How should India Respond to US Pressure to Amend Patent Laws?

The news that the United States has intensified pressure on India on intellectual property-related laws and policies by putting us on a new watch list doesn’t come as a surprise. This was bound to happen after India denied patent protection to some new drugs of influential American pharmaceutical companies such as Novartis’s Gleevec as they don’t meet the standards of novelty and inventiveness as defined under Indian patent law. And, ever since India issued a compulsory licence to Natco Pharma to produce a Bayer cancer drug in March 2012, inventor pharma companies have been distinctly unhappy with India.

Why are Pharma Companies Paying more Attention to India?

There is a slide I use in my class when I am teaching industry analysis to show that industry matters. It shows the profitability across different industries based on the return on equity offered by each. The pharmaceutical industry is right up there with an ROE of 27-28% for the period 1999-2001 (this is data for the United States.)

But, in recent years, pharma companies have struggled to keep up these performance levels. R&D costs continue to be very high, and the frequency of discovering blockbuster drugs has come down. At the same time, competition has increased, and generic drug companies have become more powerful.

One outcome of this is the rash of mergers we have seen over the last decade.

Another has been growing attention to large and increasingly prosperous markets like India which were historically off their radar screens.

Pharma companies have become more sensitive to appropriating the returns from whatever drugs they develop, and hence focus on obtaining the maximum level of patent protection for new molecules.

Is their Position Justified?

Pharma companies never tire of underlining the importance of tight patent protection to enable them to recover the high costs of drug development. But, while the companies themselves attribute the high prices of their drugs to the long duration of the drug development process, the high failure rate of drugs, and the cost of the extensive trials required by the US FDA, many critics question these claims pointing to the high marketing costs that the firms incur in trying to persuade doctors to prescribe their drugs and patients to ask doctors for their drugs by name.

Somehow, the pharmaceutical industry (and others demanding stricter intellectual property laws in India) seem to have forgotten that patents were never meant to be a one-way street. Rather, the philosophy behind the patent system is that inventors share their knowledge with society in return for a temporary monopoly over the financial returns of their invention. This is in the interest of both the inventor and society – the inventor has an incentive to come up with new things, and society benefits both from the new functionalities created by the inventors and the ability to build on what the inventor has done already.

The pharma industry argues that their high returns are justified both by the tremendous improvements in health that we have seen over the last hundred years, and the high risks that the industry takes in pursuing discovery research, but as many critics point out, a lot of the basic research that forms the backbone for drug discovery is funded by the US Government through the National Institutes of Health.

Can Pharma Companies Take the Moral High Ground?

Not so long ago, pharma companies showed disdain for human life when they refused to make available the AIDS cocktail to African countries at affordable prices. My students were shocked to see this insensitivity when they saw the film “Fire in the Blood.” It took the combined effort of activists, Bill Clinton, Indian pharma companies like Cipla and many others to make a reasonably priced alternative available, and hence save many lives. What a far cry from the time when Merck made Ivermectin available free of cost to control the spread of river blindness in many African river communities.

And, in recent years, some of the best pharma firms have been found to fudge trials data, which certainly means they can’t take the high moral ground.

All this has led to the pharma industry being distrusted by many. An interesting manifestation of this distrust is the new conspiracy theory that the Ebola virus has been spread and hyped up deliberately so that healthcare firms can make a killing from vaccines and therapies related to the virus.

Options before the Government

The government will have a tough time dealing with this pressure from the US government on behalf of large pharma as it has already attracted criticism from the developed world by staying firm on the food security issue, and thus delaying an agreement in the next round of global trade talks.

So, what should we do?

While compulsory licensing should be used sparingly, we should not give up this provision. The threat of compulsory licensing, if nothing else, induces companies to be more creative in their strategies. Witness the recent deal between Gilead and Cipla where Gilead has licensed Cipla to produce and distribute one of its new drugs in relatively poor economies at significantly lower prices than in their home markets.

Many global pharma companies had started out-sourcing trials to India, but this came to a halt after we started making the trials approval process too complex and opaque. We need to take a fresh look at this quickly, create transparent but subject-sensitive clinical trial guidelines and try to revive India’s position as an important location for clinical trials. This will help us engage more positively with the pharma industry.  

Any  change in our position on patents must be contingent on significant investment by global pharma in India, in programmes to address diseases of interest to us including marlaria and tuberculosis.

The government should support R&D by Indian pharma companies and encourage the development of local capabilities in drug development. This is critical because many of the Indian companies that entered new drug development have since exited because they were unable to sustain their investments or get adequate rewards.

In conjunction with all of this, while we should prevent egregious evergreening, perhaps it’s time to see whether we have defined patentability of drugs too narrowly in the Patents Act of 2005.

India should come First

I remember reading an article or book chapter by Jagdish Bhagwati some years ago in which he argued that multinational corporations don’t pose a threat to national sovereignty, but that countries do need the ability to deal with them.

The present government has indicated its keenness to stand up for what it sees as the national interest. I hope this includes taking a firm stand on the patents issue. I am not sure what to make of the government’s recent decision to limit the scope of the National Pharmaceutical Pricing Authority – is this just a manifestation of the government’s pro-market stance, or is this a signal to reach out to the pharma industry?

India should not give up on any of its sovereign rights, including the right to define what is patentable and what is not, without getting something substantial in return.

[The views expressed here are the personal views of the author.]

My Lessons on Entrepreneurship from Dr. Prathap Reddy, founder of Apollo Hospitals

When we talk about healthcare innovation in India, the names of pioneers like Aravind Eye Hospital, Shankara Nethralaya and Narayana Hrudayalaya usually spring to mind. I guess its natural in a poor country like ours that our first thoughts go to organizations that have been successful in bringing high quality, low-cost care to the poor. But, if we take a more holistic view, others have made a significant contribution to making healthcare what it is today, even if there are several challenges still remaining.

After all, if we rewind about 30 years, all we had in tertiary care was a string of government-run hospitals which were poorly run but sustained by a group of outstanding individuals working heroically in tough conditions; a few outstanding charitable and missionary hospitals (institutions like CMCH Vellore); and some private nursing homes and small hospitals largely run by individual doctors. To come from that situation to one where India is seen today as a growing hub of medical “tourism” obviously involved entrepreneurship and innovation of a high order.

Dr. Prathap Reddy and Apollo Hospitals

The fact that the Indian health landscape would have been much worse without the contribution of high-end “corporate” healthcare was brought home to me when IIM Indore was honoured by a visit by Dr. Prathap Reddy, founder and Chairman of the Apollo Hospitals group recently.

My teens in Chennai (or Madras as it was then called) coincided with the time that the first Apollo hospital was being built, and I can recall that the creation of a “5 star” hospital was met with suspicion and sometimes even downright hostility. That’s not surprising when you remember that socialistic fervour in India (represented by the nationalisation of banks) peaked just a decade earlier.

Dr. Reddy had to face major policy and regulatory challenges when he started the Apollo Hospital project. Hospitals were not considered “industrial” activity at that time, and therefore it was next to impossible to raise money from either banks and financial institutions or the capital markets. Changes to these regulations needed intervention from the highest decision-making levels in the country, and took time.

From a single, struggling corporate hospital to the diversified global healthcare player of today, Apollo has come a long way. Like some other notable companies such as Infosys in the software industry or HDFC in the housing mortgage industry, Apollo was the right company at the right place at the right time – economic deregulation and integration with global markets in the 1990s provided a supportive environment for these companies that had already established the soundness of their basic delivery capabilities to take wing and fly.

The Healer

Dr. Reddy presented us with a copy of his recent corporate biography, Healer, written by Pranay Gupte. While I was daunted by the size of the book (500+ pages), I was intrigued enough after hearing Dr. Reddy speak to our students and faculty to plough through the book. I was hoping to find more detailed answers to some of the questions that my students had posed to him such as: Why did you start Apollo?  How did you overcome all the obstacles that came in the way? Is Apollo relevant in a poor country like India?

Some things come out clearly from the book. Dr. Reddy was born in a prosperous agricultural family. It was not clear that he would become a doctor when he was young, and in fact the reason he chose to shift to medicine, i.e., from Madras Christian College to Stanley Medical College (SMC) is not clear from the book. Of course, it’s an interesting reflection on the times that he was able to get into a top medical school apparently without much difficulty. The book suggests that, at SMC, his contributions were more organizational than academic – he conceived and held the first medical exhibition and open house at the hospital, and that was a roaring success. But he must have done adequately well in academics to move to the UK and then to the US to specialise and practise.

I earlier had the impression that Dr. Reddy had spent a considerable time abroad, but he was there for only 6 – 7 years. He returned to India when his father suggested in a letter that he should contribute to his community and country, and first worked in a small private hospital in Chennai. The trigger for setting up Apollo was the death of a 38-year old man who couldn’t afford to go to the US for an open heart surgery that was not being performed in India at that time.

Why was Dr. Reddy successful?

From an entrepreneurial standpoint, there were several factors that have helped Dr. Reddy been successful. Determination, patience and perseverance don’t even need to be mentioned I suppose – no entrepreneur trying to do something big in India can succeed without these. I would put the art of “how to win friends and influence people” at the top of the list. Whether it was the ability to attract talented Indian doctors who had emigrated to the west to return to India, or to influence politicians and bureaucrats to make important policy changes, Dr. Reddy’s passionate vision for better healthcare in India, his polite bearing, his concern for individuals and willingness to treat the world as his family all played an important role in Apollo becoming what it is today.

Dr. Reddy is a good judge of people. He is able to assess people quickly, make an offer to a potential employee after a brief interaction, and then give him or her the support and assurance to allow development of a new specialisation or department. I noticed from the book that he was quite quick to approve purchase of the latest technologies, something that most doctors like. At the same time, he didn’t compromise on quality and safety – on the contrary, an Apollo hospital was the first Indian hospital to get the prestigious JCI certification, considered to be the gold standard of healthcare.

I was very impressed after meeting and hearing Dr. Prathap Reddy. He is 80+, but his enthusiasm and interest would do credit to a much younger man. He is polite to a fault, whether it be with professors or students. He answered all our students’ questions patiently, and in detail. He is as fired up by the health challenges of today as he was when he started Apollo over 30 years ago. Certainly, he is an inspiring figure and role model for all of us.

Apollo’s Relevance to India

Is Apollo relevant to India? Dr. Reddy’s vision is to provide world class healthcare at prices affordable in India. Looking at the range of advanced treatments that Apollo has pioneered in India ranging from open heart surgeries to transplants, and the scale on which Apollo does them (in many areas, Apollo, as a group, does the largest number of procedures in the world with success rates comparable to the best), India would have been much worse off without Apollo. More importantly, Apollo (and Dr. Reddy) have been the catalyst for the rest of the high quality tertiary healthcare sector. Though Apollo’s contributions have been predominantly in curative care, the group has contributed to preventive healthcare as well through master check-ups and, in recent years, campaigns for healthy hearts and lower sugar consumption.

While Apollo itself offers a certain number of surgeries and treatments at subsidised prices to the poor, people who couldn’t have afforded Apollo’s services earlier now have access to their services thanks to the insurance schemes started by some state governments.

In his talk at IIM Indore, Dr. Reddy emphasised that Apollo does make all efforts to keep costs down. He specifically mentioned five ways: (1) reduce the length of a patient’s stay in the hospital, particularly after surgery [overall stay reduced from 7 days to 5 days]; (2) reduce morbidity by enforcing tight standards on infection control (infections elongate stay and increase costs); (3) use new techniques like “beating heart surgery” to reduce time in hospital; (4) reduce antibiotics dosages; and (5) improve surgical and treatment outcomes.

Conclusion

Dr. Reddy and his team at Apollo must be congratulated for what they have achieved in India. When Dr. Reddy started out, few held out any hope that he would be able to offer the best healthcare in India. He has conclusively proven those nay-sayers wrong, and in the process created a platform for high quality healthcare in India. While it’s admittedly not targeted at the “bottom-of-the-pyramid,” that shouldn’t detract from his significant achievement.

[The views expressed here are the personal views of the author. I thank Rashmi Shukla and Omkar Palsule Desai for their notes from Dr. Reddy’s talk at IIM Indore.]

New Chronicles from Central India: MP Global Investors Summit, Leadership Panel

Indore was the venue of a mega event last week, the third Madhya Pradesh Global Investors’ Summit (GIS). This was a start-studded event, with a who’s who of Indian industry sharing the stage with Prime Minister Modi and MP Chief Minister Shivraj Chouhan. The general mood was positive - everyone continues to bask in the glow of the optimism created by the new government and the hope that good days are ahead.

Madhya Pradesh’s economic performance in recent years has been impressive. At 11%, the state had the fastest growing economy in the country in the last year.  Much of this growth has come from agriculture. I haven’t studied this in detail, but improved irrigation, better storage, and value addition through food processing appear to have been some of the drivers of this agriculture-led growth. MP is a major producer of crops as diverse as soya, potatoes, and wheat.

There is plenty of evidence of improved storage in the vicinity of IIM Indore itself. 6 or 7 huge cold storage facilities are clearly visible within a 2-3 km radius of the campus. I recently met one of the cold storage owners, and he told me that there are 15 near IIM, not 6 or 7. He added that all of them are doing good business, with the focus being on potatoes. Given that 30% or more of fruits and vegetables grown in India are lost due to spoilage arising from poor storage, MP’s focus on this issue seems to be spot on.

MP’s advantages as a location for agriculture were brought home to me when I met one of my former students from IIMB, Deepakk Goyal, at the GIS venue. Deepak is today a full-time farmer in MP, having chucked his job and moved out of his hometown, Kolkata.

MP’s Challenge

But, the state realises that sustaining this growth momentum will mean going beyond agriculture. That’s where industrial investment comes in. In his speech, the Chief Minister outlined some of MP’s key selling points – electricity (the state is power surplus thanks to substantial increase in generating capacity over the last decade), availability of land (the state already has a land bank), water, roads (highway infrastructure), people and a supportive government and bureaucracy (reflected in clear policy documents and “single window” clearance).

Having lived in MP since the beginning of this year, I can see that these are by and large true, but the challenge is now to make sure that these benefits are consistently available. Contemporary manufacturing is all about efficient logistics, and the competitiveness of any enterprise will be limited by the weakest link in the chain. Speed of execution is important, and from what I can observe of infrastructure projects in the vicinity (flyovers on the By-pass road, flyover on the railway crossing near the IIM campus, the roads connecting IIM to the city, etc.), there is considerable scope for quickening the pace!

Panels at the GIS

The GIS was more than just an effort to bring industry leaders to MP, there were a number of other sessions organised around the main event. These included sectoral panels, presentations by partner countries, and some thematic sessions. We were invited by the organisers (CII and E&Y) to put together a panel on “How Great Leaders Inspire Action.” I don’t know how they chose this topic (it’s quite different from most of the other panels at the summit), nor how they chose IIM Indore to anchor it, and honestly I was initially a little unsure of what was expected. But, after some persuasion by our faculty colleague, Professor DL Sunder, I decided to accept the request to design and moderate the panel.

The Leadership Panel

We had four interesting speakers on our panel.

• Sumer Singh is a veteran teacher and principal, and currently heads Daly College (DC), Indore. DC has a hoary past, having been set up more than a hundred years ago to train the princes of Central India. Under Sumer’s leadership, DC was recently rated as the best school in India. Sumer is a fascinating person himself (he is an author and a chef besides being a teacher) and it doesn’t take much to imagine him being a great source of inspiration to DC students.  

• Pramath Sinha has motivated people in a variety of contexts including McKinsey & Company where he was a partner, Ananda Bazaar Patrika where he was CEO, the Indian School of Business (ISB) where he was founding Dean and, more recently 9.9 Media as the principal founder. The Young India Fellowship (YIF) that he launched four years ago has today become a part of India’s first world-class, liberal arts-centric Ashoka University, of which he is a co-founder.

• Shoaib Ahmed is a member of the core leadership team at Tally Systems, India’s most successful software product company with over 650,000 installations. He is also a fellow at the Indian Software Product Industry Round Table (iSPIRT), an initiative to help India become a leader in software product development. At iSPIRT, Shoaib has led a pioneering effort to bridge the gap between small enterprises and software product developers.

• Deepak Malhotra’s day job is as a VP of HR at ILFS. He is an author and his first book is on its way. Deepak’s current focus is millennials in India and their aspirations.

In the discussion, we didn’t restrict ourselves narrowly to the topic, but looked at multiple dimensions of leadership. Shoaib’s insight from Tally’s leadership in products was the importance of having the right mindset. In their case, it meant thinking and behaving like a product company rather than like a services company. This included proactively identifying what new features customers would need and incorporating them into the product roadmap.

Deepak’s emphasis is on “matching the age to keep them engaged” (also the title of his forthcoming book). Leaders who understand the aspirations of different generations of employees in their organizations are more likely to be able to achieve this engagement. He shared his understanding of what drives the current generation of millennials.

Not surprisingly, both Sumer and Pramath spoke about the role of the education system in encouraging leadership. Sumer related how there is a deliberate effort in DC to allow students to find what excites them so that they can excel in that. In response to a question he clarified that counselling parents to allow their kids to pursue their dreams is sometimes needed. But, there was general agreement that Indian parents are now more open to considering alternate career options ranging from being a disc jockey to being a chef.

Pramath related how the realization that leadership development is unlikely to happen within a business school setting led him to look at innovative programmes like the Young India Fellowship (YIF). YIF is a one-year liberal arts post-graduate programme offered to talented students from a wide variety of fields. I have taught in the YIF, and I must say that the YIF attracts some outstanding students. They have been very successful in going on to some of the best graduate programmes in the United States.

Pramath emphasised the importance of exposure to the humanities and social sciences in creating outstanding leaders and spoke about some of the distinctive features of Ashoka’s curriculum.

MP CM on Leadership

We had the pleasant surprise and privilege of an unexpected visit from MP CM Shivraj Chouhan during the panel discussion. I invited him to share his perspective on leadership with the panel and audience. Shivrajji underlined the importance of individual qualities like humility and taking people along with you in the practice of leadership. Clearly, this is close to his heart for these are the same traits that are used to explain his becoming the CM for the third time!

All in all, the GIS was an important event for Indore and MP, and brought huge crowds to the venue to participate and share in the excitement.

[The views expressed here are the individual views of the author.]

"Clear Hold Build" prompts a fresh look at Corporate Responsibility

I have never been totally comfortable with the concept of Corporate Social Responsibility, particularly in India. Somehow, it always seemed to me that CSR provided an opportunity for companies to get away with various transgressions by making a big show of giving back to society, akin to the biggest crook in town giving the largest donations to the local temple.

But, don’t companies have to be responsible first before they can become socially responsible? Isn’t corporate responsibility an essential part of the social contract under which business operates?

What do I mean by corporate responsibility? Following the laws of the land. Paying taxes regularly. Not trying to find convoluted ways of avoiding taxes. Not knowingly causing harm to anyone. Not exploiting the weak, whether they are employees or members of the community.

Its noteworthy that even that apostle of free markets and unbridled capitalism, Milton Friedman, wrote that "there is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

That is what corporate responsibility should be at a minimum – staying within the rules of the game, not practicing deception or fraud.

Clear Hold Build

This perspective on corporate responsibility was only strengthened when I read Sudeep Chakravarti’s recent book Clear Hold Build: Hard Lessons of Business and Human Rights in India (HarperCollins, 2014).

In this book, Sudeep demonstrates how some of India’s largest corporate groups (and some foreign ones as well) have worked with the State to access raw materials like iron ore and bauxite from some of India’s poorest regions without following the laws of the land concerning environmental clearances, local public hearings, compensation, resettlement and rehabilitation. These are of course the very same areas that are at the centre of social conflict and often under the grip of maoist forces.

Many years ago, I spoke to one of India’s leading industrialists and asked him about competition from China. He was worried that Indian business might lose out since the Chinese entrepreneur is greedy for growth while the Indian entrepreneur is easily satisfied. Looking at the apparent willingness of Indian businessmen to operate in areas with high levels of social conflict, I wonder whether that distinction he made between Indian and Chinese entrepreneurs is true today!

Chattisgarh is one of the key states where such social conflicts exist. Until I visited Raipur recently, my image of Chhatisgarh was of a beautiful but poor state. That image got rattled when I realized that Raipur has many of the top hotel brands with sparkling new hotels. At the hotel where I was staying (incidentally, not one of the biggest brands) I saw lavish birthday parties being thrown for small kids; many of the cars parked outside were BMWs and Mercs. Mining and construction are the main sources of such wealth, I was told!

Not an Indian problem alone?

Of course, to be fair, irresponsible corporate behavior is not unique to India. In recent years, leading global automobile and pharmaceutical companies have been revealed to suppress adverse safety data and sell products that they knew were not completely safe. Some of the top apparel labels turned a blind eye to thousands of workers employed by their contractors working in obviously unsafe conditions in Bangladesh till a couple of major fire accidents forced them to take corrective action.

The Role of the State

Clear Hold Build paints an unflattering picture of business in India, but the State comes out looking even worse.  I recall reading Death in the Andes, Mario Vargos Llosa’s evocative account of exploitation by a mining company many years ago. When I read that book, I never imagined that such behavior could be emulated in a democratic country such as ours. But, there is increasing evidence of exactly that – besides this book, for a graphic account, see Paranjoy Guha Thakurta’s documentary Blood and Iron on illegal mining in Bellary. The State which should have been the protector of individual rights is not just a silent spectator but often an active participant in such loot, and in extreme situations the State is taken over by the exploiters themselves as we saw for a few years in Karnataka.

The saving grace is that in a democracy the electoral process ultimately catches up with the exploiters. The then ruling parties in the states paid a heavy price for what happened in Nandigram/Singur and Bellary respectively. But, not before a lot of damage was done to the local people, their land and their livelihoods.

Companies need to Develop New Capabilities

If companies are to become more responsible and respectful of human rights as Sudeep Chakravarti demands, they need to develop a new set of capabilities. For example, under the new Land Acquisition Act, companies will no longer be able to rely on the State using its powers of eminent domain to acquire land for their new factories. Companies will have to work with local communities and convince landowners to sell their land to the company.

As Beardsley et. al. wrote in their article “A New Era for Business” in Stanford Social Innovation Review (Summer 2007), companies will increasingly have to factor socio-political issues into their strategic decision-making process. This would mean company CEOs and senior managers would have to engage more with these issues, and with NGOs, communities, and other actors involved in the process of social policy formulation.  

Tailpiece

Debate and discourse in India has been richer for those who have veered off the beaten track and explored our soft underbelly. Sudeep Chakravarti is certainly one of these explorers. Starting in traditional business journalism, he is today an expert on the maoist movement in India and the regions most affected by this phenomenon. In this book, he brings together his understanding of business and social conflict in a way that few others can.

[The views expressed here are the personal views of the author.]