Novartis case may make foreign firms more wary of Indian drugs market2 min read . Updated: 01 Apr 2013, 10:41 PM IST
SC judgement may not open a floodgate of revenues for local pharma firms; nevertheless, it is a psychological win
The Supreme Court has dismissed an appeal by Novartis AG to revoke denial of a patent to its cancer drug Glivec. The judgement is important because multinational companies (MNCs) can be denied patent protection on improved drugs unless they can prove the medication has better efficacy. Although this decision will displease overseas drug makers, it will cheer local industry and health activists.
The ruling applies section 3(d) of India’s patents law, which prevents companies from patenting newer forms of an existing compound. The apex court, however, clarified that this part of the law does not bar patent protection for all incremental inventions of chemical and pharmaceutical substances.
It added that even if a pharmaceutical substance meets the test of section 2(1) of being a new and useful improvement, it still needs to satisfy the condition of demonstrating better therapeutic efficacy.
The ruling will not affect patents for drugs that meet the requirements laid down under the patents law, but can make foreign firms wary of launching new drugs in India, limiting revenue growth opportunity for listed Indian subsidiaries. Novartis has threatened to stop supplies of new medicines in India if the ruling went against it, the Financial Times newspaper reported recently.
That may explain the negative reaction from investors.
How will this affect local firms that make generic versions of various medicines? It may make them bolder in their efforts to thwart the ambitions of MNCs in expanding their revenue base in India. Even where MNCs have secured patents, there have been cases where domestic companies have managed to secure a compulsory licence to manufacture the drug. Compulsory licensing allows a drug to be produced cheaply by a rival, typically a domestic generic manufacturer, because it’s been deemed to be too costly or inaccessible to patients who need it.
Again, the immediate financial impact may not be significant because the domestic market is a small portion of the revenue base of generic companies. Most large generic firms earn a majority of their revenue from developed markets such as the US, Western Europe and Japan, and from developing markets such as Africa, Commonwealth of Independent States and Latin America. Investors should keep a keen eye on their performance in developed markets, as that influences their performance the most.
Therefore, this judgement may not open the floodgates of revenue for local firms.
Nevertheless, it is a psychological win and, more importantly in the longer run, it may see Indian companies launch drugs of innovator companies that may enjoy patents in other markets, but not in India. Whether they are able to do that and how significant a revenue opportunity it presents will determine the extent to which they will benefit from this decision.