Has Prime Minister Modi Conceded Ground To America On Patents Over Patients?

Posted on October 6, 2014 by Tapan Ray

Unprecedented high profile engagement of the Indian Prime Minister with various interested groups during his recent visit to the United States under equally unprecedented media glare, has invited overwhelmingly more kudos than brickbats, from across the world.

However, in the context of upholding patients’ health interest in India, a lurking fear did creep in, immediately after his visit to the United States. This was related to whether or not demonstrably tough minded Prime Minister Modi has yielded to enormous pressure created by all powerful American drug lobby against the current Intellectual Property (IP) regime in India.

The backdrop:

This apprehension started bothering many as the Prime Minister appeared to have moved away from a much-reiterated stand of India that any IP related issue would be discussed only in a multi-lateral forum.

That India’s Patents Act is TRIP’s compliant, has been categorically endorsed by a vast majority of international and national experts, including, a key intellectual belonging to Prime Minister Modi’s ‘Think -Tank’ – Arvind Panagariya, Professor of Economics at Columbia University, USA.

Subsequent to my blog post of February 5, 2014, an article dated March 4, 2014 titled “India Must Call The US’ Bluff On Patents” penned by Panagariya stated as follows:

“Critics of the Indian patent law chastise it for flouting its international obligations under the TRIPS Agreement. When confronted with these critics, my (Arvind Panagariya) response has been to advise them:

To urge the US to challenge India in the WTO dispute settlement body and test whether they are indeed right.

Nine years have elapsed since the Indian law came into force; and, while bitterly complaining about its flaws, the USTR has not dared challenge it in the WTO. Nor would it do so now. Why?

There is, at best, a minuscule chance that the USTR will win the case.

Against this, it must weigh the near certainty of losing the case and the cost associated with such a loss.

Once the Indian law officially passes muster with the WTO, the USTR and pharmaceutical lobbies will no longer be able to maintain the fiction that India violates its WTO obligations.

Even more importantly, it will open the floodgates to the adoption of the flexibility provisions of the Indian law by other countries.

Activists may begin to demand similar flexibilities even within the US laws.

On possible actions against India under the ‘Special 301’ provision of the US trade law, Professor Arvind Panagariya argues:

“Ironically, this provision itself was ruled inconsistent with the WTO rules in 1999 and the US is forbidden from taking any action under it in violation of its WTO obligations. This would mean that it couldn’t link the elimination of tariff preferences on imports from India to TRIPS violation by the latter. The withdrawal of preferences would, therefore, constitute an unprovoked unilateral action, placing India on firm footing for its retaliatory action.”

Examples of some global and local views:

On this score, a large number of business experts from all over the world have expressed their views, recently. Some examples are as follows:

The former Chairman of Microsoft India reportedly advised the new ‘Modi Regime’ as follows:

“While the new government must work hard to make India more business friendly, it must not cave in to pressure on other vital matters. For instance, on intellectual property protection, there is enormous pressure from global pharmaceutical companies for India to provide stronger patent protection and end compulsory licensing. These are difficult constraints for a country where 800 million people earn less than US$ 2 per day.”

Maruti Suzuki, India’s largest car manufacturer, aircraft maker Boeing, global pharma major Abbott and technology leader Honeywell have reportedly just not supported India’s IP regime, but have strongly voiced that IPR regime of India is “very strong” and at par with international standards.

The Chairman of the Indian pharma major – Wockhardt also echoes the above sentiment by articulating, “I think Indian government should stay firm on the Patents Act, which we have agreed.”

Other domestic pharma trade bodies and stakeholder groups in India expect similar action from the ‘Modi Government’.

Who are against Indian IP regime?

By and large, American pharma sector and their well-paid lobbyists representing drug multinationals are the strongest critics of Indian Patents Act 2005. They allege that Indian IP law discriminate against US companies and violates global norms, severely affecting their investments in India.

Recent stand of India on unilateral US measures:

Just to recapitulate, 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’.

On this report, India responded by saying that the ‘Special 301’ process is nothing but unilateral measures taken by the US under their Trade Act 1974, 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 Indo-US working group on IP:

The Indo-US high-level working group on IP would be constituted as part of the Trade Policy Forum (TPF). The US-India TPF is the principal trade dialogue body between the countries. It has five focus groups: Agriculture, Investment, Innovation and Creativity, Services, and Tariff and Non-Tariff Barriers.

The recent joint statement issued after talks between Prime Minister Narendra Modi and US President Barack Obama states:

“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.”

This part of the Indo-US joint statement on IPR created almost a furore not just in India, but in other parts of the world too, interpreting that Prime Minister Modi has conceded ground to America on patents over patients.

IP experts’ expressed concerns even in the US:

Commenting on this specific move by the Obama Administration to push India on issues related to IP, even the independent American healthcare experts expressed grave concern.

Professor Brook K. Baker from the Northeastern University School of Law has reportedly said:

“This working group will give the US a dedicated forum to continue to pressure India to adopt TRIPS-plus IP measures, including repeal of Section 3(d) of the India Patents Act, adoption of data exclusivity/monopolies, patent term extensions, and restrictions on the use of compulsory licenses”.

Professor Baker further said:

“The US, in particular, will work to eliminate local working requirements that India is seeking to use to promote its own technological development…. The fact that this working group will have ‘decision-making’ powers is particularly problematic as it places the US fox in the Indian chicken coop.”

“FDI and innovation are also always rhetorically tied to strong IPRs despite inclusive evidence that typically shows that most low and middle-income countries do not benefit economically from IP maximization, since they are net importers of IP goods. It is also because the path to technological development is ordinarily through copying and incremental innovation – development tools that are severely undermined by IP monopoly rights and their related restrictive licensing agreements,” Baker elaborated.

Jamie Love, Director, Knowledge Ecology International, an NGO working on knowledge governance also reportedly said:

“It is very clearly going to be used to pressure India to expand liberal grants of drug patents in India, and to block or restrain the use of compulsory licenses on drug patents.”

Has India conceded to American bullying?

On this backdrop, during Indian Prime Minister’s interaction with the President of the United States and his aids, it was reportedly decided to set up a high-level working group on IP, as a part of the TPF, to sort out contentious issues which have been hampering investments. This was interpreted by many experts that India has conceded to American bullying, as it apparently deviated from its earlier firm stand that the country would discuss IP issues only in multilateral forum such as the World Trade Organization (WTO).

No change in India’s position on patents:

Taking note of this humongous misunderstanding, on October 4, 2014, the Union Ministry of Commerce in an official clarification reiterated that during Prime Minister Modi’s visit to America:

There has been no change in India’s stated position on Intellectual Property Rights (IPR).

India has reaffirmed that the IPR legal regime in India is fully TRIPS-compliant.

A bilateral Innovation and Creativity Focus Group already exists in the Trade Policy Forum (TPF) since 2010. Any IP related issues have to be discussed by the United States only in the TPF. This group consults each other no less than twice a year on improving intellectual property rights protection and enforcement, enhancing awareness of intellectual property rights, fostering innovation and creativity, and increasing collaboration between American and Indian innovators.

The Indo-US joint statement issued now merely reiterates whatever has existed in the earlier Trade Policy Forum. IPR issues are critical for both the countries and India has been repeatedly raising the issue of copyright piracy and misappropriation of traditional knowledge with the US.

The US agreeing to discuss IPR issues through the bilateral mechanism of the Trade Policy forum is in fact a re-affirmation of India’s stand that issues need bilateral discussion and not unilateral action. The statement on the IPR issue will only strengthen the bilateral institutional mechanism.

Conclusion:

Most part of the above statement is indeed quite consistent to what happened even immediately before the Modi regime.

In September 2013, the Commerce Secretary and India’s Chief trade Negotiator, Rajeev Kher, while terming the decision by the US Trade Representative for not labeling India with its worst offender tag in IP as a ‘very sensible decision’, strongly defended India’s right to overrule patents in special cases to provide access to affordable innovative medicines to its 1.2 billion people.

Moreover, many recent judicial verdicts have vindicated that a strong and balanced patent regime of the country not just secures the bonafide rights of the patentee, but at the same time ensures genuine needs of the public and in case of pharma of the ailing patients.

The Indian Supreme Court judgment on Glivec of Novartis in the recent past, have re-established, beyond an iota of doubt, that to secure and enforce patents rights of genuine inventions, other than evergreening, India provides a very transparent IP framework.

Taking all these into consideration, it seems unlikely to me that Prime Minister Modi, who is a self-confessed nationalist and holds India’s interest first, would in any way compromise with the country’s TRIPS compliant patent regime, sacrificing millions of Indian patients’ health interest at the altar of American business needs.

The above official clarification by the Union Ministry of Commerce is expected to tame the fire of this raging debate to a great extent. However, the grave concern expressed in the following lines by the independent healthcare experts, such as Professor Baker, on the high-level IP working group, cannot just be wished away:

“The fact that this working group will have ‘decision-making’ powers is particularly problematic as it places the US fox in the Indian chicken coop.”

That said, from your government Mr. Prime Minister “Yeh Dil Maange Much More”.

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.

To Curb Pharma Marketing Malpractices in India Who Bells the Cat?

Posted on March 18, 2013 by Tapan Ray

Bribing doctors by the pharmaceutical companies directly or indirectly, as reported frequently by the media all over the world, including India, to prescribe their respective brand of drugs has now reached an alarming proportion, jeopardizing patients’ interest, seriously more than ever before.

In this context July 4, 2012, edition of The Guardian reported an astonishing story. Since quite some time many pharmaceutical giants are being reportedly investigated and fined, including out of court settlements, for bribery charges related to the physicians.

In another very recent article titled “Dollars for Docs Mints a Millionaire” the author stated as follows:

“The companies in Dollars for Docs accounted for about 47 percent of U.S. prescription drug sales in 2011. It’s unclear what percentage of total industry spending on doctors they represent, because dozens of companies do not publicize what they pay individual doctors. Most companies in Dollars for Docs are required to report under legal settlements with the federal government.”

In India, deep anguish of the stakeholders over this issue is also being increasingly reverberated day by day. It has also drawn the attention of the patients’ groups, NGOs, media, Government and even the Parliament. An article titled, “Healthcare industry is a rip-off” published in a leading business daily of India states as follows:

“Unethical drug promotion is an emerging threat for society. The Government provides few checks and balances on drug promotion.”

Unfortunately, nothing substantive has been done in India just yet to address such malpractices across the industry in a comprehensive way, despite indictment by the Parliament, to effectively protect patients’ interest in the country.

Countries started taking steps with disclosure norms:

It is interesting to note that many countries have already started acting, even through implementation of various regulatory disclosure norms, to curb such undesirable activities effectively. Some examples are as follows:

USA

The justice department of the U.S has reportedly wrung huge settlements from many large companies over such nexus between the doctors and the pharmaceutical players.

To address this issue meaningfully, on February 1, 2013 the Department of Health and Human Services (HHS) of the United States of America released the final rules of implementation of the ‘Patient Protection and Affordable Care Act (PPACA)’, which is commonly known as the “Physician Payment Sunshine Act” or just the “Sunshine Act”.

This Act has been a part of President Obama’s healthcare reform requiring transparency in direct or indirect financial transactions between the American pharmaceutical industry and the doctors and was passed in 2010 by the US Congress as part of the PPACA.

The Sunshine Act requires public disclosure of all financial transactions and transfers of value between manufacturers of pharmaceutical / biologic products or medical devices and physicians, hospitals and covered recipients. The Act also requires disclosure on research fees and doctors’ investment interests.

The companies have been directed by the American Government to commence capturing the required data by August 1, 2013, which they will require to submit in their first federal reports by March 31, 2014.The first such disclosure report will be available on a public database effective September 30th, 2014.

France:

On December 2011, France adopted a legislation, which is quite similar to the ‘Sunshine Act’. This Act requires the health product companies like, pharmaceutical, medical device and medical supply manufacturers, among others to mandatorily disclose any contract entered with entities like, health care professionals, hospitals, patient associations, medical students, nonprofit associations, companies with media services or companies providing advice regarding health products.

Netherlands:

On January 1, 2012, Netherlands enforced the ‘Code of Conduct on Transparency of Financial Relations’. This requires the pharmaceutical companies to disclose specified payments made to health care professionals or institutions in excess of € 500 in total through a centralized “transparency register” within three months after the end of every calendar year.

UK:

According to Deloitte Consulting, pharmaceutical companies in the UK are planning voluntary disclosures of such payments. One can expect that such laws will be enforced in the entire European Union, sooner than later.

Australia and Slovakia:

Similar requirements also exist in Australia and Slovakia.

Japan:

In Japan, the Japan Pharmaceutical Manufacturers Association (JPMA) reportedly requires their member companies to disclose certain payments to health care professionals and medical institutions on their websites, starting from 2013.

India still remains far behind:

This issue has no longer remained a global concern. Frequent reports by Indian media have already triggered a raging debate in the country on the subject. It has been reported that a related case is now pending before the Supreme Court against a Public Interest Litigation (PIL) for hearing, in not too distant future.

It is worth noting that in 2010, ‘The Parliamentary Standing Committee on Health’ expressed its deep concern stating, the “evil practice” of inducement of doctors by the pharma companies is continuing unabated as the revised guidelines of the Medical Council of India (MCI) have no jurisdiction over the pharma industry.

It was widely reported that the letter of the Congress Member of Parliament, Dr. Jyoti Mirdha to the Prime Minister Dr. Manmohan Singh, attaching a bunch of photocopies of the air tickets to claim that ‘doctors and their families were beating the scorching Indian summer with a trip to England and Scotland, courtesy a pharmaceutical company’, compelled the Prime Minister’s Office (PMO) to initiate inquiry on the subject.

The letter had claimed that as many as 30 family members of 11 doctors from all over India enjoyed the hospitality of the pharmaceutical company on the pretext of ‘Continuing Medical Education (CME)’.

In addition Dr. Mirdha reportedly reiterated to the PMO, “The malpractice did not come to an end because while medical profession (recipients of incentives) is subjected to a mandatory code, there is no corresponding obligation on the part of the healthcare industry (givers of incentives). Result: Ingenious methods have been found to flout the code.”

The report also indicated at that time that the Department of Pharmaceuticals (DoP) is trying to involve the Department of Revenue under the Ministry of Finance to explore the possibilities in devising methods to link the money trails of offending companies and deny the tax incentives on such expenses.

Incidences of such alleged malpractices are unfolding much faster today and are getting increasingly dragged into the public debate where government can no longer play the role of a mere bystander.

Indian Parliamentary indictment for not having a ‘Marketing Code’:

Thereafter, the Department Related Parliamentary Standing Committee on Health and Family Welfare presented its 58th Report on the action taken by the Government on the recommendations / observations contained in the 45th report to both the Lower and the Upper houses of the Parliament on May 08, 2012.

The committee with a strong indictment to the Department of Pharmaceuticals (DoP), also observed that the DoP should take decisive action, without any further delay, in making the ‘Uniform Code of Pharmaceutical Marketing Practices (UCPMP)’ mandatory so that effective checks could be ensured on ‘huge promotional costs and the resultant add-on impact on medicine prices’.

Unfortunately nothing substantive has happened on the ground regarding this issue as on date.

Ministry of Finance fires the first salvo:

Firing the first salvo closer to this direction, Central Board of Direct Taxes (CBDT), which is a part of Department of Revenue in the Ministry of Finance, has now decided to disallow expenses on all ‘freebies’ to Doctors by the Pharmaceutical Companies in India.

An internal circular dated August 1, 2012, of the CBDT addressed to its tax assessment officers categorically stated that the any expenses incurred by the pharmaceutical companies on gifts and other ‘freebies’ given to the doctors, which do not conform to the revised MCI guidelines, will no longer be allowed as business expenses.

The High Court upheld the CBDT order:

As expected, the above CBDT circular was challenged in the court of law by an aggrieved party.

However, on December 26, 2012, in a significant judgment on the this CBDT circular related to promotional expenses, the High Court of Himachal Pradesh, ordered as follows:

“Therefore, if the assesse satisfies the assessing authority that the expenditure is not in violation of the regulations framed by the Medical Council of India (MCI), then it may legitimately claim a deduction, but it is for the assesse to satisfy the assessing officer that the expense is not in violation of MCI regulations as mentioned above. We, therefore, find no merit in the in the petition, which is accordingly rejected, No costs.”

Unless this High Court order is challenged in the Supreme Court and reversed subsequently, the CBDT circular related to pharmaceutical promotional expenses has assumed a legal status all the way.

Current situation in America post ‘Sunshine Act’:

After enactment of the ‘Sunshine Act’ one gets a mixed response as follows, though these are still very early days of implementation of this new Law in America.

Low awareness level of the ‘Sunshine Act’:

Though this Act was passed in the U.S in 2010, the awareness level is still very low. More than half of the 1,025 physicians interviewed in a recent survey said, they didn’t know that the law requires pharmaceutical and medical device companies to track any payments or “transfers of value” to physicians and teaching hospitals as of August 1, 2013.

The ground reality:

Despite all such measures, current situation in the United States on this issue is still not very encouraging.

The same 2013 survey highlights that many physicians in the United States continue to have some sort of financial relationship with the industry, as follows:

Receiving samples (54%)
Receiving food and beverage in their workplace (57%),
Participating in an “industry-funded program” (48%),
Participating in speakers bureau programs (11%)
Advisory board programs (10%).

Spin-off benefits of the Law:

It has been reported that the ‘Sunshine Act’ will also provide enormous data on how much the pharmaceutical companies and each of their competitors spend to make the doctors prescribe their drugs from the public data that will be available from September 2014. This will help these companies tracking which type of marketing tools and processes have a linear relationship to generate increased number of prescriptions.

Thus the above report concludes that pharmaceutical players ‘will not stop wooing doctors. They may simply get better at it’, making their marketing expenditure increasingly productive.

However, despite all these, another recent report indicated that after the ‘Sunshine Act,’ some pharma companies have really started cutting back on their payments to doctors and many others have stepped up their efforts in this direction. This augurs a good beginning, if fructifies on a larger scale.

Such Laws could be more impactful in India:

A law like ‘Sunshine Act’ of America, if implemented well in India is expected to have much greater and positive impact. This is mainly due to existence of an effective pharmaceutical pricing ‘watchdog’ in the country in form of the ‘National Pharmaceutical Pricing Authority (NPPA)’ .

When pharmaceutical-marketing expenditures of individual pharma companies, through such public disclosures, will be found to contributing disproportionately to the total expenses of any player, pressure from the regulators and the civil society will keep mounting to bring down the prices of medicines.

An interesting survey in India:

A survey report of Ernst and Young titled, “Pharmaceutical marketing: ethical and responsible conduct”, carried out in September 2011 on the UCMP and MCI guidelines, highlighted the following:

Two-third of the respondents felt that the implementation of the UCPMP would change the manner in which pharma products are currently marketed in India.

More than 50% of the respondents are of the opinion that the UCPMP may lead to manipulation in recording of actual sampling activity.

Over 50% of the respondents indicated that the effectiveness of the code would be very low in the absence of legislative support provided to the UCPMP committee.

90% of the respondents felt that pharma companies in India should focus on building a robust internal controls system to ensure compliance with the UCPMP.

72% of the respondents felt that the MCI was not stringently enforcing its medical ethics guidelines.

36% of the respondents felt that the MCI’s guidelines would have an impact on the overall sales of pharma companies.

The Planning Commission of India expresses its anguish:

Recently even the Planning Commission of India has reportedly recommended strong measures against pharmaceutical marketing malpractices as follows:

“Pharmaceutical marketing and aggressive promotion also contributes to irrational use. There is a need for a mandatory code for identifying and penalizing unethical promotion on the part of pharma companies. Mandated disclosure by Pharmaceutical companies of the expenditure incurred on drug promotion, ghost writing in promotion of pharma products to attract disqualification of the author and penalty on the company, and vetting of drug related material in Continuing Medical Education would be considered.”

The Ministry of Health may now intervene:

It was reported by the media just last week that the Ministry of Health (MoH) strongly feels that unethical practices and aggressive promotion of drugs by the pharmaceutical companies through the doctors in lieu of gifts, hospitality, trips to exotic foreign and domestic destinations are adding up to cost of medicines significantly in India. Thus, the MoH is expected to suggest to the Department of Pharmaceuticals for  mandatory implementation of the ‘Uniform Code of Pharmaceutical Practices (UCPMP)’ by the industry soon.

Conclusion:

Statistics of compliance to UCPMP are important to know, but demonstrable qualitative changes in the ethics and value standards of an organization in this regard should always be the most important goal to drive any pharmaceutical business corporation in India.

The need to announce and implement the UCPMP by the Department of Pharmaceutical, without further delay, assumes critical importance in today’s allegedly chaotic pharmaceutical marketing scenario.

Very unfortunately, the status quo remains unbroken even today. The juggernaut of marketing malpractices keeps moving on unabated. The ‘Cat and Mouse’ game continues as ever. The moot question still remains, who bells the cat? …For patients sake.

By: Tapan J Ray

Balancing Strong IP Protection, Public Health Safeguards and Declining R&D Productivity – A Crafty Gutsy Ball Game

Posted on April 16, 2012 by Tapan Ray

Pharmaceutical innovation has always been considered the lifeblood for the pharmaceutical industry and very rightly so. However, many studies do point out that such innovation has benefited the developed world more than the developing world.

Product Price and Access:

In the paper titled ‘TRIPS, Pharmaceutical Patents and Access to Essential Medicines: Seattle, Doha and Beyond’, published in ‘Chicago Journal for International Law, Vol. 3(1), Spring 2002’, the author argues, though the reasons for the lack of access to essential medicines are manifold, there are many instances where high prices of drugs deny access to needed treatments for many patients. Prohibitive drug prices, in those cases, were the outcome of monopoly due to strong intellectual property protection.

The author adds, “the attempts of Governments in developing countries to bring down the prices of patented medicines have come under heavy pressure from industrialized countries and the multinational pharmaceutical industry”.

While the Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS) of the World Trade Organization (WTO) sets out minimum standards for the patent protection for pharmaceuticals, it also offers adequate safeguards against negative impact of patent protection or its abuse in terms of extraordinary and unjustifiable drug pricing. The levels of these safeguards vary from country to country based on the socio-economic and political requirements.

The Doha Declaration:

Many independent experts in this field consider the Doha Declaration as an important landmark for recognizing the primacy to public health interest over private intellectual property and the rights of the members of WTO to use safeguards as enumerated in TRIPS, effectively.

To protect public health interest and extend access to innovative medicines to majority of their population whenever required, even many developed/OECD countries do not allow a total freehand for the patented products pricing in their respective countries.

Early signals of global empathy:

While expressing similar sentiment ‘The Guardian’ reported that Andrew Witty, the global CEO of GlaxoSmithKline, has decided to slash prices on all medicines in the poorest countries, give back profits to be spent on hospitals and clinics and more importantly share knowledge about potential drugs that are currently protected by patents.

Witty further commented that he believes, drug companies have an obligation to help the poor patients getting appropriate treatment and reportedly challenged other pharmaceutical giants to follow his lead.

An interesting study:

A study titled, ‘Pharmaceutical innovation and the burden of disease in developing and developed countries’ of Columbia University and National Bureau of Economic Research, to ascertain the relationship across diseases between pharmaceutical innovation and the burden of disease both in the developed and developing countries, reported that pharmaceutical innovation is positively related to the burden of disease in the developed countries but not so in the developing countries.

The most plausible explanation for the lack of a relationship between the burden of disease in the developing countries and pharmaceutical innovation, as pointed out by the study, is weak incentives for firms to develop medicines for the diseases of the poor.

Point – Counterpoint:

A contrarian view to this study argues that greater focus on the development of new drugs for the diseases of the poor should not be considered as the best way to address and eradicate such diseases in the developing countries. On the contrary, strengthening basic healthcare infrastructure along with education and the means of transportation from one place to the other could improve general health of the population of the developing world quite dramatically.

The counterpoint to the above argument articulates that health infrastructure projects are certainly very essential elements of achieving longer-term health objectives of these countries, but in the near term, millions of unnecessary deaths in the developing countries can be effectively prevented by offering more innovative drugs at affordable prices to this section of the society.

A solution emerging:

Responding to the need of encouraging pharmaceutical innovation without losing focus on public health interest, in 2006 the ‘World Health Organization (WHO)‘ created the ‘Inter-governmental Working Group on Public Health, Innovation and Intellectual Property (IGWG)‘. The primary focus of IGWG is on promoting sustainable, needs-driven pharmaceutical R&D for the diseases that disproportionately affect developing countries.

Declining R&D productivity:

Declining R&D productivity adds another dimension to this raging debate with a snowballing effect, as it were.

Over a period of decades, the business models for small-molecule based blockbuster drugs have successfully catapulted the global pharmaceutical business to a high-margin, dynamic and vibrant industry. However, a time has now come when the golden path from the ‘mind to market’ of the drug discovery process is becoming increasingly arduous and prohibitively expensive.

Deploying expensive resources to discover a New Chemical Entity (NCE) with gradually diminishing returns in the milieu of very many ‘me too’ types of new drugs, does no longer promise a strong commercial incentive.

The impact of the above scenario also gets reflected in the status of International patent filings under the Patent Cooperation Treaty (PCT) of the ‘World Intellectual Property Organization (WIPO)’ as follows:

A. Last five years, PCT filings:

The last five years’ PCT filing status does not seem to be encouraging either.

Year	PCT Filings	Change %
2007	159,926
2008	163,240	2.1
2009	154,406	(5.4)
2010	164,316	6.4
2011	181,900	10.7 *(E)

* Estimate

B. Country-wise PCT Filing in 2011:

While having a closer look at the data, it becomes quite evident that in terms of percentage increase in the PCT filings two Asian countries, China and Japan, have registered their overall dominance. However, in terms of absolute number USA still ranks first.

County	No. Of PCT Filings	% Increase
USA	48,596	8
China	16,401	33.4
Japan	38,888	21
Germany	18,568	5.7
South Korea	10,447	8

C. Technical-field-wise PCT Filing in 2011:

In terms of the technical fields, pharmaceuticals ranked fifth in 2011.

Rank	Industry	No. Of PCT Filings
1.	Electrical Machinery, Apparatus, Energy	11,296
2.	Digital Communication	11,574
3.	Medical technology	10,753
4.	Computer technology	10,455
5.	Pharmaceuticals	7,683
6.	Organic fine chemistry	5,283
7.	Biotechnology	5,232

D. Biotech/Pharma companies featuring in WIPO’s Top 100 filers list:

Very few biotech and pharmaceutical companies featured in the Top 100 PCT filers’ list of WIPO as follows:

	Company
1.	Procter & Gamble
2.	Sumitomo Chemical
3.	DuPont
4.	Dow Global
5.	Novartis AG
6.	Roche
7.	Merck GmbH
8.	Sanofi-Aventis GmbH
9.	Bayer CropScience AG

E. The top five university PCT filers in 2011:

Universities of the US dominated among the PCT filings by the Academic institutions as follows:

University	No. Of PCT Filings
University of California, US	277
Massachusetts Institute of Technology, US	179
University of Texas System, US	127
Johns Hopkins University, US	111
Korea Advanced Institute of Science and Technology, South Korea	103

Need to encourage pharmaceutical innovation:

Based on the WIPO data, as mentioned above, the current status of the global pharmaceutical innovation does not seem to be very encouraging.

That said, in the environment of declining R&D productivity of the global pharmaceutical industry, there is indeed a strong requirement to encourage pharmaceutical innovation across the globe, based on the socio-economic environment of each country, together with adequate safeguards in place to protect public health interest.

Why protect patent?

The pharmaceutical major Eli Lilly has very aptly epitomized the reason for patent protection in their website called ‘LillyPad’, as follows:

“Pharmaceutical companies continue to invest in innovation not only because it is good for business, but it is what patients expect. If we want to continue to have breakthrough products, we need patent protection and incentives to invest in intellectual property. The equation is simple, patents lead to innovation – which help lead to treatments and cures”.

Conclusion:

Currently, various socio-economic expectations, demands and requirements, not just for the poor, but also of the powerful growing middle class intelligentsia are gradually getting unfolded on this subject from many parts of the globe. These collective demands cannot be either wished away or negotiated with a strong belief that the future should be a replication of the past.

There should be full respect, support and protection for innovation and the product patent system in the country. This is essential not only, for the progress of the pharmaceutical industry, but also to alleviate sufferings of the ailing population, effectively.

At the same time, available indicators point out that the civil society would continue to expect in return just, fair, responsible and reasonably affordable prices for the innovative medicines, based on the overall socio-economic status of the local population. Some experts have already opined that prices of life saving innovative drugs, unlike many other patented products, will no longer remain ‘unquestionable’ in increasing number of countries.

Thus, even at the time of declining pharmaceutical R&D productivity, striking a right balance between a strong patent regime and safeguarding overall health interest of its population, particularly of those with a very high ‘out of pocket’ expenditure towards healthcare, will indeed be a crafty gutsy ball game for a country.

By: Tapan J Ray

Tapan Ray in ‘Focus Reports’, March 2011

Posted on April 4, 2011 by Tapan Ray

FR: Our last report on India dates back to 2006, right after the Patent Law was passed. What developments have you seen happening in the industry since then?

TR: There has been a paradigm shift with the Product Patent Regime coming in place in 2005. The era from 1970 to 2005 has been a very successful era of reverse engineering, when Indian manufacturers were copying and marketing innovative products in India at a fraction of their international price. Nevertheless, this also required talent, for which India had brilliant process chemists. However, the country eventually realized that reverse engineering model would not truly serve the longer term advancement of the economy in creating a conducive ecosystem to foster innovation. This realization process started in 1990 and was reinforced after signing the WTO Agreement in 1995. After the ten-year transition period, the patent law came into force in January 2005.

Since around 2005 Indian companies, which had mainly been relying on cost efficient processes, started investing in the drug discovery research. There are now at least 10 Indian companies engaged in basic research, while around 32 New Chemical Entities (NCEs) are at various stages of development.

This significant step that the country has taken so far, could not have been possible without a conscious decision to move away from the paradigm of replication to the new paradigm of innovation. More importantly, this shift has not happened at the cost of fast growing generic pharmaceutical industry in the country. Branded generics continue to grow rapidly in the new paradigm.

Today, branded generics constitute over 99% of the domestic pharmaceutical market. Of course, according to McKinsey (2007), the share of patented medicines is expected to increase to 10% by 2015. Even in that scenario 90% of the market will still constitute with branded generics in value terms.

FR: At the same time, companies are still only spending some 4% of their revenues on R&D, while internationally these numbers amount up to 12%. Many of the people in the industry seem to still see the future of India for the next 10 years to remain in manufacturing. Is innovation really the story of India right now?

TR: As I mentioned earlier, around 32 NCEs are at various stages of development from pre-clinical to Phase III. Thus, what Indian companies have achieved since 2005, is, indeed remarkable. If you now look at the investments made by the Indian pharmaceutical companies in R&D, as a percentage of turnover, you will notice an ascending trend. Though the R&D ecosystem in India cannot be compared with the developed world just yet, India is catching up.

FR: In some previous interviews we have conducted, concerns were raised over the Indian industry, saying that the local companies are selling off to international players. What is your take on this?

TR: In India, we all express a lot of sentiments and are generally emotional in nature. These are not bad qualities by any standard. However, such expressions should ideally be supported by hard facts. Otherwise these expressions cannot be justified.

Consolidation process within the industry is a worldwide phenomenon and is also taking place in India. One of the apprehensions of such consolidation process in India is that drug prices would go up, as a consequence. In my view, all such apprehensions should be judged by what has already happened in our country by now, in this area.

One example we can cite is the Ranbaxy-Daiichi-Sankyo deal, an acquisition which has not at all led to an increase in Ranbaxy’s product prices. Similarly, the acquisition of India-based Shantha Biotech by the French pharmaceutical major, Sanofi-Aventis did not lead to any increase in product prices either. It is difficult to make out how could possibly the drug prices go up when we have an effective national price regulator called National Pharmaceutical Pricing Authority (NPPA) in India? Currently, 100% of the pharmaceutical market in the country is regulated by NPPA in one way or the other.

India is currently having a drug policy which came into force way back in 1995. As per this drug policy, any company which increases its product price which are outside price control, by more than 10% in a year, will be called for an explanation by the NPPA. Without a satisfactory explanation, the concerned product – not the product category – will be brought under price control, that too for good. In addition, intensive cut-throat competition has made pharmaceutical product prices in India the cheapest in the world, even lower than in the neighboring countries such as Bangladesh, Pakistan and Sri Lanka. Moreover, if the potential to increase prices exists, why would any company wait for an acquisition in a highly fragmented pharmaceutical market in India?

Many of the concerns are, therefore, difficult to justify due to lack of factual data. In fact, on the contrary, the presence of multinational pharmaceutical companies in India is good for the country. These companies with their international expertise and resources would help India to build capacity in terms of training and creating a world-class talent pool. Indian companies, therefore, should consider to take more and more initiatives to partner and collaborate with these MNCs to create a win-win situation for India.

Another key advantage is in the area of market penetration. Market penetration through value-added innovative marketing has happened and has been happening all over the world; India should not let go this opportunity.

FR: In that case, how do you feel about some of the proposed protectionist measures such as a 49% cap on Foreign Direct Investment (FDI)?

TR: This may, once again, be related to the strong local sentiments. India needs financial reforms and wants to attract more and more FDI. The country wants to liberalize the process of FDI and, to the best of my knowledge, any step to move backward in this area should not be contemplated.

It is also worth mentioning that the acquisitions that have taken place were not of any hostile nature. Both Indian companies and MNCs have their own sets of skills, competencies and best practices. Both cost revenue and value synergy through such consolidation process could be made beneficial for the country.

Without commenting on any specific cases, I believe India has taken significant steps to encourage and protect innovation by putting in place the product patent Act in 2005. However, there are some additional steps that the Government should take to further strengthen the process, such as fast-track courts that can quickly decide on the cases of patent infringements. Another example is that when any company will apply for marketing approval for a product, the regulator will upload the same on its website. This is an easy way for other players to detect patent infringement and start taking counter-measures at an early stage. These are examples of steps that can be taken to create a proper ecosystem without amending the law.

FR: You mentioned the paradigm shift towards innovation earlier, to some extent a similar path as China. How innovative has India become in this respect and is it sufficient in terms of clinical trials and other related aspects of the sector?

TR: With regards to attracting FDI in areas such as R&D and clinical trials, India at present is far behind China. The reason for this, as said earlier, is that the country should try to analyse why the innovator companies are not preferring India to China in these areas. Simultaneously, there is a need to assess the expectations of the innovative companies from India in various areas of IPR. One such factor that is bothering the global innovative companies is the absence of regulatory data protection in India. The Government should seriously ponder over this need and take active steps towards this direction as was proposed by ” Satwant Reddy Committee in 2007.”

FR: In your view, what is the industry going to look like in the coming years?

TR: I do not expect a radical shift in the way the Pharmaceutical Industry will be operating in the next few years. Changes will take place gradually and, perhaps, less radically. The increase of the share of patented medicines to 10% of the market share by 2015 as was forecasted by McKinsey in 2007, in my opinion, is rather ambitious. We will certainly see more and more patented products in the market, but it will be slow and gradual unless corrective measures are taken to tighten the loose knots in the Patent Amendment Act 2005, as stated earlier. As more and more Indian companies will start embracing an innovation-driven business model, the strengths and the international experience of the MNCs in this area should be leveraged to catapult the Indian pharmaceutical industry to a much higher growth trajectory.

The interview is available at the following link:

http://www.pharma.focusreports.net/#state=Interview&id=0

By: Tapan J Ray

EU-FTA, TRIPS-Plus provisions, Data Exclusivity, Public Interest and India

Posted on January 30, 2011 by Tapan Ray

Business Standard in its January 27, 2011 edition reported, “Data Exclusivity still key hurdle to India-EU FTA”
Before deliberating on this important issue of “Free Trade Agreement (FTA)”, let me touch upon very briefly, for the benefit of all concerned, the pros and cons of the FTAs.
Free Trade Agreements (FTAs):
Free Trade Agreements (FTAs), as we know, are treaties signed between the governments of two or more countries, where the countries agree to partially or completely lift the import tariffs, taxes, quotas, special fees, other trade barriers and regulatory issues to allow increased business, benefitting each country.
The Pros and Cons:
Consumers of each country are the key beneficiaries of FTAs with increased supply of various products of wider choices at lesser prices with consequent increase in market competition and market penetration.
The cons of the FTAs are apprehensions that arising out of fierce competition and increasing supply of imported products at lesser prices, the demand for domestic goods decline, leaving an adverse impact on the domestic business performance with consequent job losses, especially, in the manufacturing sector. In addition, because of lower import tariff, revenue collection of the government may also get adversely affected.
The scenario is no different for the pharmaceutical sector of the country.
A recent example:
The most recent example is the FTA between India and Japan. This will include both trade and investments, increasing the bilateral trade and commerce between the two countries to around US$ 11 billion. With this Agreement, Indian pharmaceutical products will be able to get access to the highly regulated and the second largest pharmaceutical market of the world.
The key issues with EU FTA:
1. It wants to include IPR issues like Regulatory Data Protection (RDP) or Data Exclusivity (DE) 2. RDP is a TRIPS-plus provision and its inclusion will delay the launch of generics 3. Delayed launch of generics would adversely impact the ‘public interest’.
A paradigm shift has taken place in India:
As we know, January 1, 1995 ushered in a new era, when the agreement of the World Trade Organization (WTO) on Trade-Related Aspects of Intellectual Property Rights (TRIPS), became effective for its member countries. This Agreement significantly changed the international Intellectual Property (IP) regime with the introduction of the principle of minimum intellectual property standards.
This would, therefore, mean that any IP related agreement that will be negotiated subsequent to TRIPS between WTO members can only create higher than the specified minimum standards.
What is ‘TRIPS Plus’?
The ‘TRIPS-plus’ concept usually would encompass all those activities, which are aimed at increasing the level of IP protection for the right holders beyond what is stipulated in the TRIPS Agreement.
Some section of the civil society nurtures a view that ‘TRIPS Plus’ provisions could significantly jeopardize the ability, especially, of developing countries to protect the ‘public interest’.
Some common examples of ‘TRIPS Plus’ provisions:
Common examples of ‘TRIPS plus’ provisions could include:
- Extension of the patent term beyond usual twenty-year period – Introduction of provisions, which could restrict the use of Compulsory Licenses (CL) – Delaying the entry of generics
Is section 39.3 an example of ‘TRIPS Plus’ provision?
The raging debate around Regulatory Data Protection (Data Exclusivity) as indicated under Article 39.3 of TRIPS is perhaps unique in terms of apprehension of the generic pharmaceutical industry on its possible adverse impact on their business and very recently of the Government of India because of the share of voice of the pressure groups following the EU-FTA.
Be that as it may, the moot question is, even if these provisions are ‘TRIPS Plus’, are these good for India?

Key arguments in favor of RDP in India:
1. It will not extend Patent life and promote evergreening:
However, there is hardly any evidence that RDP does not get over well before the patent expires. Thus RDP does extend the patent life of a product and hence is not ‘Evergreening’.
2. It will not delay the launch of generics because of safeguards provided in the Indian Patent Act, just like in the USA:
A robust ‘Data Exclusivity (DE)’ regime is effective in the USA since over decades. Despite DE, the world witnesses quickest launch of generic products in that country without any delay whatsoever. This has been possible in the USA, because of existence of the‘Bolar Provision’, which allows the generic players to prepare themselves and comply with all regulatory requirements, using the innovators data wherever required and keep the generic product ready for launch immediately after the patent of the innovator product expires in the country.
I reckon similar ‘Bolar like provision‘ exists in the section 107A of the Indian Patent Act. This particular section allows, in a similar way that generic entry is not delayed in India after patent expiry of the respective innovator products.
Though the generic players of India, by and large, are up in arms against RDP (protection against disclosure and unfair commercial use of the test data) in India, highest number of ANDAs are being filed by the Indian companies, just next to the USA, despite a stringent DE provisions being in force there.
Moreover, inspite of very stringent IPR regulations, Generic prescriptions are quite popular in the USA. Around 62% of the total prescriptions in that country are for generic pharmaceuticals.
Thus the key apprehension that the RDP provision in the EU-FTA will delay the launch of generic pharmaceutical products in India and will go against ‘Public Interest’ seems to be unfounded to me.
Government report indicates RDP is good for India:
The Government of India appointed ‘Satwant Reddy Committee’ report (2007) also categorically recommended that RDP is good for the country and should be introduced in a calibrated way.The committee examined two industries:
- Pharmaceuticals – Agrochemicals
Meanwhile, a 3 year RDP for Agrochemicals has been accepted by the Government of India, vindicating the fact that even if section 39.3 is considered as ‘TRIPS Plus’, RDP, as such, is good for the country.
Thus the question whether Section 39.3 is ‘TRIPS Plus’ or not, does not appear to be relevant while discussing EU-FTA, after following the above sequence of events in India.
Conclusion:
The issue of RDP appears to me more a regulatory than an IPR related subject in EU-FTA negotiation process and should be treated as such. It means RDP is more related to the ‘Drugs and Cosmetics Act’ of India rather than the ‘Patent Act 2005′. The media hype that an IPR issue in the form of RDP is being taken up in the EU-FTA negotiation also seems to be misplaced.
Let me hasten to add that I do not hold any brief directly or indirectly for or against the EU-FTA. Neither do I wish to make any general comment on the EU-FTA as such, because the agreement will deal with various other important issues of our nation’s interest involving intensive negotiations between the sovereign countries, at the government level.
However, even without going into the merits or demerits of the EU-FTA, it appears to me that the arguments put forth by a group of people against RDP related to the EU-FTA are indeed not robust enough and possibly have been prompted more by the vested interest groups rather than the ‘Public 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.

Does China provide a more robust IPR environment than India?

Posted on November 8, 2010 by Tapan Ray

Soon after the Product Patent Act was reintroduced in India effective January 1, 2005, a raging global debate commenced focusing on the robustness of the Indian Patent system. Quite often, many participants in the debate continue to compare the adequacies of the Chinese patent system with the inadequacies of the same in India.

‘The Pharma Letter’ dated October 26, 2010 published an Article captioned, “Intellectual property concerns and domestic bias hold back R&D in Asia-Pacific.”

Asia-Pacific still lags behind in terms of global R&D investments:

Unlike the common perception in India that China is attracting a significant part of the global investments towards R&D, latest data of MedTRACK revealed that only 15% of all drugs development are taking place in Asia-Pacific despite the largest growth potential of the region in the world. The Pharma Letter also reported, “In December 2009, China unveiled that it would give domestic companies making innovative products an advantage in qualifying for government purchases. This measure is likely to further limit foreign investment in product development in China, and negatively affect growth of foreign brands.”

Such type of domestic bias and protectionist’s measures are yet to be witnessed in India.

Since US is a pioneering country in the field of global R&D and its commercial interest related to such initiatives spans across the globe, let me try to analyze this subject, in this article, quoting only from official US publications.

IPR environment in China – the US perspective:

So far as the current IPR environment in China is concerned, US Embassy based in that country has commented as follows:

“Despite stronger statutory protection, China continues to be a haven for counterfeiters and pirates. According to one copyright industry association, the piracy rate remains one of the highest in the world (over 90 percent) and U.S. companies lose over one billion dollars in legitimate business each year to piracy. On average, 20 percent of all consumer products in the Chinese market are counterfeit. If a product sells, it is likely to be illegally duplicated. U.S. companies are not alone, as pirates and counterfeiters target both foreign and domestic companies”.

In the same context the following remarks of Mr. Shaun Donnelly, Senior Director, International Business policy, National Association of Manufacturers (NAM) , USA, made at the Intenational Trade Commission on June 15, 2010 on IPR environment in China, is also quite interesting:

“Unfortunately China remains Ground Zero for international product counterfeiting and Piracy. Despite considerable efforts over many years by US Government agencies and other international partners as well as Chinese Government the Progress has been minimal…. China continued to be the number one source country for pirated goods seized in the US borders accounting for 79% of the total seizures…The top sectors of IPR infringing products seized included footwear, consumer electronics, apparel, computer hardware, pharmaceuticals…”

Patent enforcement in China – the US perspective:

Regarding product patent enforcement is concerned the US Embassy in China comments:

“Though we have observed commitment on the part of many central government officials to tackle the problem, enforcement measures taken to date have not been sufficient to deter massive IPR infringements effectively. There are several factors that undermine enforcement measures, including China’s reliance on administrative instead of criminal measures to combat IPR infringements, corruption and local protectionism, limited resources and training available to enforcement officials, and lack of public education regarding the economic and social impact of counterfeiting and piracy”.

“Notwithstanding the increased number of applications, many patent owners (both foreign and domestic) continue to experience problems with infringement in China. Counterfeiting and other infringing activities are rampant, and critics frequently complain of lax enforcement of intellectual property laws. As a result, any party considering introducing a patented (or patentable) technology into China – especially one that could be easily reverse engineered or duplicated – would be well advised to proceed with extreme caution, seek legal advice from the outset, and plan fastidiously”.

Regulatory Data Protection (RDP) in India:

Regulatory Data Protection (RDP) for Pharmaceutical Products is still not in place in India, as the Government of India has already articulated that RDP is a ‘TRIPS Plus’ requirement and is non-binding to the country. The Government further reiterated that if any or more interested parties will feel that it is not so, they can certainly go to the WTO forum for the redressal of their grievances in this matter.

RDP in China – the US perspective:

However, on this subject the US feels that though RDP for a 5 year period is now in place in China, ‘inadequacies in their current regulatory environment allow for unfair commercial use of safety and efficacy data generated by the global innovator companies.”

In such a scenario the sanctity of RDP gets significantly diluted and may prove to be a virtually meaningless exercise.

Conclusion:

R. Fernando and D. Purkayastha of ICMR Center for Management Research in their article titled, “Pfizer’s Intellectual Property Rights Battles in China for Viagra” had commented as follows:

“Though the foreign research-based pharmaceutical companies were not happy with the lax IPR regime, the booming Chinese pharmaceutical market provided enough incentive for these companies to stay put and fight it out with the local firms for a share in this emerging market”.

Under these circumstances, while recommending for a world class robust patent regime in India to foster innovation in the country, if anybody wants to draw examples from China on the subject, it would indeed be foolhardy.

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.

Generics’ Lobby, Innovators’ Lobby and the Pharmaceutical Data Protection in India – A Perspective

Posted on July 19, 2010 by Tapan Ray

To meet the unmet needs of the patients and improve access to healthcare in India mere discovery of a new pharmaceutical entity is not enough. The journey from mind to market is indeed an arduous one.

For the patients’ sake:

From the viewpoint of patients, proper evaluation of the safety, quality and efficacy of medicines are critical. Towards this direction, substantial clinical data needs to be generated through extensive pre-clinical and clinical trials to satisfy the regulatory authorities for marketing approval of a New Molecular Entity (NME).

Reasons why the innovators data will need protection:

Irrespective of what has been indicated in Article 39.3 of TRIPS, Data Protection (DP) is justifiable on the following grounds:

a. Generation of data by the originator to ensure safety and efficacy of the drugs for the patients involves considerable cost, time and efforts.

b. Submission of detail clinical data is a regulatory requirement for the interest of the patients. Without such obligation to the Government, the data would have remained completely under control of the originator. It is, therefore, a reasonable obligation for the Government to respect confidentiality of the data in terms of non-reliance and non-disclosure.

c. Since the data is proprietary during the patent period, any access to such data for commercial use by the second applicant without the concurrence of the originator is unfair on grounds of propriety and business ethics.
d. Any failure by the Government to provide the required protection to the data would lead to “unfair commercial use”.

e. Without DP, the originator of the innovative drugs would be placed at an unfair commercial disadvantage as compared to their generic counterparts. Generic players do not incur similar huge costs for meeting the mandatory requirements of the regulatory authorities for NMEs.

Patent Protection and Data Protection – two different IPRs:

The distinctiveness of the two incentives, namely, Patent Protection and Data Protection or Data Exclusivity is recognized in countries which are leading in research and development in pharmaceuticals.

Data Protection will provide substantial benefits to the stakeholders:

Benefits to Patients:

DP ensures stringent evaluation of overall safety and efficacy of drugs launched in the market. Mere proving of Bioequivalence/ Bioavailability (sometimes on as low as 12 healthy volunteers in India) does not guarantee drug safety as the impurities profile of the duplicator’s drug is likely to be different than that of the originator.

Benefits to Doctors:

Doctors continuously seek scientific information. Clinical evaluation becomes valuable from this perspective. Once provisions for DP are made, comprehensive and quality data can be collected and the detail scientific information be provided to the doctors to update their knowledge for the ultimate benefits of the patients.

Benefits to Researchers:

Clinical researchers in India can win substantial share of this global market with DP as an effective driver in the evolving scenario. There will be increased R&D collaborations. India’s cost arbitrage, speed and skills in clinical trial and research could be leveraged more effectively.

An Expert Committee under the Chairmanship of Dr. R.A. Mashelkar, an eminent scientist, also highlighted the significance of DP, as follows:

“In order to ensure enabling environment, the regulatory division dealing with the applications concerning new drugs and clinical trials would be required to develop suitable mechanisms to ensure confidentiality of the submissions.”

Benefits to Pharmaceutical Industry:

Research is a key driver for the Pharmaceutical Industry. Scientists prefer to work in research laboratories in those countries which provide full-fledged protection to IPR. DP is one of the Intellectual Property Rights. Reversal of brain drain and retention of scientific talents will help the developing economies, like India intensify its R&D efforts. More Indian pharmaceutical companies, while globalizing the business, will engage themselves in partnerships and collaborations with research based global companies.

Indian scientists would need DP to protect their Intellectual Property as many Indian pharmaceutical companies have already started increasing their R&D budgets.

Benefits to Governments:

Once India moves from a stand-alone position to one which aligns itself with the world in terms of IPRs, including DP, India is likely to increase trade not only in ASEAN (Association of South-East Asian Nations), MERCOSUR countries (Argentina, Brazil, Paraguay & Uruguay) and NAFTA (North American Free Trade Agreement), but even in regulated markets like USA and Europe. There will be increase in scientific education, technology transfer and quality employment.

Could Data Protection affect the legal generics or delay their launch?

Unfortunately, a bogey is raised to create an impression that DP provisions will act as a barrier to the development of generics, adversely affecting the domestic and export business of the local players. Following facts will prove the irrelevance of the arguments propounded by this lobby:

• DP refers only to new products patented in India. It will not affect the generic drugs already in the market.

• USA is an outstanding example, which demonstrates that research based global companies and the generic industry can co-exist, offering dual benefits of innovative drugs and cheaper off-patent generic medicines to the patients.

• More number of patented medicines will ensure faster growth of the generic industry, after the former goes off-patent. In the USA which has a long standing DP regime, the market penetration of generics is amongst the highest in the world and stands at over half of all the prescriptions. After introduction of Hatch Waxman Act in 1984 that provided for a 5 year period of DP in the USA, there were spurt of development of New Drugs together with quicker entry of generics into the market.

• The apprehension that growth of the generic market will slow down with DP, is ill-founded. Indian companies, on the contrary, are aggressively seeking growth opportunities for generics in markets like the USA and Europe where DP is already in place.

• Domestic Indian companies will be dependent upon implementation of a fully compliant TRIPs regime, including DP for their business growth in these markets.

• DP does not prevent generic manufacturers from submitting their own pharmacological, toxicological and clinical data within the period of DP and thus gain marketing approval for their products.

DP controversy is based on a narrow perspective, as it is not an issue of “Generics vs. R&D based companies”. It is a much larger issue. DP and patents are important for all research based companies irrespective of their Indian or foreign origin.

Data Protection is not ‘Evergreening’:

DP is not ‘Evergreening’ either. In most of the cases, the period of patent protection and DP will run concurrently.

During the debate on the subject some people argue that DP and patents offer “double protection”. They do not. Fundamentally, these two forms of Intellectual Property are like different elements of a house which needs both a strong foundation and a roof to protect its inhabitants. DP cannot extend the life of a patent which is a totally separate legal instrument. While patent protects the invention underlying the product, DP protects the clinical Dossier submitted to the regulatory authority from their unfair commercial use. The duration of DP is typically half or less than that of a patent.

Most WTO member countries have Data Protection:

A review of National Laws relating to the protection of Registration Data in the major WTO Member-States reveals that most of the countries have recognized and appreciated the role of DP.
Although there is no uniform standard that is followed by the countries while enacting and implementing the Laws related to DP. The period of DP is typically between 5 to 10 years.

Conclusion:

Dr. Satwant Reddy Committee Report, dated November 30, 2006, submitted to the Government of India, very clearly recommends that DP will benefit India, as it has done in many other countries of the world, including China. Unfortunately, the report does not specify a timeline for its implementation. Thus having accepted the importance and relevance of the DP, the Government should implement the same in the country, without any further delay.

Data Protection should be provided by making an appropriate amendment in Schedule Y of the Drugs Act to bring India in conformity with the practices of other WTO Members of the developing and developed countries.

By Tapan 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.

Will Global Pharma Majors be successful in their foray into highly competitive generics pharma business offering no (patent) protection of any kind?

Posted on July 5, 2010 by Tapan Ray

As reported by IMS Health, emerging markets will register a growth rate of 14% to 17% by 2014, when the developed markets will be growing by 3% to 6% during the same period. It is forecasted that the global pharmaceutical industry will record a turnover of US$1.1 trillion by this period.

Mega consolidation process in India begins in 2009:

Fuelled by the above trend, the year 2009 witnessed the second biggest merger, so far, in the branded generics market of India when the third largest drug maker of Japan, Daiichi Sankyo acquired 63.9 percent stake of Ranbaxy Laboratories of India for US $4.2 billion.

This was widely believed to be a win-win deal for both Ranbaxy and Daiichi Sankyo, when Daiichi Sankyo will leverage the cost arbitrage of Ranbaxy effectively while Ranbaxy will benefit from the innovative product range of Daiichi Sankyo. This deal also establishes Daiichi Sankyo as one of the leading pharmaceutical generic manufacturers of the world, making the merged company a force to reckon with, in the space of both innovative and generic pharmaceuticals business.

Another mega acquisition soon followed:

Daiichi Sankyo – Ranbaxy deal was followed in the very next year by Abbott’s acquisition of the branded generic business of Piramal Healthcare in India. This deal, once again, vindicated the attractiveness of the large domestic Indian Pharma players to the global pharma majors.

In May 2010, the Pharma major in the US Abbott catapulted itself to number one position in the Indian Pharmaceutical Market (IPM) by acquiring the branded generics business of Piramal Healthcare with whopping US$3.72 billion. Abbott acquired Piramal Healthcare at around 9 times of its sales multiple against around 4 times of the same paid by Daiichi Sankyo.

Was the valuation right for the acquired companies?

Abbott had valued Piramal’s formulations business at about eight times sales, which is almost twice that of what Japan’s Daiichi Sankyo paid for its US$4.6 billion purchase of a controlling stake in India’s Ranbaxy Laboratories in June 2008.

According to Michael Warmuth, senior vice-president, established products of Abbott, the acquired business will report to him and will be run as a standalone business unit after conclusion of the merger process. Warmuth expects that the sales turnover of Abbott in India, after this acquisition, will grow from its current around US$ 480 million to US$2.5 billion in the next decade.

On the valuation, Warmuth of Abbott has reportedly commented “If you want the best companies you will pay a premium; however, we feel it was the right price.” This is not surprising at all, as we all remember Daiichi Sankyo commented that the valuation was right even for Ranbaxy, even when they wrote off US$3.5 billion on its acquisition.

For Abbott, is it a step towards Global Generics Markets?

It is believed that the Piramal acquisition is intended towards achieving a quantum growth of Abbott’s business in the IPM. However, it is equally important to note the widely reported quite interesting statement of Michael Warmuth’s, when he said, “we have no plans immediately to export Piramal products [to third-country markets] but we will evaluate that. You won’t be at all surprised that if we evaluate that.”

The Key driver for acquisition of large Indian companies:

Such strategies highlight the intent of the global players to quickly grab sizeable share of the highly fragmented IPM – the second fastest growing and one of the most important emerging markets of the world.

If there is one most important key driver for such consolidation process in India, I reckon it will undoubtedly be the strategic intent of the global pharmaceutical companies to dig their feet deep into the fast growing Indian branded generic market, contributing over 98% of the IPM. The same process is being witnessed in other fast growing emerging pharmaceutical markets, as well, the growth of which is basically driven by the branded generic business.

Important characteristics to target the branded generic companies in India:

To a global acquirer the following seem to be important requirements while shortlisting its target companies:

• Current sales and profit volume of the domestic branded generic business
• Level of market penetration and the rate of growth of this business
• Strength, spread and depth of the product portfolio
• Quality of the sales and marketing teams
• Valuation of the business

What is happening in other emerging markets? Some examples:

The most recent example of such consolidation process in other emerging markets happened on June 10, 2010, when GlaxoSmithKline (GSK) announced that it has acquired ‘Phoenix’, a leading Argentine pharmaceutical company focused on the development, manufacturing, marketing and sale of branded generic products, for a cash consideration of around US $253 million. With this acquisition, GSK gains full ownership of ‘Phoenix’ to accelerate its business growth in Argentina and the Latin American region.

Similarly another global pharma major, Sanofi-aventis is now seriously trying to position itself as a major player in the generics business, as well, with the acquisition of Zentiva, an important player in the European generics market. Zentiva, is also a leading generic player in the Czech, Turkish, Romanian, Polish, Slovak and Russian markets, besides the Central and Eastern European region. In addition to Zentiva, in the same year 2009, Sanofi-aventis also acquired other two important generic players, Medley in Brazil and Kendrick in Mexico.

With this Sanofi-aventis announced, “Building a larger business in generic medicines is an important part of our growth strategy. Focusing on the needs of patients, Sanofi-aventis has conducted a regional approach in order to enlarge its business volumes and market share, offering more affordable high-quality products to more patients”.

Faster speed of such consolidation process could slow down the speed of evolution of the ‘generics pharmaceutical industry’ in India:

As the valuation of the large Indian companies will start attracting more and more global pharmaceutical majors, the revolutionary speed of evolution of the ‘generics pharmaceutical industry’ in India could slow down. The global companies will then acquire a cutting edge on both sides of the pharmaceutical business, discovering and developing innovative patented medicines while maintaining a dominant presence in the fast growing emerging branded generics market of the world.

Recent examples of Indian companies acquired by global companies:

1. Ranbaxy – Daiichi Sankyo
2. Dabur Pharma – Fresenius
3. Matrix – Myalan
4. Sanofi Pasteur – Shanta Biotech
5. Orchid – Hospira
6. Abbott – Piramal Healthcare

Indian Pharmaceutical companies are also in a shopping spree:

It has been reported that by 2009, around 32 across the border acquisitions for around US $2 billion have been completed by the Indian pharmaceutical and biotech players. Recently post Abbott deal, Piramals have expressed their intent to strengthen the CRAMS business to make good the drop in turnover for their domestic branded generics business, through global M&A initiatives.

Some of the major overseas acquisitions by the Indian Pharmaceutical and Biotech companies:

1. Biocon – Axicorp (Germany)
2. DRL – Trigenesis Therapeutics (USA)
3. Wockhardt – Esparma (Germany), C.P. Pharmaceuticals (UK), Negma (France), Morton Grove (USA)
4. Zydus Cadilla – Alpharma (France)
5. Ranbaxy – RPG Aventis (France)
6. Nicholas Piramal – Biosyntech (Canada) , Minrad Pharmaceuticals (USA)

What is happening in other industries?

In spite of the global financial meltdown in 2009, the future of M&A deals in India looks promising across the industry. Some of the major offshore acquisitions by the Indian companies are as follows:

Mega acquisition of foreign companies by Indian companies:

• Tata Steel acquired 100% stake in Corus Group on January 30, 2007 with US$12.2 billion.
• India Aluminum and Hindalco Industries purchased Canada-based Novelis Inc in February 2007 for
US $6-billion.
• The Oil and Natural Gas Corp purchased Imperial Energy Plc in January 2009 for US $2.8 billion.
• Tata Motors acquired Jaguar and Land Rover brands from Ford Motor in March 2008. The deal
amounted to $2.3 billion.
• Acquisition Asarco LLC by Sterlite Industries Ltd’s for $1.8 billion in 2009
• In May 2007, Suzlon Energy acquired Germany’s- wind turbine producer Repower for US$1.7 billion.

Mega acquisition of Indian companies by foreign companies:

• Vodafone acquired administering interest of 67% owned by Hutch-Essar, on February 11, 2007 for US
$11.1 billion.
• The Japan based telecom firm NTT DoCoMo acquired 26% stake in Tata Teleservices for USD 2.7
billion, in November 2008.

An alarm bell in the Indian Market for a different reason:

It has been reported that being alarmed by these developments, Indian Pharmaceutical Alliance (IPA) has written a letter to the Department of Pharmaceuticals, highlighting, “Lack of available funding is the main reason for the recent spurt in the sale of stakes in domestic companies”.

The letter urged the Government to adequately fund the research and development initiatives of the Indian Pharmaceutical Companies to ensure a safeguard against further acquisition of large Indian generic players by the global pharmaceutical majors. To a great extent, I believe, this is true, as the domestic Indian companies do not have adequate capital to fund the capital intensive R&D initiatives.

Will such consolidation process now gain momentum in India?

In my view, it will take some more time for acquisitions of large domestic Indian pharmaceutical companies by the Global Pharma majors to gain momentum in the country. In the near future, we shall rather witness more strategic collaborations between Indian and Global pharmaceutical companies, especially in the generic space.

The number of high profile M&As of Indian pharma companies will significantly increase, as I mentioned earlier, when the valuation of the domestic companies appears quite attractive to the global pharma majors. This could happen, as the local players face more cut-throat competition both in Indian and international markets, squeezing their profit margin.

It will not be a cake walk…not just yet:

Be that as it may, establishing dominance in the highly fragmented and fiercely competitive IPM will not be a ‘cakewalk’ for any company, not even for the global pharmaceutical majors. Many Indian branded generic players are good marketers too. Companies like, Cipla, Sun Pharma, Alkem, Mankind, Dr.Reddy’s Laboratotries (DRL) have proven it over a period of so many years.

We witnessed that acquisition of Ranbaxy by Daiichi Sankyo did not change anything in the competition front. Currently the market share of Abbott, including Solvay and Piramal Healthcare, comes to just 6.4% followed by Cipla at 5.5% (Source: AIOCD). This situation is in no way signifies domination by Abbott in the IPM, even post M&A.

Thus the pharmaceutical market of India will continue to remain fragmented with cut-throat competition from the existing and also the newer tough minded, innovative and determined domestic branded generic players having both cost arbitrage and the spirit of competitiveness.

Simultaneously, some of the domestic pharmaceutical companies are in the process of creating a sizeable Contract Research and Manufacturing Services (CRAMS) sector to service the global pharmaceutical market.

Conclusion:

In my view, it does not make long term business sense to pay such unusually high prices for the generics business of any company. We have with us examples from India of some these acquisitions not working as the regulatory requirements for the low cost generics drugs were changed in those countries.

Most glaring example is the acquisition of the German generic company Betapharm by DRL for US$ 570 million in 2006. It was reported that like Piramals, a significant part of the valuation of Betapharm was for its trained sales team. However, being caught in a regulatory quagmire, the ultimate outcome of this deal turned sour for DRL.

Could similar situation arise in India? Who knows? What happens to such expensive acquisitions, if for example, prescriptions by generic names are made mandatory by the Government within the country?

By Tapan 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.

PILMAN

A Tapan Ray Website

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