In the globalised era, new and improvised drugs are being introduced in the market driven by rapid changes in technology. Over the past couple of decades, many advances in the pharma sector had led to introduction of blockbuster drugs, thus saving lives of millions of people. Most of the revenues from these commercially successful drugs are invested in research and development (R&D) and innovating new drugs.

The pharmaceutical is one of the sectors where the innovation makes a dramatic impact on the bottom line of the drug manufacturers, thus these companies are focusing more on R&D to survive the competition and gain market share. Innovation is the key element that defines the success of the pharmaceutical sector while the risk associated with launch of new drugs can threaten its survival in the marketplace. Besides this, innovation help pharma companies to distinguish themselves from generic manufacturing company to research-based company. Most of the pharma companies are using innovation as a growth driver and making high returns on investment. Developing and launching a new drug in the market involves enormous cost and the success or failure is highly dependent on the innovation which is critical for the industry. As stakes in the industry are also very high, pharma companies need to spend a significant amount of revenues on innovation.

Rising cost of R&D
For the pharma industry, innovation is synonymous with developing new medications and obtaining approval from the government authorities. To ensure profitability and better profit margins, the companies are making huge investments in R&D including the likes of Sun Pharma, Dr. Reddy’s, Lupin, Novartis, Pfizer, Roche, etc. However, the companies are spending more on marketing than research and are looking for novel ways to monetize these innovations. Investing in research and development and the need for fostering innovation will play a crucial role to battle it out in the fiercely competitive market.

According to industry estimates, the average cost of bringing a new drug to market is US$ five billion. It takes approximately 13 to 15 years to develop and launch a drug in the marketplace including the clinical trials which accounts to 6-7 years for a chronic disease. Among these drugs, only a small portion makes it to market post the approval from regulatory authorities. As the cost involved in developing new drugs is too high, pharma companies are focusing on marketing of commercial successful drugs that could address the symptoms of big diseases and generate revenues annually.

Impact of patent protection
Intellectual property rights especially patents are the bedrock of the pharma industry as the industry solely rely on the innovation that can be monetized in the future. In simple terms, patents are an exclusive right granted for an invention which is novel and non-obvious to a person/entity skilled in the art to which the invention relates to. According to industry estimates, patents contribute 70%-80% of overall revenues of the pharma companies.

 Patents in the pharma industry are generally treated equivalent to their product portfolio and are one of the effective ways to protect the innovation and generate a return on investment. They play an integral role in the pharmaceutical industry to safeguard the inventions of the company, thus help in producing drugs that meet patient needs in developing and developed countries. Patents are also critical for the industry as they help in recouping investments incurred during research and development, and marketing of the drug.

A strong patent protection can secure the invention from the potential infringers and cannot be used, made, or distributed without patentee’s consent. They are the exclusive property rights of the patentee that has been obtained against the invention for a period of 20 years. Patent works differently across industries, but are critical in the pharma industry as the manufacturing a drug can be easily imitated by competitors. Strong patent protection is required to meet the need for pharmaceutical innovation.

The lack of patent protection in the development countries suppresses the development of the industry focused on producing drugs at affordable prices. Besides this, strong and effective patent protection can lead to development of research-intensive pharmaceutical industries that grow profitably. It also ensures breakthrough innovations and development of new life-saving drugs. Pharma companies protect their drugs by obtaining patents and help them in providing market exclusivity as generic companies enter the market and hamper the sales and profits. As these companies already face the pressure of increased costs in relation to development of new drugs, plummeting sales at the end of product lifecycle can lead to discouraging innovations in the pharma sector.

In the recent months, pharma companies have been facing patent challenges, thus posing a threat to pharmaceutical innovation and increasing uncertainty about market exclusivity and litigation cost for commercially successful drugs. For instance, Novartis AG lost a patent battle against Torrent Pharmaceuticals in the US over the drug Gilenya, which was one of the high revenue generating drugs. These patent wars can be addressed by adopting effective patent strategy by branded pharma companies through obtaining patents for methods of manufacture and active ingredients.

An effective strategy should be developed to obtain patents for the broadest possible scope in the R&D process, whereas methods of use and formulations patents can be filed at the clinical trial stage that defines the product use and attributed. As the cost involved in the R&D is too high, majority of the pharma companies rely on patents and apply for patent protection right from research stage i.e. prior to clinical trials, thus shortening the time to market the drug and increase return on investment.

Inventions in many technology-based industries can be kept a secret till the time it reaches the market and utilize the patent term of 20 years whereas inventions in the pharma industry has to be disclosed and protected prior to foraying into the market. As the pharma industry is regulated by the government agencies, a significant amount is invested in clinical trials to ensure safety and meeting the guidelines defined by regulators. Moreover, the pharma companies are under immense pressure as the product pipelines are shrinking and patents are expiring.

Extending patent protection
Pharma companies extend the patent term for commercially successful drugs by obtaining patents for new formulations of the known compound through ease of use or reduced dosage, thus making it superior to the previous drug. This provides an advantage to the branded companies to compete with generics competitors and protect market share. Furthermore, the drug takes less time to obtain an approval from Food and Drug Administration (FDA). Additionally, obtaining patents for new methods of use for known compounds can help the companies to increase the commercial life of the product and maximize their revenues.

The pharma companies enjoy a very short duration of the patent exclusivity as compared to other industries as the time period between the patent filing and placing a product in the market is long. However, pharma companies adjust the patent term through PTA (patent term adjustment) that determines provisions for adjustment of patent term in issuing the patent rights. In the developed countries the patent term can only be extended for half the time period and also restricts the exclusive right of use, thereby allowing generic competitors to test and develop the alternative and can market the product once the patent expires.

Future of pharma industry
Pharma companies are focusing on drugs that increase the sales volume and improve market share, thus boosting profits instead of developing life saving drugs.

As the drug discovery is becoming time consuming and expensive for the pharma companies, they have limited time to market their drugs. As a result, the industry is facing expiry of the patents on the commercially proven drugs. Without extended patent protection, the company will not be able to fund their R&D efforts. Also, extension of patent product lifecycle can help companies to invest more time in research and development and novel medications. On the contrary, extended patent protection means these drugs will be expensive for a longer period of time.

The generic players don’t make any investment on innovation, but grab market share through tweaking existing drugs and obtain patents to earn more revenues. To encourage innovation, the patent term for these products should be shortened while extending the patent term for life saving drugs.

 In the absence of adequate patent protection, pharma companies have to limit their patent portfolio resulting in erosion of market share. In order to compete with the pharma companies globally, Indian pharma companies have to focus on developing new drugs and protecting their intellectual property. It is imperative to protect intellectual property for commercialization in near future. As patents are crucial for pharma companies, they should focus on maintaining and developing patent portfolio.

In the past decades, pharma companies have to face many issues relating to lack of efficacy and pre-grant opposition from third parties. Therefore, patents help when challenged for validity. Indian companies can also produce patented drugs through licensing from foreign companies or earn revenues from generic drugs. High cost of research and development and lack of stronger product patent regime can stifle the growth of the pharmaceutical industry.

To encourage innovation, pharma companies need to increase their R&D expenditure as a percentage of sales. With a stronger patent regime, multinationals will foray in the market, thus increasing the competition among domestic drug manufacturers. In addition to this, Indian companies are investing in R&D and promoting their products globally and developing products as per the international standards. In developed countries, strong product patent regime help in boosting research and development and encourage development of new drugs for curing neglected diseases. Moreover, patent protection prevents competitors from imitating the products and launching improvised drugs in the domestic market.  

To sum up, patents are necessary to promote innovation and economic growth. They help in gaining competitive edge in the market, and increase revenues and market share. Adequate patent protection can provide pharma companies a platform for future growth and produce new drugs. Also, protecting new inventions help pharma companies recuperate skyrocketing costs incurred in R&D and maximize the commercial product lifecycle. Therefore, it is critical to devise an effective IP strategy in order to maximize the returns and realize the true of intellectual property.