A bitter pill to swallow

Written by Sudhir Chowdhary | Updated: Sep 1 2009, 04:59am hrs
Global pharmaceutical majors are not getting healthy indicators from the $8 billion domestic pharmaceutical market, especially on the intellectual property (IP) and data protection front. A string of high-profile cases in various Indian courts during the past two months have prevented them from getting patents on their drugs.

These rulings have helped Indian drug companies as they can launch generic versions of the blockbuster drugs. Global firms like Novartis, Bayer, Roche and Braun Melsungen blame their woes on the countrys ambigious patenting system. Pharmaceutical majors are already talking of delaying the launch of their blockbuster drugs in the country. Pharmaceutical outsourcing could take a hit and pharmaceutical companies might be reluctant to outsource their drug discovery and development work to India.

Can this threaten Indias promising position in the realm of contract research and manufacturing and drug discovery space By 2010, global contract research and manufacturing market (CRAMS) is expected to reach around $66 billion from $51 billion at present, when Indian CRAMS market will be around $3.8 billion with CAGR of 51%. Similarly, global drug discovery and development services market is valued at $18 billion and is projected to grow with an estimated CAGR of 17% over 2007-2010. Here again, India is emerging as a hot spot, growing at 65%, that is more than three and half times the global growth rate.

Global pharmaceutical majors are a worried lot these days. On the one hand, they cannot afford to ignore a lucrative market like India. On the other hand, they are dismayed by the reverses suffered with respect to patents on their drugs. However, I feel that they need not despair as the IP climate in the country is improving, though at a slow pace, says Arvind Lal, chairman and managing director, Dr Lal Path Labs.

There are at least three instances where patents to global pharmaceutical majors have been ruled out. Recently, German pharmaceutical major Bayer Healthcare was prevented from getting patents for its kidney cancer drug, Nexavar. The Delhi High Court dismissed its application, which sought to prevent Cipla from introducing the generic version of the drug. To add to their woes, the court also asked Bayer to cough up Rs 6.75 lakh as legal cost to the government and Cipla. The domestic drug major can now sell its generic drug not only in India, butalso in other countries where Bayer has no patent. Disappointed on the outcome, the German drug company is exploring legal options in this regard.

Cipla was also a major beneficiary in yet another high profile patent litigation case involving Roches patented drug, Tarceva. Here again, the Delhi High Court rejected Roches appeal to restrain Cipla from selling generic versions of Tarceva. More damagingly, the court imposed a fine of 5 lakh on Roche for suppressing material facts.

The ruling by the Intellectual Property Appellate Board (IPAB) halting Novartis Glivec patent application has also made headlines. IPAB has ruled that innovator Novartiss anti-cancer drug, Imatinib Mesylate tablets (Gleevac), lacks patentability and refused patent to the innovator. The patent was challenged by Indian generic players like Natco, Ranbaxy, Cipla and some NGOs like Cancer Patient Aid Association.

Such litigations may not be healthy indicators for global pharmaceutical companies to launch products in India. There is every possibility that they will not hurry into launching new products in India, feels Sujay Shetty, associate director, pharmaceuticals and life sciences practice, PricewaterhouseCoopers.

A recent survey by Organisation of Pharmaceutical Producers of India (OPPI) and Ernst & Young highlights that India is way behind Singapore, Eastern Europe, Puerto Rico and Ireland in terms of perception about intellectual property protection. Many global pharmaceutical companies are reluctant to outsource critical parts of their value chain to India, especially in the area of formulations of patented products in the growth phase. They also feel that India needs to improve its regulatory timelines and shed its branded generic market image, the survey points out.

China, which in many ways is considered to be similar to India in terms of low cost labour, manufacturing base and basic research skills has been compliant with the WHO-TRIPS treaty from 1995. However, the enforcement of IP protection law has been questionable with the US lodging multiple complaints with WTO about patent violations by Chinese companies in the past decade. Many global companies associate the risk involved in China with India as well, says Saharsh R Davuluri, president, contract research, Neuland Laboratories.

Interestingly, major pharmaceutical and biotech companies play different strategies in these two countries. In India, they tend to form close collaborations such as risk-sharing outsourcing with an Indian company to co-develop drug candidates, but very few of them are willing to permanently set up a decent size of R&D centre or manufacturing facility in the country.

In stark contrast, almost all major pharmaceutical and biotech companies have invested hundreds of millions of dollars in China to establish their wholly-owned R&D centres and large scale manufacturing and marketing facilities. Many of their China R&D centres have already reached decent sizes and gained strong capabilities. They are ready to conduct full-scale research independently.

At present, India is better than China in small molecule drug R&D and manufacturing. But China is superior in biotechnologies including the R&D and manufacturing of macro compounds. India offers better product quality, but China has a bigger cost reduction advantage.

It is important to realise that countries such as China are also investing in capability and will pose a threat to Indias position in the medium to long term. Therefore, we need to invest in our infrastructure and significantly ramp up our intellectual property and data protection laws to stay ahead of the curve, feels Villoo Morawala-Patell, chairman and managing director, Avesthagen.

Traditionally, India has been considered an ideal geography for sourcing of advanced pharmaceutical ingredients (APIs), intermediates and formulations for generic and off-patent products.

Indias legacy of reverse engineering molecules to come up with their own products before 2005 for the domestic market created a perception about India not protecting the IP of innovator companies. Although this was abated once India signed the TRIPS treaty, yet the perception persisted. In addition, Indian companies with an export focus have followed a Para IV filing strategy for the US market.

A Para IV filing involves either invalidating a patent of the innovator or having a non-infringing patent. When innovator companies outsource research and manufacturing of a product, it also involves transfer of technology and proprietary information to the outsourced company. Sharing of any such information with an Indian generic company could lead to a great loss for the company. The legacy of reverse engineering and potential risk of sharing of information has led to the perception about the IP risk, says Ajit Mahadevan, partner, health sciences advisory services, Ernst & Young. Most global pharmaceutical companies do not outsource the commercial manufacturing of formulations under patent (new launch or growth stage) to Indian companies due to this risk perception.

In addition, there are concerns regarding data protection and data exclusivity in India. Currently, there are no provisions in Indian laws regarding whether the data collected from clinical trials can be used by the Drug Controller General of India (DCGI) in its approval procedures for other drugs. The data protection law will ensure that although the government can approve a generic drug that can claim bioequivalence by using this data, it cannot disclose this data to any third party.

The concern of the innovator companies is that in the absence of such a law, the data they provide may be shared with other companies, leading to its commercial use by other companies.

According to Mahadevan, data exclusivity laws would ensure that the regulatory authority will not be permitted to use the data submitted during clinical trials to approve a generic drug till the end of this exclusivity period.

This may result in the protection of the innovator product over its 20-year patent life. For example, if a product is introduced in the market in the 18th of its 20-year patent life and if the country has a five-year data exclusivity law, this would effectively extend patent protection to 23 years. Due to lack of data exclusivity, countries like Singapore, Puerto Rico, Ireland and Eastern Europe have adopted both data protection and data exclusivity. Additionally, they do not have many companies with a generic focus.

Also, there is a need for India to improve regulatory timelines. When a drug is outsourced to a company, it needs to get various regulatory approvals to import the drug and work on it; delay in getting the regulatory approvals will lead to delay in the final output. As different companies might be working on various intermediate stages of drug development, they would be dependent on this output to initiate work and would have blocked resources accordingly.

Thus, any delay would increase the costs for the innovator company. Delay in approval of a new drug can lead to losses of up to $5 million per day. Hence the cost advantage of an Indian company may get offset by the delay that happens due to the regulatory timeline approvals and make it less competitive to companies in country like Singapore, Ireland etc which have shorter turnaround times for regulatory approvals, reveals Mahadevan.

Good news is that initiatives are in progress to change the regulatory scenario in India. One of these initiatives has been the move from the decentralised approach to drug control and a single Central Drug Authority (CDA) on the lines of the USFDA. Global pharmaceutical companies now see India as a market with huge potential. Wherever there are IP violations, petitions are filed in the court of law in India and the court has given decision in fairly good time, says Ramesh Adige, president, Ranbaxy Laboratories.

More immediately however, there is an urgent need to change perception about IP protection in order to strengthen Indias position in the pharmaceutical manufacturing and drug discovery outsourcing market.

With inputs from BV Mahalakshmi