THE BLOG
03/07/2007 04:48 pm ET | Updated May 25, 2011

Pharma Industry, Be Happy--Somebody Cares

An Indian court case is once again pitting western pharmaceutical companies against the lives and health of poor people in the developing world. "Quarter of a million people urge Novartis to drop case against India," reads a January 29, 2007 press release from Doctors Without Borders.

Inflammatory headlines and angry NGOs anxious to bash big pharma proclaim that greed and inhumane practices are the pattern for the multi-national drug monopolies. They remind us how Novartis sued Nelson Mandela in 1997 for signing a law that allowed South Africa to import cheaper HIV-fighting medications. These destructive battles are the predictable and unnecessary results of shortsighted pharmaceutical industry strategies in the developing world.

Big pharma's choice to argue for an overbroad interpretation of their patents make it easy to portray them as profiteers who restrict delivery of crucial medicines to the developing world. It doesn't have to be that way. Intellectual property rights and access to affordable medicines in less developed countries are not mutually exclusive.

Some background:

Novartis has a leukemia product called Gleevec. In 2006, the drug had sales of about $2.6 billion. Novartis sells the drug in India for $26,000 per year per patient. Several Indian companies can provide Gleevec for one tenth that price.

India has long had a reputation for producing cheap drugs largely because its prior patent structure did not directly cover pharmaceuticals. Two years ago, in connection with joining the World Trade Organization, India introduced patent protection for drugs. The law protects completely new compounds that were invented after 1995 and provides patent extensions for existing drugs based on additional invention so long as the innovation is genuinely new and improves drug effectiveness.

Novartis filed for a patent that extends exclusive rights to sell a modified version of Gleevec in India beyond the original patent. India denied patent extension on the basis that the modified drug was neither new nor more effective.

Novartis appealed the denial to the Chennai High Court arguing, "improving Indian patent law helps patients and societies" because it emboldens and enables Indian-based pharmaceutical companies to innovate new medicines themselves - and protects the incentive for such innovation by rewarding exclusivity to provide return on investment.

Nobody disputes that R&D for new drugs is a long, risky and expensive enterprise that requires the market exclusivity that patents provide to assure an adequate return on investment. But in a process known as "evergreening" big pharma obtains extensions on patent life with medically irrelevant patent "tweaks" contrived to endlessly extend the company's monopoly.

Contrary to Novartis' paternalistic claim of benefit, the Indian Pharmaceutical Industry Association strongly supports the Indian patent office requirement for demonstrated effectiveness as a condition for granting patent extension. The Indian civil system is giving robust support to the enforcement of the country's clear-cut and sensible IP rights. And the system is working. Despite Novartis' claims that India's narrower patent protection provides inadequate incentives for design and research, Indian pharmaceutical companies are heavily invested in research on new drug discovery and development.

The bad news for big pharma is that Indian companies are providing Gleevec for one-tenth the $26,000 per year that Novartis charges in India. Novartis wants to shut down Indian production arguing that poor populations can still receive drugs including Gleevec because the drug industry often donates such drugs to most patients free. But philanthropy is neither a sustainable business model nor a workable answer to global access to life-saving medicines.

Now the good news. About 80% of the world's population including India's 1.3 billion people live in non-western territories. The math is simple: one-tenth the price sold to eight times the population--provides the basis for a healthy return on investment. Local pharmaceutical companies in emerging economies, such as India, Brazil, China, South Africa, etc., have already figured out that there's big business in serving large populations with an affordable product. Big pharma needs to jump on the gravy train.

Big pharma needs to abandon the destructive confrontation and long legal battles pushing an overbroad interpretation of its patent rights and move to a model that combines profit with compassion. Most importantly, they should recognize and harness the value of large populations caring.

Novartis and its peers in the pharma industry should partner with industry in developing cost-scaled markets within the world's emerging economies. If the big companies can't yet stomach a business model of large volumes of patients from the non-traditional western pharma population, they should find local licensees who understand the business model and want to serve that population. So long as the local licensees are making money (and why else would they be in this business?), the licensors will profit from royalties, margin on manufacturing, additional cost savings from benefits of scale, etc.

The result will be that millions of people will once again appreciate the pharmaceutical industry for saving lives rather than only knowing the industry through headlines that portray it as greedy, heartless, and imperiling the lives of the planet's poorest victims.