The Indian government made several critical patent decisions over the past year. Their impact on the Indian intellectual property (IP) landscape is still evolving, with important implications for IP rights, the global pharmaceutical industry, Indian consumers, and emerging economies.
The stakes are high and reflecting on the ways in which these decisions will shape the future of industry and innovation is essential. In this column, I consider the implications of these decisions for innovative pharmaceutical manufacturers and their strategies.
Earlier this month, the Indian government began the process of granting compulsory licenses for three cancer drugs: Roche’s breast cancer drug, Herceptin, Bristol-Myers Squibb’s (BMS’s) leukemia drug Sprycel and its breast cancer drug, Ixempra. In March 2012 the Indian Patent Office (IPO) issued its first compulsory license, granting Natco Pharma the right to manufacture and market Bayer’s kidney cancer treatment Nexavar.
Unprecedented
As a starting point, it is essential to recognize that if the Indian government grants any of these compulsory licenses, it will be the first time that it independently triggers the compulsory license process, rather than a pharmaceutical competitor initiating it.
The stakes have clearly been raised and the IP landscape in India is now less predictable and therefore less hospitable to innovation. The IP protections adopted by India to attract foreign direct investment now appear somewhat disingenuous, leaving innovative firms searching for new strategies.
The Indian market is attractive, if not quite welcoming, for innovative pharmaceutical manufacturers. In response to the threat of compulsory licensing, they are preemptively utilizing domestic acquisitions, price reductions and voluntary licensing agreements. Their use will likely increase.
Trial and error
A series of Indian acquisitions by multinational innovative firms established the international firms as a significant presence in the domestic Indian market. Notably, Abbott Laboratories purchased Piramal’s domestic generic business. However, the increased presence of international innovators in the Indian market has not enhanced their influence.
Several innovative firms have reduced the prices of their products in an effort to avoid compulsory licensing on the grounds of affordability and access. Last year Roche launched a version of Herceptin in the Indian market at a 33 percent discount. While this strategy undeniably expands access, the subtleties surrounding ‘access’ and ‘meeting public need’ remain obscure.
Consider the situation faced by Bayer which brought a patent infringement action against Cipla, Ltd. in 2011, citing the unlicensed generic production of Nexavar. While this litigation is still underway, Bayer was unable to argue that the existing generic production by Cipla, Ltd. should be considered in determining sufficient access when challenging the compulsory license issued to Natco Pharma in early 2012.
The lure of preemption
Finally, innovative pharmaceutical firms are increasingly utilizing voluntary licensing agreements to preemptively defend against the threat of compulsory licensing. More than a handful of these alliances are already underway. The strategy seems to benefit both innovative firms and Indian consumers.
Firms are able to license their intellectual property on their own terms, ensuring that they will continue to profit even at lower prices. Patent owners are able to ensure that prices are at least one-third original prices. In addition, voluntary licensing agreements enable innovator firms to counter the patient access claim.
Noting that the Nexavar decision took account of the failure of Bayer and Natco to reach a voluntary licensing agreement, such agreements take on increased importance in preventing the issuance of compulsory licenses.
The benefits of voluntary licensing agreements also extend to Indian firms and consumers. Technology transfer agreements enhance local knowledge and spillover effects, and the tacit knowledge shared is invaluable. In addition, such agreements help expand the market and lower prices for consumers. Finally, the costs, both in terms of time and financial resources, of lengthy legal battles are avoided.
This is a the first in a series of three columns on India’s recent actions on drug patents and their implications. Future contributions will examine the impact on the intellectual property rights ecosystem in India, and the implications for other emerging economies.
Dr Kristina Lybecker is Associate Professor of Economics at Colorado College in Colorado Springs. Kristina is an economist with a PhD from the University of California at Berkeley. She specialises in innovation and intellectual property rights and has been writing on these issues for 12 years. She is currently employed full-time at Colorado College. In the interests of transparency, the writer states that she has been commissioned to work for the pharmaceutical industry on issues of innovation, corruption, counterfeiting and intellectual property rights. However, she has not been compensated or otherwise rewarded for this piece which stems from her intellectual interest in the topic and closely relates to her academic research.
Pic sourced from http://www.coloradocollege.edu
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