive ingredientforthedrug,Glivec(also known as Gleevec in the United States), which was approved by the FDA in 2001. 13develop and commercialize drug products based on incremental innovations. Section 3(d)thusdiscouragesIndiancompanies from investing in product development for theirhomemarket.Asaresult,Section 3(d)decreasesthelikelihoodthatIndian companieswilldevelopproductsgeared to the needs of Indian patients.Moreover,evenifsuchclinicalefficacy datawereavailableatthepatent applicationstage,theabsenceof adequatedataprotectionrulesfor clinicaldatainIndiaprovidesastrong disincentiveforpatentapplicantsto disclosesuchdatatothepatentoffice. Finally, it is unclear that patent examiners possesstheexpertisenecessaryto makedeterminationsofcomparative therapeuticefficacy,whichisnormallya matter for the drug regulatory agencies.ItshouldbenotedthattheIPABheard NovartisappealintheGliveccaseat theendof2008buthasnotyetissued itsrulingonthematter.Itispossible thatthisdecisionwillprovidesome additional guidance as to the meaning of enhancedefficacyunderSection3(d). However,itislikelythattheIPABwill be guided, at the very least, by the High Courtsanalysisofthislanguageandits understandingofefficacyintermsof therapeutic efficacy.D. Section 3(d) inInternational ContextThecurrentcaselawinterpreting Section3(d)andtheManualofPatent Practice&Procedurethusconfirmthe viewthat,presentlyinIndia,incremental pharmaceutical innovations are eligible for patenting only in very rare circumstances. WhenitenactedSection3(d),Indiawas theonlycountryintheworldtoadopt thisviewandcategoricallyexcludefrom patentablesubjectmatterinventions directedtonewusesornewformsof knownpharmaceuticalsubstances. Today,Indiaremainsoneoftheonly countriesintheworldtotakesuch regardtosafetyand/orefficacy.In suchcases,additionalinformation providing proof of the safety and/or efficacy of the various salts, esters or derivatives of an authorised active substance must be supplied by the applicant.Thevariousimmediate-releaseoralpharmaceuticalforms shallbeconsideredtobeoneand thesamepharmaceuticalform. Bioavailabilitystudiesneednot berequiredoftheapplicantifhe candemonstratethatthegeneric medicinalproductmeetsthe relevantcriteriaasdefinedinthe appropriate detailed guidelines.65Significantly,thisEUDirectiverelatesto theregulatorydrugapproval.Itdoesnot purport to define the scope of patentable subjectmatterorotherwiseexclude incrementalpharmaceuticalinnovations fromthesubjectmatterforwhicha patentmaybeissuedintheEuropean Union(asindicatedbelow,incremental pharmaceutical innovations are patentable in Europe). The fact that Section 3(d) was based upon an EU Directive that relates to theregulatorydrugapprovalprocessfor generic products and the underlying notion ofbioequivalencefurthersupportsthe viewthattheconceptofefficacyin Section3(d)willbeconstruednarrowly intermsoftherapeuticefficacyrather than in broader terms.66Thus,todemonstratethatanewform oruseofaknownsubstancequalifies forapatentunderSection3(d)because itdifferssignificantlywithrespectto theknownefficacyofthesubstance, apatentapplicantmustproducedata demonstrating the therapeutic efficacy of the new form or use. This is a very difficult burdentomeetwithoutengaginginthe sort of clinical investigations that normally arenotconducteduntilmuchlaterinthe drug-development process. This threshold burden is likely to have a significant impact onIndianpharmaceuticalcompaniesin particularasitislikelytoforcesuch companiestolooktomarketsotherthan India with no such efficacy requirement to e.g.,betterstabilityinhumidconditions ormoreconvenientadministration. Thisisfurtherconfirmedbythe Delhipatentofficesrejectionunder Section3(d)ofapatentapplication submittedbyBoehringerIngelheim directedtoanewHIVcomposition because Boehringer did not demonstrate significantlyenhancedtherapeutic efficacyoverthepreviouslyknown compound.63Similarly,theChennai patentofficerecentlyrefusedNovartis applicationdirectedtothealphacrystal formofimatinibmesylateinparton thebasisthattherewasnoevidenceof therapeuticefficacyovertheknown formofthesubstanceeventhough therewasevidenceofa20%increase inbio-availability.64Inaddition,the guidelines regarding Section 3(d) set forth inthecurrentManualofPatentPractice &Procedure,whicharerelieduponby patentexaminersduringexaminationof apatentapplication,quotetheMadras HighCourtsdefinitionofefficacy, includingitsreferencetotherapeutic efficacy.Thisalsosuggeststhat patentexaminersarelikelytoapplythe therapeutic standard in examinations.Finally, it is worth noting that the language ofSection3(d)itselfwasbasedona provisionofaEuropeanUnionDirective relating to the regulatory approval of drug products for human use. Article 10(2)(b) of Directive2004/27/ECdefinesageneric medicinal product as:amedicinalproductwhichhasthe samequalitativeandquantitative compositioninactivesubstances andthesamepharmaceuticalform as the reference medicinal product, and whose bioequivalence with the referencemedicinalproducthas beendemonstratedbyappropriate bioavailabilitystudies.Thedifferent salts,esters,ethers,isomers, mixturesofisomers,complexesor derivativesofanactivesubstance shall be considered to be the same active substance, unless they differ significantlyinpropertieswith 14 IThe Value of Incremental Pharmaceutical Innovation: Benefits For Indian Patients And Indian Businessand are capable of industrial application [P]atentsshallbeavailableandpatent rightsenjoyablewithoutdiscrimination astotheplaceofinvention,thefield oftechnologyandwhetherproducts areimportedorlocallyproduced.The enhancedefficacyrequirement inSection3(d)isnotprovidedforin TRIPS,whichexhaustivelyenumerates thecircumstancesunderwhich WTOMembersmustmakepatent protectionavailable.Indeed,the discoveryofanewformofaknown pharmaceutical substance may fulfill all of theTRIPSrequirementsforpatentability asaninventionnovelty,inventivestep (ornon-obviousness)andindustrial applicationirrespectiveofwhetherit resultsintheenhancedefficacyofthe substance.Assuch,theIndiaPatents Acts categorical exclusion of incremental pharmaceutical innovation from patentable subjectmatterappearsprimafacietobe in conflict with the international consensus reflectedintheTRIPSAgreementthat allinnovations,regardlessoffieldof technology,shouldbeaccordedequal protectionandencouragementunder national patent laws.E. Implications of Section 3(d) for Incremental Pharmaceutical Innovation in IndiaSection3(d)thusstandsinstark contrasttomuchoftherestofthe world,whichdoesnotsoexclude incrementalinnovationsfrompatentable subjectmatter.Byrestrictingpatentable subjectmattertothoseincremental pharmaceuticalinnovationsforwhich aninventorcandemonstratesignificant therapeuticenhancementoveraknown pharmaceuticalsubstance,Section 3(d)excludesfrompatentablesubject matterthevastmajorityofhighlyuseful incrementalpharmaceuticalinnovations. UndertheSection3(d)standard,the discoveryof,forexample,anewform ofaknownantibacterialcompoundthat incrementalpharmaceuticalinnovations providedtheapplicationisotherwise directedtowardpatentablesubject matterandmeetstherequirements ofnovelty,non-obviousness/inventive step,andutility/industrialapplication.71 Similarly, the European Patent Office also grantspatentsdirectedtoincremental pharmaceutical innovations.72Theexperiencesofcountriessuchas Japan,ChinaandItalyconfirmstheview thatintellectualpropertyharmonization cancontributesignificantlytoeconomic growth. Such countries recently amended their patent laws to bring them in line with nationssuchastheUS,Canada,theUK andAustraliaandexperiencedresulting increasesineconomicopportunities. Theexperienceofsuchcountries alsoindicatesthevalueofmaintaining consistent protection for innovation across differentindustriesandfields.Indias inconsistenttreatmentofincremental innovations in the pharmaceutical industry couldpreventitfromrealizingthefull potentialfortradewithothernations andopportunitiesforpartnershipswith non-Indianpharmaceuticalcompanies relatingtothedevelopmentofnew pharmaceuticalinnovations.Theimpact ofIndiastreatmentofincremental pharmaceuticalinnovationontrade relations is thus similar to the impact that wouldresultifanothercountryadopted apatentlawthatprecludedpatents forincrementalinnovationsinareasof innovationinwhichIndiahasdeveloped acompetitiveadvantage,suchas aerospaceorautomotivetechnologies, whichwouldreducetheincentivefor Indiancompaniestocommercializetheir products in that country.The principle of non-discrimination among types of invention or fields of technology isreflectedinArticle27.1oftheTRIPS Agreement,whichstates,inpertinent part, that patents shall be available for any inventions, whether products or processes, inallfieldsoftechnology,providedthat theyarenew,involveaninventivestep anapproachtowardsincremental pharmaceuticalinnovation.67Bycontrast, thepatentlawsofotherjurisdictions andtheinternationalnormsembodied in the TRIPS Agreement together reflect ageneralinternationalconsensusthat incrementalpharmaceuticalinnovations arevaluabletosocietiesandshould thereforeberewardedandencouraged through patent protection.Thepatentofficesofotherdeveloping nations,suchasBrazilandChina,do nottreatpatentapplicationsdirectedto incrementalpharmaceuticalinnovations differentlyinprinciplethanapplications relatingtobreakthroughdrugsorother inventions.Indeed,itisreportedthat inChinamostofthe56,769patent applicationsfiledbydomesticapplicants between1985,whentheChinapatent systemcameintoforce,and2003were directedtoincrementalinnovations, includingincrementalpharmaceutical innovations,andrepresentedthe realization of a previously untapped source of innovation for the Chinese economy.68BothJapanandItalyrecentlyunderwent theverytransitionthatIndiaispresently undergoingwhentheyadoptedpatent protectionforpharmaceuticalpatents anddidsowithoutanexclusionfor incrementalpharmaceuticalinnovations. InItaly,thetransitiontoasystemof productpatentsleadtostrongerItalian pharmaceuticalcompanies,greater investmentindomesticR&D,and increasedforeigndirectinvestment, among other benefits.69 Similarly, studies of the Japanese experience note that the developmentofincrementalinnovations byJapanesecompaniessoonafterthe transition to a product patent regime was instrumentalinfacilitatingtheabilityof Japanesecompaniestolaterengagein other types of innovative activity, including new drug development.70ThepatentofficesoftheUnitedStates, Canada,theUnitedKingdomand Australiaalsoroutinelygrantpatentsto 15Ranbaxyhasalsoexpressedtheview thatthestrengthofIndianscientists lie[s]ininnovationsthatimprove existing products.74Similarly,theOrganizationof PharmaceuticalProducersofIndia (OPPI)hasexpressedtheviewthat excludingincrementalpharmaceutical innovationsfrompatentprotection wouldhavesignificantnegative consequencesforthediscoveryand developmentsoffuturetreatmentforall diseaseareasandalsowillbeanarea of concern to all investors, domestic and foreign, because of the precedent it sets forthetreatmentofIntellectualProperty in India.75Consistentwiththesepronouncements, Indianpharmaceuticalcompanieshave filedhundredsofpatentapplications directedtoincrementalpharmaceutical innovationsincountriesoutsideof India,aswasnotedbythetechnical expertcommitteechairedbyintellectual propertyexpertR.A.Mashelkarthatthe Indian government established to assess issuesrelatingtoIndiasnewpatent laws (the Mashelkar Committee).76 The Mashelkar Committee found that, among other things, incremental pharmaceutical innovationcouldplayanimportant roleinenablingIndianpharmaceutical companiestobecomeinnovators.77 IndiancompaniessuchasNatco Pharmaceuticals,AurobindoPharma Limited, Morepen Laboratories, Ranbaxy, and WockhardtResearchCentre,among others, are already seeking to patent and commercialize outside of India incremental pharmaceuticalinnovationsinvolving, among other things, novel combinations, formulationsandpolymorphsofknown pharmaceutical substances, including the following:Anewcombinationofolanzapine(anwell-known drug used in the treatment of schizophrenia), a lubricating agent, afiller,andanagentthatmakes thedrugrapidlydisintegrateinthe retains stability in high humidity or a new combinationofknowncompoundsthat resultsinamoreeffective,once-daily antibiotic drug that is cheaper for patients would not be eligible for patenting.Significantly,Section3(d)isalso fundamentally at odds with the views and practices of Indian inventors and innovative pharmaceutical companies. Ranbaxy, for one, has publicly stated that:AsIndiasleadingPharmaceutical CompanycommittedtoR&Din thefieldofdrugdevelopment,we are of the opinion that incremental innovationsintermsofdeveloping newforms,newderivativesand newdeliverysystemsofexisting drugshouldbegrantedpatent protectionprovidedtheyarenew, involveaninventivestepandhave commercial utility. This will provide the necessary fillip to development ofNovelDrugDeliverySystem (NDDS) in our laboratories.Restrictingpatentabilityto[new chemicalentities]mayappearto beanattractivesolutioninthe shorttermtocompanieswitha ReverseEngineeringmindset, butwillnotbenefithundredsof scientists working in our public and private R & D Centers, who are just startingoffonthedifficulttaskof new drug discovery research.Restriction of patentability to [new chemicalentities]aloneislikelyto benefit only MNCs which have the resourcesandtheexperienceto develop[newchemicalentities]. Indian companies that have far less resources are better placed to benefit fromearlycommercializationof incremental innovations. A prerequisite tosuccessfullicensingdealforsuch products is the protection of the IP intheformofapatent,preferably in the country itself since products are being manufactured here.73In its submission to the Mashelkar Committee, Ranbaxy stated that:we are of the opinion that incrementalinnovationsin termsofdevelopingnew forms,newderivatives andnewdeliverysystems ofexistingdrugshouldbe grantedpatentprotection providedtheyarenew, involve an inventive step and have commercial utility.The Organization of Pharmaceutical Producers of India stated to the Mashelkar Committee that excluding incremental pharmaceutical innovations frompatent protection:wouldhavesignificant negativeconsequences forthediscoveryand developmentsoffuture treatmentforalldisease areasandalsowillbe anareaofconcerntoall investors,domesticand foreign,becauseofthe precedentitsetsforthe treatmentofIntellectual Property in India.16 IThe Value of Incremental Pharmaceutical Innovation: Benefits For Indian Patients And Indian Businessclosestructuralsimilaritytoaknown chemical compound may be determined to be obvious in view of the latter based on the expectation that compounds that aresimilarinstructurewillhavesimilar properties.79However,anapplicantcan overcome this presumption by presenting evidenceofunexpectedorsurprising results.80 A similar rule exists in UK and European patent law.Theassumptionthatanimatesthis interpretation of Section 3(d) is the view thatincrementalinnovationsshouldnot bepatentablebecausetheytendto involve trivial modifications that would be obvious to someone with ordinary skill in the art. One proponent of Section 3(d) recentlyprovidedthefollowingexample to support this point:if one is making a tablet of a product andthendevelopsapaediatric dosagebywayofaserum,thisis not innovation because any person skilledinchemistryknowshowto make that81Opponents of incremental pharmaceutical innovationthusarguethatsuch innovations are inherently non-inventivethattheyare,asageneralrule,obvious to one with ordinary skill in the applicable art.Fromthisperspective,Section3(d) merelyestablishesageneralstatutory presumptiontothiseffect,whichmay be rebutted with appropriate evidence of significantly enhanced efficacy.Thereareseveralpointstobemade regardingthisinterpretationofSection 3(d).First,aswehaveseenabove,far frombeingmerelytrivialandeasy, incrementalpharmaceuticalinnovations often involve considerable innovation and inventiveeffort.Theassumptionthatall incrementalpharmaceuticalinnovation isinherentlytrivialandobviousisthus without merit. Second, non-obviousness is a criterion of patentability not eligibility for patenting. As such, non-obviousness, alongwithnoveltyandindustrial application,characterizewhethera patentprotectionisbeingsought outsideofIndia.Innovationssuchas thesearepotentiallyprecludedfrom patentprotectioninIndiabecauseof Section 3(d).IV. REFORMING THE PATENTS ACT TO REALIZE THE BENEFITS OF INCREMENTAL PHARMACEUTICAL INNOVATIONTheprecedingsectionssuggest thatthecaseforreformingSection 3(d)isstrong.UnderSection3(d), thevastmajorityofincremental pharmaceuticalinnovationsincluding thosecurrentlybeingdevelopedby Indianpharmaceuticalcompaniesfor patentingabroadarenoteligiblefor patenting,especiallyinlightofthe MadrasHighCourtsinterpretation ofefficacyintermsoftherapeutic efficacy.Therefore,ifIndiaisto takeadvantageofthebenefitsand opportunities presented by incremental pharmaceuticalinnovation,reformof Section3(d)isnecessary.Wediscuss optionsforreformbelow,butwefirst addressathresholdissueregarding the interpretation of Section 3(d).It has been argued that Section 3(d) does nothingmorethancreatearebuttable presumptionthatinventionsdirected atnewusesornewformsofknown substancesarenotpatentable.78The argumentgoesthatunderSection3(d) incrementalpharmaceuticalinnovations are presumed to be ineligible for patenting; however,inanygivencase,evidence ofsignificantlyenhancedefficacyover apriorknownsubstancewillrebut thatpresumptionandestablishpatent eligibility.Onthistheory,Section3(d) functionsinmuchthesamemanneras theprincipleofprimafacieobviousness inUS,UKandEuropeanpatentlaw. IntheUnitedStates,forexample,a chemicalcompoundthatbearsavery mouthofthepatient,developed byAurobindoPharmaLimited. Theresultofthecombinationis adrugthatiseasiertoadminister becauseitisrapidlydissolving andcanbeadministeredwithout wateranadvantageforpatients withdifficultiesinswallowingand patients that are uncooperative.Apolymorphofatorvastatin(whichnisawell-knownmemberofaclass ofdrugsknownasstatinsthatare usedextensivelyinthetreatmentof cholesterol)developedbyMorepen Laboratories.Thenewpolymorph issaidtoposseshigherpurity andstabilitythanknownformsof atorvastatin,therebyfacilitating storage and improving yield during its production.Novelcrystallineformsofrizatriptann(awell-knowndrugusedinthe treatmentofmigraine),developed byNatcoPharmaceuticals,are stable,reproducible,andsuitablefor pharmaceutical preparations.Acombinationofoxycodone,anwell-knownopiodanalgesic,witha polymerthatcontrolsandextends the release of the drug, developed by Ranbaxy. The formulation is said to be easy to manufacture on a commercial scale and to enable the production of an extended release formulation in a cost-effective manner.Anewformulationofvancomycinn(awell-knownantibioticusedinthe treatment of serious infections) in hard gelatin capsules for oral administration developedbyWockhardt.Among otherthings,thenewformulation iseasiertohandleandcheaperto producecomparedtootheravailable dosage forms of vancomycin.The Appendixdescribesasmallsample ofsuchincrementalpharmaceutical innovationsdevelopedbyIndian pharmaceuticalcompanies,forwhich 17Analternativesuggestionshortof reformingSection3(d)istoinclude personshavingbackgroundsin pharmacology,ratherthanjustpharma chemistry,inthepatentexamination processtoaidexaminersintheir assessment of the efficacy arising from aparticularincrementalinnovation. Proponentsofthisstrategyarguethat this would help ensure that incremental innovationsthatdoinfactresultin significant enhancements of therapeutic efficacyobtainpatentprotection.87 Whilesuchaproposalmaygosome waytoaddressingproblemsassociated with having patent examiners, who may nothavethenecessarybackgroundor training,assesstherapeuticefficacy,it does not address the more fundamental problemthatasubstantialnumberof valuableandbeneficialpharmaceutical innovationsarenotentitledtopatent protectionbecauseofthecategorical bar posed by Section 3(d).Inordertoencourageincremental pharmaceuticalinnovationsandrealize the benefits of such innovation in India, thebarrieragainstpatenteligibilityfor suchinnovationsshouldberemoved fromthePatentsActaltogether. RemovingSection3(d)wouldallow allincrementalinnovations,including pharmaceuticalinnovations,toundergo examinationandbetreatedinthe samemannerregardlessofindustry orfieldoftechnology.Asaresultof suchareform,patentapplications directedtoincrementalpharmaceutical innovationswouldbeassessedunder thesamestandardsofpatentability andpatenteligibilityasareapplicable toallothertypesofinnovation.This wouldencourageinnovationbyIndian pharmaceuticalcompanies,promote theincrementaldevelopmentofdrug productsofbenefittoIndianpatients, and bring Indias patent laws in line with the rest of the world. In addition, it would spur additional foreign direct investment inIndiaasnon-Indianpharmaceutical companiesincreasinglylooktoIndiaas betweenthecircumstancesunder whichapatentapplicantmayrebutthe presumptionofobviousnessunderthe USruleandthecircumstancesunder whichanincrementalpharmaceutical innovationcanqualifyforpatentunder Section3(d).83UndertheUSrule,an applicantmayrebutafindingofprima facieobviousnessbydemonstrating thattheclaimedcompoundexhibits unexpectedproperties.Suchproperties caninclude,forexample,betterstability inhighhumidityorpropertiesrelating totheconvenienceofadministrationor usebypatientspropertiesthatwould notcontributetotherapeuticefficacy andwouldnot,therefore,beabasisfor patenteligibilityunderSection3(d).84 Unlikethesignificantlyenhanced efficacyrequirementofSection3(d), thereisnorequirementundertheUS rule that unexpected results be of greater significance than the known or expected properties to overcome obviousness.IntheUK,apatentapplicantcan overcomeachargeofobviousnessby demonstratinganunexpectedbenefit thatcouldnothavebeenreasonably predicted.85Similarly,intheEU,an unexpectedtechnicaleffectisan indicationofaninventivestepandthus ofnon-obviousness.86LiketheUSrule, theseformulationsarenotlimitedto therapeutic effects.Theaboveanalysissuggeststhatitis inaccurate to think of Section 3(d) merely asstatingastandardofobviousness. Perhapsmoreimportantly,theanalysis alsounderscoresthepointthatSection 3(d) bars inventions that may otherwise meettherequirementsofpatentability and thus are truly inventive.claimed invention is in fact inventive and thuspatentable.Section3(d),onthe otherhand,purportstolimitthesubject matterthatiseligibleforpatenting,and statesthatincrementalinnovationsthat donotresultinsignificantlyenhanced efficacy are not eligible. The question of whether the subject matter claimed in a patent application is eligible for patenting atallisathresholddetermination thatismadebeforeanyassessment ofwhetheraclaimedinventionmeets thecriteriaofpatentability.Infact, underSection3(d),aclaimedinvention couldmeetthecriteriaofpatentability, i.e.,benovel,non-obviousandhave industrialapplication,butnonetheless beineligibleforpatentingbecauseit isdirectedtonon-patentablesubject matter.Inotherwords,underSection 3(d),anincrementalpharmaceutical innovationmaybetrulyinventive(i.e., novel and non-obvious) but nonetheless beineligibleforapatentbecauseit isdirectedtoanewformoruseofa known substance.Third,undertheruleapplicableisthe US, to establish prima facie obviousness basedonstructuralsimilaritybetween two chemical compounds, it is necessary toshowsomemotivationthatwould haveledoneofordinaryskillintheart toselectandthenmodifytheoriginal known compound to achieve the claimed compound.82Nosuchshowingor indeed,anyshowingisrequiredforan incrementalpharmaceuticalinnovation tobepresumedineligibleforpatenting under Section 3(d), once it is determined thattheinnovationfitswithinoneof thecategoriessetforthinthatsection. Moreover,contrarytothetheory advancedbyproponentsofSection 3(d),thereareimportantdissimilarities Section 3(d) potentially precludes the patenting of hundreds of incremental pharmaceutical innovations that Indian companies are attempting to patent and commercialize outside India.18 IThe Value of Incremental Pharmaceutical Innovation: Benefits For Indian Patients And Indian BusinessCONCLUSIONThisisapivotalperiodinthehistoryof Indianinnovation.Indiastandspoised tobecomealeadinghubofglobal innovation,andIndianpharmaceutical companiesareatthecenterofthis process. Providing the right incentives for incrementalpharmaceuticalinnovation canmoveIndiaforwardonthispath andencouragethedevelopmentof drugproductsthatmeettheneedsof Indianpatients.ReformingSection3(d) toencourageandprotectincremental pharmaceuticalinnovationwouldcreate such incentives and help India become a true powerhouse of innovation.company obtains a patent on a new form ofaknowncompound,thatneednot preventthepublicfrommanufacturing, usingorsellingthecompoundinits originalformoncetheearlierpatent hasexpired.Thus,apatentonan incrementalpharmaceuticalinnovation doesnotbaragenericcompanyfrom sellingagenericversionoftheoriginal drugproductoncethepatentcovering that product has expired.Second, removal of Section 3(d) from the PatentsActwillnotleadtoanincrease in drug prices or a decrease in access to medicineinIndia.Asdiscussedabove, incrementalpharmaceuticalinnovation may in fact increase price competition by increasing the number of different drugs thatexistwithinagivenclass,thereby contributingtoanoverallreductionin drugprices,especiallyinacompetitive marketsuchasIndias.Removing Section3(d)maythusincreaseprice competition.Moreover,asnoted, patentsonincrementalpharmaceutical innovationsdonotpreventgeneric versionsoftheearlierproduct.The availabilityofgenericcompetitionon relatively close substitutes would provide animportantconstraintonthepriceof productsbasedonlaterincremental innovations. Other aspects of Indian law alsohelpconstrainpriceandsafeguard accesstomedicine. Indiascompetition lawsaddressmonopolisticandother practicesthatcanaffectdrugpricesor accesstomedicine.Finally,pursuantto theDrugPriceControlOrderof1995, theNationalPharmaceuticalPricing Authoritysetsceilingsonthepricesof essential medicines.88 These features of Indiaseconomicandhealthcarepolicy provideamoreeffectivemethodof addressingconcernsrelatingtothe priceofandaccesstomedicinethan Section 3(d).an ideal location for clinical trials, due to lowcostsandalarge,therapynave patient population, and increasingly look topartnerwithIndianpharmaceutical companies on drug development projects that expand the innovative capacities of Indian pharmaceutical companies.Removingtherestrictiononthe patenting of incremental pharmaceutical innovationsneednotresultinthe consequences feared by the proponents ofSection3(d)anincreaseinpatent evergreening, an increase in drug prices or a reduction in access to medicine by Indianpatients.First,astheMashelkar Committeefoundinitsreporton issuessurroundingincremental pharmaceuticalinnovation,the problemofpatentevergreeningcanbe addressedadequatelythroughrigorous applicationoftherequirementsof noveltyandnonobviousness.Attempts to circumvent patent expiration on a drug productbyseekingtoextendpatent coveragebasedonnon-novel,trivialor otherwise obvious modifications or uses ofaproductshouldbepreventedbya robustapplicationoftherequirements thataclaimedinventionbenoveland non-obviousinordertobepatentable. Thisishowpatentevergreeningis addressedinotherjurisdictions,which havenoanalogtoSection3(d),and followinginternationalpracticewillonly helpIndianindustry.Addressingpatent evergreening through the rules of novelty andnonobviousness,asopposedto Section 3(d), ensures that truly inventive incrementalinnovationsarerewarded andencouraged,whilenon-inventive modifications or uses are barred.Theproblemofpatentevergreening mustalsobeviewedincontext.When the term of a patent expires, the subject matterclaimedthereinisavailablefor thepublictouse.Accordingly,ifa 19ENDNOTESUNLEASHING INDIAS INNOVATION: TOWARDS SUSTAINABLE AND 1 INCLUSIVE GROWTH 1 (Mark A. Dutz ed., 2007).Id.2 at xv.KNOWLEDGE COMMISSION OF INDIA, INNOVATION IN INDIA iv (2007).3 UNLEASHING INDIAS INNOVATION, supra note 1, at 50-51.4 Id.5 at 51.Two examples of new compounds developed and patented by Indian companies 6 are the novel anti-malarial drug Arterolane, developed by Ranbaxy, and the anti-diabetic drug Balaglitazone, developed by Dr. Reddys.See7 discussion infra at 5.See8 discussion infra. at 5.See9 discussion infra. at 6.While some nations, for example, Pakistan, prohibit the patenting of secondary 10 uses of known substances, India excludes from patent eligibility both new uses and new forms of known pharmaceutical substances and thus potentially the entire range of beneficial incremental pharmaceutical innovations.NATIONAL RESEARCH COUNCIL, PROSPECTUS FOR NATIONAL KNOWLEDGE 11 ASSESSMENT(1995) at 10.J. Cohen et al., The role of follow-on drugs and indications on the WHO Essential 12 Drug List, 31 JOURNAL OF CLINICAL PHARMACY AND THERAPEUTICS 6,(2006).World Health Organization, Essential Medicines, www.who.int /medicines/13 services/essmedicines_def/en (last visited Feb. 2, 2009).See14 Albert Wertheimer et al., Too Many Drugs? The Clinical and Economic Value of Incremental Innovations, in 14 INVESTING IN HEALTH: THE SOCIAL AND ECONOMIC BENEFITS OF Healthcare INNOVATION 77-118 (Irina Farquhar et al. eds., 2001). See15 WIPO Secretariat, Follow -On Innovation and Intellectual Property 8-9, www.wipo.int/patentscope/en/lifesciences/pdf/who_wipo.pdf (last visited Feb. 2, 2009).Id. 16 at 13-14.Wertheimer, supra note 14, at 90-91.17 See18 Shamnad Basheer, Limiting the Patentability of Pharmaceutical Inventions and Micro-organisms: A TRIPS Compatibility Review n.151 (November 2005) (on file with the Intellectual Property Institute, Oxford, UK).Example provided during interviews with key stakeholders.19 See20 Albert Wertheimer & Thomas Santella, Pharmacoevolution: the advantages of incremental innovation, IPN Working Papers on Intellectual Property, Innovation and Health, International Policy Network (2005), at 6-10.Joseph DiMasi & Cherie Paquette, The Economics of Follow-On Drug Research 21 and Development: Trends in Entry Rates and the Timing of Development, Pharmacoeconomics (2004): 22 Supl. 2, at 8-9; see also National Institute for Healthcare Management Research and Educations Foundation, Changing Patterns of Pharmaceutical Innovation (May 2002) (NIHCM Study), at 7-10.DiMasi & Paquette (2004), supra n. 21, at 8.22 Wertheimer & Santella (2005), supra n. 20, at 8.23 Id.24 Williams, J. W. Jr., Trivedi, M., Chiquette, E., Aguilar, C., Cornell, J.E. & Bedgett, 25 R. et al. Treatment of Depression: Newer Pharmacotherapies. Publication No. 99E014. Agency for Healthcare Policy and Research, US Department of Health and Human Services, Rockville, 1999.Evans, WE, and McLeod, HL, Pharmacogenomics Drug disposition, drug 26 targets, and side-effects, New England J. of Medicine (2003); 348:538-549.DiMasi & Paquette (2004), supra n. 22, at 11; Wertheimer & Levy at 80-81.27 Wetheimer et al. (2001), supra n.17, at 81.28 Id. 29 at 100-11.See30 , e.g., J. A. DiMasi and H. G. Grabowski, The Cost of Biopharmaceutical R&D: Is Biotech Different? Managerial and Decision Economics 28 (2007): 469-479; Mathukumalli Vidyasagar, Cutting Drug Discovery Costs on the Subcontinent, The Scientist (2004), 18(20):54.See31 Joseph DiMasi et al., The Price of Innovation: New Estimates of Drug Development Costs, Journal of Health Economics 22 (2003) 151-185.NIHCM Study, supra note 21, at 7-10.32 Data provided during interviews with key stakeholders.33 NIHCM Study, supra note 21, at 10-11.34 See35 H. Kettler & A. Towse, Public private partnerships for research and development: medicines and vaccines for diseases of poverty, Office of Health Economics, London (2002).DiMasi & Paquette (2004), supra n. 21, at 11.36 Id. 37 For example, one study of the costs associated with absenteeism and 38 diminished worker productivity resulting from seasonal hay fever found that the US economy lost on average between US$2.4 billion and US$4.6 billion per year because of the sedating effects of antihistamine medications. The incremental development of non-sedating antihistamines thus can be expected to reduce the costs associated with employee absenteeism due to seasonal hay fever. See Wetheimer et al. (2001), supra n.17.See39 DiMasi & Paquette (2004), supra n. 21 at 12; see also Joseph DiMasi,Price Trends for Prescription Pharmaceuticals: 1995-1999, http: //aspe.hhs.gov/health/Reports/Drug-papers/dimassi/dimasi-final.htm (last visitedFeb. 2, 2009).OFFICE OF HEALTH ECONOMICS CONSULTING, THE MANY FACES OF 40 INNOVATION 26 (February 18, 2005), http: //www.ohe.org/lib/liDownload/ 48/Many%20faces.pdf?CFID=58055&CFTOKEN=32477601 (last visitedFeb. 2, 2009).See41 MCKINSEY & COMPANY, INDIA PHARMA 2015: UNLOCKING THE POTENTIALS OF THE INDIAN PHARMACEUTICALS MARKET 10, www.mckinsey.com/locations/india/mckinseyonindia/pdf/India_Pharma_2015.pdf (last visited Feb. 2, 2009). See also id. at 24 (noting that incremental innovations through fixed-dose combinations will be important to the growth of Indias pharmaceutical market).In India, D.G. Shah, Secretary-General of the Indian Pharmaceutical Alliance, 42 has been a prominent exponent of this view in connection with the debate over Section 3(d) of the Patents Act. See, e.g., Is Indias Patent System Too Liberal In Practice? THE ECONOMIC TIMES, January 9, 2009.Joseph A. DiMasi et al., The Price of Innovation: New Estimates of Drug 43 Development Costs, 22 J. of Health Econ. 151, 173 (2003).See44 R.G. Frank, New Estimates of Drug Development Costs, 22 J. Health Econ. 325-30 (2003).T. Mason, R&D Productivity: How Should It Be Measured? A Perspective 45 Based On Fundamental Principles, Presentation to Drug Information Association, Annual Meeting, Washington, D.C. (June 15, 2004).D.K. Nauriyal, TRIPS-compliant New Patents Act and Indian Pharmaceutical 46 Sector: Directions in Strategy and R&D, Indian Journal of Economics and Business (Sept. 2006), at 2.Id.47 J. Lanjouw, Patents, Price Controls, and Access to New Drugs: How Policy 48 Affects Global Market Entry, NBER Working Paper 11321 (2005), at 26.WTO Trade Policy Review: India, WT/ TPR/G/182 (2007), at 86.49 EvalueServe Research, Patenting Trends in India: Facts and Research, April 50 2008 (on file). The top ten domestic filers of patent applications in India as of 2007 included CSIR (which ranked number one), Ranbaxy, Dr. Reddys Orchid Chemicals & Pharmaceuticals, Cadila Healthcare, and Cipla.Katherine C. Linton & Nicholas Corrado, A Calibrated Approach: 51 Pharmaceutical FDI and the Evolution of Indian Patent Law, United States International Trade Commission J. of Intl Commerce and Econ. 2 (August 2007), http: //www.usitc.gov/journal/07_Pharm_FDI_Indian_Patent_Law.pdf (last visited Feb. 2, 2009).20 IThe Value of Incremental Pharmaceutical Innovation: Benefits For Indian Patients And Indian BusinessId.52 Patents Act, 3(d).53 See54 India Patents Act, 3.Patents Act 3(d).55 Id.56 Transcript of Parliamentary Debate, March 22, 2005.57 Id.58 See Janice M. Mueller, The Tiger Awakens: The Tumultuous 59 Transformation Of Indias Patent System And The Rise Of Indian Pharmaceutical Innovation, 68 U. Pitt. L. Rev. 491 (2007) for a review of the political history of the 2005 patent law amendments.Id.60 See61 Affidavit of Ranjna Mehta Dutt dated May 17, 2006, submitted on behalf of Novartis in Novartis AG v. Union of India, et al., High Court of Judicature at Madras (Special Original Jurisdiction) W.P.No. 24759 of 2006.See62 the High Courts June 8, 2007 decision in AG v. Union of India, et al., High Court of Judicature at Madras (Special Original Jurisdiction) W.P.No. 24759 and 24760 of 2006.Boehringer Ingelheim Pharmaceutical v. Indian Network for People 63 Living with HIV/AIDS & Positive Womens Network, Indian Patent Office, Application no. 2845/DEL/1998 (19th June, 2008). See also the discussion in Shamnad Basheer & T. Prashant Reddy, The Efficacy of Indian Patent Law: Ironing Out the Creases in Section 3(d), 5 SCRIPTed 2 (2008) at 248. Section 3(d) was also at issue in a case in which the Delhi High Court denied an injunction that would have prevented Cipla from marketing a generic version of Roches anticancer drug Tarcerva. Cipla challenged Roches patent on several grounds including that it was a derivative of a known compound and thus not patentable under Section 3(d). In denying the request for an injunction, the court noted that Roche had not submitted data regarding the comparative efficacy of its drug over existing drug during patent examination and had not therefore shown significantly enhanced efficacy as required under Section 3(d). On appeal, the High Court affirmed the decision noting, inter alia, that the patentee had failedto demonstrate enhanced efficacy in support of its original application.In neither decision did the High Court analyze the meaning of efficacy.See F. Hoffman-LaRoche Ltd. v. Cipla Ltd. , High Court of Delhi at New Delhi, FAO (OS) 188/2008 (Apr. 24, 2009).See64 In the Matter of an Application for Patent No. 799/CHE/2004 filed on 12 August, 2004 (March 30, 2009).EU Directive 2004/27/EC, Art. 10(2)(b).65 Patents Act, 39(1)(a). In addition, under sub-section 39(1)(b), a person 66 resident in India may not file a patent application outside India if the invention is relevant to certain defense purposes and the Controller of Patents has restricted publication of information relating to the invention.As noted above, while some countries prohibit the patenting of secondary 67 uses of known substances, in 2005 India was unique in restricting the patent eligibility of the full range of incremental pharmaceutical ENDNOTES CONT.innovations, including new forms of known substances.International Chamber of Commerce, The Importance of Incremental 68 Innovation for Development, Submission to the World Health Organizations Commission on Intellectual Property Rights, Innovation and Public Health (CIPIH)