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The economic impact of changing the environment for innovation in Argentina - applying the lessons of Asia to Latin America

Tim Wilsdon1

Abstract

This article discusses the potential impact on innovative and economic activity from positive changes in innovation policy in Argentina drawing from the experience and evidence of case study markets. It first reviews the current innovation environment and existing evidence on the relationship between innovation policy change and impact on the level of activities in Argentina and other Latin American and Asian markets. This leads to a set of indicators on the magnitude of activity and strength of innovation, which are reviewed for chosen case study markets that have experienced important and relevant innovation policy changes.

Drawing from observed impact in these markets and a statistical analysis, we develop a scenario-based model on the potential gains that Argentina could have in terms of added innovative and economic activities. These results have particular relevance for Argentina, as a market with a strong resource base to undertake innovation, but which has under-performed in terms of innovative activity. Strengthening the policy environment could unlock Argentina’s potential and support a step change in innovative activity.

RESUMEN

Este artículo analiza el impacto potencial en la actividad innovadora y económica de los cambios positivos en la política de innovación en Argentina a partir de la experiencia y la evidencia de los mercados de estudios de casos. Primero revisa el entorno de innovación actual y la evidencia existente sobre la relación entre el cambio de la política de innovación y el impacto en el nivel de actividades en Argentina y otros mercados de América Latina y Asia. Esto lleva a un conjunto de indicadores sobre la magnitud de la actividad y la fuerza de la innovación, que se revisan para los mercados de estudio de caso seleccionados que han experimentado cambios importantes y relevantes en las políticas de innovación.

A partir del impacto observado en estos mercados y de un análisis estadístico, se desarrolla un modelo basado en escenarios sobre los beneficios potenciales que la Argentina podría tener en términos de actividades innovadoras y económicas adicionales. Estos resultados son de particular relevancia para Argentina, como un mercado con una sólida base de recursos para emprender la innovación, pero que ha tenido un desempeño inferior en términos de actividad innovadora. El fortalecimiento del entorno de políticas podría desbloquear el potencial de Argentina y apoyar un cambio gradual en su actividad innovadora

ARTICLE

1. Introduction

Over the last twenty years there have been considerable changes in the location and structure of innovative activity in the life sciences sector. Increasing fragmentation in the value chain with partnerships between research institutions, smaller and larger companies often drives translational medicine and early stages of preclinical and clinical development.2 The globalisation of research and development (R&D) shows new research hubs developed in emerging markets and closer collaboration between academia and commercial companies –often focusing on the trend towards Asian markets and the importance of China–.3 To capture some of the value, many countries have developed innovation plans to encourage innovative activity and foreign direct investment.4

In the context of this study, we broadly define innovation as “a multi-phased process, beginning with lab-based research leading to patentable inventions, moving into the stages of clinical research, which are then translated into safe, effective and commercially viable products from which society gains a benefit in terms of improved health”.5 We also distinguish between measures of innovation that focus on inputs (for example, investment or number of people employed in different activities) and those that focus on outputs (patents, products in development or products ultimately commercialised).

Extensive research in the past has examined the characteristics that make countries attractive locations of innovative activity. However, there is limited focus on quantifying the impact of changing these characteristics through a more favourable environment and the impact this would have beyond the industry in terms of economy.6 The aim of this study is to contribute to the debate by examining the potential impact of changing the environment for innovation in Latin America (LatAm), using Argentina as an example. This seeks to develop concrete evidence on the magnitude and speed of the impact across a range of measures of innovative and economic activity. To achieve this, we undertake a case study analysis based on countries with similar past challenges that have adopted policy solutions.

In the next section we provide a description of the approach, data and methods used for the analysis. This is followed in section 3 by an overview of the environment for innovation in Argentina, the theoretical background on the impact of policy on innovation and the experience of the case study countries on the impact of changing the environment for innovation. In section 4, the results of the analysis and quantification of the impact on Argentina is presented. Section 5 sets out a discussion of the results and draws conclusions.

2. Data and methods

The approach to collecting data and conducting the analysis involved four key steps.

Literature review

First, we conducted a review of the literature with the aim to understand the theoretical background on the impact of a changing environment for innovation and the resulting impact on health technologies, the biopharmaceutical industry and the economy. The literature review focused on studies looking at the general relationship between policy environment and the location of innovative activity and studies focusing on LatAm and Argentina in particular. The timeframe for the search included the years 2010 to 2018 and targeted literature in English and local languages. The following terms were used to capture the environment including “innovation policy”, “intellectual property protection”, “intellectual property regime”, “innovation plans”, “innovation regulation”, “regulatory data protection”, “patent regime” and combined with terms to capture impact including: “innovative activity”, “basic research”, “R&D investment”, “clinical trials”, “patents”, “foreign direct investment”, “tax” and “education”. The research was conducted in PubMed, Google Scholar and grey literature. This yielded over 65 articles with more than 30 articles on international economic theoretical or empirical studies and around 15 specifically focused on Argentina. Based on the literature, we developed an analytical framework on the potential impact of the environment on innovative activity and examined this on Argentina.

Interview process

In addition to the literature, we completed an interview programme to complement the understanding of the environment and impact on innovation. This included 18 discussions with stakeholders from the pharmaceutical industry both local and international and innovation and policy experts as set out in Table 1 below. These took place between September and November 2018.

Table 1

Composition of the interview schedules

	Interviewee type	Number of interviews
Industry	Multinational companies	9
Local and SMEs	3
External(local policymakers and innovation experts)	CROs	2
Researchers and academics	5
Total		18

Source: Charles River Associates (2018)

Note: SME: Small and Medium Sized Enterprise, CRO: Clinical Research Organisation.

Scenario analysis and case studies

Following the analytical framework and the current relationship between environment and innovation and economic activity in Argentina, we undertake a scenario analysis on the potential benefits from an environment change and improvement across a range of metrics. Drawing from the literature, we selected the two case study countries that undertook a change across underdeveloped policy areas relevant for Argentina and assessed the impact on innovative activity and the broader economy. The two selected countries are:

 South Korea: Comparatively slightly larger sized market (population of 51 million compared to 44 million in Argentina) and higher income level (GPD per capita of $29,000 compared to around $14,000 in Argentina). However, it is a suitable choice as it provides the example of a mid-size market that focused on developing local innovation through the ‘biotech plan’ in 1994 to ‘557 plan’ in 2008. This allows for an analysis of relevant policies and an appropriate timeframe to examine the impact of these on innovation.

 Taiwan: Comparatively smaller sized market (population of 23 million compared to 44 million in Argentina) and higher income level (GPD per capita of $25,000 compared to around $14,000 in Argentina). However, Taiwan faced policy challenges on innovation and has more recently focused on developing innovative activity, through policy changes occurring in 2005 and 2007 respectively.

Metrics and data analysis

In the final step we modelled the impact of changes in the environment on Argentina. These included indicators of innovative activity (such as early research output and publications, clinical trials and patents) and economic activity (such as biopharmaceutical research employees and taxes). The baseline was developed using data retrieved from the literature review and data retrieved from international and local databases such as WIPO, World Bank and each country’s Ministry of Health website. In total, we collected over 30 government, academic or policy informing reports and over 10 publicly available national databases. This data was then used to conduct the impact and scenario analysis in Argentina.7

3. Background and review of evidence

In this section we discuss the theoretical framework of the relationship between the environment for innovation and the resulting activity and application through existing evidence in Argentina and the case study countries.

3.1. The relationship between policy and innovation

Prior theoretical and empirical studies have investigated the relationship between changes or strengthening policy framework, specifically for pharmaceuticals, and the level of innovative (pharmaceutical) activity across developed and developing countries. In one of the earlier studies, Aubert (2005) provides a conceptual framework for approaching the promotion of technological innovation and its diffusion in developing countries. It argues that, to promote innovation, the necessary package of support (including technical, financial, commercial, legal) and flexible, autonomous agencies adapting their support and operations to the different types of concerned enterprises, must be provided. It finds intellectual property rights (IPR) rights are vital, as patents provide protection for the invention enabling the investor to regain funds they risked for R&D. Otherwise, companies or investors will not risk capital to discover or develop a drug and as a result would not focus their R&D efforts in a country with weak intellectual property (IP) protection. Alongside proposing a framework, the report outlines proxy variables which can be used to measure the level of innovation in a country.8 More recently, Charles River Associates (2013, 2015) analysed the conditions for encouraging innovation in emerging markets looking across regions. The reports found that to develop the range of innovative activities from basic research to clinical development a jigsaw of policies is needed. It was noted that this would take considerable time, and key components are to have a consistent policy framework, a coordinated industrial and health policy, strong intellectual property and an environment that encourages partnership between the different stakeholders.9

Other studies have looked at distinct policy instruments, particularly IP protection. The relationship between IPRs and innovative activity varies depending on the methodology, whereby some papers have shown a positive relationship between patenting activity by foreign and domestic innovators and others have found a non-linear “U”-shaped relationship depending on the level of economic development of a country.10 11 12 Similar is the case for private sector R&D spending.13 However, for pharmaceutical patents, a positive relationship between the level of pharmaceutical protection and biopharmaceutical patents filed is broadly documented.14 15 The literature further finds that there is a positive relationship between the strength of IPRs and clinical trial activity, foreign direct investment (FDI) from multinational companies (MNCs), and the number of collaborations between foreign companies and local researchers, institutes and companies in developing countries.16 A significant portion of the literature documents a positive relationship between strong IPRs and wider economic indicators such as economic development (measured by GDP per capita), jobs created and the balance of imports and exports.17 For example, in a review of close to 200 studies on IPRs and economic growth, Falvey, Foster and Memedovic (2006) find that strong IP protection, generates economic growth.18 Improvement in the level of IP protection can also result in greater trade (imports and exports), particularly in the trade of knowledge-intensive goods, such as pharmaceutical products. Delgado, Kyle and McGahan (2013) investigate the change in imports and exports in developing and developed countries following the implementation of TRIPS, and find a positive influence of the latter on IP-depended products represented largely in biopharmaceutical and information and communications technology sectors.19 There is a general consensus that policy regarding IPRs are necessary but not sufficient to spur innovation and that the wider innovation ecosystem is important. A number of studies show that the impact of strong IPRs varies with the level of economic development in a country and the extent to which other factors such as skilled labour and scientific infrastructure are available, determining the compound relationship between IPRs and domestic innovation.20 21

In terms of the approach, many studies focus on case studies but a few use statistical approaches to quantify the relationship. A World Bank analysis (2004) on the relationship between knowledge, domestic innovation and economic development across 92 countries during 1960-2000 finds that domestic innovation, as measured by the number of patents granted by USPTO, is positive and highly statistically significant. The conducted regression analysis suggests that a one percent increase in the number of patents granted by the USPTO is associated with an increase in average economic growth of 0.19 percent.22 Another study by Berndt, Cockburn, and Thiers (2006) conduct an econometric analysis and find that the rising trend in clinical trials conducted in emerging economies at the beginning of the century is due to changes in the strength of patent protection for biomedical inventions. This activity is primarily driven by Phase III clinical trials.23 Similar approaches have been applied to FDI.24 25 To unpick the impact of different approaches, studies have used a wider set of controls. Qian (2007) evaluates the effects of patent protection on the pharmaceutical innovation for 26 countries with patent laws issued during 1978-2002. The analysis finds that national patent protection alone does not stimulate domestic innovation. However, domestic innovation accelerates in countries with higher levels of economic development, educational attainment, and economic freedom.26 Similar is the argument outlined by Kumar (1996), who finds that whilst the available infrastructure and local capabilities influence the probability of attracting R&D investments from MNCs, the overall strength of the IP protection also contributes to attracting foreign R&D investments in a sample of industrialised countries at the time (including Argentina, Brazil, Mexico, Hong Kong, Singapore, Taiwan and Israel).27 Finally, a number of papers attempt to holistically look at policy development. These find that long-term government strategies and coherent industrial policies can lead to local capacity development and encourage the sustainable development of the pharmaceutical industry and thus local innovation.28 29 30

Drawing on this literature we developed an analytical framework that associates the policy environment and the resources in a country to support innovative activity, to metrics of innovative activity, particularly in the biopharmaceutical space, and the wider economy. This is illustrated in Figure 1 below.

Figure 1

The relationship between policy framework

and innovative environment

Source: CRA Analysis

We applied this framework to assess the current policy and resources environment in Argentina as well as the level of innovative and economic activities, with a focus on the pharmaceutical industry, where information for this was available.

3.2. The environment for innovation in Argentina

A number of reports have assessed the relationship between the current IP environment in Argentina and the level of local innovation and performance against indicators of biopharmaceutical activity.31 32 33 34 The most comprehensive review is however over ten years old, in which Thorn (2005) examines the strengths and weaknesses of Argentina’s national innovation system in order to propose policies that will help address these challenges.35 Overall the paper finds that Argentina underinvests in R&D in terms of national spending, but also in terms of private sector involvement in R&D. Collaboration between private companies, universities and government research institutions, which are particularly strong in basic research, is low and there is a lack of R&D personnel with advanced degrees to fill the future demand for researchers. The paper argues that a strong intellectual property rights (IPRs) regime should be in place to complement national policies to provide enterprises with a strong incentive to undertake R&D and commercialise innovations. It further argues that economic growth is to a large extent driven by innovation and that the ability to create knowledge and innovate is essential for gains in productivity and global competitiveness, giving South Korea, Singapore and Taiwan as examples. A more recent assessment of the current innovative environment in Argentina was completed in the Biopharmaceutical Competitiveness Investment Survey (LatAm Special Report) in 2017.36 Argentina is assessed to be amongst the countries less likely to attract foreign investment (through basic research, clinical development, manufacturing or commercialisation efforts), lagging behind Chile, Costa Rica and Mexico, despite having a strong potential due to its local capabilities and available infrastructure, similar to these countries. Key reasons for this are inappropriate leveraging of opportunities for collaborative R&D and technology transfer in biopharmaceuticals, long clinical trial approval delays, red tape and gaps in technical capacity as well as constraints in market access and lack of effective IP protections.

The evolution of innovation

Argentina is characterized by a complex science, technology and innovation system at national government level, which is seen as a potential weakness for the policy environment. Multiple agencies with overlapping responsibilities feed into the Ministry of Education, Science and Technology (Cabinet for Science and Technology, the Federal Council for Science and Technology, and the Interagency Council on Science and Technology).37 38 Despite the complexity, Argentina has historically had a strong focus on innovation. The Argentine government approved the first national multi-year science and technology (S&T) plan in 1997 and since then has shown a strong commitment to encouraging innovation in the country through a series of innovation plans and R&D tax incentives (Figure 2). These aim to expand the scientific and technological capabilities in the country, increase public and private investments in R&D as well as the number of researchers in basic research, to transform Argentina into a knowledge-intensive economy.39 Additionally, Law 26.270 made R&D tax incentives available to biotechnology companies and as of 2007, stipulates that a company may claim further tax relief. The Law also makes available the provision of seed capital and early-stage funding to further incentive R&D.40

Despite these broader innovation policies and the evident prioritisation of the pharmaceutical industry, Argentina shows weaknesses with regards to innovation and as a result has been put on the watch list of countries on the 2017 PhRMA special 301 Submission. The primary drivers of this are a) the lack of Regulatory Data Protection (RDP) for pharmaceuticals,41 b) the weak enforcement of the IP rules by the national agency that has led to a burdensome and lengthy process of seeking preliminary injunction to prevent the sale of an infringing product during a patent litigation, c) the existing backlog of patent applications and d) a series of issued resolutions that implemented restrictive criteria for the patenting of pharmaceutical inventions. The latter include:

 Joint Resolutions 118/2012, 546/2012 and 107/2012 (jointly known as “The Guideline on Patentability”) issued in 2012 by the Argentinian government and followed by the Argentinian Patent Office (INPI). The guideline restricts the patentability rules and methodology affecting innovation on existing molecules (e.g. new formulations, combinations, dosage) and the use of existing molecules such as in new indications.42

 Resolution 283/2015 passed in 2015, which leads to a more restrictive interpretation and application regarding the prohibition of patentability of every living matter pre-existing in nature (including biologics) set forth in section 6 of the Argentine Patents Law.43

The Argentinian government has taken steps to address some of the current limitations and to improve the current IP framework, particularly relating to the backlog of patent applications. In 2016, the Resolution P-56/2016 (2016), states that patent applications with claims that are the same as for patents granted abroad can be considered through a fast-track process. However, the Guideline on Patentability and the Resolution 2835/2015 take precedence when considering patent applications.

Figure 2

Innovation policies and IP rules in Argentina

Source: CRA Analysis

Updating the assessment of innovative capacity

Compared to other LatAm countries, the total gross domestic expenditure on R&D (GERD) in Argentina, stands at good levels in the region (an average of 0.4% of GDP), representing 0.5% of GDP in 2016(as latest available data) and was only exceeded by Brazil with 1.3% of GDP.44 However, Argentina demonstrates a very high dependence on public R&D funding whereby the levels of private investment in R&D as a percentage of the total were only 21% in 2015, the lowest in LatAm.45 Argentine researchers are underfunded compared to countries in the region in terms of GERD per researcher in 2016, which was only US$55,000 in 2016.46 At the same time, government agencies and public universities accounted for more than two thirds of R&D financing and implementation in 2015.47 Furthermore, the local pharmaceutical industry contributed only 2% of its sales to R&D in 2013.48 In terms of location, R&D spending was heavily concentrated in Buenos Aires (city and region), Córdoba, Río Negro, Santa Fe and Mendoza. CONICET (the National Scientific and Technical Research Council) accounted for 17% of the total R&D spending where R&D activities were conducted.49 In 2016, basic research accounted for 35.9% of R&D activity compared to applied research at 42.7%) and experimental development (21.4%).50As discussed, another source of financial investment in R&D FDI. While data on FDI in the pharmaceutical industry is not publicly available, general FDI inflow in Argentina has been heavily fluctuating in the past 10 years (2010-2017), but overall decreasing from above 2.5% as a percentage of GDP in 2010 to 1.8% in 2017, which is below the average of Brazil, Mexico and Chile of 2.8%.51

Another critical factor for success in innovation is educational attainment. In the region, Argentina ranks high on education levels as a relatively high percentage of the population has engaged in some secondary (40%) or tertiary education (21%). In OECD countries this stands at an average of 43% and 37%, respectively. A strong education foundation, places Argentina in a comparatively favourable position to embrace the knowledge economy.52 In addition, the number of higher education graduates has been growing (2007-2016). Whilst 95% of graduates had a first level degree in 2016, only 3% and 2% have a master or a doctorate degree, though these percentages have been on the rise since 2007.53 In the region, Argentina has the highest number of researcher per thousand economically active, although these are across all sectors.54 Additionally, interviews with experts from academia, clinical research and local and international pharma companies, agree that the level of education and expertise of researchers in Argentina is high and one of the most mature in the region. However, lack of their integration in private sector institutions is evident. The majority of researchers (91%) are employed by public institutions and only 9% by the private sector companies.55 For example, CONICET alone employs 8,000 researchers.56 According to interviews with local academics, Argentina has been recently facing a threat from “brain-drain” of skilled researchers, due to the poor financing opportunities in the country, many of whom emigrate to the United States and Europe. Overall, in terms of resources available, Argentina has good infrastructure and sufficient medical personnel that enables the provision of high quality healthcare. This has also been highlighted as a key reason for conducting clinical trials in Argentina, according to interviews with representatives from the industry.57

Whilst recent information on the number of collaborations between private companies and public universities and institutions is unavailable, the literature has previously documented a poor linkage and collaboration between the public and the private sector indicating that the most important external partners for firms involved in R&D are suppliers, clients and consultancies. Universities and training institutions, public and private laboratories, technology transfer offices and particularly government S&T agencies are not often the partner of choice for private innovators in Argentina. The study argues that cooperation is hampered by the lack of incentives for public researchers in Argentina to link and address private sector knowledge needs.58 Using the number of internationally co-authored articles as a proxy for collaborations, Argentina lags significantly behind the rest of the world, without much improvement from 2003 to 2016, exceeding only Hungary out of a set of comparable global markets including Brazil, Mexico, and Chile.59

In other areas, recent innovation policies in Argentina particularly on stimulating direct funding and tax relief (Figure 2) have had a positive impact as currently there are over 200 biotech firms with earnings over $2 billion, across multiple sectors such as human health, animal health, food processing, and agriculture. Of these most are small and medium-sized enterprises, employing 8,000+ workers and are concentrated to Buenos Aires, Santa Fe and Rosario. More than half of these companies are involved in the development and commercialization of human healthcare products. This is in line with a positive trend in the country as this number of has grown from 120 in 2009 to over 200 in recent years.60

Updating the analysis of innovative performance

Compared to other markets in the region and globally, the level of publications in Argentina is lower than expected given level of per capita GDP. Proportionally, out of the total number of scientific publications, those in life sciences subjects have decreased from 26% to 23% between 2011 and 2015 compared to a growth in the absolute number from 8,820 in 2011 to 11,014 in 2015.61 Compared to markets in the region, in terms of researchers’ productivity, the number of S&T publications per full-time researcher is amongst the lowest in LatAm countries - 20.7 in Argentina compared to a regional average of 42.3.62 In terms of quality, Argentina places ahead of Mexico and Brazil on to the impact factor of the publication output as measured by the share of local publications out of the top 1% most cited articles in the Scopus database (Argentina: 1.19, Mexico: 0.79 and Brazil: 0.65). The trend in recent years shows that Argentina is on an upward trajectory for this indicator with a 49% increase between 2010 and 2014.63

Looking at clinical research, Argentina underperforms in the total number of clinical trials per millions of people compared to other low end high-income economies, but exceeds peers in the region, ahead of Brazil, Mexico, Colombia and Ecuador.64 However, the number of phase III clinical trials per millions of people in Argentina experienced a drop after 2013, and has since declined over the years –from 2.61 in 2013 to 1.87 in 2017–. The number of phase I and II trials is the lowest indicating that early stage is less common in Argentina and that clinical phase III trials are likely conducted to meet regulatory requirements. Furthermore between 2002 and 2017 the percentage of domestically funded phase I, II and III clinical trials have declined from around 40% to less than 5%.65

In terms of innovation output measures, the overall number of pharmaceutical patents granted by INPI in the past 10 years, there has been a sharp drop of 72% in 2012 compared to the previous year. According to interviewees and literature, this is largely attributed to the adoption of the Patentability Guideline in 2012. Furthermore, the number has not recovered in recent years and remains low at 58 in 2015 compared to 204 in 2010.66 In comparison, the number of patents granted to nationals in and outside Argentina across all fields has remained relatively constant between 2007 and 2015 converging at 200 in 2016. However, patents granted to Non-Residents experienced a drop in 2008 from 2,324 in 2007 to 244 in 2008, in line with the global financial crisis, and one around 2012 from 244 in 2011 to 208 in 2012, but this has steadily recovered to a level of 1,678 in 2016, unlike the case of pharmaceutical only patents.67 The number of patents across all fields which were granted to Argentine nationals by the U.S. Patent and Trademark Office (USPTO), falls behind other countries in LatAm despite having the highest number of researchers.68

An analysis of economic indicators related to pharmaceutical and biotechnology sectors in Argentina, show a total increase from 33,995 people employed in 2007 to 41,785 in 2017, with small but consistent increases over the period. However, less than 10% are employed to undertake R&D activities.69 Interviewees report that cooperation between researchers and the domestic pharmaceutical industry is not common, as local manufacturers are focused on producing off-patent pharmaceuticals. In addition, whilst there has been a positive trend in the funding of research positions by MNCs, this remains limited. In real terms, Argentina does not enjoy increasing benefits in the form of tax gains and trade surplus. Since the early 2010s, pharmaceutical tax receipts have increased but in latest years these constitute a smaller proportion of overall tax revenue (1.05% in 2015) suggesting a significantly higher increase in tax collection in other industries. Despite some growth in the level of exports over the past ten years, this is offset by a larger increase in imports leading to consistent trade deficits in the sector. For example pharmaceutical exports remained constant at around $500 million between 2007 and 2017, whereas imports increased from around $1,500 to $2,500 over the same period.70

Overall, Argentina lags behind other countries in the region and comparable OECD and Asian markets in many measures of innovative activities. It performs below peers in private investment in R&D, clinical research outputs and patents issued locally. However, this does not reflect its capacity to undertake innovative activity, as it leads in human capital, infrastructure and strength of the healthcare system. There is potential to unlock further value from existing resources in undertaking research activities and increasing the levels of investment, which remain suboptimal comparatively to other countries in LatAm.

Table 2

Comparison of Argentina to Latin America and the OECD

Source: CRA Analysis

3.3. The evidence from Taiwan and South Korea

The focus of this analysis is to investigate the potential impact of policy changes such as the introduction of innovation plans on the biopharma industry and the development of data protection regulation. These reflect the perceived areas of weaknesses in the Argentinian system. We focus on two case study countries that have undertaken significant efforts in changing the environment in these areas.

First, drawing on South Korea, the most significant changes for the purposes of this study (and hence relevance to Argentina) were the successive national S&T plans such as Bio-Vision 2016 and the 577 Initiative as set out below:71

 The 577 plan, launched in 2008, outlined three overarching objectives: (1) Invest 5% of GDP on R&D (2) Focus on 7 key S&T areas and (3) Be of the 7 major S&T powers. The focus on 7 S&T areas is divided between 7 R&D areas (key industrial technologies, emerging industrial technologies, knowledge-based service technologies, state-led technologies, national issues-related technologies, global issues-related technologies and basic & convergent technologies) and 7 systems (world-class human resources, basic & fundamental research, SME (small and medium enterprise) innovation, S&T globalization, regional innovation, S&T infrastructure and S&T culture).

 As a continuation of the progress made with Biotech 2000, in 2007, South Korea embarked on Bio-Vision 2016; the second phase of their biotechnology promotion plans. One of the major achievements of Biotech 2000 was that of increased South Korean competitiveness from a publication and patent standpoint. South Korea moved from 29th in 1994 in SCIE study rankings to 13th in 2005. With regards to patents, South Korea increased in the US Technical Strength rankings from 21st in 1994-1996 to 14th in 2003 to 2005 and since 1998 the number of Korean domestic patents filed far outstripped foreign patents.72

These innovation policies were introduced in parallel to changes in data protection. The Pharmaceutical Affairs Act (PAA), initially launched in 2007, includes a provision that new and certain prescription drugs may benefit from a de facto data protection period of four or six years as there is no centralised data exclusivity system. An additional data protection benefit in South Korea is that all biologic drugs benefit from de facto data exclusivity.73

Figure 3

Innovation policies and IP rules in South Korea

Source: CRA Analysis. Note: Star indicates key events considered in the analysis.

The second case study country, Taiwan, provides an example of a country where IP incentives were gradually introduced, and at the same time, supplemented with a strong biopharmaceutical industrial strategy to develop a strong and innovative sector. Pharmaceutical inventions have been patentable in Taiwan since the introduction of a law in 1968 that extended patent protection to include pharmaceutical and chemical products.74 Additional IP incentives for pharmaceutical products - Supplementary Protection Certificates (SPCs) were adopted in 1997.75 Following the joining of WTO in 2002, Taiwan implemented additional TRIPS regulations and introduced 5-year long RDP. The grant of RDP is contingent upon filing for marketing approval in Taiwan within three years of obtaining marketing authorisation in a different country.76 At that time, data exclusivity did not apply to new dosages, formulations, indications and combinations.77 In line with period of available data across the indicators and allowing for sufficient time for an impact to be observed, we have selected the first introduction of RDP in 2005 as a key event in the regulatory IP regime, whose impact we are investigating in the follow-on analysis. It should be noted that it was not until 2017 that Taiwan adopted RDP for new indications.

In terms of industrial innovation plans and incentives, we focus on amendments to the national plan on biotech industry released in 2003. This aimed to establish Taiwan as the centre for genomic research and the leading location for clinical trials, as well as the most vibrant biotech-focused venture capital industry in the Asia Pacific region.78 As illustrated in Figure 4, the Biotech and Pharmaceutical Technology Island plan consisted of three major projects: (1) the National Health Information Infrastructure Plan, (2) building Taiwan’s Biobank database and (3) establishing a clinical trial and research system.79 Around the same time, Taiwan implemented regulations to facilitate the knowledge transfer from academia into industry, whose impact on innovation should also be accounted for. For example, Taiwan’s Biotech and New Pharmaceutical Development Act from 2007 allowed publicly-funded researchers to help private companies with R&D.

Figure 4

Innovation policies and IP rules in Taiwan

Source: CRA Analysis. Note: Star indicates key events considered in the analysis.

To understand the impact of changes in the policy environment we have used these events in each country as an anchor to review what happened to measures of innovative activity before and after the introduction of the policy. In reality, changes in innovative activity occur slowly over time and it is challenging to attribute any changes to a single policy (but rather the joint effect of the programme of initiatives). Therefore, we have applied a wide window, looking for an impact during the five years after the introduction of the policy starting around the second year after the policy change. There are also other changes ongoing in terms of market potential, the policy environment in other parts of the world that would ideally be taken into account. However, it is noticeable that examining the many of the metrics we can observe a change in the level or a change in the growth rate following the introduction of these policy initiatives. In addition, we have looked at the local literature and the degree to which government, academia or grey literature has attributed the change in the metric to the change in policy environment. Whilst the literature examining their impact is scarce, two notable exceptions indicate that:

 The progressive changes in protection provided in South Korea are seen as important component in incentivising innovative activity. Before this, most pharmaceutical companies did not conduct large amounts of innovative R&D but there has been an industry-wide shift occurred to focus more intensely on innovative R&D.80

 It was reported that despite opposition from the local pharmaceutical associations, consensus was reached that RDP would stimulate innovative activities and amendments to the Pharmaceutical Affairs Law in Taiwan were introduced in February 2005.81

The resulting changes from this exercise are summarised in Table 3.

In summary, the case study analysis is targeted to two countries which have introduced similar changes in the policy environment as being discussed in Argentina. However, it should be noted that South Korea and Taiwan are very different in terms of culture, resources and income. To try to control this, we have undertaken a simple statistical analysis comparing metrics (such as publications, clinical trials) to the measure of intellectual property protection across global markets, taking into account income and predicting the impact of implementing Taiwan or South Korea’s policy framework in Argentina. This is reported in the Appendix. This provides us with three alternative estimates of the impact of improving the environment in Argentina.

Table 3

Relationship between innovation policy and innovative

and economic activity

Source: CRA Analysis based on various databases82

4. Analysis and results

Drawing from analysis above we have developed two growth scenarios in Argentina. The quantification of benefits is based on four key indicators that, as set out in the previous section, show a significant increase in the level of innovative and economic activity and we can attributable observed changes to the policy environment for innovation (at least to a significant extent). The four areas of activity investigated are:

 Innovative activity - early research: proxied by the number of scientific publications.

 Innovative activity - clinical research: proxied by the number of clinical trials including phase I, II and III.

 Innovative activity - output i.e. patents: proxied by the number of pharmaceutical patents issued by the local patent office.

 Economic activity - employment: proxied by the number of employees working in the biopharmaceutical sector.

We understand that there are important caveats to case study analysis. The case study markets have some similarities to Argentina but also many differences. The most significant we have sought to allow for in the statistical analysis is the difference in the level of income. The aim is to establish the relationship between the changes in innovative environment and the observed impact across a wide number of markets allowing for differences in income. The results of the simple statistical analysis on the significance of this relationship (as shown in the Appendix).

We have used the experience of our case study countries (and our statistical analysis) to estimate two growth rates a medium and a high growth potential rate (taking the maximum as our high growth assumption and the minimum as the medium growth assumption). These are calculated as the average of year-on-year (YOY) growth rates in each case study market, starting two years after the implementation of significant innovation regulation change in 2007. The two-year gap is somewhat arbitrary but is allowing for the effect of the regulation to start to materialise. The average of YOY growth rates is then applied to the Argentina baseline, which the level of activity in the final year prior the regulation change i.e. the patentability guideline implemented in 2012. Based on the average YOY growth rate, we model the impact of adopting beneficial regulations to Argentina as compared to the actual level of activity from 2011 to latest year of data available. The analysis shows that there would be a positive impact in both medium and high growth scenarios from innovation regulation change, which would result on annual gains in innovative and economic activity as shown Figure 5 below. A timeline of activity change for the two growth scenarios as compared to the actual is also shown in Figure 6 in the appendix.

Figure 5

Gains in Argentina from changes

in the innovative environment

Source: CRA Analysis

Although the similarity between our medium and high scenarios provides some reassurance on the estimation, we understand that differences between Argentina and our case study countries means the results should be treated cautiously. The interviews were used to discuss the magnitude of the results and remaining caveats. The main concern regards the employment estimation. The structure of the off-patent markets in Argentina is larger than that in Taiwan or South Korea. The off-patent market is an exporter of medicines and significantly contributes to the employment by the industry. This is clearly the case, and to the extent, changes in innovative policy environment extended market exclusivity, and this could impact the employment numbers. However, in both Taiwan and South Korea we found a positive impact of employment throughout the period and any impact will be transitional (as medicines will lose data protection and there are likely to be more products launching in Argentina). Therefore, we conclude, this may change the path of the changes (as set out in the appendix) but not the magnitude of the changes after a five-year period.

5. Discussion

The analysis suggests that in the presence of capacity to sustain innovative action, a more favourable innovation policy regime can result in significant improvements in innovative activity and further economic benefits over a period of 5-10 years. In the case studies countries this was achieved through updating innovation and biopharmaceutical plans and through the enforcement of regulatory data protection.

We developed a scenario analysis where the base line reflected the environment and activity observed in Argentina since 2012 when the Patentability Guideline was introduced. This was compared to an environment where innovation policy was more supportive. We found that the most significant positive impact from improved regulation in Argentina would occur in clinical research activities and patents issued locally. The existence of this positive impact from improved regulation support and protection has been extensively established in prior literature discussed in this paper. This assumes that the patentability rules in Argentina would not have changed in 2012, so preventing the significant drop in the number of patents issued, an observation that was also strongly supported in local discussion. Secondly, we have incorporated the impact of enforcing regulatory data protection (based on experience of Taiwan and South Korea), on clinical research. With respect to early research and employment in the sector, the impact observed is smaller but positive. This is due to three reasons (1) changes in basic research only changes slowly over time (2) Argentina is performing well in some of these metrics (3) the impact of these changes in regulation on indirectly contributes to changes in these activities. For example, early research highly depends on the support for academic capacity building and funding, whereas employment relies heavily on other economic factors and social policies.

These changes would allow Argentina to leverage its capacity for innovation. Drawing on the comparative analysis to other countries in the region or comparable OECD members, although Argentina lags behind in terms of innovative activity it has significant capabilities for undertaking these activities. Indeed, data shows that, whilst Argentina has lower levels of private investment in R&D, clinical research and patents but higher or similar level of human capital available (and education), healthcare infrastructure to research and launch these innovations and generally a developed healthcare system. This indicates critical potential to unlock further value from existing resources in undertaking research activities and increasing the levels of investment, which remain suboptimal comparatively to other countries.

As with any scenario analysis there are some significant caveats. Given the complexity of the environment, it is difficult to draw lessons from one market and apply to another. Despite the aim for comparability of the markets and controlling for elements such as income levels, there are other key differences between the Argentinian economy and those of case studies chosen. These include resources for research (both human and capital), healthcare sector structure, strength of the economy, and social and cultural issues attached to innovation to name a few. Secondly, it is important to recognize that national activities can be subject to regional impacts, as investment has shifted towards Asia in recent years, independently of the policy framework in these markets (also largely driven by the Chinese economy).

However, we conclude that a strengthened environment for innovation would lead to a more dynamic biopharmaceutical industry and ensuing economic outputs. Indeed, it appears an ideal time to strengthen the environment building on the recent modest improvements in innovative friendly policy that have recently been introduced. This would lead to a compelling increase in levels of innovative activity across inputs (basic research and clinical trials) and outputs (patents) and lead to economic gains through higher sector employment, trade and taxes.

APPENDIX

Appendix 1 - Growth scenario analysis

Figure 6

Scenario analysis across innovative and economic activity in Argentina: Absolute gains and growth potential (final year)

Source: CRA analysis

Appendix 2 - Statistical analysis

Table 4

Relationship between innovation regulation strength (proxied by patent index) to innovative and economic activity in four areas

Variables	Model 1(R&D spend)	Model 2(Clinical Trials)	Model 3(Patents)	Model 4(Researchers)
Innovation regulation strength (ln_patent index)	0.78**(0.34)	2.58*(0.54)	2.54*(0.87)	1.77*(0.53)
Income level(ln_gdp_capita)	0.02(0.16)	0.63**(0.25)	-0.13(0.38)	0.43***(0.23)
F-Value	5.49*	42.70*	6.83*	19.35*
Number of observations	49	49	47	42

Note: Value significant at: *1% level, **5% level, ***10% level.

Analysis: OLS multivariate regression analysis in a cross panel dataset (across countries).