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A life saver

Compulsory licence can go a long way to ensure access to cheaper drugs

Written by Shamnad Basheer |
March 15, 2012 12:05:59 am

Compulsory licence can go a long way to ensure access to cheaper drugs

In a momentous development,the Indian patent office issued the ever-compulsory licence in a highly contentious pharmaceutical patent case. The decision is a thumping victory for several patients and health activists who have been fighting what can only be labelled as highly inequitable pricing strategies by multinational drug firms for the past several decades.

In August 2011,Natco,an Indian generic manufacturer,had applied for a compulsory licence in respect of Bayer’s patent covering an anticancer drug,sorafenib tosylate,meant for patients with advanced kidney and liver cancer.

A compulsory licence is a legal instrument designed to force intellectual property owners to license out their statutorily granted right to interested third parties capable of manufacturing the patented product at cheaper prices.

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It typically issues in cases where the intellectual property owner stands accused of abusing a statutorily granted monopoly by engaging in prohibitive pricing (where a patented drug is priced out of the reach of the average consumer) or by failing to supply adequate quantities of the IP good to the public.

Constituting what many regard as a textbook case for compulsory licensing,Controller General of Patents P.H. Kurian found that all the grounds prescribed in Section 84 of the Indian Patents Act for the issuance of a compulsory licence had been met:

One,Bayer supplied the drug to hardly 2 per cent of approximately 88,000 patients who required the drug. Therefore,the reasonable requirements of the public with respect to the patented drug (Nexavar) were clearly not met.

Two,Bayer’s pricing of the drug was excessive and did not constitute a “reasonably affordable” price. It charged Rs 2.8 lakh for a month’s supply of the drug,whereas Natco was willing to supply the same quantity at Rs 8,800 a month.

Three,since Bayer did not manufacture reasonable quantities of the drug in India,it could not be said to have complied with the “working” requirement under the Indian Patents Act.

This part of the decision is likely to prove controversial,since almost 90 per cent of MNC drugs are not manufactured in India,and therefore susceptible to compulsory licences. A similar provision in Brazilian patent law had been challenged as violative of TRIPS (trade-related aspects of intellectual property rights) in the past by the US,but the WTO complaint was later withdrawn.

The Patent Controller’s order is extremely well reasoned and will go a long way towards ensuring more affordable access to new drugs in future. It will significantly alter the landscape of the global pharmaceutical industry by forcing multinational pharmaceutical companies to adopt differential pricing strategies,so that drugs are available at much cheaper prices in poorer developing countries. As it stands now,many of the leading cancer drugs are priced almost the same in India as they are in the US and EU.

India has one of the widest compulsory licensing provisions in the world,and it is comforting to see that what was on paper is finally translating into reality. One expects that this bold move by Natco will spur other generic manufacturers to resort to compulsory licences,particularly in instances where originator drugs are prohibitively priced.

The order marks a watershed in the history of Indian patent law and in many ways represents a “middle path” in the debates surrounding pharmaceutical patents and access to affordable drugs. Patents may now be more palatable to critics,if their worst monopoly effects can be successfully moderated through instruments such as compulsory licensing.

To this extent,compulsory licences serve as important tools to balance out the competing interests of various IP and public-health stakeholders. It rewards innovators while at the same time ensuring that the innovator does not abuse her monopoly power in the market by pricing the drug out of the reach of the average consumer.

It ensures that Indian generics are able to copy the latest drugs,hone their technological skills and make a reasonable profit. It allows Indian consumers to access much more affordable versions of drugs and improve health outcomes.

Importantly,it assures that innovators get a share of the profits made by the generics in the form of royalty payments. This advantage cannot be understated,particularly in a market like India,where the consumer market is highly differentiated in terms of purchasing power. Drug originators typically cater to very high-income consumers,while generics are able to tap into middle and low-income consumer segments as well. Consequently,the possibility of a new generic entrant coming into a market segment hitherto untapped by the originator rather than simply displacing the patentee’s existing customer base is high. To this extent,a compulsory licence may permit an innovator to profit from newer untapped markets.

Although this order marks an important victory for patients and activists who are fighting on their behalf,it is only the beginning. Much more needs to be done,particularly by the Indian government.

For one,the government cannot simply sit back and let innovators and generics slug it out,hoping that lower generic prices would necessarily redress our public health concerns. Illustratively,one simply needs to turn to the fact that Natco’s version of Bayer’s patented drug will sell at Rs 8,800 per month. Given that a sizeable proportion of Indians live below poverty line,how many of our patients can afford even this lower generic price?

The government must step in and take proactive measures to ensure accessible healthcare for all. It should facilitate robust insurance schemes,where health coverage extends to the poorest of the poor. Only then will our right to good health translate from paper to practice for the aam admi.

The author is the Ministry of HRD Professor of IP Law at WB NUJS,Kolkata

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