“The drug prices of global pharma companies have no justification whatsoever, not just in India but around the world,” says V C Nannapaneni, chairman of Natco Pharma, a Hyderabad-based pharma company. “The healthcare sector and health insurance in the US have become unaffordable to its own people because of this. The trend is also seeping into our country in the garb of health insurance,” he adds.
This fundamental philosophy—of being able to provide cheap drugs to a population which cannot afford it—has fanned the flames of yet another debate in the pharma arena about how drug companies should price products of their life saving drugs in the developing world.
This isn't the first time this debate has made the rounds. Abdul Hamied of Cipla was the first to irk multinational drug companies by ensuring that low cost anti-AIDS drugs were made available to poor HIV-positive patients in countries like South Africa. Now, a government agency has invoked the compulsory licensing (CL) provision of the Patents Act to allow Natco to sell its generic version of German multinational Bayer's patent-protected liver and kidney cancer medicine, Nexavar (sorafenib tosylate), at a fraction of the cost of Bayer's drug in India.
During the last four years the sales of the drug by the patentee at a price of about Rs 2.8 lakh (for a therapy of one month) constituted a fraction of the requirement of the public. “It stands to common logic that a patented article like the drug in this case was not bought by the public due to only one reason i.e. its price was not reasonably affordable to them," the Patent Controller said in his order, while dealing with the merits of the case under section 84(1) b of the Indian Patents Act.
The Controller General of Patents, Designs and Trademarks has asked Natco to manufacture and sell its sorafenib at Rs 8,880 (for a month's treatment), after paying six per cent royalty on the net sales to Bayer on a quarterly basis. Bayer's Nexavar costs Rs 284,428 for a month's dose. The CL is valid till the patent for Nexavar expires in 2021.(Click for THE FACE OFF: PATENTED DRUGS VS INDIAN CHALLENGERS)
Natco has long been recognised as a strong domestic player in cancer drugs and started its oncology division around 11 years ago. Almost 80 per cent of its 26-odd products in India is related to cancer treatment. Having won the battle with Bayer, the company expects annual revenue of around Rs 60 crore from selling its generic version in the domestic market. Cancer drugs, in general, command a Rs 4,000-crore market in India, according to the Pharmaceutical Export Promotion Council (Pharmexcil) chairman N R Munjal, who was also president of the Indian Drug Manufacturers Association, and who thinks the judgement is "a path-breaking measure taken by Indian Patent Controller and a logical way to go."
Just cause
Despite all this, Natco likes to play the role of an underdog. The company, which flies the national flag on its office building, is the latest Indian drug company to suggest that 'abnormal pricing' by the inventors from global pharma stable has no correlation to what they spend on drug discovery. "The compulsory licence given to Natco's generic version of Nexavar only reinforces this fact of life," says Natco chairman V C Nannapaneni, who launched the company in 1983 after returning from the US. For companies like Natco, defying the right of a patent holder is equivalent to fighting for a just cause, at least in this part of the world. "Our pricing strategies are oriented towards this goal," says P Bhaskara Narayana, its director and chief financial officer.
Nannapaneni and Natco aren't the only ones increasingly adopting this stance against expensive MNC drugs used for life-threatening diseases. K I Varaprasad Reddy, chairman of city-based Shantha Biotechnics (now an Indian subsidiary of global vaccine major Sanofi), which shot to fame after producing the recombinant human vaccine, Hepatitis B, in 1997, says; "Our sastras tell us that you are free to cross the limits, even if it amounts to lying, when it comes to protecting lives and honour. The fundamental objective of inventing a drug is to treat the disease. Making money out of it is always secondary. If someone fails to live up to this objective we have a right to intervene." Reddy says this is a high stakes game where 'future wars will be fought on water and patents.' Moreover, he thinks that the whole logic of pricing with MNCs reveals an in-built hypocrisy. "A foreign company that sells Hepatitis vaccine at $100 in the US markets the same for $20 in India-then where is the basis for others to defend the steep price in the name of discovery costs," he argues.
Bayer's spokesperson responded to the ruling by saying, "We are disappointed by the decision to grant compulsory licence to Nexavar. We will evaluate our options to further defend our intellectual property rights in India."
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Diverging views
Anjan Sen, director, strategy and operations, Deloitte, feels that the real issue surrounds the provisions as well as the grounds that are used to grant CL and not the CL itself. "This development reinforces that greater clarity is required on the grounds for granting of CL. The current provisions are not amenable to easy interpretation and is not in line with the provisions that have been set forth in TRIPS agreement. In most situations, granting of CL is not in favour of the patent holder," Sen observes.
Subramanyam Maddala, president, India operations of US-based pharmaceutical research and manufacturing company AMRI, thinks it is a hanging sword. "Discovery companies spend huge amounts of money and try to recover the same before the patent expires and the drug becomes generic. The Section 84 of the Patent Act; (compulsory licences) is seen as a hanging sword and this is one of the significant first case of this kind. Many could follow," says Maddala, clarifying that these were his personal views.
Sen feels that the ripple effects from this judgement could be huge. "In case the granting of CL happens for reasons which are considered to be not serious enough, then it will definitely deter global companies from selling their patented drugs. However, this is not a solution for the patent holder, as a case of not launching the drug in a country when there is an unmet need for the drug, can also be a strong reason for granting CL. This is the reason why the provisions for granting CL should be made stronger so that there is greater clarity for all," Sen says.
Middle ground
While the MNCs are in for a long legal battle to protect their patented intellectual property, they also have other possible options like granting voluntary licences to domestic players. "There have been several cases earlier when patent holders have voluntarily granted licences to other manufacturers for managing medical emergencies or sudden outbreak of diseases that have required an unplanned increase in the supply of a specific product. These licences have usually been granted for a specific time period," says Sen.
Swine Flue vaccine was a classic case where the innovator had granted voluntary licence to several Indian companies to sell its product while sourcing the low-cost generic version from them to sell in the global market. Companies like Natco view this as a missed opportunity for Indian companies in seeking compulsory licence for the same.
Maddala says in future MNCs may opt for manufacturing of the invention in India and prove with numbers that they made it available to the public. It is the third aspect of the Act , Section 85, that is making the invention available to the public. Alternatively, the trend could be to partner with Indian generic company, according to him. Some say companies may reduce the prices to protect their patent rights.
The contenders
That may not deter other companies champing at the bit to also wade into this field and emulate Natco-a potentially gargantuan headache for international pharma companies-such as mid-sized Hyderabad-based outfits such as Divi's and Granules. Natco, itself, is unlikely to stop at the Nexavar affair. Having reached close to Rs 600 crore revenues this year, Natco has already pumped Rs 300- 400 crore in capex in the last three years to build capabilities in anticipation of new opportunities. The company runs a drug development programme with a pipeline of 10 products.
Nannapaneni says growth to the next big level may happen even tomorrow. "Just one drug opportunity may give us Rs 1,000 crore to Rs 1,500 crore upside in the days to come. We are just waiting." The company also sees its net profit at Rs 100 crore in a year or so from the present Rs 60 crore level, which will provide more resources to fight patent battles.
That may not be the best news for international pharma company eyeing India as their next big market opportunity.