Serious trouble to indian pharma innovation over patents
Serious trouble to Indian Pharma Innovation OVERPATENTSTo any visitor in its Bangalore campus, Advinus would appear to be a healthy company. Itsoffices are plush, laboratories state-of-the art, coffers full. It has recently signed a $36-milliiondeal—as minimum payments—for drug discovery with the Japanese firm Takeda, which wasone of the largest deals struck by a pharma services firm anywhere in the world. Advinus, acontract research firm belonging to the Tata Group, has other multinational clients too, and ahealthy pipeline of its own drug compounds for such a small company. Yet its founder-CEORashmi Barbhaiya is worried. In recent times, large pharma companies have ostensiblyexpressed little desire in using India as a base for drug discovery or development. It isbecoming harder and harder to get companies to outsource to India. For over a decade,Barbhaiya had been a champion of Indian capabilities in drug discovery and development. Hebelieved, like many other industry veterans did till recently, that India could become one of theworld centres for drug discovery and development. The country seemed to have everythinggoing right at that time. It had a good educational system, an expanding pool of researchers, aglobally-competitive generics industry, a reputation for services, and a set of high-quality.One serious flaw in its innovation system, its intellectual property laws, seemed to have beenfixed by 2005, although through external pressure. The outlook for domestic pharma innovation,however, has become less hopeful in recent times. “My customers always ask me: why is it thatwe get strong tail winds in China and face strong headwinds in India?” says Barbhaiya. Therecent patent judgment against Novartis, though insignificant by itself, may seem like theproverbial straw that broke the camel’s back. In fact, industry insiders agree privately thatNovartis had a weak case, and that the Supreme Court had shown considerable insight andexpertise in its judgment. However, the Indian pharma innovation system was at a breakingpoint when the judgment came. Compulsory licensing, a defunct system of clinical trials, astrident generics industry, a series of patent revokes and a set of overactive NGOs had allcombined to give the impression that India no longer valued pharma innovation. “The world hasgiven too many frivolous patents,” says Kiran Mazumdar-Shaw, chair of Biocon, “and Indiashould veer away from that. But we should also not get carried away and create an atmospherehostile to innovation.”
A Poor R&D EcosystemThe next few years will also show the seriousness of India’s regulators on fixing the brokenclinical trials system, without which the Indian pharmaceutical industry has little chance ofsuccess in the long term. India’s approach to patent disputes may have a bearing on howseveral other countries view drug patent cases. But patents may not form the most critical partof the innovation ecosystem. And Indian pharma companies—by extension, even themultinationals—are worried about the other components of this ecosystem. The situation inIndia is bad for R&D not because of its laws but because of the clinical trials issue. There aremany other problems too. Getting new cell lines for research takes time. So would procuringimportant chemicals regularly used in research. India is perhaps the only country—among thosewith a decent research tradition—where a company has to wait for three years to do a trial on adog. The patent issue, when it comes on top of all this, appears to be more important than it is,according to many industry insiders.Yet, patents form a small part of the environment necessary to create a business based oninnovation. “There are many factors other than patents that are now impeding the drugdiscovery business in India,” says VN Balaji, a drug discovery consultant and former chiefscientific mentor of Jubilant Biosys, a drug discovery services company. Unlike in all othercountries, Indian pharma innovation is now built almost exclusively through partnerships. Twodecades of domestic drug discovery and development have not resulted in many commercialdrugs, and the large Indian pharmaceutical companies now rely a lot on out-licensing, in-licensing, or joint projects for drug discovery and development. The services companies havebeen beaten squarely by China on the pure-services business model; their business model nowdepends much on sharing the risk and developing drugs jointly and not just on plain-vanillaservices.Patents And Indian IndustryMore than two decades ago, when negotiations began for framing the ground rules formembership in the World Trade Organization (WTO), there was little interest among thedeveloping countries to include intellectual property rights (IPR) in the discussions. However,the pharmaceutical industry pressured the US government into including minimum standards inIPR laws as key to WTO membership. “All developed countries, with the exception of the US,
allowed product patents only when their industries were ready,” says Sudip Choudhuri,professor at the Indian Institute of Management in Calcutta, whose work was quoted extensivelyin the Novartis judgment. “India is clearly not ready to allow them.” Here is a quick list: Germanyallowed product patents in 1967, Switzerland in 1977, Italy in 1978, Austria in 1987, and Spainin 1992. While signing the TRIPs agreement under duress, developing countries negotiatedflexibility in their IPR laws in several aspects. This meant that, although WTO members were togive product patents for drugs and agricultural chemicals, they were also free to providecompulsory licensing during national emergencies or put in additional sections in the patent actsto prevent ever-greening. Patent offices, as always, were free to interpret whether theinnovations satisfied the criteria for patents. Regulators were also free to define nationalemergencies in their own ways. India, still smarting under the belief that it was forced to sign anunfair system, now seems determined to exploit these flexibilities to the fullest possibleextent. The current hostility—real or perceived—to a rigorous product patent regime for drugswould have hurt Indian industry directly if the country had a thriving innovation ecosystem.Unlike in the IT industry, India is not a destination for pharma multinationals for R&D. Only AstraZeneca and Bristol Myers-Squib (BMS) have invested in drug discovery R&D in India so far.Astra Zeneca recently closed its Indian drug discovery programme, leaving BMS as the onlycompany to have done some direct investments in India (See graphic: Domestic Firms Spend.There is no indication that a rigorous IPR regime would have done otherwise. On the otherhand, few Indian company executives had shared the courage and conviction of the late AnjiReddy and tried to discover drugs in India entirely on their own. What remains, both currentlyand for the future, are partnerships where Indian and overseas companies share the intellectualproperty and markets. Drug discovery services began in India in the mid-1990s. Biocon was apioneer when it set up Syngene in 1994 to offer services related to drug development. Indianpharma industry observers then believed that this business presented a great opportunity for thecountry, but it didn’t develop as imagined. No formal estimations exist about this market either inIndia or China, but industry insiders estimate it to be around Rs 3,000 crore in India and three orfour times bigger in China. However, Indian companies quickly moved beyond plain services—called ‘full time equivalent’ (FTE) services in industry jargon—and looked for ways of sharing therisk as well as the reward in drug discovery services, and not just development. So manyservices companies—Aurigene, Jubilant Biosys and Advinus are examples—now depend fortheir revenues on substantial milestone payments rather than payments for the number ofpeople who worked on a project. Negotiating a milestone payment is quite different from
negotiating an FTE-based business, as there is a big leap of faith involved for the customer.Many Indian companies have managed to get this leap of faith. Patent cases have not erodedthis trust so far, and could do so in the future only if the courts turn activist.On reasonable HealthcareCost cautionPrices will rise as new drugs hit the market and fewer drugs go offpatent every yearPatented drugs form only 1% of the market for drugs in India, and so it does not require a geniusto figure out that the impact of patents on Indian healthcare is minimal. As more and more drugsare patented in India, and as they get launched in the country with patent protection, the cost ofhealthcare could go up gradually over the decade, just the way generics have gradually reducedthe cost of prescription drugs in the US. Will they put medicines beyond the reach of most peoplein the country? Industry observers and analysts predict a rise in drug costs over the next decadeas more cancer drugs come into the market, and fewer drugs go off patent every year.The US Food and Drug Administration (FDA) approved 39 new drugs last year, the highestnumber since 1997. Three of those are now priced at over $200,000 (about Rs 1 crore) a year.Some of these drugs are for rare diseases, but anti-cancer drugs form a good portion of the newdrugs approved. Anti-cancer drugs are also among the most expensive classes of drugs, and itremains to be seen how companies price them in India. But it now seems that the low productivityof the last decade is now giving way to a decade of high productivity for new drugs. High drugprices are almost certain to follow, and India may not be an exception. The department ofpharmaceuticals is drafting a formula to price Rs 25,000 crore worth of patented drugs, whichmight end the constant irritant for global drug makers of incessant compulsory licensing by thegovernment. The government thinks such licenses won’t be needed once a pricing policy is inplace, and so Big Pharma has so far not complained about this idea.