Columns Opinion

Compulsory Licensing – does it affect the pharma companies?

Athulaprabha Murthi

The month of March saw a landmark decision by an Indian Court, wherein it granted compulsory license to an Indian pharmaceutical – NATCO to manufacture generic version of the drug Nexavar thereby breaking Bayor’s monoplogy on this life saving drug for Hepatocarcinoma. Frontline, an Indian magazine came up with an issue dedicated to Indian Patent law covering medicinal drugs and how that affects the pharmaceutical companies. This May 4th issue is available online for anyone interested.

During the golden days of Indian Generics – India (as per the patent act of 1970) did not recognize patents in areas considered vital to human life - food and health. Therefore none of the pharmaceutical patents were valid in India, allowing Indian companies to manufacture generic medicines without licensing to the originators as long as the process used for manufacturing was different from that used by the original company. The Indian pharmaceuticals became experts in reverse engineering. This allowed Indian generics to compete in the world market most importantly by providing medicines at an affordable prize to areas of the world that badly needed them. The best example for this are the antiviral drugs manufactured by Cipla. These generics were made available in Africa as well as South America. The availability of these generics at an affordable prize no doubt had a great effect on curtailing the spread of the HIV epidemic.

In 1994 India became a part of the World Trade Organization (WTO) and signed the agreement on trade-related aspects of intellectual property rights (TRIPS) and as part of that, it was required to recognize all international patents including those within the food and health. Compulsory licensing is a provision provided under TRIPS, though it has hardly ever been implemented in any of the western countries especially for pharmaceuticals.

The compulsory license was granted to NATCO under Section 84 of the patents act. The law details are available in the above blog. This section allows any one who feels that the product covered under the patent is 1) Not available to the public at a reasonable cost 2) does not meet the requirements of the public, or 3) is not sufficiently worked in India, can appeal for compulsory license.

Nexavar priced at 280,000 per month is obviously not available to the public at a reasonable cost and neither is it available to all patients who need the drug. NATCO will now manufacture and sell the same drug at Rs 8800 per month and will also pay a royalty of 6% of its sales to Baylor. The Judgment against Novartis drug Glivec tackled a completely different aspect of the drug industry. Patents give exclusive rights to the companies to manufacture and sell a particular product. Often times, the pharma industry change their patented drug slightly by converting it to a salt, adding a ester or ether, making an isomer that does not in any way alter the efficacy or biosorbtion of the drug. This new form of the same chemical is now patented. This process called evergreening is exploited by pharma companies to hold exclusive rights to manufacturing the drug several years after the original patent has expired.

When India signed the WTO agreement and modified its patent law, it made a provision called 3(d) which supposedly addressed evergreening by prohibiting the patenting of new forms of existing pharmaceutical substances that do not demonstrate significantly enhanced “efficacy (). This provision is unique to India without precedence elsewhere. Details of section 3(d) are dealt within both the Frontline issue as well as the blogs on SpicyIP. If interested in the entire provisions within the section read the article.

Patents were an incentive for Pharma companies to invest in drug development. Drug development is an expensive venture that requires millions of dollars being spent without returns. When a miracle drug is finally produced, patenting and exclusive manufacturing rights allow these companies to make sufficient profits to justify their previous investments, as well as to invest in future innovations. So a big debate now is if such decisions (viewed as) against Baylor and Novartis, hamper the process of innovation in drug development? Do they discourage pharma companies from investing in innovation? Based on the literature and studies done, I doubt these have any impact on the profits that these giant pharmaceuticals make. Prof. Chien’s article clearly shows that granting of compulsory licenses does not/has not hurt innovation.

Moreover, as the well-known IP lawyer Shamnad Basheer points out in his interview to Frontline, the generics tap into a market that is not catered to by these giants – the middle and low income group. This group of the population cannot afford the patented drugs at their exorbitant prices and have to rely only on generics. By licensing to generic producing companies the pharmaceuticals can not only increase the reach of their drug but can also make sufficient profits (through royalties).

Secondly, in cases of epidemics and life threatening situations availability of a drug is solely humanitarian and it should be implemented as such. Whatever the loss incurred by the company might be, it cannot be worse than the loss of lives due to unaffordability of the life saving drugs . For example – anti-retroviral drugs manufactured by Cipla proved to be a boon for HIV patients in Africa. The availability of generics in this case has obviously not had an effect on the viability or profits of the pharmaceuticals. So why is there such a big hue and cry over incentives for innovation, protecting the interest of the pharma companies? Maybe it is time to turn around and protect the people for whom the drugs are actually manufactured rather than the profits (which seems to be the only direction companies are heading in).