There is a general perception, to some extent justified, that the advent of the new product patent era (post - Indian Patents Act 2005) will seriously affect the Indian generics market. It is true that the practice followed for the past 40 years by Indian companies of copying patented drugs and marketing them are no longer possible for products protected by patents filed after 1995, unless the patent holder grants licenses to the Indian company.
During the pendency of the 1970 Patents Act, the Indian pharmaceutical market was largely a generic market, with very little monopolistic prices possible except for very selected imported items. The market with multiple suppliers, was a commodity, price-sensitive market. However, within these limitations, there is evidence that even within the generics products, a distinction had emerged by using brand names as well to distinguish one manufacturer from another. Thus the Indian market evolved into a branded generic market.
While discussing the future of the Indian pharmaceutical Industry, particularly post-2005, Indian companies are hopeful of continuing their dominance as major global suppliers of generic drugs. How realistic is this hope in terms of opportunities? What is the profile of the emerging generic markets, particularly in U.S., where for several reasons, increasing healthcare costs being an important one, there is a dramatic boom in this segment ? In addition due to various other pressures and declining numbers of new drugs reaching the market, the rate of growth of generic drugs is on the increase even in the U.S. What is the impact of the recent scandals on generics on the future of this industry? What are strategies that Indian companies should adopt to compete in this market when copying drugs protected by product patents in India would not be possible.
The U.S generic market
By and large the U.S. with > 45 per cent of the global market is the largest market for pharmaceuticals estimated at $ 420 billion . While the branded component still dominates particularly due to the high prices of new and patent protected drugs, the compounded annual growth rate for generics is much higher than for branded products. In addition it is estimated that in the current year itself branded drugs worth $ 34 billion will go off patents and will become generic. Already in six months (due to exclusive marketing rights conferred for 180 days), Ranbaxy has clocked in $ 600 million from its generic version of Lipitor, whose basic patent expired in November 2011.
Between 2012 and 2015, drugs worth $ 60 billion will go off patents and therein lies a golden opportunity for Indian companies to further penetrate into the U.S. market with new generics. Overall there are $ 290 billion worth (at current prices) which will be available for generic marketing for Indian Companies provided they cross all the regulatory hurdles well in time. Apart from routine ANDAs which Indian companies are filing, expertise at filing and expediting Para IV filings successfully are very important.
IPA 2005 and provisions to help generic industry
Both IPA 2005 which is compliant with the TRIPS agreement and the Doha Declaration of 2001 have provisions to ensure that to protect social causes, public health issues and emergency needs, compulsory licenses can be granted to produce patented drugs and market directly to even countries which have no technological capability to exploit their own compulsory licenses.
While these provisions under the TRIPS Council’s mandates have not been fully accepted by many developed countries which want to introduce a number of caveats before allowing such acts, the trend is to implement them to make quality medicines available, accessible and affordable to the ailing masses particularly in developing countries. The R&D based companies on the other hand want to restrict the compulsory license provision to diseases specifically mentioned in the Doha Declaration, namely, HIV/AIDS, tuberculosis and malaria.
The procedure to be used for such exports to developing countries still remain very cumbersome. Over time, for the Indian generic companies, these will provide new opportunities Unfortunately even though the TRIPS council has approved the grant of compulsory licenses for drugs for diseases of concern to the countries which they cannot afford, the system is yet to be put into practice. For one thing the needed drugs can be manufactured only in countries which have access to technology and export to countries who need them. India certainly is in the forefront of technological strengths to manufacture and supply even the latest chemical based drug, whether they are protected through patents or not.
Indian Patents Act 2005 – additional flexibilities.
Apart from the fact that provisions to manufacture and market through the compulsory licenses route is available under TRIPS, the Indian Act has further enlarged the patentability clauses by invoking section 3(d) which forbids patenting of ‘trivial’ and incremental inventions. Already three major cases are in different stages of dispute and assuming that the patent office’s verdicts are sustained in the court, Indian companies will be free to market them as generics or branded generics in the domestic market.
Prices will fall to very low levels, depending on the number of suppliers who enter the market. For example for the drug Glivec for which the costs of treatment to the patient per month is Rs.1.2 lakhs for the innovators product of Novartis, the Government while invalidating the Novartis patent, has fixed a price of Rs 8800 for its generic version manufactured by Natco. Already many countries such as China, Thailand, Brazil and others are in the process of following the Indian model.
The case of Sutent, Pfizer’s Anticancer drug on which the court has ruled that CIPLA has not infringed the original patentee’s claims is yet another one. These opportunities are based on the Indian Patent Office’s ruling that the concerned patents did not meet the standards of patentability as defined under Section 3(d) of IPA 2005. Added to these cases , a number of compulsory licenses are likely to come up in the near future based on medical needs and extreme emergency due to diseases assuming life threatening proportions are allowed under the TRIPS Agreement and the TRIPS Council’s ruling on the Doha Declaration.
Thus, apart from increase in production of existing generic products for more markets, patented products can also provide sources for Indian companies either because their patentabilities are questioned by the patent office or through compulsory licenses.
As far as the pharmaceutical sector is concerned , it is likely that there will be considerable erosion of the strong patent system which was envisaged for the World under TRIPS and are being practiced by the developed countries. This, however will be inconsistent with the TRIPS mandate that patents should be available for all sectors with no provision for differentiating any one sector.
The first indication of differentiation came in the case of HIV/AIDS drug cocktails in which three of the four were patent protected. These products which cost as much as $ 15000 per patient per year of treatment were made available to prices as low as $ 80 by companies such as the Indian company CIPLA which flouted the strict provisions of the patent laws , fully supported by their respected countries. To a large extent the Doha Declaration on Patents and Public Health evolved out of these developments.
While licensing in for manufacturing and marketing from the patent holder is a distinct possibility, it is unlikely that patent holders will grant voluntary licenses to Indian companies, since the innovating companies would like to exploit the huge market India offers themselves. To avoid invoking drug prices control even on patented products, some of the leading companies are considering a differential pricing system for developing countries to make their patented products more affordable to poor patients. Companies may also adopt a joint venture mode through collaborations or even , mergers and acquisitions, joint projects etc to establish a strong foothold in India.
Recent examples of acquisitions of whole or a part of the business are Ranbaxy. Matrix, Orchid, Nicholas Piramal etc. By such an approach the markets are assured and India can provide a solid manufacturing base for these new companies.
Whether it will lead to joint R&D efforts including investments will depend upon the large global companies’ perception of India’s record of implementation of the Intellectual Property protection system as enunciated under TRIPS and followed by the leading R&D based Companies. Perhaps the results of some of the pending litigations on patent issues may also have an impact on foreign
Challenges to Indian industry
Various concerns have been recently expressed on the future of the Indian pharmaceutical industry in the global markets where the Indian industry in recent times have achieved a certain degree of dominance.
India has now been rated as the third largest producer of pharmaceuticals in volume terms and eighth in value terms, a position it has risen to in the short span of three decades Much of this success has been in the field of generic drugs and a consequence of the revised Indian Patents Act 1970 which came into force in 1972.
Generic drugs are those which are off patents and hence are open to all for their manufacture and sales in territories where the patents have expired. The generic status of a drug leads to multiple suppliers and heavy competition leading to even price wars . To distinguish the drugs of one manufacturer against another of the same product, they are sold under the brand name which is the exclusive trade mark of that manufacturer . Thus the concept of branded generics evolved primarily in the Indian market as a consequence.
As a result of the provisions under the Indian Patents Act 1970, product patents were disallowed and even for processes in the pharmaceutical sector, the validity period was reduced to 5 years from the date of grant of the patent or 7 years from the date of filing of the application whichever was shorter. Thus, as far as pharmaceuticals were concerned there was virtually no protection granted for patents and practically every drug protected under patents were immune from any type of exclusive rights to the patent holder. The emergence of a strong generics industry in India was due to these events which led to catapulting India as a major producer and supplier of generic drugs for even markets outside India.
Challenges to Indian generics exports
Indian companies have reason to be proud of their achievements in exporting pharmaceuticals of Indian origin, particularly finished formulations, in the global scene particularly in the U.S, Western Europe and to a lesser extent, Japan. While almost half of the drugs are manufactured in India for the export market, overall Indian contribution in the total global generic market is in single digits. It is obvious that the generic markets and marketing are extremely complex, with so many pulls and pressures from a variety of stake-holders. The challenges that the Indian companies face to day are going to be even greater in the coming hears due to a variety of reasons.
The challenges for the future growth of the Indian generic exports come from many fronts. 1) Competition with domestic and International companies 2) Patent Act 2005 and its impact on patented products 3) Threat from the Chinese Generic Industry. 4) Capabilities to get Regulatory Clearances in highly regulated markets and effective Marketing 5) Costs of Production, 6) Increasing shift in new drugs to biologicals largely based on recombinant technology, moving away from chemicals, real and perceived quality issues by the foreign regulatory agencies and customers and un-remunerative selling prices. Strategies by the innovator, patent savvy, brand-based companies to ward off competition, at any cost, will continue to be evolved as a major threat as generic competition increases.
Since supply of generic drugs is really the trump card of the Indian industry the patent system barring questionable cases are bound to be a major challenge for the Indian companies. Generic versions of such drugs cannot be introduced by Indian companies during the pendency of the patent life since the innovator company would like to exploit themselves the large market that India offers.
A second threat to India is the emergence of China as a major chemical supplier. Even though China today is the global leader in the supply of chemicals and chemical intermediates and not of bulk drugs and formulations, the day will not be far before China becomes a major competitor to India. Indian products are well accepted by regulatory agencies and customers in not only emerging countries but also in the developed countries. Thus increased stringency on the part of regulatory agencies in matters of quality and assured compliance with Good Manufacturing Practices (GMP) could be a major hurdle for China’s entry into highly regulated markets.
A third threat is the continuous erosion in prices as a result of generic competition. As in the past prices of generic drugs could fall by almost 90 per cent after the generic la in many cases in three to four years after the generic launch, which means they have to penetrate large markets to make up through increased volume of sales.
A fourth threat which is relatively long term is the paradigm shift from synthetic drugs to biologicals as a major component of pharmaceuticals. From the current level of 10 -11 per cent of pharmaceutical market being modern biologicals mostly of recombinant origin, by 2020, it is expected to reach 40 per cent. Even now over 50 per cent of newer products in the pipeline of development are from the biological area. Most of them however will reach commercial stage only towards the end of the decade. In addition the trend is to develop high quality and more specific personalized medicines which are high price - low volume products, unlike the generics of today which are based on blockbusters.
Strategies of patent holders to delay entry of generic drugs
R&D-based pharmaceutical companies responsible for and invest large sums for the discovery, development and marketing of new drugs adopt various strategies to delay the entry of generic competition. Some of them are –
n Filing of patent infringement suits against the generic entrant. Such a strategy is useful, since, at the moment, there is a restriction of up to 30 months or as long the patent litigation is pending before a generic equivalent can be marketed;
n Paying the generic company for delaying the introduction of the product, presumably as an out-of-court settlement of the patent litigation.
n Withdrawing the product from the market and reintroducing a “new version’. This is particularly useful in the European Union, since the law stipulates that generic medicines must be cross-referenced with the original patented product to get approval.
n Initiating a new study on the patented product to enable FDA to approve extension of patent life of the original product by six months.
n Replacing the patented product with a new patented version with marginal improvements (ever-greening)
In the U.S., the Drug Price Competition and Restoration Act 1984, generally referred to as the Hatch-Waxman Act, had the dual objectives of ensuring accelerated approvals for generic drugs for their early introduction in the interests of the consumers, while at the same time ensure that the interests of the innovator is not heavily jeopardized.
While increased market share can be achieved through aggressive marketing, with multiple suppliers each trying to get its share, in the process, the profits plunge to very low levels , sometimes even to normally unacceptable levels.
Sometimes prices may sink by even 90 per cent once established generic manufacturers enter the field, seriously affecting the bottom line of companies. To off set such competition, the only answer is to reduce the costs of production , which may not be easy for many APIs. Can Indian Companies continue to be dominant in global arena of generics? In spite of the fact that Indian companies are filing an average of 1000 ANDAs annually and has 45 per cent of all filings for the bulk drugs, overall we have made a only a small dent in the U.S. generic market.
Companies like TEVA, SANDOZ, WATSON and MYLAN which have large distribution networks and vast resources and even most of the R&D based big pharmaceutical companies are very active in the generic field.
The threat of entry of China in the manufacture of APIS and even formulations is a serious one for the Indian generic manufacturers. It is a matter of time before China emerges as a serious competitor to India in the supply of finished products as well , notwithstanding some current issues associated with Chinese products particularly after the Heparin scandal. So far China’s dominance has been in the area of chemicals and intermediates with very little exports of formulations even to less regulated markets.
It is imperative that the Indian companies develop their own strategies to counter the challenges it faces for continuing to be a major force in the global generic space, since that is where Indian industry through its technology strengths and strong manufacturing base has proved itself during the past years, The large number of FDA approved plants and the largest number of ANDAs approved by US FDA for Indian products bear testimony to this fact.
(The author is a senior research scientist & industry expert based in Chennai)