Patent wars: has India taken on Big Pharma and won?

It all seemed to be going so well for the big pharmaceutical companies (Big Pharma).

National governments used to be able to choose whether to grant patents on pharmaceutical products or not. Some countries such as India didn't award any patents at all, literally giving generics drugs companies free licence to copy lifesaving drugs at affordable prices. Then the World Trade Organization's (WTO) agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) came into force, effectively handing Big Pharma exclusive patents in all markets as of 2005.

As the authors of the 2011 book Intellectual Property, Pharmaceuticals and Public Health wrote, "Not surprisingly, the wealthier countries were not only the principal protagonists of TRIPS but widely regarded as the main beneficiaries as well. In poorer countries … the patent system may amount to simply the granting of private rights of exclusion to foreign patent-holders."

India's trailblazing patents decision

Two recent court cases in India may have changed the rules of the game. On 1 April, pharma giant Novartis lost a six-year legal battle after the Indian supreme court ruled that small changes to its leukaemia drug Glivec did not deserve a new patent.

Campaigners had long highlighted this as a clear case of "evergreening" – making minor alterations to existing drugs in order to secure a new patent, and so extend its monopoly (Glivec costs patients $2,600 (£1,670) a month). And only one month before, India upheld a compulsory licence of Bayer's cancer drug Nexavar, effectively allowing generics firms to copy a patented drug, reportedly bringing the price down from more than $5,500 (£3,540) per month to $175 (£112). Both rulings are landmark cases, vehemently criticised by both Big Pharma and major drugs-producing countries.

Crucially, India broke no rules. Its verdicts are allowable under TRIPS – it's just that no country had previously dared try it.

"You could say," says Dr Ken Shadlen, reader at LSE and co-editor of Intellectual Property, Pharmaceuticals and Public Health, "that the health activist community for the past five or six years has been calling Novartis all the names under the sun for pursuing this case, but right now they are probably thanking them." Similarly, says Colin McCall, a leading pharmaceutical patent lawyer with Taylor Wessing LLP, "I think [India] felt a little bit miffed that having entered into the WTO and taking on this obligation to allow product patents, that these pharmaceuticals were no longer available at a publicly affordable price. So [India] is blazing a trail by granting compulsory licences where products aren't sold cheap enough and they are willing to say no to [evergreening] outright."

Breaking the pharmaceutical monopoly

This isn't only of significance for India, but is "a global trend", says Christian Mazzi, a partner with New York-based consultants Bain & Company, that boasts Big Pharma, biotech and generics drugs firms on its clients book. "Historically, governments have protected themselves … by preventing access to the market or by controlling price, but never by controlling patent protection – this is the next wave, if you will. And this goes to the very core of the pharmaceutical business model, founded on this virtual monopoly created by patent protection."

The heady days of the blockbuster drugs are, if not over, then in hiatus. Pharmaceutical companies have long complained of ever-rising R&D costs, while being unable to replace the big sellers as they reach the end of their 20-year patents, known as the "patent cliff" – some of the biggest, such as heart medicines Lipitor and Plavix made a combined $14.5bn – yes, billion – in the US market in 2011 alone, yet their patents expired in 2012.

The temptation to evergreen is understandable, and defended by Big Pharma to the hilt. According to a Novartis spokesperson: "In the pharmaceutical industry incremental innovation is the major means for improving medicines. Incremental innovation provides benefits beyond enhanced efficacy in terms of patient safety and compliance, manufacturing efficiency (affecting product cost), and product stability during storage and transport."

Meanwhile, the use of compulsory licences effectively withdraws a patent from a drug completely if it is deemed prohibitively expensive to a domestic market and a vital public health need. "It is fair to say that [Big Pharma] doesn't like compulsory licences at all," says Shalden. "It is also fair to say that they tend to exaggerate the use and effect of those things, because they would like to have complete control over how their property is used." Indeed, India's compulsory licence in March was the first it has ever issued. And according to one report, only 12 compulsory licences were granted globally between 1995 and 2011.

The R&D argument

The real issue is the R&D costs inherent in drugs creation. The Novartis spokesperson argues, "only one out of 10,000 experimental compounds in development will reach the marketplace – at a cost, according to one recent analysis, of $1bn (£642m) for each medicine approved. Thus each successful molecule that makes it as a drug needs to pay for the thousands of molecules that fail ... Without patents, investment in R&D will plummet and people suffering from diseases without effective options will be left without hope. Simply put, without patents there will be no new medicines for untreated diseases and no new generics."

All of which is true. However, "you don't base your investment in R&D on one country's market, you base it on the whole global market", says Dr Mohga Kamal-Yanni, senior health and HIV policy advisor at Oxfam. "In the EU or America or Japan … the law is not going to change. They are safe in these countries, that's where their profits come from, and that profit is protected."

Indeed, more than 80% of pharmaceutical, pharmachemical, and biotechnological patent applications recorded between 1995–2006 were in just six countries (US, Japan, Germany, France, UK and Switzerland), says Shalden: "If they didn't have protection in [those six countries], that's when they would have a point to make." But there is little chance of that happening soon, if ever, given it is those countries that house the Big Pharma firms, and those national governments that argue on their behalf on the global stage.

Some view the recent fights in the Indian courts as a sign of Big Pharma's growing desperation; stubborn attempts to cling to old business models rather than face the truth of spiralling R&D costs. The inability to find new blockbusters has nothing to do with the sales of a couple of drugs in the Indian market.

Changing the Big Pharma business model

"Our analysis says that by 2020 the pharma profit pool will shrink", says Mazzi. "The pharma companies that will succeed will be the ones who begin to break the mould and expand into different parts of the healthcare delivery system … no longer delivering a drug, but 'a patient outcome''.

The danger Big Pharma faces is unlikely to be developing countries wielding compulsory licences. It is more from their own inability to keep costs down and offer drugs to markets at affordable prices. As Kamal-Yanni argues, "there are other options on the table. IP and patents is just one option. But Pharma can't stand even the idea that there are other options, which include prize funds (trialled by the Gates Foundation), patent pools, governments paying according to what you produce.

This is an innovative industry and this is an issue that affects society. We have to think as a society of the ways we can fund R&D so that we can make the drugs that we need, rather than the drugs that just make a profit."

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