The Hindu Business Line : Prognosis on the new patents regime

THE INDIAN pharmaceutical industry has done well in the recent past. But will the dream run continue come 2005? What are the challenges facing Indian pharmaceutical companies in the new patents regime?

Reverse engineering to discovery

Now, only process patents are recognised in India. India being a member of the World Trade Organisation has to move to a product patent regime from January 1, 2005, when the Trade Related Intellectual Property Rights (TRIPS) Agreement comes into force. India has agreed at the WTO to award product patents on New Chemical Entities (NCEs) that have patents in any of the patent co-operation countries on or before January 1, 2005. This means that generics of drugs that have been granted product patents from 1995 onwards will not be available in the Indian market without the permission of the innovator. Over the years, most pharmaceutical companies in India have progressed essentially because of their reverse engineering skills.

The future is for companies that are discovery based. But a company cannot turn from a reverse engineering company to a discovery-based one overnight. The development and commercialisation of a new molecule is a time-consuming and a costly process.

It can take 10-12 years for a drug to be developed, right from inception to the marketing stage. Also new drug development process happens in various stages. At each level, there is a very real risk that the development of that product will have to be abandoned and the costs incurred till then written off.

The challenge to become a `discovery-based' company is the biggest challenge facing the Indian pharmaceutical companies.

Hatch Waxman Act and the generics game

Generic drugs are the chemical and therapeutic equivalents of `reference brand drugs' typically sold under the chemical names at prices below their branded equivalents. Generic drugs are a major contributor to the earnings of Indian pharma companies. The global generic drug market is expected to reach $60 billion by 2005. An Abbreviated New Drug Application (ANDA) has to be filed with the US Food Drug Authority (FDA) if a company wants to launch a generic drug. An ANDA applicant needs to review the patents of the innovator which are listed out in "Approved Drug Products with Therapeutic Equivalence Evaluation', popularly known as the Orange Book. Accordingly, any one of the four kinds of filing is allowed under the Hatch Waxman Act (1984).

A Para I filing is made when the innovator has not made the required patent information in the Orange Book. A Para II filing for the launch of a generic drug is made when the drug is already off patent. A Para III filing is made when the ANDA applicant does not have any plans to sell the generic drug until the original drug is off patent. A Para IV filing is made when the ANDA applicant believes its product or the use of its product does not infringe on the innovator's patents listed in the Orange Book or where the applicant believes such patents are not valid or enforceable.

In the case of Para IV filings, patents are validly circumvented. This involves a lot of research to find out the loopholes in the patents. But the gains are also the most in this case. The Hatch Waxman Act 1984 allows 180 days of exclusive marketing rights to the first ANDA filed and approved. For instance, Dr Reddy's Laboratories' Fluxotene (a 40 mg generic version of Pfizer's blockbuster drug Prozac) was cleared by the FDA and it made $10 million per month in the exclusivity period.

Litigation is inevitable if a company wants to make a Para IV filing by targeting an existing patent holder (on the basis of certain loopholes in the patents filed in the Orange Book, which may allow the company to launch a generic in the new drug dosage form or a different drug delivery form).

Litigations can cost $15-18 million for a single Para IV filing. If successful the generic drug company gets an exclusive marketing right (EMR) for 180 days to sell the drug if not the entire amount invested in litigation goes waste. Para IV filings are risky business and cannot be depended on always to bring in the revenue.

Cheap manufacturing and market access are two factors which mainly influence the generics business. The manufacturing advantage can be easily lost with the bigger generic players setting up manufacturing operations in India or other developing countries. At the same time, Indian pharma companies may not be able to replicate the market access of the bigger companies which can make the placement of their generic drugs (in overseas markets) increasingly difficult

Multinational pharmaceutical companies are resorting to new ways to beat the Indian pharma firms at the generic game. They have been resorting to "ever-greening'— making variations of the same drug through the use of different salts and thus extending the period of the patent beyond twenty years.

This delays the entry of the Indian pharmaceutical companies into market, with their generics. What makes this issue more dangerous is the fact that, in some of the cases, profits generated from the generics business are being used to fund the drug discovery process, which has not started making money as yet.

Spurious drugs

Spurious drugs have been the bane of Indian pharma companies in the last decade. With product patents coming in chances are that drugs, with no generics available during their patent period, would become more expensive. This might lead to more and more spurious drugs coming into the market given the higher margins that would be available during the patent period of the drug. The spurious drugs could eat into the monopoly profits of the product during its patent period. This can act a major disincentive for companies to do research and bring out new drugs

On top of all this the much delayed third amendment to the Indian Patents Act, 1970 (that will put the pharmaceutical industry under a product patent regime) is still to be passed by Parliament and is to be introduced in the current winter session. The scale of impact of the patent laws on the Indian pharmaceutical companies will not be clear till there is clarity on the clauses to be included in the amendment.

For now Indian pharma companies are lobbying extensively with the government to include certain clauses that will provide them some cushioning. Whether they will be successful at this remains to be seen.

(The authors are respectively Research Scholar, ICFAI, e-mail: vivek.kaul@gmail.com; and Senior Executive — HRD — GCMMF Ltd., e-mail: hasan.as@gmail)

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