First Compulsory License Likely to Impact the Pharmaceutical Industry in India

Strategy

First compulsory license Likely to impact the pharmaceutical industry in India

On 9th March, 2012, the Controller General of Patents What is CL Design and Trademarks of India, Mr. P.H. Kurian, marked CL is an involuntary contract between a his last day in office with a landmark judgment granting willing licensee and an unwilling paten- the first ever compulsory license to an Indian generic tee imposed and enforced by law. Up pharmaceutical company Natco Pharma to manufacture on grant of the CL, the licensee can manufacture the patented product for and sell a generic version of Bayer Corporation’s the remaining term of the patent, unless patent protected anti-cancer drug ‘Sorafenib Tosyalte’ the CL is revoked earlier. The CL may (NEXAVAR). This watershed development is likely to be granted by the government suo moto alter the complexion of the pharmaceutical industry in in situations of national emergency, India. This judgment brings to the fore many contentious extreme urgency or may be granted on an application of any person interested. issues such as whether “local manufacturing” of a The Controller determines the royalty patented invention is mandatory in India, what drug payable by the grantee of the CL to price is ‘reasonable’ under the current patent regime. the patentee. The Controller may grant a CL at Aditi Jha, Associate any time after three years of the grant Milind Antani, Head, Pharma and Life Sciences Practice of a patent on any one or all of the Gowree Gokhale, Head, Technology, Media and Entertainment law practice following grounds on application of Nishith Desai and Associates (NDA), India the person interested:- 1) The reasonable requirements he grant of compulsory license been granted in India, several issues arise of the public with respect to the (CL) to Natco Pharma in rela- in relation to the interpretation adopted patented inventions have not been tion to Bayer Corporation by the Controller of Patents (Controller). satisfied, or (“Bayer”)’sT patented anti-cancer drug Grant of CL is contemplated under the 2) The patented invention is not Sorafenib Tosyalte’ sold under trademark international conventions as well, viz. available to the public at reasonably NEXAVAR (‘‘Drug’) is expected to have a Paris Convention of 1883 and agree- affordable prices, or major impact on the strategies devised by ment for the Trade Related aspects of 3) The invention is not exploited both generic and innovative companies. Intellectual Property Rights (TRIPS) commercially to the fullest extent within Since this is the first time that the CL has (Article 31). the territory of India.

20 Pharma Focus AsiA ISSUE - 16 2012 Strategy

In the Order, Natco raised all the The Controller did not deal with for nearly 75 per cent of total R&D above grounds against Bayer and the the issue whether expensive price of the cost and underwrites additional costs Controller upheld Natco’s contention Drug has any connection with it being for future innovations. on all the three grounds. reasonably unavailable to the public. (iii) Replacing innovative drugs with Bayer did not challenge the reliance generics will damage patients as origina- Ground 1: Reasonable requirements by Natco on the GLOBOCAN 2008 tors also provide for the education of of public not satisfied data. Bayer urged that the Drug is only doctors and pharmacovigilance which Natco urged that required by patients having Stage IV generics do not. (i) As per GLOBOCAN 20081 there (as opposed to Stages I to III). Hence (iv) The term ‘reasonable’ should were approximately 23,000 patients of the number of patients requiring the be construed as to mean reasonable for kidney and liver cancer (for which Drug Drug was 8,842. Even if the Controller both the patients and the patentee. Bayer is used) requiring treatment in India, had proceeded on the number provided argued that “public” denotes different (ii) Form 272 filed by Bayer, denotes by Bayer, the admitted supply was not sections of public. A blanket CL which that 200 bottles were imported during sufficient to meet the demand. By gives the patented product at the same 2008-2010 its own showing, more than 8,000 price to all sections of the public is not (iii) The Drug was exorbitantly patients needed the Drug, whereas it reasonable. priced, out of stock and had limited had imported 200 bottles in 2009 and The Controller in his decision agreed availability in India 593 bottles in 2011. Cipla’s sales started with Bayer that “public” includes different (iv) Bayer launched the product only in 2010. Bayer had no explanation sections of the public, but also observed, worldwide in 2006 and made sales of as to why it did not manufacture/import that Bayer was free to have offered differ- approximately US$ 2,454 million inter- the Drug between 2008 and 2010. In ential pricing to different classes, but nationally any event, the Controller was right in chose not to. The Controller partially (v) The insignificant number of holding that Bayer cannot take advantage disagreed with Bayer that in determining bottles imported in India showed Bayer’s of sales by Cipla. reasonableness, both the Patentee and neglectful conduct. the public need to be factored in, but Bayer responded by demonstrating Ground 2: The patented invention observed that “RAP has to be construed that actual number of patients requir- is not available to public at predominantly with reference to public”, ing treatment is 8,842 and that exor- “reasonable affordable price’’ (RAP) but has not delved into this aspect. bitant price has no link with reason- Natco argued that the price of the In the Act, RAP has not been defined able requirement of the public. Bayer patented product is too high and that nor are there any guidelines as to how it argued that the availability of the Drug at INR 2,80,428 per month supply , ought to be determined. In his analysis, has been considerably increased due to the exorbitant pricing is an abuse of its the Controller has not discussed: the infringing sales by another Indian monopolistic rights. 1) what would have been a reason- generic company Cipla Ltd (“Cipla”) Bayer’s arguments were as follows: ably affordable price, who was projected to sell about 4,686 (i) Innovative drugs cost more than 2) how to arrive at the conclusion of boxes of the Drug in 2012. generics since the innovator’s costs whether a price is reasonable or not, or The Controller in deciding against include R & D expenses which gener- 3) what costs of the Patentee ought Bayer held that: ics do not incur. to be considered while arriving at what • The number of patients needing the (ii) The higher price includes the is a RAP. Drug will be much higher than 8,842. costs of failed projects which accounts Often pharmaceutical companies • As per Bayer’s own numbers they decide not to introduce patented prod- have been able to supply the Drug to not ucts in India as they believe that the price more than 200 patients which is just 2 Under the Essential which they seek will not be afforded by per cent of the 8,842 patients. Commodities Act, 1955, the market. Innovator companies have • Sales of Cipla cannot be added to the government of India no intention of making the patented the Patentee’s sales figures as Cipla can be has promulgated The product available in India. Therefore, the injuncted anytime and thus “an uncertain Drug Price Control Order expenditure incurred by the patentee, supply by an alleged infringer cannot be (“DPCO”) which fixes the may not as a rule be taken into account considered.” ceiling price of certain active while determining RAP. The interest of pharmaceutical ingredients the patentee may be taken into account 1 A publication by GLOBOCAN, a project of the World and formulations. only if the Controller determines that Health Organization. patentee indeed intends to make the 2. A statement of working of patents required to be manda- torily filed by all patentees with the Indian Patent Office. drug available in India.

www.pharmafocusasia.com 21 Strategy

Interestingly, under the CL Chapter technology and dissemination of informa- After perusing the above deliberations, of the Act, prior to 2002 amendment, tion. It is not clear, how the two provisions one wonders, does the Act require “local the expression used was “reasonable price” will be read together. In fact, the exist- working” or not! The answer at this stage and in the current CL Chapter the expres- ence of both these provisions highlights is not clear. We need to await the decision sion used is “reasonably affordable price”. the difficult negotiations that marked the in appeal. The matter may be litigated Thus, the element of “affordability” has signing of the TRIPs agreement with the up to the Supreme Court, which may been specifically brought in. The English developing bloc getting Art.7 and the eventually provide guidance. Oxford Dictionary defines “affordable” as developed countries getting Art.27. Brazil’s On a practical note, most compa- “inexpensive; reasonably priced”. Hence, IP law had a similar provision requiring nies, including Indian companies have one would wonder whether the intention local manufacture of a patented product. outsourced their manufacturing to ensure of the legislature indeed was to take only USA had filed a complaint in the WTO economies of scale. The Controller’s order public interest into account. Dispute Settlement Body. This case was means that every patent holder will now later settled. Similarly, Art 5(1) of Paris have to sufficiently manufacture in India, Ground 3: Patented invention not Convention lays down that importation of else it will be facing the prospect of having worked in the territory of India patented articles shall not entail forfeiture a CL issued against it. If we look at the This is the most contentious section of of the patent. economics of international trade, by the order. Natco urged that since the From a reading of the Paris requiring local manufactures against Drug is being imported, it is not being Convention, TRIPS and the Act, there availing the advantages of economies of ‘commercially worked’ in India. still appears to be an ambiguity as to how scale will no doubt adversely impact the Bayer argued that the ‘working require- to interpret the “working” requirement. Indian consumer. ment’ does not mean that the patented The Controller relied on Section 83 of The Controller granted a non-exclu- product has to be locally manufactured. the Act which states that “regard must be sive, non-assignable CL to Natco to make According to Bayer, “working” of a patent had that patents are not granted merely the Drug available at INR 8,880 for a meant that there should be a supply of to enable patentees to enjoy a monopoly packet of 120 tablets. Natco has to pay the patented product in the territory of for the importation of the patented arti- a 6 per cent royalty to Bayer. Since the India. Bayer argued that it had central- cle.” Sec 83 is merely of a guiding nature royalty earned by patentee would be a Per ised its manufacturing in Germany due and is not a substantive provision. The cenage of net sales, in absolute terms, the to economies of scale and to maintain controller relied on Section 90 (2) of the amount of royalty received by Bayer may high quality. Act which states that a grantee of a CL not be commensurate with the expendi- The Controller came to the conclusion cannot import the patented product into ture incurred by it. that mere importation cannot amount to India. The Controller stated that “if the ‘working’ of a patented product for the licensee cannot import the product into Conclusion purposes of the Act. India, for working the invention… Then This order marks a watershed in the devel- The CL Chapter of the Act does not it implies that importing cannot amount opment of jurisprudence of CL. There define “working of the patent”. But inter- to working for a license”. Section 90(2) has not been significant interpretation estingly, Form 27 that all patentees are is a fetter on the grantee of a compulsory of Articles 7, 30, 31 of the TRIPs agree- required to file to inform the patent office license. It ensures that the ambit of the ment, nor how it interplays with Article about the ‘extent to which the patented compulsory license remains the territory of 27(1) of TRIPs and Article 5 of the Paris invention is worked on commercial scale India, and does not adversely affect other Convention. in India’ requires the patentee to provide markets of the patentee. The Controller’s For the pharmaceutical industry, information about manufacturing in India view seems to be an incorrect interpreta- patents occupy a significant place. Drugs, and importation into India. Section 48 tion of the law. due to high R&D costs, a significantly which relates to the rights of the paten- Prior to the 2002 amendment of the high level of failed research and ease of tee, specifically recognises the exclusive Act, there existed only two grounds for successful copying, depend highly on right of the patentee to import patented the grant of CL (i) RRP not being satis- patent protection. Hence, measures product into India. fied; (ii) the patented invention not being that reduce this protection, such as CL, Even at the WTO level this issue available at a reasonable price. The “non- are viewed as harmful for the innovator has not been settled. Article 27(1) of working” aspect has been brought in only companies. TRIPS requires nations not to discrimi- by 2002 amendment. While bringing in A more pragmatic approach to CL nate between locally manufactured and this amendment, the legislature seems to is the approach taken by Brazil. Instead imported products. On the other hand, have to have interlinked RRP and “work- of private generic companies obtain- Art 7 of TRIPs states that intellectual ing” provisions, which has created confu- ing CLs, the government studies which property rights should lead to transfer of sion in its interpretation. diseases need intervention from the State

22 Pharma Focus AsiA ISSUE - 16 2012 Strategy

and uses the CL as a bargaining tool to The second takeaway relates to get the innovator companies to come to the working requirement. If Bayer the negotiating table. Brazil has been had been able to show a readiness and successful in getting various innovator willingness to manufacture the Drug, companies to reduce drug prices by up they may have been able to get some to 40 per cent. The advantage of this concessions. Pharmaceutical companies approach is that a calculated decision should be able to demonstrate intention is arrived at as to which diseases and and willingness to make the patented medicines are really required to be made product available in India. Of course, available to the public while at the same if the patentee does not view India as a time, the innovator retains its exclusivity market for its product on the assump- and the public gets access to medicine tion that the market will not be able at a reasonable price. to ‘afford’ its drug and then grant of a A significant issue to be considered CL may not have any economic impact is whether price control of drugs can on the patentee. only be achieved through CL. Under the What remains to be seen is whether Essential Commodities Act, 1955, the oncologists and other treating doctors government of India has promulgated The will consider only the reduced prices Drug Price Control Order (“DPCO”) of generic versions of the Drug while which fixes the ceiling price of certain prescribing it to advanced stage liver / active pharmaceutical ingredients and renal cancer patients. While Natco will formulations. The DPCO provides the sell the Drug at INR 8,800, it still has government an effective mechanism to the task of convincing doctors about the regulate drug prices thereby increasing quality and efficacy of its product. access to medicines without interfering The IPAB or the Supreme Court will with patent rights of innovators. need to determine what RAP and RRP This case offers takeaways for innova- means. This battle is far from over. The tor companies, especially pharmaceuti- interpretation of "working" of a patent cal companies. First is the importance of to mean ‘local manufacture’ within India Form 27. Due care and diligence needs is highly contentious. It is likely that to be undertaken while filing the Form this issue will be agitated right up to and not treat it as a mere mechanical the Supreme Court in India as well as exercise. at the WTO.

Aditi Jha has presented her research findings on legal issues in life-form patenting, assisted reproductive technologies to national symposia and her research forms part of a book on IP law in India. She won national legal writing contest on the subject of freedom of speech & expression on the internet and she has regularly written on legal and non-legal issues.

Milind Antani’s practice areas include Pharmaceutical, Life Sciences, Healthcare, Intellectual Property and Medical Devices. Antani is also the member of FICCI, National Pharmaceutical Committee, FICCI- Gujarat Healthcare committee and the Committee of Telemedicine 22069 Van Buren Street Society of India. Grand Terrace, CA 92313-5651 USA 4EL s &AX Author BI O Author www.wildenpump.com Gowree Gokhale’s specialisation includes Litigation and Dispute Resolution, Franchising, Pharma and Life Sciences laws, Commercial laws, HR laws and Intellectual Property. Gokhale is a Solicitor and a Contact your registered Patent & Trade Mark attorney. She is also a visiting faculty Wilden authorized at Institute of Intellectual Property Law Studies at Mumbai. distributor today.