Dueling Sitars

The recent back-and-forth between the government of India and several of the multinational pharmaceutical companies (MNCs) led me what the outcome may mean for the role of the MNCs in the rest-of-world (ROW, non-US/EU) markets.  As some of you may know, the Indian Patent Office and courts are taking a hard line about the novelty, and therefore monopoly value, of several of the MNCs’ newer blockbuster drugs (those that command per patient per treatment course prices in the tens of thousands of dollars and generate more than $1 billion in annual sales).  Recently, a court acknowledged Roche’s patent on its cancer drug, Tarceva, but ruled against its suit for infringement against Cipla, a major Indian generic company, whose drug it said was similar but different from Tarceva (FiercePharma article 1).  Also recently Novartis completed its Supreme Court appeal of a lower court denial of its patent to Gleevec/Glivec, another big-selling cancer drug, on the basis of non-novelty; a decision is expected in two months (Reuters article 1).  Earlier this year, the Indian patent authority issued a compulsatory license order that would allow Natco Pharma, an Indian generics company, to make its version of Bayer’s Nexavar, another cancer drug, on the basis that Nexavar was not “reasonably affordably priced” (Health.India.com article), the rub being that price is not one of the factors under international trade laws for issuing a compulsatory license (Economic Times article).

The motivations and objectives of both sides aren’t obvious to me.  The Indian pharmaceutical market, while large among ROW countries (about $12 billion), is composed of 90% generic sales (Reuters article 1), so patented drugs are not big money-makers.  Novartis, whose generic drug sales are only about 16% of its annual sales of $58 billion (Sandoz products), and the other MNCs must either expect a lot of growth in the patented part of the market and significant increase in self-pay or insured patients (about 15% of India’s 1.2 billion people have health insurance) or the MNCs have another concern.  Perhaps, the MNCs want to protect their lucrative US/EU markets from Indian “similar-but-not-identical-and–therefore-not–infringing” versions of their patented best-sellers, but their friends at the regulatory agencies will require any company claiming to sell a novel drug to submit data supporting it, an expensive undertaking.  Perhaps, the MNCs want clarity in Indian patent law to set the stage for license negotiations with the generic companies who may make good partners for MNCs wanting to enter emerging markets.  The Indian companies sell most of their production in ROW countries and therefore may have a broader and deeper distribution channels than the MNCs.  One example is HIV/AIDS where 92% of all HIV/AIDS drugs are made by Indian companies, some under licenses from Gilead and other innovator companies, and almost all are sold to public health organizations.  And the Indian companies may see themselves as a lower-cost alternative to the MNCs’ own generic drug divisions.  Yusuf Hameid, chairman of Cipla, one of the largest Indian pharma, has proposed India have a “pragmatic” compulsatory licensing program and has said Cipla is willing to pay a 4% royalty to the licensor company (Forbes interview).

As for the government of India, its chief concern should be to generate economic growth and an improved tax base to be able to meet the health needs of its many poor, as well as the expectations of a growing middle class and many employers who want an affordable health care system (not the 18% of GDP we pay).  Hence, it, or more likely a few offices within its massive bureaucracy, may be trying to both bludgeon the MNCs with sticks like patent fights and compulsatory licenses and entice them with carrots into greater interest and involvement in India.  The government is in a position to increase the generic part of the market since 40% of the population is poor and receives drugs through the public health system, if at all, and greater government drug spending and insurance programs have been advocated by a task force (Health.India.com article).  In July, the government announced a commitment to spend about $5.4 billion over the next five years to buy generic drugs to be given away through the public health system (Reuters article 2).  But more recently, it proposed that the prices on all imported drugs be determined by actual product costs as they are domestically produced and sold drugs (FiercePharma article 2).  So this may be not much of a carrot for the MNCs.  Another carrot is allowing foreign companies to invest in or acquire domestic drug companies, and the government, which previously approved 49% foreign ownership of domestic companies, recently approved 21 investment proposals by foreign drug companies worth $433 million but with the stipulation that the domestic companies cannot raise prices on their current drugs for five years (Reuters article 1).  This may be to encourage the domestic/MNCs to grow their exports and keep domestic drugs affordable.  Again, not much of a carrot.

An interesting sideshow to all this is that India has a large “active pharmaceutical ingredient” (API) industry and its members supply about 20% of the raw ingredients for global drug manufacturing, but the number one supplier is China, thanks to lower costs and possibly less regulation (Business Today article).  The Indian government wants the MNCs to recognize their industry’s higher quality (unlike China most of its manufacturers have USFDA approval) and use them rather than Chinese companies, but doesn’t seem to realize it may be alienating its best customers.

Most of the MNCs already recognize the benefit to partnering with Indian companies and have been building up their research and development labs in India, and some are committed to offering lower prices in India and other ROW countries.  GSK prices all its drugs sold through its emerging markets group at 25% of their “retail” price in the UK, Novartis has a Gleevec donation program now supporting 30,000 patients worldwide including 15,000 in India, and in a pilot program, Roche sells its patented cancer drugs at a substantial discount to the government of Brazil with the stipulation they be given to patients without cost (Financial Times article).  But none of these actions are much help to the Indian government’s effort to service its poor given their small scale.

What could be an optimum outcome for both sides?  My thought is that the Indian generic drug makers, the API industry, and the government should make it really attractive for the MNCs to contract with the companies to invent low-cost drugs for India’s domestic market and for export to the world’s currently under-served and under-resourced people.  This would require lots of innovation, but not necessarily through the typical MNC research and development aimed at drugs that can be sold at high prices (to justify the expensive R and D).  This innovation would be in manufacturing, combining and re-purposing existing drugs, packaging, delivery (route of administration), and distribution.  There good examples of this type of innovation leading to lower cost drugs, in HIV/AIDS drugs for one, the key factors of which were subsidized purchasing by national and international groups, drug companies seeking new markets competitively, and a neutral party to guide the deals (the Clinton Foundation Drug Access Team).  It seems to me the Indian government would be better off trying to build on this model rather than poking the MNCs over patents.


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