With drugs worth $60 billion going off patents in the US pharma market by 2011, Indian firms known for their expertise in copycat making are moving away from patent offices and aggressively taking the litigation route to get exclusive marketing rights in different parts of the world. Indian majors like Dr Reddy?s Labs, Sun Pharma, Glenmark and Ranbaxy have already entered into patent litigation with US-based MNCs to get the major chunk of the revenue from the sales of blockbuster drugs (having sales over $1 billion) in the US.
If the global pharmaceutical industry is a battlefield, innovator drug companies and copycat makers are fighting forever for a bigger pie. Whenever innovators discover a new drug and start marketing, generic firms start exploring various ways to launch their copycat versions at the earliest. Since Indian pharmaceutical firms have been regarded as world-class experts in generic drug making, they are treated as powerful rivals by the innovators in the global drug industry.
The number of Paragraph IV abbreviated new drug applications (ANDA) submitted by Indian firms in the US has increased manifold in the last few years and what makes this more attractive is the chance for getting 180-day marketing exclusivity. ?As part of building a large generics business through Glenmark Generics Limited (GGL), our Paragraph IV strategy would offer significant value,? says Glenn Saldanha, MD & CEO, Glenmark Pharmaceuticals Ltd.
According to the US FDA, a Paragraph IV certification begins a process in which the question of whether the listed patent is valid or will be infringed by the proposed generic product may be answered by the courts prior to the expiration of the patent. Paragraph III ANDAs can be submitted before the patent expiry, seeking marketing approval for the drug once the patent expires. Paragraph IV ANDA submission enables the applicant to prove that such patent is invalid or will not be infringed by the generic drug, for which approval is being sought.
A US FDA statement says, ?The statute provides that the first applicant to file a substantially complete ANDA containing a Paragraph IV certification to a listed patent will be eligible for a 180-day period of exclusivity beginning either from the date it begins commercial marketing of the generic drug product, or from the date of a court decision finding the patent invalid, unenforceable or not infringed, whichever comes first. These two events?first commercial marketing and a court decision favourable to the generic?are often called ?triggering? events because under the statute, they can trigger the beginning of the 180-day exclusivity period.?
As the reward from the successful ANDA approval is high, the expenses are also big. Says Mark Pohl, a registered patent attorney in the US, ?On an average, it costs about $2,000,000 to prepare bio-studies, draft an
ANDA, and file it with the US FDA. In addition, it costs on average about $15,000,000 to litigate a drug patent case through appeal.?
Though the companies are spending this much of amount on litigation, the success rate is low. According to IP experts, the cost cutting mentality of Indian firms is one of the many reasons behind their losing the litigation game in the US. A patent expert explains, ?About 60% of the litigation costs go as an attorney?s consultation fee. Indian firms, which always look for cost cutting, are hiring less experienced attorneys that may result in loss in the litigation.?
Little wonder, Indian companies are increasing their budgets for litigation. Says G V Prasad, vice-chairman and CEO, Dr Reddy?s Lab, ? Every year, we spend about $10 million on litigation. We are planning to increase it to $15 million.?
In other words, patent litigation is like a gambling business. DG Shah, secretary general, Indian Pharmaceuticals Alliance (IPA), says, ?Those engaged in patent challenges have a plan and work as per the plan. Only companies with deep pockets enter this game. They are aware that the success rate is low and in order to make up for the losses, they need to go on until they hit a patch of green.?
Pohl is not considering it as a gambling game. Indian firms are running behind in litigation. They have been unable to receive any successful verdict from the US courts so far. He elaborates, ?Patent litiga- tion is like a cricket match. There is only one winning team, and the winner is often the team that simply outspends the other team, hiring the best talent and buying more talent than the losing team.?
He further adds, ?The first problem is matching cash flows. To challenge a patent, one needs to pay lawyers today and wait for years to begin selling a product and collecting money. This delay is easily four years for drug patent litigation. Even the largest generic companies balk at this cash-flow mismatch because it appears quite risky and unattractive to investors. The second problem is quality and cost control. Clients know about the rising expenses perfectly well, yet nonetheless lack accurate benchmarks to measure whether a given expense in a given case is cost-effective or not.?
Last year, Dr Reddy?s Labs and Sun Pharma filed a higher number of Paragraph IV abbreviated new drug applications (ANDAs) with the US FDA, challenging the validity of the patented drugs concerned. Mid-sized players like Torrent Pharma and Dabur Oncology also joined their domestic counterparts in patent litigation.
However, Utkarsh Palnitkar, partner, Ernst & Young Private Limited, is of the view that the number of patent litigations that Indian firms are involved will come down in the future. He says, ?Para IV ANDA filing is not a sustainable business model. This is because the challenges in product patent regime in the generic business are significant: margin pressure, legal issues, parallel launch of authorised generics, accessing the distribution channels and so on.
Margin pressures continue to rise in the regulated international generic markets because of a host of factors like increase in competition from India and other low-cost destinations; more aggressive brand defence by innovator companies (via authorised generics, for instance); and increasing bargaining power of large distributors in these markets.?
Varun Chhonkar, a Mumbai-based patent expert, shares the view of Palnitkar. He says, ?Of course, in future, the number of litigations where Indian firms are involved will come down. Also, the firms will agree to out-of-court settlements.? In the last couple of years, though Indian companies have been involved in a number of litigations, most of the cases are still pending in courts. And Indian firms have lost the cases in which the verdict has come.? After all, leading Indian firms have entered into R&D or marketing agreement with MNCs, which pull them back from going in for litigation with their MNC counterparts, he adds.
Recently, Indian major Ranbaxy reached an out-of-court settlement with the US major, AstraZeneca, for a 180-day exclusivity of a generic version of Nexium under a licence from May 27, 2014. Apart from the settlement, Ranbaxy has been allowed to sell the authorised generic versions of AstraZeneca?s two drugs in the US. In January 2008, Ranbaxy Laboratories entered into a similar settlement agreement with GlaxoSmithKline over the $985-million migraine drug, Imitrex, allowing it to sell in the US from December 2008. In November last year, Ranbaxy had reached an agreement with Astellas/Boehringer Ingelheim on Flomax (Tamsulosin capsules), which will allow Ranbaxy to market the drug in the US by March 2010.
Palnitkar adds, ?Further, the attractiveness of the US market has suffered some setback in recent times, especially in the case of large generics targeting exclusivity. The reasons include legal challenges by patent holders delaying and increasing the cost of launch. These factors have severely impacted the exclusivity-related profits that generic players seek from the US market.?
The presence of authorised generics also remains a threat to generic players. Anticipating the fierce battle following patent expiry, innovators authorise generic players to launch the generic version on a revenue sharing basis.
An authorised generic at lower prices can come into the market very quickly because the know-how of the medicine?s original developers can be quickly and efficiently transferred. It can be brought to market near the end of an original medicine?s patent, which is essentially identical to the way generic drug makers have introduced their copies for years. It can be also introduced at the same time as the first generic manufacturer brings its copy to market.
Says Palnitkar, ?The original brand name medicine faces two competitors now?the ?authorised generic? and the copy made by the first traditional generic drug maker who enters the market. Since consumers now have more choices, all drug companies are forced to price their products lower to stay competitive. This can only benefit consumers.?
He says, ?Co-optition, denoting collaboration and competition, whereby companies collaborate in identifying best practices and sharing various steps in drug discovery to competing in the marketplace, has been identified by all the leading MNC players and their Indian counterparts as the driving force in the years to come. Agreeing to collaborate despite competition involves a great deal of negotiation and pre-work so that all parties mutually understand and agree on the business parameters.?