With the help of a foreign ally: biopharmaceutical innovation in India after TRIPS

Abstract

This article investigates the implications of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which reached full-fledged implementation in 2005, for the patenting activity of Indian biopharmaceutical companies. The Indian biopharmaceutical industry is well-known for its generic producers, whose business models capitalize on the opportunity to reverse-engineer patented compounds and produce them at low costs through process innovation. By strengthening intellectual property rights, TRIPS determined a major regulative change, which presents the characteristics of an institutional shock. The examination of the patenting and alliance activity of 123 Indian biopharmaceutical firms between 1999 and 2009 reveals two important insights. First, the innovation outcome of Indian biopharmaceuticals has sharply increased during the transition to TRIPS-compliant regulation, suggesting that Indian companies have been capable and willing to transit from an imitation-based to an innovation-based business model. Second, those biopharmaceutical firms holding cross-border alliances to foreign partners have proved significantly more successful at enhancing their innovative capability. This research delivers a multifold contribution to the policy debate surrounding the enforcement of TRIPS in emerging economies. First, it suggests that such regulatory change may have encouraged biopharmaceutical innovation in India, despite the sceptical voices who did not foresee any benefits because of inherent inertia of the industry. Second, by arguing and testing the advantages of foreign partnerships, this research highlights that the much feared return of pharmaceutical foreign companies to India could instead favour adaptation to institutional change. Implications for Indian public health are particularly critical. The impact of TRIPS on drug pricing and on the capability--and willingness--of Indian biopharmaceuticals to invest in local health conditions are two crucial points of discussion.