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1 January 2012PatentsMita Sheikh

Shock to the system: a compulsory licence for Nexavar

A compulsory licence is a contract imposed by the government on a patent holder for legally permitting an interested third party to make and sell its patented article. The Indian Controller of Patents, on March 9, 2012, granted the first compulsory licence for Bayer’s patented drug sorafenib, which is marketed under the brand name Nexavar.

Natco Pharma, a local company that made the application for a compulsory licence in July 2011, is allowed to make a generic version of sorafenib tosylate and sell it under its own brand name. Sorafenib is not a life-saving drug but, rather, a life-extending treatment for a section of cancer patients suff ering from advanced liver or kidney cancer.

The law

This is the first incidence of grant of a compulsory licence under the provisions of Section 84 of the Indian Patent Law 1970. Th is compulsory licence is not granted for the reasons of national emergency or urgency provided under Section 92 of the Indian Patents Act, but on other criteria. As per Section 84 of the act, aft er three years of the patent grant, a compulsory licence can be sought for any one of the reasons of: (i) insufficient market availability; (ii) unaffordable pricing; or (iii) non-working in India.

The seeker of the compulsory licence has first to make an attempt to obtain the licence from the patent holder on so-called reasonable terms and conditions. Six months after such an unsuccessful attempt, an application for the compulsory licence can be made to the controller.

The decision

In this case, the controller’s verdict was that Natco’s efforts were sufficient in seeking the voluntary licence from Bayer, and that not one, but all criteria were met for issuing the compulsory licence.

When determining the market demand for sorafenib, and conceding the lack of evidence and data, the controller assumed the number of liver cancer patients in India to be 20,000, and kidney cancer patients to be 8,900 as per the statistics of Globocan 2008, a World Health Organization project.

“Innovations help in making existing inventions more economical. It is this invention cycle which brings competition in research as well as in the market place.”

To evaluate the supply of the drug, rejecting Bayer’s plea of taking into account the supply by alleged infringer Cipla, relying on the Form 27 submitted by Bayer as a statement of working for 2009, 2010 and information furnished for 2011, the controller held the supply to be very insignificant and hence the “reasonable requirement of the public”, as per the Indian Patents Act, had not been met.

Deciding on the affordability issue, the controller pronounced that the cost of $5,500 for one month’s supply of Nexavar was unaffordable to patients in India and that alone was the reason Nexaver was not bought by the public.

Concerning the working of an invention in India, the controller strictly equated it with manufacturing in India. The controller asserted that despite having manufacturing facilities in India, Bayer did not manufacture the drug in India but only imported it, and hence failed to meet the working requirement.

The controller also rejected Bayer’s request to adjourn the compulsory licence application. Bayer contended that it could not work the invention to the fullest extent that is reasonably practicable since alleged infringer Cipla, which was selling the drug at one-tenth of the Nexavar price, undercut Bayer’s market share. The controller, however, held that Bayer had sufficient time to adopt a suitable strategy and work the invention.

Terms and conditions

The controller granted a non-exclusive compulsory licence to Natco under certain terms and conditions. Natco will have to sell the generic version of Nexavar for a price not exceeding $175 for a month’s supply. While the $5,500 of Bayer’s Nexavar is considered to be exorbitant, this order does not seem to analyse the costing provided by Natco, according to which the cost of the drug is about 50 percent and the balance is towards various margins.

Dealing with the royalty issue, although Bayer had asked for a 15 percent royalty, going by the recommendations of the United Nations Development Program (UNDP), the controller set it at 6 percent of sales, to be paid on a quarterly basis. Also, the order mandates Natco to provide the drug free of cost to at least 600 needy patients per year. This licence will be valid until expiry of the patent in 2021.

As per the last condition of the order, Bayer has the option of giving a licence to any partner of its choice and competing with Natco.

The implications: good or bad?

Whether the compulsory licence granted by the controller is maintainable at appellate board or higher courts when challenged, remains to be seen. It does have bearings in many different ways on patients, the medical system, industry, the economy, the nation and maybe on the legal system as well.

This decision seems to bring a respite for a particular group of patients in terms of affordability. However, is a compulsory licence an appropriate means to address the issue of healthcare affordability?

The patent system’s prime function is to provide the possibility of rewarding innovators for promotion of technological, as well as economical, advancements and the dissemination of the technology. Innovator pharmaceutical companies spend a great deal to keep their research pipeline bustling, and go over many hurdles of regulatory and other onerous processes in the hope that after umpteen failures, one product will be made available to patients in fighting disease.

After all that has been done, the generic company has to find a different way of making that molecule. It does not seem realistic to compare the cost of getting an innovative drug to market with that of its generic version. The controller grants a patent and exclusive right in return of the disclosure of the invention.

Such disclosure fuels and fosters further innovation, makes available newer technologies, brings cures to diseases, reduces suffering and makes human life better. Also, innovations help in making existing inventions more economical. It is this invention cycle which brings competition in research as well as in the market place.

India has sufficiently established itself as a knowledge-based economy, and such compulsory licences should not contravene India’s commitment towards becoming not only a global economy, but also a technologically advanced nation.

Market share of Nexavar is estimated to be about $50 to 60 million in India. Natco will now be able to reap the benefit of this market share, having acquired the compulsory licence.

Bayer’s bottom line may not be affected with the grant of this compulsory licence but it will definitely impact on Bayer’s, as well as other innovator companies’, future strategies of obtaining and enforcing patent rights alongside having a manufacturing and marketing strategy in place to retain the monopolistic rights and ward off such situations.

As growth continues in the emerging markets, including India, innovator companies will come up with innovative ways to expand and grow in these territories.

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