Patently unfair?4 min read . Updated: 07 Apr 2013, 08:30 PM IST
Just because companies make drugs, should they aspire to less profits than a firm that makes trendy electronic goods?
One minute I was looking at death. The next, I was looking at my whole life in front of me," said Suzan McNamara.
McNamara was one of those suffering from fatal chronic myeloid leukemia (CML), the cancer for which Novartis’s Glivec is a near-perfect cure. The remarkable history of the Philadelphia Chromosome and the development of the drug Glivec to combat it by Ciba-Geigy (which became Novartis) were narrated in these pages by Samar Halarnkar (5 April). Suffice it to say, that like for many blockbuster drugs, it was both a targeted search and serendipitous one. While the contribution of Novartis’s scientists is substantial, they built on a 40-year history of publicly available academic research.
The story of the Supreme Court turning down Novartis’s patent petition for a new and improved Glivec is well known. Less known is that the decision, made on the basis of Section 3(d) of the Indian patent law, is really a technical ruling rejecting the new and improved idea. A patient sympathizer would say the improved notion was merely an attempt by the company to evergreen the drug by extending the patent regime and keeping out generics for longer. A patent sympathizer would say the improved version was truly a more efficacious drug; how is a company to innovate if it cannot protect its innovation? Precisely how a court of law was able to adjudicate on such a technical matter (reasonable experts may well differ) is not clear, but the ruling is binding.
Also less known is that Novartis gives away this expensive drug (the patented version costs 10-15 times the generic) for free to 95% of those affected by CML in India. So, this fight is not really about profits on this drug for Novartis in India today.
The fight is really about the future. It is about how different the future of the pharmaceutical industry will be from its past. It is about the pricing of drugs. It is about how governments will go about balancing patent and patient in a world in which the gap between rich and poor is wide (both within a country and internationally). Could we have a different price for inner city Washington DC, Kenya and India from that in the developed markets? Should the full impact of that differential be borne by the pharmaceutical company or also by the chain of stakeholders—rich consumers, insurance companies and governments?
Novartis’s financials are typical of a multinational pharmaceutical company. Its annual report for 2012 says that 77% of net sales of $32 billion for its pharmaceutical business comes from the established markets of the US, Western Europe, Canada, Australia, New Zealand and Japan. The remaining 23% of its sales comes from emerging growth markets. The pharmaceutical business had an operating margin of 31.8% for the year. Quite profitable, but not meaningfully more so than Apple or TCS. Novartis ploughs back 20.8% of sales into R&D. In contrast, Apple allocates about 2%. Just because these companies make drugs, should they aspire to less profits than a company that makes trendy electronic goods?
This may well be a moot question. Politics and change have already invaded the access and pricing of drugs and the future of Big Pharma. That companies will have to adapt to a changing world is becoming clearer by the day. The latest verdict was merely another marker, hastening the process of change. Individual companies are already following different models, some consolidating and concentrating on patented pharmaceuticals and others diversifying into diagnostics and consumer health. Novartis itself has made some clear strategic choices by establishing Sandoz as its generics division and putting up state-of-the-art biotechnology research centres in Shanghai and Singapore. This is as much about locating future patients as it is about accessing wider (and cheaper) talent in newer locations.
The era of the blockbuster drug is gradually drawing to a close, not for cost reasons alone but also because our understanding of treating diseases is rapidly changing to be much more nuanced and customized. One size will likely not fit all. The future of pharmaceutical research will have to change with this evolution. The very culture of proprietary research will have to give way to a more commons based one.
More of the research component will come from the open space and less from closed. Companies will have to partner more with universities and emerging market institutions.
For their parts, governments and the judicial system in emerging growth markets will have to be very careful. They will have to be seen to be respecting intellectual property, encouraging affordable new innovation and nurturing ecosystems that support that effort. But they will have to draw the line at companies attempting to protect their turf and their margins at all costs. This balance requires technical knowledge, equanimity and wisdom.
Patently unfair? Perhaps. But inevitable.
PS: “If we want to solve a problem that we have never solved before, we must leave the door to the unknown ajar," said Richard Feynman.
Narayan Ramachandran is chairman, InKlude Labs. Comments are welcome at firstname.lastname@example.org To read Narayan Ramachandran’s previous columns, go to www.livemint.com/avisiblehand-