Arguably, the opening of the Indian economy and India's Patents (Amendment) Act 2005 has had a most significant impact in the area of pharmaceuticals. With the new regime, the $8 billion Indian pharmaceutical industry has been forced to adapt and recast its business models. The introduction of product patents has provided a fresh impetus to domestic research programs whilst firms continue to leverage on existing product portfolios which are centred on generics. It is a time of foreign investment, simultaneously Indian companies are aggressively pursuing global opportunities. With an unprecedented number of mergers, acquisitions, alliances and increased litigation in recent years, making sense of developments is no easy task. In the first of our updates, we look at some recent developments that indicate that generics and innovators are increasingly co-existing even whilst older combative positions persist.
Arranged Marriage
Moving to generic drugs rather than the branded drugs that currently predominate and are favoured by patients in Japan is a key factor in the Japanese government's proposed measures to slash medical costs. Little surprise then that Daiichi Sankyo came courting for a majority stake in one of India's premier drug companies, Ranbaxy, in June this year. The transaction, the largest potential deal in the Indian pharmaceutical industry, is expected to be worth up to $4.7 billion and will leave Ranbaxy a subsidiary of Daiichi by mid 2009. The deal is expected to give Ranbaxy access to Daiichi's R&D while the Japanese company is expected to benefit from low manufacturing costs in the Indian sub-continent. Further, the Daiichi brand name is expected to develop a market for generics in Japan as well as give the group access to generic drug markets in 50 different countries through Ranbaxy. Whether it will be a marriage made in heaven remains to be seen. Like with any arranged alliance, the parties may well be discovering certain home truths. Recent reports suggest that the US government may initiate legal action against Ranbaxy for allegedly forging documents and selling sub-standard products. Both companies have however sought to quell speculation that the deal is under question. Ranbaxy has denied any wrong doing and for the moment Daiichi is the loyal partner aware of Ranbaxy's past. Whichever way the deal goes, the very size of the deal is likely to trigger more than a few attempts at cross-cultural coupling.
Spin-Offs
That the pharmaceutical industry has been experimenting with various options can be seen from the fact that at least a few companies in India have been going the other way. "De-merging" the generics business to form a separate division concentrating on new research would appear to be one way of addressing India's traditional Achilles Heel, new research. Nicholas Piramal de-merged its R&D unit into an independent company, NPIL, last year and it is reported to have 13 compounds in its pipeline with at least four in clinical trials. Glenmark Pharmaceuticals also announced it would spin off its generics business to a new company Glenmark Generics, which will handle generic formulations and APIs with Glenmark Pharmaceuticals continuing to directly manage novel R&D. Dr. Reddy's Laboratories and Sun Pharmaceuticals also announced spin-off companies along the same lines last year. Ranbaxy had attempted the same route, however given its recent venture, the fate of its spin-offs remains to be seen. Given the financial implications, the rest of Indian Pharma may well rethink their strategy if the Ranbaxy-Daiichi deal is finalised.
Oppositions
Such sweet harmony has not always prevailed. Whilst the Daiichi-Ranbaxy deal will challenge the present dominance of Indian-owned entities, at least a few companies appear to be fighting a battle to continue their generics business by challenging existing patents. The legislation, as it stands, provides for both pre-grant and post-grant oppositions. With "product
patents" allowable under the new regime, there has been a brisk business in pre and post-grant oppositions starting with the very first product patent to Roche (for its hepatitis C drug "Pegasys") being opposed by Wockhardt. In particular, patents covering anti-retroviral and anti-cancer drugs are being challenged by generic manufacturers. Roche's cancer drug "Tarceva" (Erlotinib), has been the subject of ongoing litigation with the Delhi High Court delivering a landmark judgement by refusing to keep Cipla's generic versions off the market in the public interest.
Additionally, health remains a sensitive political issue in India and patient groups and foreign NGOs have been active in pursuing oppositions. In spite of Gilead's voluntary licensing arrangements with a number of Indian generic manufacturers in relation to Gilead's AIDS Drug "Viread", a Brazilian health group has launched a pre-grant opposition against their patent. Roche's patent on "Valcyte" (valganciclovir), which survived pre-grant opposition, has been opposed by the Delhi Network of Positive People (DNP+) and a generic version is now expected to be marketed by Cipla. At least one decision resulted in rejection of the patent with Boehringer Ingelheim's patent application on the paediatric form of Nevirapine being successfully opposed pre-grant by AIDS patients groups in India. The decision suggests that the Indian Patent Office will adopt a rather strict patentability criteria for patents claiming HIV and cancer drugs.
In conclusion, with a GDP growth rate of 9.0% for the fiscal year 2007-2008, India remains the second fastest growing emerging economy in the world and pharmaceuticals remain one of the strong sectors of growth. The industry has unprecedented opportunities for both foreign and local companies and yet must operate in an environment where access to medicines at a reasonable price may well determine political fortunes. All this makes for a volatile climate with opportunities and risks for pharmaceutical businesses. In subsequent updates, we will endeavour to keep you informed of developments in the industry, both from a research and legal perspective.
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