The decision by an Indian court not to grant a new patent to drug firm Novartis for a modified form of its cancer drug Glivec (known as Gleevec in the U.S.) was a heavy blow to the company. It may be more than that, though, as other pharmaceutical companies had been eagerly awaiting the outcome of the case, because of the bearing it has on their own businesses in India and in other emerging-market countries.
For those companies, the news is not good. The ruling signals higher risk in emerging markets for pharmaceutical companies, according to Fitch Ratings. However, it is not necessarily bad news for international investors, who may want to turn their attention instead to the makers of generic drugs in India. Here’s why.
Novartis had been fighting in India for the right to patent the new version of Glivec since 2006. While Novartis holds patents in almost 40 other countries for Glivec, the original drug was not patented in India because it was developed before the country’s patent law was passed in 2005. In its decision, what the Indian court did was to strike a blow against “evergreening” or the practice by drug companies of developing a slightly different version of a successful drug and obtaining a patent on that new version.
Evergreening is common practice among pharmaceutical companies, who seek to sustain patents for as long as possible on the drugs they develop because of the high cost of development: it can run more than $1 billion on average, according to Fitch, for a company to develop a drug and bring it to market. This includes the costs of researching failures—drugs that do not survive trials and actually enter the market.
Holding a patent on a highly successful drug, which Glivec is, means substantially higher revenue for the drug company holding the patent. In markets in which Glivec is patented, for instance, it costs patients about $2,600 per month. The generic version costs about $175 in India—which of course makes it accessible to far more patients. HIV drugs have fallen similarly in price with the expiration of patents, from perhaps $10,000 annually to around $150, and some cancer treatments now cost only 3% of their original price, according to figures from Medicins Sans Frontières.
As a result, the Indian court’s decision has been greeted with relief by medical professionals who point to the high cost of patented drugs as an obstacle for the poor in countries all over the world. The Indian patent law contains a provision that specifically addresses evergreening, by only granting patents for drugs that are completely new and not simply variants on existing products.
Novartis isn’t the only company to feel the sting of the Indian patent law. In September, Bayer failed to prevent its drug Nexavar from going generic in India, with Natco Pharma emerging triumphant as the manufacturer of the generic version. (Natco’s stock soared on news of the Glivec decision as well, even as Novartis’s stock fell.)