Home / Companies / Big pharma firms may learn to live with compulsory licensing

Mumbai: With China amending its patent law on compulsory licensing soon after India granted the first such permit in the country, innovator pharmaceutical firms that bank on patent protection for growth are under pressure to revamp sourcing, distribution and pricing strategies, industry experts said.

“The research-oriented companies, which mostly focus on the patented technologies that give them an edge, will have to restructure their business plans in emerging markets now as local governments are taking all possible measures to lower the healthcare cost," said a London-based life sciences partner at a global consultant.

Compulsory licensing allows governments to grant a non-patent holder permission to make a drug on condition that the originator hasn’t been able to make it accessible to those who need it at an affordable price. India’s first compulsory licence was awarded in February and given to Hyderabad-based Natco Pharma Ltd to make and sell a copy of cancer drug Nexavar, patented by German drug maker Bayer HealthCare AG, a subsidiary of Bayer AG. China’s move in this regard indicates that it’s keen on taking a similar route to lower prices of new drugs.

Research focus: A Bayer laboratory in Germany. Photo: Bayer HealthCareAG

The Indian order “has emboldened other countries such as China to institute similar regimes. All of this is reflective of a new intellectual property world order, where developing countries appear to be taking the lead," Basheer said.

The Chinese rules allow a third-party drug maker to apply for a compulsory licence after three to four years of a patent grant. Public interest, affordability and accessibility are among the preconditions. China may also allow generic drug makers to make and export cheaper versions of patented drugs using this provision, if the need arises. Companies are seeking to adapt to the new environment as China’s move signifies a marked shift in the balance. This will require them to find a way of living with such a regime than seeking to fight it, experts said. China is the fastest growing economy in the world, and India ranks second. They are ranked similarly in population and account for more than one-third of the world’s six billion people.

Compulsory licensing is a provision allowed by the Trade Related Intellectual Property Rights, or TRIPS, pact that several member countries including India and China are part of under the World Trade Organisation. Use of the provision depends on the laws and market circumstances that prevail in the respective countries.

Brazil is another country said to be considering a similar initiative, said Dilip G. Shah, secretary general, Indian Pharmaceutical Alliance, a domestic drug makers’ lobby group.

“With China, and hopefully Brazil, joining the compulsory licensing regime triggered by India, the multinational companies cannot single out one country for using the flexibilities of TRIPS and industry has to live with it," Shah said. Smaller developing countries will be encouraged to adopt such measures to make essential medicines affordable either by manufacturing the drugs themselves or sourcing it from countries such as India and China, he added.

The new strategies that companies adopt to cope with the new environment could include local manufacturing or sourcing of products in line with costs in that particular market, rational pricing and ensuring a wider distribution network to avoid any trigger for government action, said the consultant cited above. He didn’t want to be identified as his company is handling similar projects for global clients.

Swiss-based drugs and biopharma company F. Hoffmann-La Roche Ltd is among those seeking ways of adapting.

“As each country’s healthcare system is different, arrangements to improve access can take different forms," Silvia Dobry, a media relations executive at Roche, said in an emailed reply to questions. “We are conducting various pilot-type projects in different countries. These can include a range of arrangements, including local manufacturing and commercial pricing arrangements, such as volume discounts, rebates, price capping, differential pricing, cost and risk-sharing arrangements."

Dobry added,“In emerging countries, Roche works closely with governments and payers (patients or insurance firms who pay for the treatment) in order to enable access to our medicines as well as to demonstrate the value of our products and services to patients."

China’s new provisions can be invoked in the case of medical or national emergency, poor access to medication and other public interest causes.

In the Indian case, Natco had argued that the patent holder could not meet patient needs even after three years of a patent grant. The country’s then controller general of patents P.H. Kurian observed, while giving his order, that the drug was unaffordable to the majority of Indian patients at Rs2.8 lakh for a month’s treatment and that Bayer could only meet a fraction of the actual demand over the period since the patent grant.

A Bayer spokesperson in China said in an email that the company does not “see any signs of weakening patent protection in China."

On India’s compulsory licensing order, Bayer said, “The challenges faced by the Indian healthcare system have little or nothing to do with patents on pharmaceutical products as all products on India’s essential drug(s) list are not patented. Rather, the order of the Patent Controller of India damages the international patent system and endangers pharmaceutical research."

Experts said many developing and developed countries have initiated changes in patent laws to try and lower healthcare costs, taking a cue from India.

“India chose to tread uncharted waters with section 3(d), a law that prevents unsubstantiated patent grant," said Basheer. “And now a number of countries are slowly following suit, with the latest addition being Argentina."

Roche announced plans to cut prices of three of its patented cancer products in India by getting them made locally, soon after the country’s compulsory license decision.

“We do, however, vigorously defend our intellectual property, as we believe this is a fundamental precondition for researching new medicines that can save and improve patients’ lives," Dobry said. “Ultimately, the responsibility to develop and sustain public healthcare lies with the governments. We are open to discussing with health authorities what the best way is to bring innovative medicines to patients."

The world’s largest drug maker, Pfizer Inc., said in an emailed reply that it wasn’t aware of any substantive changes in the Chinese patent law on compulsory licensing.

Pfizer, however, is “committed to applying science and our global resources to improve health and well-being at every stage of life," a company spokesperson said by email. “Pfizer has been making its innovative medicines available to those in need through patient assistance programmes and will continue to develop strategies where both access and innovation needs are suitably addressed."

Multinational drug makers Sanofi SA and Novartis AG did not answer email queries.

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