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Price Negotiation For Patented Drugs: Still Continues A Policy Paralysis

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Many poor and even middle-income patients, who spend their entire life savings for treatment of life-threatening ailments, such as, cancer, have been virtually priced out of the access to patented new drugs, across the world. As articulated by the American Society of Clinical Oncology in 2014, prices of these medicines are increasingly getting disconnected from the actual therapeutic value of these products.

The plight of such patients is worse in India, and would continue to be so, as there is not even a remote possibility of Universal Health Care/Coverage (UHC) visible anywhere near the healthcare horizon of the country.

There is no recent worthwhile Government action either, to give shape to its an important decision on this issue, in a meaningful way. That critical decision was also scripted in Para 4.XV of the National Pharmaceutical Pricing Policy 2012 (NPPP 2012), and was notified on December 07, 2012. On ‘Patented Drugs Pricing’, it categorically states as follows:

“There is a separate committee constituted by the Government Order dated February 01, 2007 for finalizing the pricing of Patented Drugs, and decisions on pricing of patented Drugs would be based on the recommendation of this committee.”

Just a couple of months after, on February 21, 2013, the Department of Pharmaceuticals (DoP) in a communication to the stakeholders announced that the committee to examine the issues of ‘Price Negotiations for Patented Drugs’ has since submitted its report to the Department. Simultaneously the stakeholders were requested to provide comments on the same urgently, latest by March 31, 2013.

Following this long overdue report, lack of any worthwhile action, both by the previous and the current Governments, possibly coming under a strong pressure of the self-serving interests of the constituents of ‘Big Pharma’ and their trade associations, is indeed glaring. I shall dwell on that in this article.

A brief recapitulation:

As stated earlier, almost a decade ago, an expert committee was constituted by the Government to suggest a system that could be used for price negotiation of patented medicines and medical devices ‘before their marketing approval in India’.

This committee reportedly had 20 meetings in two rounds, where the viewpoints of the pharmaceutical industry, including large multi-industry trade bodies like – FICCI, various NGOs and other stakeholders were taken into consideration. Simultaneously, it had commissioned a study of the Rajiv Gandhi School of Intellectual Property Law and Indian Institute of Technology (IIT), Kharagpur to ascertain various mechanisms of price control of patented drugs in many countries, across the world, for independent research based inputs for this report.

Salient features of the report:

The salient features of this expert committee report were as follows:

Scope of recommendations:

The Committee in its final report recommends price negotiations for Patented Drugs only towards:

  • The Government procurement/reimbursement
  • Health Insurance Coverage by Insurance Companies

Issues to remain unresolved despite price negotiation:

In the report, the Committee expressed the following view:

Even after calibrating the prices based on Gross National Income with Purchasing Power Parity of the countries, where there are robust public health policies with the governments having strong bargaining power in price negotiation, the prices of patented medicines will remain unaffordable to a very large section of the population of India. Such countries were identified in the report as UK, Canada, France, Australia and New Zealand.

Thus, the government should extend Health Insurance Scheme, covering all prescription medicines, to all those citizens of the country who are not benefitting under any other insurance/reimbursement plan.

Three categories of Patented Drugs identified:

The committee identified three categories of patented drugs, as follows:

  • A totally new class of drug with no therapeutic equivalence
  • A drug that has therapeutic equivalence, but also has a therapeutic edge over the existing ones
  • A drug that has similar therapeutic effectiveness compared to the existing one

It recommended that these three categories of Patented Drugs would require to be treated differently while fixing the price.

The Apex body for ‘Patented Drugs Price Negotiation’: 

The Report recommends a committee named as ‘Pricing Committee for Patented Drugs (PCPD)’ headed by the Chairman of National Pharmaceutical Pricing Authority (NPPA) to negotiate all prices of patented medicines.

As CGHS, Railways, Defense Services and other Public/Private institutions cover around 23 percent of total healthcare expenditure, the members of the committee could be invited from the Railways, DGHS, DCGI, Ministry of Finance and Representatives of top 5 health insurance companies in terms of the number of beneficiaries.

Recommended pricing methodology:

For ‘Price Negotiation of Patented Drugs’, the report recommends following methodologies for each of the three categories, as mentioned earlier:

1. For Medicines having no therapeutic equivalence in India:

  • The innovator company will submit to the PCPD the details of Government procurement prices in the UK, Canada, France, Australia and New Zealand for the respective Patented Drugs.
  • In the event of the concerned company not launching the said Patented Drug in any of those reference countries, the company will require to furnish the same details only for those countries where the product has been launched.
  • The PCPD will then take into consideration the ratio of the per capita income of a particular country to the per capita income of India.
  • The prices of the Patented Drug would be worked out in India by dividing the price of the medicine in a particular country by this ratio and the lowest of these prices would be taken for negotiation for further price reduction.

The same methodology would be applicable to medical devices also and all the patented medicines introduced in India after 2005.

2. For medicines having a therapeutic equivalent in India:

  • If a therapeutically equivalent medicine exists for the Patented Drug, with better or similar efficacy, PCPD may consider the treatment cost for the disease using the new drug and fix the Patented Drug price accordingly.
  • PCPD may adopt the methodology of reference pricing as stated above to ensure that the cost of treatment of the Patented Drug does not increase as compared to the cost of treatment with existing equivalent medicine.

3. For medicines introduced first time in India itself:

  • PCPD will fix the price of such drugs, which are new in the class and no therapeutic equivalence is available, by taking various factors into consideration like cost involved, risk factors and any other factors of relevance.
  • PCPD may discuss various input costs with the manufacturer asking for documenting evidence.

This process may be complex. However, the report indicates, since the number of medicines discovered and developed in India will not be many, the number of such cases would also be limited.

Negotiated prices will be subject to revision:

The report clearly indicates that ‘the prices of Patented drugs so fixed will be subjected to revision either periodically or if felt necessary by the manufacturer or the regulator as the case may be.’

Support from the domestic Indian Pharmaceutical Industry:

Pharma MNCs reportedly said that ‘Price Negotiations for Patented Products’ should be made only for Government purchases and not be linked with ‘Regulatory Approval’. They also expressed their serious concern on the methodology of ‘Patented Products Pricing’. Nevertheless, from the domestic Indian Pharmaceutical Industry, such as, Indian Pharmaceutical Alliance (IPA), Indian Drug Manufacturer Association (IDMA), Pharmexcil, Federation of Pharma Entrepreneurs (FOPE) and Confederation of Indian Pharmaceutical Industry (CIPI), there emerged strong voices of support for this Government initiative

DIPP expressed apprehensions:

Interestingly, though the DoP had proposed in the report that once the Patented Drug Policy is implemented the issuance of CL may be done away with, the Department of Industrial Policy and Promotion (DIPP) has reportedly commented with grave caution, as below:

“If it is decided that Price Negotiations on Patented Drugs should be carried out, then the following issues must be ensured:

  • Negotiations should be carried out with caution, as the case for Compulsory License on the ground of unaffordable pricing of drugs [Section 84(b) of the Patent Act] will get diluted.
  • Re-Negotiations of the prices at periodic intervals should be an integral part of the negotiation process.”

The status today:

The bottom-line is, a decision on the pricing policy for patented drugs is still pending with the Government, since a decade.

Post February 2013 report, without assigning any specific reasons, the whole process, intriguingly, came back to the square one. On February 2014, the DoP reportedly again decided to constitute another inter-ministerial committee to consider the subject, and recommend the pathway for its implementation in India. Nothing tangible has happened, since the first experts’ committee submitted its report, six years after it was formed, to address this critical patient-centric issue of the country. Effective governance remains a key issue in the health care space of India, even today.

The chronicle continues. On August 23, 2016, ‘The Indian Express’ reported that: “Gross negligence, lackadaisical attitude, vested interests, are some of the terms used in a report by the Parliamentary Committee on ‘Government Assurances’ on August 11, 2016, for the DoP on the latter’s inability to regulate the prices of patented medicines even after almost a decade of deliberation on this issue. While the NDA government has been in power since 2014, the second committee is yet to submit its report, it said.

However, in the end, the Parliamentary Committee reportedly said: “The Committee would like the ministry to take the proactive steps to expedite the proper follow action to finalize the requisite mechanism of patented drugs at the earliest and in the best interest of the country so that these medicines are made available to the common people at most affordable rates.” Let’s continue to wait and watch!

Conclusion:

I reckon, a robust mechanism of ‘Price Negotiation for Patented Drugs’ would also benefit the global pharmaceutical companies to put forth even a stronger argument against any Government initiative to grant CL on the pricing ground for expensive innovative drugs in India. At the same time, the patients will have much greater access to patented drugs than what it is today, due to Government setting the purchase of these drugs at a negotiated price.

It’s about time for all those who are responsible for framing drug and health elated policies to introspect whether ‘policy paralysis’ is continuing, even today, in this area under intense pressure of vested interests. If not, the counter question that needs to be satisfactorily answered: While several secretaries have changed in the DoP since 2013, why is the policy on patented drug pricing, mooted by the Government a decade ago, not moved forward even an inch, to safeguard the patients’ health interest?

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Utility Model: Would It Work In India For Pharma?

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The revised draft of India’s IPR Policy penned by the Government constituted ‘Think-Tank’ in 2014, suggests enactment of new laws, such as for ‘Utility Models’ and Trade Secrets, to fill some gaps in the country’s IPR ecosystem .

However, media reports of May 21, 2015 indicate, the Department of Industrial Policy and Promotion (DIPP) is not in favor of changing the country’s ‘Patents Law’ framework to allow grant of utility patents, as suggested by the ‘Think-Tank’.

Though comments from the other Ministries and Departments on the revised draft IPR Policy is still awaited, DIPP reportedly feels, ‘Utility Models’ being less-stringent form of intellectual Property (IP) protection, could ultimately lead to ‘ever-greening’ of patents.

A volte-face?

This development is indeed interesting because on May 13, 2011 the same DIPP uploaded in its website a Discussion Paper on “Utility Models”. Many believed at that time, it as a precursor of a new policy initiative of DIPP on Intellectual Property Rights (IPR) to encourage innovation in the country, without diluting the prevailing strict criteria for patentability. The above Discussion Paper highlighted, among others:

“…minor technical inventions which frugally use local resources in a sustainable manner need to be encouraged by providing a legal framework for their protection and commercial exploitation. Such useful, low cost and relatively simple innovations which create new mechanical devices or contribute to the optimal functioning of existing ones may have commercial value only for a limited time period, before they are replaced by other products or rendered redundant by change of technology.”

In that paper DIPP also highlighted that many countries of the world, for example; Australia, China, Japan, Germany, France, Korea and Netherlands still find the ‘Utility Model’ as an extensively used tool to foster innovation within the local industries.

We shall also touch upon this point below.

The Discussion Paper did trigger a healthy national debate on this subject at that time, though Government did not make known to the public the outcome of this public discourse.

The definition:

The World Intellectual Property Organization (WIPO) defines ‘Utility Model’ as follows:

“Utility Model is an exclusive right granted for an invention, which allows the right holder to prevent others from commercially using the protected invention, without his authorization, for a limited period of time. In its basic definition, which may vary from one country (where such protection is available) to another, a utility model is similar to a patent. In fact, utility models are sometimes referred to as petty patents or innovation patents.”

Or in other words “A utility model is similar to a patent in that it provides a monopoly right for an invention.”

However, utility models are much cheaper to obtain, the requirements for grant of a ‘Utility Model’ are usually less stringent and the term is shorter – mostly between 7 and 10 years, as against up to 20 years term of protection for a patent. 

Major differences between Utility Models and Patents:

According to WIPO, the main differences between ‘Utility Models’ and patents can be summarized as follows:

  • The requirements for acquiring a ‘Utility Model’ are less stringent than for patents. While the requirement of “novelty” is always to be met, that of “inventive step” or “non-obviousness” may be much lower or absent altogether.  In practice, protection for ‘Utility Models’ is often sought for innovations of rather incremental in character, which may not meet the patentability criteria.
  • The term of protection for ‘Utility Models’ is shorter than for patents and varies from country to country (usually between 7 and 10 years without the possibility of extension or renewal).
  • In most countries where ‘Utility Model’ protection is available, patent offices do not examine applications as to substance prior to registration. This means that the registration process is often significantly simpler and faster, taking on an average about six months.
  • ‘Utility Models’ are much cheaper to obtain and to maintain.
  • In some countries, ‘Utility Model’ protection can only be obtained for certain fields of technology and only for products but not for processes.

Countries providing ‘Utility Model’ protection:

Many countries do not grant ‘Utility Models’. However, the major countries granting ‘Utility Models’, as stated above, include: Australia, China, Japan, Germany, France, Spain and Italy.

According to WIPO, currently the countries and regions that provide ‘Utility Models’ are as follows:

Albania, Angola, Argentina, ARIPO, Armenia, Aruba, Australia, Austria, Azerbaijan, Belarus, Belize, Brazil, Bolivia, Bulgaria, Chile, China (including Hong Kong and Macau), Colombia, Costa Rica, Czech Republic, Denmark, Ecuador, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Guatemala, Honduras, Hungary, Indonesia, Ireland, Italy, Japan, Kazakhstan, Kuwait, Kyrgyzstan, Laos, Malaysia, Mexico, OAPI, Peru, Philippines, Poland, Portugal, Republic of Korea, Republic of Moldova, Russian Federation, Slovakia, Spain, Taiwan, Tajikistan, Trinidad & Tobago, Turkey, Ukraine, Uruguay and Uzbekistan.

Interestingly, ‘Utility Models are not available in the United Kingdom or the United States.

A recent allegation of ‘Utility Model’ infringement against a global pharma: 

Quite recently, in November 2014, Copenhagen headquartered Forward Pharma A/S reportedly filed a lawsuit against Biogen Idec GmbH, Biogen Idec Internaional GmbH and Biogen Idec Ltd. in the Regional Court in Dusseldorf, alleging infringement of its German ‘Utility Model’ DE 20 2005 022 112 due to Biogen Idec’s marketing of Tecfidera® in Germany.

Tecfidera® – a product containing dimethyl fumarate (DMF) as the active ingredient, is used for the treatment of Myasthenia Gravis (MS).

Forward Pharma asserted that its above ‘Utility Model’ precludes anyone from selling in Germany, without the Company’s consent, drugs with DMF as the sole active pharmaceutical ingredient for the treatment of MS at a daily dose of 480 mg.

With this lawsuit Forward Pharma did not seek to stop sales of Tecfidera® to MS patients, but rather sought damages for what the Company believes are Biogen Idec’s unlawful sales of Tecfidera® in Germany.

Although ‘Utility Models’ are registered without substantive examination, the Company reiterated its belief in the validity and enforceability of the said ‘Utility Model.’

Subsequently, on April 14, 2015 Forward Pharma A/S announced that an interference was declared by the Patent Trial and Appeal Board (PTAB) on April 13, 2015 between the Company’s patent application 11/576,871 (the “’871 patent application”) and Biogen’s issued patent 8,399,514 (the “’514 patent”).

The PTAB reportedly designated Forward Pharma A/S as the “Senior Party” in the interference based on the Company’s earlier patent application filing date.

Would ‘Utility Model’ be useful in pharma?

Utility Models (UM) are considered particularly suited for SMEs that make “minor” improvements to, and adaptations of, existing products. It is worth noting that UMs are primarily used for mechanical innovations.

However, in India, the ‘Utility Model’ concept in pharma would be directly conflicting with the intent and spirit of the section 3(d) of the Patents Act 2005 of the country, which clearly stipulates that mere discovery of a new form of a known substance which does not result in the enhancement of the known ‘clinical’ 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 least one new reactant, is not patentable.

Therefore, section 3(d) of the Indian Patents Act 2005, is considered as one of the most important safeguards against “evergreening” of patents, usually done through alleged “molecular manipulation or tweaking”, that delays entry of affordable generic equivalents, adversely impacting the public health interest.

In that sense, enactment of a new law granting protection to pharma ‘Utility Models’ in India could seriously jeopardize both short and long term health interests of the patients, in general.

This is primarily because, being denied of a 20 year product patent under section 3(d), the same company would then be eligible to apply and may also probably get a monopoly status for that molecule, though for a shorter term with ‘Utility Models’.It would obviously happen at the cost of quicker entry of equivalent affordable generics.

Conclusion: 

Considering all these, and having witnessed a serious allegation of a ‘Utility Model’ (which goes through no more than a liberal regulatory scrutiny) infringement, against a major patented pharma product that passed through the acid test of stringent and cost intensive regulatory requirements, it appears that ‘Utility Models’ need to be excluded, especially for pharmaceuticals in India.

This is purely for the sake of patients’ interest, at least on the following two counts:

  • All new/novel drugs, without any compromise whatsoever, should pass through the stringent acid test of the drug regulatory requirements for requisite efficacy, safety and quality standards.
  • ‘Evergreening’ of patents, under any garb, delaying entry of affordable equivalent cheaper generics, should not be encouraged in the country.

Thus, in my view, Indian Government should continue to remain firm with its bold stance on the relevance of section 3(d) of the Indian Patents Act. Any possibility of its dilution by a grant of market monopoly, though for a much shorter period, covering incremental innovations that do not conform to the country’s IP laws, must be openly discouraged with robust reasons.

In that sense, the flag raised by the DIPP on the intriguing recommendation of the IPR Policy ‘Think Tank’ for enacting new laws in India for ‘Utility Model’, appears to be pragmatic and far sighted, specifically in the context of pharmaceuticals.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

New “National IPR Policy” of India – A Pharma Perspective

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Whether under pressure or not, is hardly of any relevance now. What is relevant today is the fact that the new Indian Government, almost in a record time of just around two months, has been able to release a high quality first draft of an important national policy for public discourse.

In October 2014, the Department of Industrial Policy and Promotion (DIPP) constituted a six-member ‘Think Tank’ chaired by Justice (Retd.) Prabha Sridevan to draft the ‘National IPR Policy’ of India and taking quick strides, on December 19, 2014, released its first draft of 29 pages seeking stakeholders’ comments and suggestions on or before January 30, 2015. A meeting with the stakeholders has now been scheduled on February 5, 2015 to take it forward.

A quick glance at the Draft IPR Policy:

The proposed ‘Mission Statement’ as stated in the draft “National IPR Policy” is:

“To establish a dynamic, vibrant and balanced intellectual property system in India, to foster innovation and creativity in a knowledge economy and to accelerate economic growth, employment and entrepreneurship.”

Specifying its vision, mission and objectives, the draft policy suggests adopting a catchy national slogan to increase IP awareness: ‘Creative India; Innovative India’ and integrating IP with “Smart cities”, “Digital India” and “Make in India” campaigns of the new Government.

The ‘Think Tank’ dwells on the following seven areas:

  • IP Awareness and Promotion
  • Creation of IP
  • Legal and Legislative Framework
  • IP Administration and Management
  • Commercialization of IP
  • Enforcement and Adjudication
  • Human Capital Development

In the policy document, the ‘Think Tank’ has discussed all the above seven areas in detail. However, putting all these in a nutshell, I shall highlight only three of those important areas.

1. To encourage IP, the ‘Think Tank’ proposes to provide statutory incentives, like tax benefits linked to IP creation, for the entire value chain from IP creation to commercialization.

2. For speedy redressal of patent related disputes, specialized patent benches in the high courts of Bombay, Calcutta, Delhi and Madras have been mooted. The draft also proposes creation of regional benches of the IPAB in all five regions where IPOs are already located and at least one designated IP court at the district level.

3. The draft concludes by highlighting that a high level body would monitor the progress of implementation of the National IP Policy, linked with performance indicators, targeted results and deliverables. Annual evaluation of overall working of the National IP Policy and quantification of the results achieved during the period have also been suggested, along with a major review of the policy after 3 years.

Although the National IPR policy cuts across the entire industrial spectrum and domains, in this article I shall deliberate on it solely from the pharmaceutical industry perspective.

Stakeholders’ keen interest in the National IPR Policy – Key reasons:

Despite full support of the domestic pharmaceutical industry, the angst of the pharma MNCs on the well-balanced product patent regime in India has been simmering since its very inception, way back in 2005.

A chronicle of recent events, besides the seven objectives of the IPR policy as enumerated above, created fresh general inquisitiveness on how would this new policy impact the current pharmaceutical patent regime of India, both in favor and also against.

Here below are examples of some of those events:

  • At a Congressional hearing of the United States in July 2013, a Congressman reportedly expressed his anger and called for taking actions against India by saying:

“Like all of you, my blood boils, when I hear that India is revoking and denying patents and granting compulsory licenses for cancer treatments or adopting local content requirements.”

This short video clipping captures the tone and mood of one such hearing of the US lawmakers.

  • On April 30, 2014, the United States in its report on annual review of the global state of IPR protection and enforcement, named ‘Special 301 report’, classified India as a ‘Priority Watch List Country’. Placement of a trading partner on the ‘Priority Watch List’ or ‘Watch List’ indicates that particular problems exist in that country with respect to IPR protection, enforcement, or market access for persons relying on IP.
  • It further stated that USTR would conduct an Out of Cycle Review (OCR) of India focusing in particular on assessing progress made in establishing and building effective, meaningful, and constructive engagement with the Government of India on IPR issues of concern. An OCR is a tool that USTR uses on adverse IPR issues and for heightened engagement with a trading partner to address and remedy in those areas.
  • “India misuses its own IP system to boost its domestic industries,” commented the US Senator Orrin Hatch while introducing the 2014 report of the Global Intellectual Property Centre (GIPC) of US Chamber of Commerce on ‘International Intellectual Property (IP) Index’. In this report, India featured at the bottom of a list of 25 countries, scoring only 6.95 out of 30. The main reasons for the low score in the report were cited as follows:

-       India’s patentability requirements are (allegedly) in violations of ‘Trade Related Aspects of Intellectual Property Rights (TRIPS)’ Agreement.

-       Non-availability of regulatory data protection

-       Non-availability of patent term restoration

-       The use of Compulsory Licensing (CL) for commercial, non-emergency situations.

Based on this report, US Chamber of Commerce urged USTR to classify India as a “Priority Foreign Country”, a terminology reserved for the worst IP offenders, which could lead to trade sanctions.

  • In the midst of all these, international media reported:

“Prime Minister Narendra Modi got an earful from both constituents and the US drug industry about India’s approach to drug patents during his first visit to the US last month. Three weeks later, there is evidence the government will take a considered approach to the contested issue.”

  • Washington based powerful pharmaceutical industry lobby group – PhRMA, which seemingly dominates all MNC pharma trade associations globally, has reportedly urged the US government to continue to keep its pressure on India in this matter. According to industry sources, PhRMA has a strong indirect presence and influence in India too. Interestingly, as reported in the media a senior representative of this lobby group would be India when President Obama visits the country later this month.
  • In view of all these concerns, during Prime Minister Narendra Modis’s visit to the United States in September 2014, a high-level Indo-US working group on IP was constituted as a part of the Trade Policy Forum (TPF), which is the principal trade dialogue body between the two countries.
  • Almost immediately after the Prime Minister’s return to India, in October 2014, the Government formed a six-member ‘Think Tank’ to draft ‘National IPR Policy’ and suggest ways and legal means to handle undue pressure exerted by other countries in IPR related areas. The notification mandated the ‘Think Tank’ to examine the current issues raised by the industry associations, including those that have appeared in the media and give suggestions to the ministry of Commerce and Industry as appropriate.
  • However, the domestic pharma industry of India, many international and national experts together with the local stakeholders continue to strongly argue against any fundamental changes in the prevailing patent regime of India.

A perspective of National IPR Policy in view of Pharma MNCs’ concerns:

I shall now focus on four key areas of concern/allegations against India on IPR and in those specific areas what has the draft National IPR Policy enumerated.

- Concern 1: “India’s patentability requirements are in violations of ‘Trade Related Aspects of Intellectual Property Rights (TRIPS)’ Agreement.”

Draft IPR Policy states: “India recognizes that effective protection of IP rights is essential for making optimal use of the innovative and creative capabilities of its people. India has a long history of IP laws, which have evolved taking into consideration national needs and international commitments. The existing laws were either enacted or revised after the TRIPS Agreement and are fully compliant with it. These laws along with various judicial pronouncements provide a stable and effective legal framework for protection and promotion of IP.”

A recent vindication: Just last week (January 15, 2015), Indian Patent Office’s (IPO’s) rejection of a key patent claim on Hepatitis C drug Sovaldi (sofosbuvir) of Gilead Sciences Inc. further reinforces that India’s patent regime is robust and on course.

Gilead’s patent application was opposed by Hyderabad based Natco Pharma. According to the ruling of the IPO, a new “molecule with minor changes, in addition to the novelty, must show significantly enhanced therapeutic efficacy” when compared with a prior compound. This is essential to be in conformity with the Indian Patents Act 2005. Gilead’s patent application failed to comply with this legal requirement.

Although Sovaldi ((sofosbuvir) carries an international price tag of US$84,000 for just one treatment course, Gilead, probably evaluating the robustness of Sovaldi patent against Indian Patents Act, had already planned to sell this drug in India at a rice of US$ 900 for the same 12 weeks of therapy.

It is envisaged that this new development at the IPO would prompt entry of a good number of generic equivalents of Sovaldi. As a result, the price of sofosbuvir (Sovaldi) formulations would further come down, despite prior licensing agreements of Gilead in India, fetching huge relief to a large number of patients suffering from Hepatitis C Virus, in the country.

However, reacting to this development Gilead has said, “The main patent applications covering sofosbuvir are still pending before the Indian Patent Office…This rejection relates to the patent application covering the metabolites of sofosbuvir. We (Gilead) are pleased that the Patent Office found in favor of the novelty and inventiveness of our claims, but believe their Section 3(d) decision to be improper. Gilead strongly defends its intellectual property. The company will be appealing the decision as well as exploring additional procedural options.”

For more on this subject, please read my blog post of September 22, 2014 titled, “Gilead: Caught Between A Rock And A Hard Place In India”

- Concern 2: “Future negotiations in international forums and with other countries.”

Draft IPR Policy states: “In future negotiations in international forums and with other countries, India shall continue to give precedence to its national development priorities whilst adhering to its international commitments and avoiding TRIPS plus provisions.”

- Concern 3: “Data Exclusivity or Regulatory Data Protection.”

Draft IPR Policy states: “Protection of undisclosed information not extending to data exclusivity.”

- Concern 4: “Non-availability of patent term restoration, patent linkage, use of compulsory licensing (CL) for commercial, non-emergency situations”.

Draft IPR Policy: Does dwell on these issues.

I discussed a similar subject in my blog post of October 20, 2014 titled, “Unilateral American Action on Agreed Bilateral Issues: Would India Remain Unfazed?”

Conclusion: 

Overall, the first draft of the outcome-based model of the National IPR Policy appears to me as fair and balanced, especially considering its approach to the evolving IPR regime within the pharmaceutical industry of India.

The draft policy though touches upon the ‘Utility Model’, intriguingly does not deliberate on ‘Open Source Innovation’ or ‘Open Innovation’.

Be that as it may, the suggested pathway for IPR in India seems to be clear, unambiguous, and transparent. The draft policy understandably has not taken any extreme stance on any aspect of the IP. Nor does it succumb to high voltage power play of the United States and its allies in the IPR space, which, if considered, could go against the public health interest.

It is heartening to note, a high level body would monitor the progress of implementation of the National IPR Policy, which will be linked with performance indicators, targeted results and deliverables. Annual evaluation of the overall working of the policy and the results achieved will also be undertaken. A major review of the policy will be done after 3 years.

That said, pharma MNCs in general, don’t seem to quite agree with this draft policy probably based purely on commercial considerations, shorn of public health interest. It is quite evident, when a senior lobbyist of a powerful American pharma lobby group reportedly commented to Indian media on the draft National IPR Policy as follows:

“Real progress will only be achieved when India demonstrates through policy change that it does indeed value the importance of intellectual property, especially for the innovative treatments and cures of today and tomorrow”.

It appears, India continues to hold its stated ground on IPR with clearly enunciated policy statements. On the other hand MNCs don’t stop playing hardball either. Though these are still early days, the question that floats on the top of mind: Who would blink first?…India? Do you reckon so?

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

 

Awaiting ‘The Moment of Truth’ on ‘Working of Patents’ in India

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By a letter dated October 21, 2014 addressed to the Secretary, Department of Industrial Policy and Promotion (DIPP) of India, the domestic pharma major Cipla has sought for the revocation of five patents of Novartis AG’s respiratory drug Indacaterol (Onbrez) in India, under Sections 66 and 92 of the Indian Patents Act.

Launch of a generic equivalent:

Cipla also announced its decision to launch shortly a generic equivalent of Indacaterol with the brand name Unibrez Rotacaps to satisfy the unfulfilled requirement of the new drug in India.

The Maximum Retail Price for a strip of 10 capsules of Unibrez Rotacaps 150 mcg would cost Rs.130.00 to patients against the equivalent strength of Onbrez of Novartis costing Rs.677.00, which is 420 percent more expensive than the price at which Cipla would sell this drug.

What do the Sections 66 and 92 of the Indian Patents Act say?

- Section 66 of the Indian Patents Act:

“66. Revocation of patent in public interest: Where the Central Government is of the opinion that a patent or the mode in which it is exercised is mischievous to the State of generally prejudicial to the public, if any, after giving the patentee an opportunity to be heard, make a declaration to that effect in the Official Gazette and thereupon the patent shall be deemed to be revoked.”

- Section 92 of the Indian Patents Act:

“92. Special provision for compulsory licenses: (1) If the Central Government is satisfied, in respect of any patent in force in circumstances of national emergency or in circumstances of extreme urgency or in case of public non- commercial use, that it is necessary that compulsory licenses should be granted at any time after the sealing thereof to work the invention, it may make a declaration to that effect, by notification in the Official Gazette, and thereupon the following provisions shall have effect, that is to say –

(i) The Controller shall on application made at any time after the notification by any person interested, grant to the applicant a license under the patent on such terms and conditions as he thinks fit;

(ii) In settling the terms and conditions of a license granted under this section, the Controller shall endeavor to secure that the articles manufactured under the patent shall be available to the public at the lowest prices consistent with the patentees deriving a reasonable advantage from their patent rights.

(2) The provisions of sections 83, 87, 88, 89 and 90 shall apply in relation to the grant of licenses under this section as they apply in relation to the grant of licenses under section 84.

(3) Notwithstanding anything contained in sub- section (2), where the Controller is satisfied on consideration of the application referred to in clause (i) of sub- section (1) that it is necessary in –

(i) A circumstance of national emergency; or

(ii) A circumstance of extreme urgency; or

(iii) A case of public non- commercial use, which may arise or is required, as the case may be, including public health crises, relating to Acquired Immuno Deficiency Syndrome, Human Immuno Deficiency Virus, tuberculosis, malaria or other epidemics, he shall not apply any procedure specified in section 87 in relation to that application for grant of license under this section:

Provided that the Controller shall, as soon as may be practicable, inform the patentee of the patent relating to the application for such non-application of section 87.”

Two key reasons:

Anchored on the above two sections of the Indian Patents Act, the two key reasons cited by Cipla for revocation of five patents granted to Indacaterol of Novartis AG are, very briefly, as follows:

Lack of inventive steps and ‘evergreening’ of patents:

The exclusivity given to five patents of Indacaterol is contrary to law due to lack of inventive step, being obvious inventions. Novartis allegedly has indulged in ‘evergreening’ with a number of patents to extend monopoly of the drug much beyond the term of the first patent. Indian law expressly bars ‘evergreening’ as it impedes drug access to a large majority of the patients.

Lack of working of the patents:

Cipla also claimed lack of “working” of those patents in the country, as a mere 0.03 percent of the drug requirement is currently being fulfilled in India. This leaves the percentage of inadequacy in the requirement of the drug per year at a staggering number of around 99.97 percent.

With supporting details, Cipla has stated in its letter that Indacaterol under the brand name Onbrez is imported by Novartis through its licensee Lupin Pharma only. It further pointed out that the Indian law requires all patents to be “worked” within the territory of India.

While adequate quantity of imports may qualify as working, the present case is one in which the patents in question have not been worked through imports of adequate quantity of the drug. Thus reasonable requirements of the public have not been fulfilled, at all.

Abysmally low drug access to Indian patients:

According to Cipla, when there has been a necessity for the availability of Indacaterol to a much larger number of patients afflicted by COPD, that has assumed magnitude of an epidemic, just a miniscule of 0.03 percent of the total drug requirement is currently being met in the country. In 2013, the import of Indacaterol, as reportedly declared in Form 27 by Novartis to the Patent office, was just 53,844 units, which could meet this drug requirement at best of only 4,500 out of 15 million patients, annually.

Despite accepted drug benefits, the doctors are unable to adequately prescribe Indacaterol in India, due to low quantity of the drug import for the public.

Thus, while announcing the launch of cheaper generic equivalents of the drug, Cipla emphasized that its Unibrez Rotacaps would fulfill the requirements of the public, meet public health interest and at the same time increase access to this medicine, with an affordable alternative, for a large number of patients.

Increasing incidence of COPD in India:

In its application to the DIPP, Cipla underscored that Indacaterol is one of the preferred medications to treat widely prevalent Chronic Obstructive Pulmonary Disease (COPD) that has reached the magnitude of an epidemic in India with about 15 million Indians afflicted with the ailment.

COPD is now among the top ten causes of disease burden in India. According to Indian Council of Medical Research (ICMR), the overall prevalence rates of COPD in India are 5.0 and 3.2 percent respectively in men and women of and over 35 years of age. The World Health Organization (WHO) also reported that COPD is the cause of death of more people than HIV-AIDS, Malaria and Tuberculosis all put together in the South East Asian Region.

Cipla quoted an Indian Study on “Epidemiology of Asthma, Respiratory Symptoms and Chronic Bronchitis in Adults (INSEARCH)”, which estimated that about 7 percent of deaths annually are a result of Chronic Respiratory Diseases in India.

Importance of Indacaterol in COPD treatment:

Cipla reiterated that Indacaterol is the preferred drug over other beta adrenoceptor agonists, as it has to be consumed only once a day. Moreover, it has a higher potency and prolonged effect as compared to other beta adrenoceptor agonists.

Strong arguments make the case interesting:

Though appropriate legal authorities would take a final call on the subject, prima facie, Cipla seems to have a strong case resting on the pillars of Sections 66 and 92 of the Indian Patents Act.

Since, Cipla has already gone ahead and announced the launch of cheaper generic equivalent of Indacaterol in India, it gives a sense about the company’s confidence in its argument against five valid patents of Novartis on this drug.

On the other hand, one may also justifiably say that Cipla should have waited for the final verdict of the court of law on the validity of five Indacaterol patents in India, before deciding to actually launch a generic version of the patented drug.

It is worth noting that in 2013, Novartis lost a legal battle related to patent grant for its anti-leukemia drug Glivec in the Supreme Court of India. The case lasted over seven years in various courts of law. Interestingly, Cipla had followed similar course of action in the Glivec case too, and had won the case decisively.

‘Form 27’ and the Indian Patent office (IPO):

At this stage it is worth noting, a ‘Public Notice’ dated December 24, 2009 was issued by the Controller General of Patents, Design & Trade Marks, directing all ‘Patentees and Licensees’ to furnish information in ‘Form No.27’ on ‘Working of Patents’ as prescribed under Section 146 of the Patents Act read with Rule 131 of the Patents Rule 2003.

The notice also drew attention to penalty provisions in the Patents Act, in case of non-submission of the aforesaid information.

The information sought by the IPO in ‘Form 27’ can be summarized as follows:

A. The reasons for not working and steps being taken for ‘working of the invention’ to be provided by the patentee.

B. In case of establishing ‘working of a patent’, the following yearly information needs to be provided:

  • The quantity and value of the invention worked; which includes both local manufacturing and importation.
  • The details to be provided, if any licenses and/or sub-licenses have been granted for the products during the year.
  • A statement as to whether the public requirements have been met partly/adequately to the fullest extent at a reasonable price.

The ‘Public Notice’ also indicated that:

• A fine of up to (US$ 25,000 may be levied for not submitting or refusing to submit the required information by the IPO.

• And providing false information is a punishable offence attracting imprisonment of up to 6 months and/or a fine.

The important point to ponder now is, if Cipla’s allegation is correct, what has been the IPO doing with the ‘Form 27’ information to uphold the spirit of Indian Patents Act 2005, thus far?

Conclusion:

For various reasons, it would now be interesting to follow, how does the IPO deal with this case right from here. In any case, information provided through ‘Form 27’ cannot remain a secret. ‘The Right to Information Act (RTI)’ will help ferret more such details out in the open.

As the ‘Moment of Truth’ unfolds in this case, one would be quite curious to fathom how the strong voices against ‘non-working of patents’ and ‘evergreening’ drive home their arguments before the court of justice.

On the other hand, the global innovator companies, their highly paid lobby groups and the USTR are expected to exert tremendous pressure on the Indian Government to protect the global pharma business interests in India, come what may. All these would indeed create a potboiler, as expected by many.

In this complex scenario, striking a right balance between rewarding genuine innovation, on the one hand, and help improving access to affordable modern medicines to a vast majority of the population in the country, on the other, would not be an enviable task for the Indian Government.

As the juggernaut of conflicting interest moves on, many would keenly await for a glimpse of ‘the moment of truth’ based on the judicial interpretation of ‘evergreening’ and ‘working of patents’, for this case in particular.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

 

An Aggressive New Drug Pricing Trend: What It Means To India?

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A new class and an aggressive drug-pricing trend is now evolving in the global pharmaceutical industry, exerting huge financial pressure on the patients and payers, including governments, especially, in the developed nations of the world.

Another aspect of this issue I deliberated in one of my earlier blog posts of August 18, 2014 titled, “Patented Drug Pricing: Relevance To R&D Investments.”

Let me start my deliberation today by citing an example. According to 2013 Drug Trend Report of the pharmacy benefits manager Express Scripts, the United States will spend 1,800 percent more on Hepatitis C Virus (HCV) medications by 2016 than it did last year. This is largely attributed to new Hepatitis C cure with Sovaldi of Gilead, priced at Rs 61,000 (US$ 1,000) per tablet with a three-month course costing around Rs. Million 5.10 (US$ 84,000), when it reportedly costs around U$130 to manufacture a pill.

In a Press Release, Express Scripts stated, “Never before has a drug been priced this high to treat a patient population this large, and the resulting costs will be unsustainable for our country…The burden will fall upon individual patients, state and federal governments, and payers who will have to balance access and affordability in a way they never have had to before.”

The magnitude of impact – an example:

According to another report from the Centers for Medicare and Medicaid of the US, the cost to treat all Americans, who have hepatitis C, with Sovaldi would cost US$227 billion, whereas it currently costs America US$260 billion a year for all drugs bought in the country. According to Express Scripts, no major therapy class has experienced such a hefty increase in spending over the last 21 years.

This gives us a feel of the net impact of the evolving new aggressive drug pricing strategy on the lives of the patients and payers of one of the richest nations of the world.

Three critical parts of the evolving pricing strategy:

In an era, when new drug pricing has come under great scrutiny of the stakeholders globally, this strategy seems to have three critical components as follows:

1. Strategy for the developed countries: Set the launch price as high as possible and generate maximum profit faster from wealthy minority who can afford to pay for the drug.

It helps establishing the base price of the product globally, despite all hue and cries, maintaining a very healthy top and bottom line business performance, amidst ‘Wall Street cheering’.

Implementing this strategy meticulously and with precision, Gilead has reportedly registered US$ 5.8 billion in sales for Sovaldi in the first half of 2014. That too, in the midst of huge global concerns on alleged ‘profiteering’ with an exorbitantly priced HCV drug.

At that time, the company noted on its earnings call that it believes 9,000 people have been cured of HCV so far with Sovaldi, which means that the 6-month turnover of Sovaldi of US$ 5.8 billion was generated just from the treatment of 9000 patients. If we take the total number of HCV infected patients at 150 million globally, this new drug benefited less than one percent of the total number of HCV patients, despite clocking a mind-boggling turnover and profit.

2. Strategy for the developing countries: Create a favorable optic for the stakeholders by lowering the drug price significantly, in percentage term from its base price, earning still a decent profit. However, in reality the discounted price would continue to remain high for a very large number of patients.

Gilead is now in the process of implementing this strategy for 80 developing countries. For these markets, it has already announced a minimum threshold price of US$ 300 a bottle, enough for a month. With three months typically required for a full course and taking into account the currently approved combination with interferon, the total cost per patient would be about US$ 900 for a complete treatment against its usual price of US$ 84,000.

If we convert the discounted treatment cost, it comes down to around Rs. 55,000 from the base price of around Rs. Million 5.10. This discounted price, which is significantly less than the base price of the drug, creates an extremely favorable optic. No one discusses how many Hepatitis C patients would be able to afford even Rs. 55,000, say for example in a country like India? Thus, setting a high base price in the developed market for a new drug could make many in the developing world perceive that the treatment cost of Rs. 55,000 is very reasonable for majority of not so privileged patients.

Under the second strategy, Gilead has targeted mostly the world’s poorest nations, but also included some middle income ones such as Egypt, which has by far the highest prevalence of HCV in the world.

A ‘Financial Times’ report, also states, “At the US price, Gilead will recoup its Sovaldi development investment  . . . in a single year and then stand to make extraordinary profits off the backs of US consumers, who will subsidize the drug for other patients around the globe.”

If other global pharma companies also follow this differential strategy, one for the developed markets and the other for the developing markets, it could be a masterstroke for the Big Pharma. This would help address the criticism that its constituents are facing today for ‘obscene’ pricing of important new life saving drugs, as they target mostly the creamy layer of the society for business performance.

However, many in the United States are also articulating that they understand, the countries getting steep discounts from Gilead have high levels of poverty, but clearly points out that the disease affects lower-income patients in America, as well. To substantiate the point, they reiterate, according to the World Health Organization (WHO) about 150 million people worldwide have HCV, out of which around 2.7 million HCV diagnosed people live in the US. They highlight that currently even less than 25 percent of Americans with chronic HCV have had or are receiving treatment. In Europe, just 3.5 percent of patients of are being treated.

Thus, keeping in view of the increasing number of voices in the developed countries against abnormally high prices of the new drugs, the moot questions that come up are as follows:

  • Is Strategy 1 sustainable for the developed markets?
  • If not, would Strategy 2 for the developing market could ever be broader based?

3. Strategy for Voluntary License (VL) in those countries, where grant of product patent is   doubtful.

Thanks to the Indian patent regime, global companies would possibly consider following this route for all those products that may not be able to pass the ‘Acid Test’ of Section 3(d) of the Indian Patents Act 2005. Gilead has followed this route for Sovaldi and before that for tenofovir (Viread).

In this context, it is worth noting that the Indian patent office has not recognized Sovaldi’s patent for the domestic market, just yet. Thus, following this strategy Gilead announced, “In line with the company’s past approach to its HIV medicines, the company will also offer to license production of this new drug to a number of rival low-cost Indian generic drug companies. They will be offered manufacturing knowhow and allowed to source and competitively price the product at whatever level they choose.”

Accordingly, on September 15, 2014, international media reported that Cipla, Ranbaxy, Strides Arcolab, Mylan, Cadila Healthcare, Hetero labs and Sequent Scientific are likely to sign in-licensing agreements with Gilead to sell low cost versions of Sovaldi in India.

It was also reported that these Indian generic manufacturers would be free to decide their own prices for sofosbuvir, ‘without any mandated floor price’.

Indian companies would require paying 7 per cent of their revenues as royalty to Gilead, which, in turn would ensure full technology transfer to them to produce both the Active Pharmaceutical Ingredients (API) and finished formulations. The generic version of Sovaldi is likely to be available in India in the second or third quarter of 2015, at the earliest.

However, the final decision of the Indian Patent Office on the patent grant for Sovaldi holds the key to future success of similar high-voltage, seemingly benign, VL based game plan of the global pharma majors.

The new trend:

In April 2014, Merck and Co. announced that its two HCV drug candidates had a 98 percent cure rate in a mid-stage trial. In addition, AbbVie is also expected to launch a high-end hepatitis C drug within the next year. The prices for these drugs are yet to be announced.

However, a new report of October 2014 states that USFDA has approved this month a new drug named Harmony, a ledipasvir/sofosbuvir combo formulation, again from Gilead for curative treatment of chronic HCV genotype 1 infection in adults. Harmony, which is called the son of Sovaldi, would cost a hopping US$ 94,500 for a 12-week regimen, as against US$ 84,000 for Sovaldi.

Hence, I reckon, similar aggressive pricing strategy for new drugs would gain momentum in the coming years and at the same time.

Is this pricing model sustainable?

Though Gilead pricing model for patented drugs works out better than what is prevailing today in India, the question that comes up yet again, whether the new model is sustainable for various reasons as mentioned above or would it be followed by majority of the global drug innovators?

In a situation like this, what then could be a sustainable solution in India?

The desirable pathway:

A transparent government mechanism for patented drugs pricing, as followed by many countries in the world, would be quite meaningful in India. The Department of Pharmaceuticals (DoP) of the Government of India could play a constructive role in this area, as already provided in the Drug Policy 2012 of the country.

This measure assumes greater urgency, as the astronomical prices of patented drugs, especially for life-threatening illnesses, such as cancer, have become a subject of great concern in India too, just as it has become a critical issue across the world.

DoP is in inactive mode:

It is not difficult to fathom that CL for all patented life-saving drugs would not be a sustainable measure for all time to come. Thus, the need for a robust mechanism of price negotiation for patented drugs was highlighted in the Drug Policy 2012.

The DoP first took up the issue for consideration in 2007 by forming a committee. After about six years from that date, the committee produced a contentious report, which had hardly any takers.

Today, despite the new government’s initiative to inject requisite energy within the bureaucracy, administrative lethargy and lack of sense of urgency still lingers with the DoP, impeding progress in this important subject any further.

Intense lobbying on this issue by vested interests from across the world has further pushed the envelope in the back burner. Recent report indicates, the envelope has since been retrieved for a fresh look with fresh eyes, as a new minister is now on the saddle of the department.

According to reports, a new inter-ministerial committee was also formed by the DoP under the chairmanship of one of its Joint Secretaries, to suggest a mechanism to fix prices of patented drugs in the country.
The other members of the committee are Joint Secretary, Department of Industrial Policy and Promotion (DIPP); Joint Secretary, Ministry of Health and Family Welfare; and Member Secretary, National Pharmaceutical Pricing Authority (NPPA).

Unfortunately, nothing tangible has been made known to the stakeholders on this matter, just yet. I sincerely hope that the new government expedites the process now.

Three critical factors to consider:

While arriving at the patented products price in India, three critical factors should be made note of, as follows:

  • The discussion should start with the prices adjusted on the Purchasing Power Parity factor for India.
  • Any price must have a direct relationship with the per capita income of the population of the country.
  • Details of other public healthcare measures that the government would undertake, by increasing its healthcare spends as a percentage of GDP, should also be clearly articulated.

Conclusion:

The evolving and aggressive new product-pricing trend has three following clearly identifiable facets:

One, the base price of the drugs would be established at a very high level to help increase both the turnover and profit of the companies significantly and quickly. This measure would consequently make the drug bills of the developed world even more expensive, which could limit healthcare access wherever co-payment exists or the expenditures are Out of Pocket (OoP) in nature.

Two, against intense global criticism for aggressive drug pricing strategy, to create a favorable optic, the concerned companies would launch these products at a deep discount on the base price in the developing world. However, the net price would still remain high in absolute terms, considering per capita income in those countries.

Three, for many of these new products, Section 3(d) of the Indian Patents 2005 would place India at an advantage. Thus, in absence of evergreening type of product patents, to salvage the situation, many of these companies would prefer to offer Voluntary License (VL) to Indian generic manufacturers under specific terms and conditions. However, such VL may not have any potential value, if IPO refuses to grant patents to those products, which would fall under the above section. In that case, generic competition would further bring down the prices.

No doubt, the above pricing model for patented drugs works out better than what is prevailing today in India. However, the question that comes up, whether the new model is sustainable or would be followed by majority of the global drug innovators in the same way? Considering all these, it does not seem to be the most desirable situation. Moreover, the current patent regime is a deterrent mostly to evergreening of patents.

Thus, the Indian government should play a more specific and proactive role in this game by first putting in place and then effectively implementing a country specific mechanism to tame the spiraling patented drug prices in India, for the interest of patients.

The world has taken serious note of this fast evolving aggressive new drug-pricing trend, as different countries are in the process of addressing the issue in various country-specific ways. Unfortunately, the DoP still remains in a deep slumber, having failed once to half-heartedly put a clumsy mechanism in place to address the issue.

As India is now under a new political regime, let us sincerely hope, the new minister in charge succeeds to make it happen, sooner, reducing vulnerability of a vast majority of patients during many life threatening ailments and…of course, in tandem, ensuring justifiable profit margin for the innovator drug companies…the evolving aggressive new drug pricing trend notwithstanding.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Unilateral American Action on Agreed Bilateral Issues: Would India Remain Unfazed?

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I discussed in one of my earlier blog posts titled “Has Prime Minister Modi Conceded Ground To America On Patents Over Patients?” of October 6, 2014 that on April 30, 2014, the United States in its report on annual review of the global state of IPR protection and enforcement, named ‘Special 301 report’, classified India as a ‘priority watch list country’.

Special 301 Report and OCR – A brief Background:

According to the Office of USTR, Section 182 of the US Trade Act requires USTR to identify countries that deny adequate and effective protection of IPR or deny fair and equitable market access to US persons who rely on Intellectual Property (IP) protection. The provisions of Section 182 are commonly referred to as the “Special 301” provisions of the US Trade Act.

Those countries that have the ‘most onerous or egregious acts, policies, or practices and whose acts, policies, or practices have the greatest adverse impact (actual or potential) on relevant US products’ are to be identified as Priority Foreign Countries. In addition, USTR has created a “Priority Watch List” and a “Watch List” under Special 301 provisions. Placement of a trading partner on the Priority Watch List or Watch List indicates that particular problems exist in that country with respect to IPR protection, enforcement, or market access for persons relying on IP.

In the 2014 Special 301 Report, USTR placed India on the Priority Watch List and noted that it would conduct an Out of Cycle Review (OCR) of India focusing in particular on assessing progress made in establishing and building effective, meaningful, and constructive engagement with the Government of India on IPR issues of concern.

An OCR is a tool that USTR uses on IPR issues of concern and for heightened engagement with a trading partner to address and remedy such issues.

For the purpose of the OCR of India, USTR had requested written submissions from the public concerning information, views, acts, policies, or practices relevant to evaluating the Government of India’s engagement on IPR issues of concern, in particular those identified in the 2014 Special 301 Report.

The Deadlines for written submissions were as follows:

Friday, October 31, 2014 - Deadline for the public, except foreign governments, to submit written comments.

Friday, November 7, 2014 - Deadline for foreign governments to submit written comments.

India’s earlier response to 2014 Special 301 Report:

On this report, India had responded earlier by saying that the ‘Special 301’ process is nothing but unilateral measures taken by the US to create pressure on countries to increase IPR protection beyond the TRIPS agreement. The Government of India has always maintained that its IPR regime is fully compliant with all international laws.

The issue was raised during PM’s US visit:

According to media reports, Prime Minister Narendra Modi, during his visit to America last month, had faced power packed protests against the drug patent regime in India from both the US drug industry and also the federal government.

The Indo-US joint statement addresses remedial measures:

In view of this concern, Indo-US high-level working group on IP was constituted as a part of the Trade Policy Forum (TPF), which is the principal trade dialogue body between the two countries. TPF has five focus groups: Agriculture, Investment, Innovation and Creativity, Services, and Tariff and Non-Tariff Barriers.

The recent joint statement issued after the talks between Prime Minister Narendra Modi and US President Barack Obama captures the essence of it as follows:

“Agreeing on the need to foster innovation in a manner that promotes economic growth and job creation, the leaders committed to establish an annual high-level Intellectual Property (IP) Working Group with appropriate decision-making and technical-level meetings as part of the TPF.”

Unilateral measures resurface within days after PM’s return from the US:

Almost immediately after Prime Minister Narendra Modi’s return from the US, USTR ‘s fresh offensive with OCR against India’s IP regime, could have an adverse impact on the proposed bilateral dialogue with Washington on this issue.

However, dismissing this unilateral action of America, the Union Commerce Ministry, has reiterated the country’s stand, yet again, as follows:

“As far as we are concerned, all our laws and rules are compliant with our commitments at WTO. A country can’t judge India’s policies using its own yardsticks when there is a multilateral agreement.”

As many would know that several times in the past, India has unambiguously articulated, it may explore the available option of approaching the World Trade Organization (WTO) for the unilateral moves and actions by the US on IPR related issues, as IPR policies require to be discussed in the multilateral forum, such as WTO.

A fresh hurdle in the normalization process:

Many see the latest move of USTR with OCR as a fresh hurdle in the normalization process of a frosty trade and economic relationship between the two countries. More so, when it comes almost immediately after a clear agreement inked between Prime Minister Modi and President Obama in favor of a bilateral engagement on IPR related policies and issues. Let me hasten to add, USTR has now clarified, “The OCR will not revisit India’s designation on the 2014 Priority Watch List.”

What does US want?

The initiatives taken by the USTR, no doubt, are in conformance to the US law, as it requires to identify and prepare a list of trade barriers in the countries with whom the US has trade relations, and with a clear focus on IPR related issues.

Washington based powerful pharmaceutical industry lobby group – PhRMA, which seemingly dominates all MNC pharma associations globally, has reportedly urged the US government to continue to keep its pressure on India, in this matter. According to industry sources, PhRMA has a strong indirect presence and influence in India too.

It is pretty clear now that to resolve all IP related bilateral issues, the United States wants the Indian Patents Act to be amended as an exact replica of what the American lawmakers have enacted in their country, including evergreening of patents and no compulsory licensing unless there is a national disaster or emergency. They require it, irrespective of whatever happens as a result of lack of access to these new drugs for a vast majority of Indian patients.

Thus, it is understandable, why the Indian government is not surrendering to persistent American bullying.

A series of decisions taken by the Union government of India on both patents and drug pricing is a demonstration of its sincere endeavor to increase access to drugs, as less than 15 percent of 1.2 billion people of the country are currently covered by some sort of health insurance.

Global healthcare NGOs strongly reacted:

The Doctors Without Borders’ (MSF) Access Campaign articulated, “India’s production of affordable medicines is a vital life-line for MSF’s medical humanitarian operations and millions of people in the developing countries.”

It further added, “India’s patent law and practices are favorable to public health, were put in place through a democratic legislative process, and are in line with international trade and intellectual property rules… Every country has the right to set policies that balance private business interests with public health needs.”

MSF reportedly warned Prime Minister Modi that US officials and Big Pharma would continue to try to lobby and pressurize him over India’s current patent regime and urged him, “Don’t back down on drug patents”.

“The world can’t afford to see India’s pharmacy shut down by US commercial interests,” MSF reiterated.

Under US bullying, is India developing cold feet?

In the midst of all these, an international media reported:

“Prime Minister Narendra Modi got an earful from both constituents and the US drug industry about India’s approach to drug patents during his first visit to the US last month. Three weeks later, there is evidence the government will take a considered approach to the contested issue.”

Quoting an Indian media report, the above international publication elaborated, the Department of Industrial Policy and Promotion (DIPP) of India, has delayed a decision on whether to grant a Compulsory License (CL) for Bristol-Myers Squibb’s (BMS) leukemia drug Sprycel. DIPP has sent a letter to the Health Ministry, questioning its rationale for saying there was a “national emergency” when chronic myeloid leukemia affects only 0.001% of the population. The letter asked how much the government is spending on the drug, and pointed out that there is no indication of a growing trend in the disease.

This Indian report commented, if the DIPP had agreed to issue a CL for Sprycel on the recommendation of the Union Ministry of Health, it would have ‘cheered’ the public health activists, but would have adversely impacted Indo-US relations that the Indian Prime Minister wants to avoid for business interests.

A Superficial and baseless interpretation:

In my view, the above comments of the Indian media, which was quoted by the international publications, may be construed as not just superficial, but baseless as well.

This is because, DIPP has become cautious on the CL issue not just now, but at least over a couple years from now (please read: Health Min’s compulsory license proposal hits DIPP hurdle, DIPP seeks details on 3 cancer drugs for compulsory licensing).

This is also not the first time that DIPP has sought clarification from the Ministry of Health on this subject.

Hence, in my view, this particular issue is being unnecessarily sensationalized, which has got nothing to do with hard facts and far from being related to the PM’s visit to America.

Conclusion:

The Indian Parliament amended the Patent Act in 2005, keeping the interest of public health right at the center. The Act provides adequate safeguards, including checks on evergreening of patents and broader framework for CL. All these conform to the Doha Declaration, which categorically states “TRIPS Agreement does not and should not prevent WTO members from taking measures to protect public health”.

For similar reasons, the Indian Act does not provide for ‘evergreening’ of patents. The Supreme Court judgment on Glivec is a case in point. If the Indian patent regime is weak and not TRIPS-compliant, the aggrieved country should approach the dispute settlement body of the WTO for necessary action. Thus, it is intriguing if the US, which took India to WTO over the latter’s solar power policy, is not doing the same for pharma IP. Is it really sure that the allegation that ‘the Indian Patent Act is non-TRIPS compliant’ is a robust one?

There is no denying that innovation is the wheel of progress of any nation and needs to be rewarded and protected. However, there is an equally important need to strike the right balance between patent regimes and safeguarding public health interest. In that sense, the Indian Patents Act occupies a position of strength, not weakness.

Considering all these, unilateral American measures against India for amendment of the country’s Patents Act in sync with theirs, ultimately would prove to be foolhardy.

The high-level working group on IP constituted as a part of the bilateral Trade Policy Forum (TPF), would be the right platform to sort out glitches in this arena, keeping Indian patients’ health interests at the center, and at the same time without jeopardizing justifiable business interests of the innovator companies.

Otherwise in all probability, India would continue to hold its justifiable ground on IPR steadfastly, remaining unfazed under pressures and provocations of any kind.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Discretionary ‘Non-Compete Clause’ in Pharma FDI: An Intriguing Decision

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As I had commented before, the MNC investors, while acquiring controlling stake in the Indian pharmaceutical companies, henceforth, would not be generally allowed to include any ‘non-compete clause’ in their agreement with the Indian promoters. However, this clause may be allowed only in special circumstances with the discretionary power of the Foreign Investment Promotion Board (FIPB).

Looking back:

While looking back, the decision to have a relook at pharma Foreign Direct Investment (FDI) by the Department of Industrial Policy and Promotion (DIPP), was possibly spurred by the following key apprehensions of the ‘Third World Network (TWN)’, following a series of takeovers of important Indian Pharma and Vaccine companies by the MNCs:

1. Takeover of large integrated Indian pharma players would ultimately leave behind mostly the smaller domestic companies operating in the lower end of the pharmaceutical value chain. This may compel India to compromise on need-based R&D and become completely dependent on MNCs for meeting the country’s drug requirements to respond effectively to various urgent needs, over a period of time.

2. Acquisitions of well-integrated domestic companies with technological capabilities by the MNCs could either fully eliminate or restrict the use of TRIPS flexibilities in the country, such as, Compulsory Licensing (CL) and patent challenges. For instance, immediately after its takeover by Daiichi Sankyo, Ranbaxy withdrew all the patent challenges against Pfizer’s blockbuster cholesterol reducing drug Lipitor.

3. Takeovers are easy ways to make effective use of a well-oiled marketing and distribution network established by large domestic companies to substitute low-cost medicines with higher-priced ones, including the patented drugs.

4. MNCs allegedly want to restrict the large Indian companies from entering into the regulated markets with their low-priced generic products of high quality standards, resorting to patent challenges and taking prime initiatives in Para IV filing in the United States. All these are believed to be posing an increasing threat to them over a period of time.

5. These acquisitions could ultimately result in high medicine prices. As quoted by TWN, according to the ‘Indian Pharmaceutical Alliance (IPA)’, Abbott increased the prices of medicines produced by Piramal Healthcare immediately after its takeover. The examples given are as follows:

The price of Haemaccel was Rs 99.02 in May 2009; by May 2011 it had gone up to Rs 215 – 117 percent increase in just two years. In another instance, the epilepsy drug Gardenal registered a price hike of 121 percent during the same period.

The new ‘Press Note’ :

Thereafter, much water has flown under the bridge and finally the ‘Press Note’ of DIPP on Wednesday, January 8, 2014 formalized the deliberations of the inter-ministerial group held in November 2013 that existing policy of 100 percent FDI in the brownfield pharmaceutical sector through FIPB approval route will continue, along with the rider of jettisoning the ‘non-compete clause’. Only change in the above ‘Press Note’ is that, the said clause may be allowed only in special circumstances with the discretionary power of the FIPB. 

However, 100 per cent FDI will continue to be allowed through automatic route in the Greenfield pharma projects.

An intriguing decision:

The DIPP ‘Press Note’ appears to be intriguing without understandable explanations and quite inconsistent with the reform measures already announced by the government thus far in many other areas.

More so, as I wrote before, no tangible assessment of impact of all M&As, so far taken place in India, has yet been done in a systematic manner.

The ‘non-compete clause’ being a standard feature, especially in brownfield Mergers and Acquisitions (M&A), justifiably restricts the promoters of the acquired companies from getting into the same business for a predetermined period of time.

Absence of this clause is expected to impact the valuation of the target companies significantly. Hence, some large Indian promoters had openly expressed their displeasure against such arbitrary measures and that too in quite specific terms.

More importantly, the absence of the ‘non-compete clause’ does not, in any way, effectively address those apprehensions, as mentioned above.

Conclusion:

Without any tangible evidence, it is a matter of conjecture now, whether the above apprehensions have any merits or not, in any case.

Be that as it may, the clumsy way this issue has been handled by the DIPP, especially since last couple of years, adds today even greater confusion to overall pharma FDI brownfield policy in India.

The issues related competition during any M&A process, as per statute, fall within the purview of the competition watch-dog of the country – the Competition Commission of India (CCI), which is expected to ensure that desired competition does in no way get compromised during M&As, including brand acquisitions, for the sole interest of consumers.

Despite statutory requirement to pass through CCI scrutiny in all mergers and takeover processes in India, the provision for discretionary decision to review the ‘non-compete cause’ by the FIPB, on case-by-case basis, without putting in place a set of fair and transparent guidelines for the same, appears indeed intriguing.

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Pharma FDI Debate: Highly Opinionated, Sans Assessment of Tangible Outcomes?

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In 2001, the Government of India (GoI) allowed 100 percent Foreign Direct Investments (FDI) in the pharmaceutical sector through automatic route to attract more investments for new asset creation, boost R&D, new job creation and ultimately to help aligning Indian pharma with the modern pharma world in terms of capacity, capability, wherewithal, reach and value creation.

Thereafter, several major FDI followed, such as:

No. Company Acquirer Value US$M Year
1. Ranbaxy Daiichi Sankyo 4600 2008
2. Shantha Biotechnics Sanofi Pasteur 781 2009
3. Piramal Healthcare Abbott 3700 2010
4. Orchid Chemicals Hospira 200 2012
5. Agila Specialties Mylan 1850 2013

FDI started coming: 

Even recently, in April- June period of 2013, with a capital inflow of around US$ 1 billion, the pharma sector became the brightest star in otherwise gloomy FDI scenario of India.

However, out of 67 FDI investments till September 2011, only one was in the Greenfield area. It is now clear that the liberal pharma FDI policy is being predominantly used for taking overs the domestic pharma companies, as indicated earlier.

The Reserve Bank of India (RBI) data reveals that between April 2012 and April 2013, US$ 989 million FDI was received in brownfield investments, and just US$ 87.3 million in Greenfield investments.

As a result, in 2010 pharma Multi-National Corporations (MNCs) captured over 25 percent of the domestic Indian market, as against just around 15 percent in 2005.

An assessment thus far: 

While assessing the outcomes of liberal pharma FDI regime, especially at a time when India is seeking foreign investments in many other sectors, following facts surface:

New asset creation:

Most of the FDIs in pharma, during this period, have been substitution of domestic capital by foreign capital, rather than any significant new asset creation.

Investment in fixed assets (1994-95 to (2009-10):

Companies Rs. Crore Contribution %
Indian 54,010 94.7
MNC 3,022 5.3
Total 57,032 100

(Source: IPA)

Thus contrary to the expectations of GoI, there has been no significant increase in contribution in fixed assets by the pharma MNCs, despite liberalization of FDI.

Similarly, the available facts indicate that 100 percent FDI through automatic route in the pharma sector has not contributed in terms of creation of new modern production facilities, nor has it strengthened the R&D space of the country. The liberalized policy has not contributed to significantly increase in the employment generation by the pharma MNCs in those important areas, either.

The following figures would vindicate this point:

R&D Spend:

Companies 1994-95(Rs. Crore) Contribution % 2009-10(Rs. Crore) Contribution %
Indian 80.61 55.7 3,342.22 78.1
MNC 64.13 44.3 934.40 21.9
Total 144.74 100 4,276.32 100

(Source: IPA)

The above table vindicates that post liberalization of FDI regime, MNC contribution % in R&D instead of showing any increase, has significantly gone down.

Wage Bill/ Job Creation:

Companies 1994-95(Rs. Crore) Contribution % 2009-10(Rs. Crore) Contribution %
Indian 664 65.5 8,172 87.1
MNC 350 34.5 1,215 12.9
Total 1,014 100 9,387 100

(Source: CMIE)

In the area of job creation/wage bills, as well, liberalized FDI has not shown any increasing trend in terms of contribution % in favor of the MNCs.

Delay in launch of cheaper generics:

There are instances that the acquired entity was not allowed to use flexibilities such as patent challenges to introduce new affordable generic medicines.

The withdrawal of all patent challenges by Ranbaxy on Pfizer’s blockbuster medicine Lipitor filed in more than eight countries immediately after its acquisition by Daiichi-Sankyo, is a case in point.

Key concerns expressed:

Brownfield acquisitions seem to have affected the entire pharma spectrum, spanning across manufacturing/ marketing of oral formulations; injectibles; specialized oncology verticals; vaccines; consumables and devices, with no tangible perceptible benefits noted just yet.

Concerns have been expressed about some sectors, which are very sensitive, such as, cancer injectibles and vaccines.

Moreover, domestic Indian pharma exports generic medicines worth around US$ 13 billion every year establishing itself as a major pharmaceutical exporter of the world and is currently the net foreign exchange earner for the country. If the Government allows the domestic manufacturing facilities of strategic importance to be taken over by the MNCs, some experts feel, it would adversely impact the pharmaceutical export turnover of the country, besides compromising with the domestic capacity while facing epidemics, if any or other health exigencies. It would also have a negative fall out on the supply of affordable generic medicines to other developing nations across the world.

Countries such as Brazil and Thailand have a robust public sector in the pharma space. Therefore, their concerns are less. Since India doesn’t have a robust public sector to fall back on, many experts feel that unrestrained acquisitions in the brownfield sector could be a serious public health concern.

Some conditions proposed:

The DIPP proposal reportedly wants to make certain conditions mandatory for the company attracting FDI, such as:

  • If a company manufactures any of the 348 essential drugs featuring in the National List of Essential Medicines (NLEM), the highest level of production of that drug in the last three years should be maintained for the next five years
  • The acquirer foreign company would not be allowed to close down the existing R&D centres and would require to mandatorily invest upto 25 per cent of the FDI in the new unit or R&D facility. The total investment as per the proposed condition would have to be incurred within 3 years of the acquisition.
  • Reduction of FDI cap to 49 per cent in rare or critical pharma verticals, as discussed above.
  • If there is any transfer of technology it must be immediately communicated to the administrative ministries and FIPB

Vaccines and cancer injectibles, which have a limited number of suppliers, could fall under the purview of even greater scrutiny.

Conclusion: 

The Ministries of Health and Commerce & Industries, which are in favor of restricting FDI in pharma stricter, are now facing stiff opposition from the Finance Ministry and the Planning Commission.

The Department of Industrial Policy and Promotion (DIPP) has now repotedly prepared a draft Cabinet Note after consulting the ministries of Finance, Pharma and Health, besides others. However, as comments from some ministries came rather late, the DIPP is reportedly moving a supplementary note on this subject.

The matter is likely to come up before the cabinet by end November/December 2013.

While FDI in pharma is much desirable, it is equally important to ensure that a right balance is maintained in India, where majority of the populations face a humongous challenge concerning access to affordable healthcare in general and affordable medicines in particular.

There is, therefore, an urgent need for critical assessment of tangible outcomes of all pharma FDIs in India as on date, based on meaningful parameters. This would help the Government while taking the final decision, either in favor of continuing with the liberalized FDI policy or modifying it as required, for the best interest of country.

Otherwise, without putting the hard facts, generated from India, on the table, is it not becoming yet another highly opinionated debate in its ilk, between  the mighty MNC pharma lobby groups either directly or indirectly, the Government albeit in discordant voices and other members of the society?

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.