Oct-Dec 2012

Novartis in India: Innovation versus Affordability

Professor Anand Nandkumar of ISB, Professor Charles Dhanaraj of Kelley School of Business, along with Mridula Anand, trace Novartis’ prolonged tussle with the Indian patent regime to get its cancer drug, Glivec, patented in India. The case is set against the backdrop of the Intellectual Property Appellate Board declining Novartis’ patent application on the grounds that the cost of the drug made it unaffordable for Indian patients. Novartis launched a subsequent appeal to the Supreme Court, whose decision* was expected to have significant ramifications for the global pharmaceutical market. Meanwhile, Novartis had to determine its innovation strategy in India and in the broader emerging markets.

Undaunted  by recent  setbacks, Novartis  geared up to present its final arguments in the “Novartis  versus Union of India” case before  the  Indian  Supreme Court  on  July 10, 2012.  The  issue was over the interpretation of Section  3(d) of the 2005 Indian Patents Act,  which  demanded stringent  parameters to demonstrate  enhanced efficacy and novelty before any on-patent medicine could get another patent. This provision of the Indian  Patents Act intended to prevent the multiplication  of patents on  minor changes to existing  on-patent   medicines  (known   as “evergreening”).

Despite  possessing patents for its drug, Glivec, in several countries,  Novartis’  patent  application for Glivec was denied by the Indian Patent Office (IPO) in 2007. Subsequently, India’s  Intellectual Property Appellate Board (IPAB)  also declined Novartis’  appeal, conceding that  there  was novelty in the process but the pricing  of the drug made it unaffordable in the Indian context. In 2009, Novartis appealed to the Supreme Court of India, challenging the legality of Section 3(d) of the Indian Patents Act, which  was amended to comply with the Trade Related Intellectual Property Rights or TRIPs accord.

Within India and across the globe, opinions were deeply divided  on the issue of weak patent protection. While multinational    enterprises  were  concerned about   lost   investment   opportunities,    domestic manufacturers of generics and non-governmental organisations (NGOs) feared that frivolous patenting could  tarnish  India’s  image  as a haven for the development and distribution of affordable  and reliable generic drugs. Novartis’ challenge in India was symptomatic of similar issues in many developing markets: How could countries maintain the affordability  of on-patent drugs in developing economies while increasing the incentives to innovate?

Research and Revenue — A Symbiotic Relationship

The  Swiss pharmaceutical  firm, Novartis’  broad portfolio in health  products  and research resulted in approximately US$60 billion  in total  revenue in 2012. In order to focus on pharmaceuticals, in 2005- 6, Novartis  consolidated  its  various  businesses to bring together its rapidly  growing  business operations in India. It signed a memorandum  of understanding with the Indian government for expanding medical- related information  technology (IT), information technology enabled ser vices (ITES) and R&D activities in India,  and created a global centre for its back office operations in Hyderabad.

After  several years of development  and testing, Novartis developed the molecule imatinib  mesylate and made headway in the treatment of patients with cancer  of the  white  blood  cells (CML).   Novartis received an international   patent  for the molecule’s beta version in 1993. In 1998, this research translated into an oral drug, Glivec, which soon received US and EU  approvals.  Glivec’s  global  sales grew exponentially in the following  years. In 2004, Novartis sought to enter the lucrative Indian market with Glivec by filing for a patent with  the Indian Patent Office. However, as product patents were yet to be introduced, Novartis was granted Exclusive Marketing Rights (EMR) under the new Indian  Patents Act. By 2011,  Glivec’s sales in India were estimated to contribute  to a third of its global sales.

The Patent Regime in India

The Indian  patent regime was a legacy left over from colonial rule. Post-independence, Indian patent law became part  of a  broader  pro-innovation   regime. Presented with  the opportunity  to file international patents in India,  several multinational pharmaceutical companies entered India.

However, in 1972, in a bid to promote indigenous industrial capability, the Government of India revised the patent law to incorporate  many sweeping changes, such as reducing  patent  life and abolishing product patenting.  The  law resulted in a  spate  of exits  by many multinational firms from India. The countr y’s weak intellectual property rights (IPR) provided large Indian pharmaceutical firms with a legitimate means to manufacture  low-cost  generic versions of the original  drugs. India  became a haven for developing and distributing  low-cost  generic drugs in the emerging markets.

In 1994,  when India  became a member  of the World Trade  Organisation   (WTO), it  signed   an agreement on trade-related  aspects of IPR (TRIPS), under which  India  had to honour  product  patents after  a grace period  of 10 years. In order to comply with TRIPS, India  enacted the Patent Reform  Act in 2005 (applicable  retrospectively  from Januar y

1,  2004). Product   patents  were  reintroduced, and patent life was increased from  5-7 years to 20 years.  India did not extend  patent  protection  to inventions prior to 1995.  The Act also established a specialised judiciar y body to hear IPR-related  cases: the Intellectual Property Appellate Board (IPAB). In 1998, India introduced transitor y provisions  (EMR) for pharmaceutical and chemical products, so that firms  could exclusively market a drug for five years, pending the grant of the patent. The amended Indian Patent Law of 2005  used a “first-to-file” system to recognise the inventor.  Another  unique aspect of the Indian  patent system was “pre-grant oppositions,” which   allowed  any  person  or institution  to file an opposition  to the grant of a patent  if it did not adequately demonstrate  increased efficacy. Moreover, to be patentable,  the drug  had to be non-obvious, novel and capable of having an industrial application; the “mere  new use” of a known  compound  was non- patentable.

One Country, Two Markets

In 1998, Novartis filed an EMR application to launch Glivec in India,  which  was granted in 2003 for a period of five years. However, on discovering that several Indian  firms  had started manufacturing  and marketing generic versions of Glivec at one-tenth its price, Novartis approached the court  with  a request to restrain local manufacturers from producing these generic versions.

Given India’s  booming  middle  class on the one hand  and  a vast number   of extremely poor  people on the other,  Novartis  pursued a dual patient- focussed strategy. Realising that  the price  of Gilvec was prohibitive  for patients who were not insured or reimbursed and could not pay for treatment  privately, Novartis established the first  global direct-to-patient access programme, the Glivec International Patient Assistance Programme  (GIPAP),  in collaboration with The Max Foundation. The GIPAP ran on three models: full product  donation,  shared contribution and co-pay.

Attracted by Returns, Dampened by Law When Novartis filed its patent application for Glivec (beta cr ystalline form)  in India in 2005, it was hit by several pre-grant oppositions from Indian generic firms and NGOs. In 2006, the Madras Patent Office, with S  Chandrasekaran    as  the  Patent Controller General,  rejected  Novartis’  patent  application  for Glivec  on  the  grounds that  the  product  did not adequately demonstrate enhanced efficacy as an alpha cr ystalline form  of the derivative  was already patented and available worldwide.

Novartis  filed  an appeal with the Madras High Court,  contesting  the  IPO’s  decision  on  the  basis that the new patent increased bioavailability. Novartis argued that in the field of pharmacology,  any substance which  had a variance of 20-25 percent bioavailability was  not considered  bioequivalent  with the  other compound under comparison. Thus, the resultant higher  efficacy warranted  a new patent  in India. In 2007, the case was eventually transferred to the IPAB, which was primarily  instituted  as a judicial  forum  to allow appeals from  innovators  who disagreed with the IPO. To Novartis’ chagrin, it transpired that the former Controller  General of the IPO, Chandrasekaran, had stepped down from  his post at the IPO to become the newly appointed technical member of the IPAB. Novartis  filed  a case at the  High  Court  for a new technical member in the IPAB. To resolve the issue, the Government of India suggested  a revised  approach to the two-member board. When the High Court accepted the new approach, it encountered strong opposition from Indian pharmaceutical firms, who in turn  filed  a case in the Supreme  Court.

In June 2009,  the IPAB  ruled  that  Glivec was not patentable on  two grounds  — therapeutic ineffectiveness, and for the first time, prohibitively high cost. Disappointed by the court’s decision, Novartis  had 90 days to evaluate its options and make a decision  based on the merits  of the appellate  board’s decision.

Challenging the Law at the Supreme Court of India

In August 2009,  Novartis  approached the Supreme Court  of India seeking to challenge the interpretation and application of Section 3(d) of the Indian Patents Act  by the  Indian  courts  and patent  offices. The company wanted the Supreme Court to declare that Section 3(d)  was not consistent with  India’s TRIPS agreement.

In Februar y 2012,  several NGOs protested the case outside  Novartis’  Annual  General Assembly (AGM)  venue in Basel, Switzerland.  According   to them,   this   legal  challenge  aimed  at  weakening  a public  health clause of the Indian  Patents Act, which intended to limit the multiplication  of patents on insignificant changes to existing medicines. On behalf of a coalition   of these groups, representatives signed what was known  as the Berne  Declaration.

Subsequently, Novartis  announced that it had decided to withdraw its 2006 proposal to create an R&D centre in India.

As July 10, 2012 drew closer, Novartis and other global pharmaceutical  giants fixed  their  eyes on the Indian Supreme Court, which would deliver its ruling after hearing the final arguments on the matter. This would  be a significant moment not only for Novartis, but also  for the  global pharmaceutical  industr y  as the biggest issue confronting  policy makers was how to balance the twin  goals of encouraging innovation and providing   affordable  access to life-saving drugs throughout the developing world.

The case summary was written by Arohini Narain, Centre for Teaching, Learning and Case Development (CTLC) at ISB.

*The Supreme Court of India denied a patent for Glivec on April 1, 2013. This ruling is likely to have a significant impact on MNCs, such as Novartis, who will have to evaluate other strategies to protect their innovations in India. However, the effectiveness of these strategies, such as licensing for instance, is unclear as their success depends on the extent of seeding of generic competition in the developed markets on the one hand, and on gaining a foothold in the emerging markets on the other. Protecting their intellectual property in a “weak” patent regime would be challenging for multi-nationals (Sun Pharma versus Glenmark case for licensing of diabetic drugs by an MNC).
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