Pricing pressures push pharma majors toward settlements

Pricing pressure in major drug markets such as the United States is making domestic pharmaceutical majors more prudent in their efforts to ensure continuous revenue flow from their overseas business.

Experts feel that the increasing incidences of out-of-court settlements on patent disputes with innovator drug companies in the US is perhaps a clear manifestation of this trend.

Major Indian drug companies such as Ranbaxy, Dr Reddy's, Sun Pharma, Wockhardt and Lupin have all been in the news recently for amicably settling patent challenges with their innovators.

In every instance, the announcements have come with yet-to-be-disclosed 'sweeteners' from the innovator companies that are to see predictable revenue flow to the Indian players. 
 

AN OUT-OF-COURT REMEDY
Generic firm	Innovator	Patented drug	Therapeutic	Annual sales  in US $	Settlement  month
Wockhardt	Aventis	Allegra (fexofenadine)	allergy	931 million	Dec-07
Sun Pharma	Novartis	Exelon (rivastigmine)	Alzheimer's	200 million	Nov-07
Ranbaxy	Astellas & Boehringer	Flomax (tamsulosin)	prostrate glands	1.2 billion	Nov-07
Dr Reddy's	UCB	Keppra (levetiracetam)	anti-epilepsy	1.1 billion	Oct-07
Ranbaxy	GlaxoSmithKline	Valtrex (valacyclovir)	viral infection	1.3 billion	Jul-07
Lupin	Abbott & Astellas	Omnicef (cefdinir)	bacterial infection	637 million	Jun-07
Dr Reddy's	GlaxoSmithKline	Imitrex  (sumatriptan succinate)	migraine	-	Oct-06

A Ranbaxy spokesperson said, "Our recent settlements will bring in a certainty in our revenue flow, thereby increasing shareholder value."

According to industry experts, such settlements are a signal of Indian generic companies coming of age.

"It is a more mature approach. After all these years of Para IV challenges (which challenged the validity of the innovator's patent), generic companies, particularly Indian drug firms, are realising the importance of reducing litigation cost and turning their revenue streams more predicable through settlements," said Sujay Shetty of PricewaterhouseCoopers.

Shetty added that the Para IV challenges, though more lucrative, are also risky, time-consuming and expensive.

"Para IV challenges hang heavily on the stock prices of Indian pharmaceutical companies. More such settlements will certainly boost investor confidence," he said.

For instance, when leading drug maker Ranbaxy announced two settlements with Boehringer and GSK, the agreements allowed Ranbaxy to enjoy market exclusivity for eight weeks and six months, respectively, after the patent expiry. However, none of the companies have disclosed the revenue implications of such deals.

On the other hand, the settlements are also happening due to the pressure on the innovator company. "It is the innovator firm that is to gain most from such settlements. With the declining number of patent-protected products entering the market, the innovators are under real pressure to ensure extended market exclusivity. Given the macro-backdrop, it is more beneficial for the innovator," said Sarabjit Kaur Nagra from Angel Trading.

Along with more number of out-of-court settlements, the Indian pharmaceutical sector would also see more new patent challenges. The possibility of such challenges withdrawn mid-way is also becoming stronger, say analysts.