Novartis Patent Folly

Extending patents for incremental improvements is bad idea

Novartis wants India's patent law changed. The Swiss drug company's patent application for Gleevec was rejected by patent office in January 2006 and the company, although it owns Sandoz, a large global generic drug maker, went to court asking the court to change the patent law to, apparently, meet WTO standards. India is a member of WTO and agreed to enact patent protection and intellectual property protection under WTO and legally phased in WTO patent requirements by 2005. The Chennai High Court ruled that it can't make a ruling on a patent regime that was agreed upon at WTO. Individual companies can't approach WTO, only countries can. Apparently Novartis doesn't want to go after India using Swiss (or EU) government. Hence the public posturing of Novartis for changing, and apparently strengthening, patent law. Some people agree that patent law needs strengthening - because a western company said so and because, they probably think, FDI from drug companies can be effected. They understand that middle-class and poor cancer patients may be dis-served by what Novartis wants, but they think society and health care benefits in the long run. Whereas, others, usually the NGO types, think the patent law is already too strong and the court ruling was good thing and Novartis should back off mainly because patent monopoly medicine is very expensive compared to generic medicine produced by companies with razor thin profit margins. So what is it that Novartis want changed?

Bibek Debroy, in his column in Indian Express, outlined what the issue is and laid out the facts but, interestingly, avoids taking position on Novartis's Gleevec case.

Most anti-cancer drugs inhibit division of cells. Imatinib mesilate inhibits tyrosine kinase enzymes (catalysts). As an anti-cancer drug, it belongs to a slightly different category and can be used to treat leukaemia, tumours and other malignancies. Novartis chemists, particularly Brian Druker, identified imatinib in the late nineties and, having obtained US FDA approval in 2001, Novartis markets imatinib as Gleevec in the US and Glivec in Europe and Australia. In 1998, Novartis filed a patent application for Gleevec/Glivec in India. [Answer to cancer? - IE]

This issue boils down to patenting incremental change. Indian Patent regime offers patent protection for 20 years, on par with most countries that have strong patent regimes. But legacy pharmaceutical companies, those that makes medicines by trail and error using mainly chemical compositions, are having a tough time producing new drugs in their R&D labs. Most recent new drugs are bio-engineered based on genetics and the bio-pharmaceutical companies, although it's extremely hard and expensive to do, pretty much know what they are targeting and what they are producing. The old chemical based legacy drug companies patents are running out and most have few new drugs in their pipelines that can continue generating revenues to support their company's growth.

Loose patent regimes enable them to grow revenues based on exploiting old existing, but still patented, drugs. They play the game of incremental improvements to keep the drug, for which patent is supposed to be expired in an year or so, under continued patent, sometimes for another 20 years.

While there may surely be a real need for improving existing drug, the drug companies spend hundreds of millions of dollars on lawyers to keep generic drug makers away and pressure on patent regimes using courts, because a new monopoly on the old drug is sometimes worth several billion dollars over an extended period of time.

Unfortunately for Novartis, Indian patent regime didn't fall for it's Gleevac game. The drug was grandfathered in under the old patent regime. The apparent improvement on the existing drug, if a patent is given to it, would keep it a monopoly drug for another 20 years. Hence the public relations campaign by Novartis.

There may be a real value to the improvement to existing drugs. But if the patent is given at to Novartis, the 20-year patent should be for just the improvement portion of the drug, not for the entire drug. Let Novartis charge a premium over the generic and let the market place decide if the market wants to pay the premium for the newly improved portion of the drug. Surely the price of the new drug will not be the old monopoly price but higher than the generic price and would be set based on demand economics. But then Novartis will not be able to keep up the revenue stream of the old drug.

Novartis actually gives away this drug in India (via NGOs) and has little to lose in terms of current revenue from India. The reason for it's patent filing and court case is to set a precedence. The growing richer middle class can afford to pay more for a monopoly drug in decade or two, however the monopoly is obtained. The new 2005 patent law, which already complies with the patent framework laid out in WTO, may well need changes, but it doesn't need to be changed to appease Novartis type cases.

Two issues come to mind: what about the necessary improvements to patented drugs? Why would any company pursue improvements if they can't make money off of it? That's one reason I think incremental improvements should be granted patent only for the improved portion allowing a monopoly for just that aspect of the medicine. There could be some improvement that can't be patent independently - i.e., patent the whole medicine or none of it. In that case, it's tough luck. If there are improvements to be made that can be priced at premium, even generic makers would do it for differentiation and pricing power. Obviously neither the original inventor nor the generic maker will spend money improving the drug if they cannot get a patent for the improvement.

The second issue that crops up from time to time is: what if a patented medicine has shown to cure another disease. A patented breast cancer drug can also treat lung cancer, for example, and, lucky for the company, the new finding comes when breast cancer drug patent is supposed to expire. A medicine that has net worth of $10billion, for example, over the life time of its patent is now worth a total of, say, $30billion if the patent is extended for another 20 years, with only incremental lung cancer effectiveness testing trails cost. What should have been a public good after patent expiration continues to be a private good with monopoly pricing to go with. I think in this case the patent should not extended because there is no way the drug can be differentially patented just to treat the lung cancer while having the same medicine, as generics, in the market for treating breast cancer.

In order to address both issues: incremental and alternative use, public R&D in universities and public research lab should step in. Beyond doing basic research, public R&D should start working on improvements and alternative use of patented medicine as the information is publicly available. Because the patented drug becomes a public good after the patent expires, any incremental improvements and alternative uses can be captured by generics and can be available to public at reasonable cost. The original inventor makes a profit from the invention and after patent expiration public utility, attained from giving monopoly protection, is also served. There may be a case when the improvements and alternative uses are detected when the patent is in still force. In this case, the original inventing company should be allowed to use the improved formulation or market the drug for alternative use exclusively as per patent rules. This way the original inventor can gain by collaborating with public R&D and the public further rewards the inventor for the invention.

By taking away the incentive for incremental improvements and alternative use from drug companies, they will focus their R&D on original drug formulation instead of tweaking the old drug and spending hundreds of million of dollars on lawyers to tie up the generic companies and patent offices in courts, undermining the whole patent system, and creating lot of dead weight in the economy.

Unfortunately, the world, at least rich one, as Micheal Crichton lays out in his novel Next, is moving the other way, which will surely be followed by the not-so-rich world, by example or coercion. Increasingly most drug inventions are staying private under monopoly protection. That's one reason why health care cost is ballooning in US; most other rich countries have socialized health care with price controls on drugs to their own detriment in the long run. The price controls of these socialized systems may also be playing a role in allowing the legacy drug companies, usually located in these countries, to play the patent game. The allure of riches by undercutting the good system for their own private benefit is too enticing.