USTR review could mean tough times ahead

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I had ended my last editorial with a warning that even as US FDA approval rates improved dramatically last year (for a number of reasons), the commercial potential of these drugs is lacklustre. The article in Nature Reviews, Drug Discovery pointed out that only two of the newly approved products are expected to achieve annual sales of $2 billion or more by 2024 or sooner.

But even when returns on R&D investments do exist, governments are stepping in. For instance, the WHO’s technical report on the pricing of cancer medicines calls out pharma companies for their pricing strategies. To examine returns on R&D investments, the report examined the sales incomes from cancer medicines approved by the US FDA from 1989 to 2017 for the originator companies. For the 99 medicines included in the analysis, the average income return by end-2017 was found to be $14.50 for every $1 of R&D spending, after adjustments for the probability of trial failure and opportunity costs. As prices of cancer medicines continue to rise, they impair the capacity of health care systems to provide affordable, population-wide access to cancer medicines. Thus governments are bound to step in with appropriate policy measures.

Thus pharma companies will increasingly not be able to count on recovering the cost of R&D investments through sales revenues. Pharma companies and especially those in India will need to carefully choose their R&D strategy if they want to be a part of the innovative pharma R&D club.
Glenmark Pharma is the latest to make a move on this front. The company recently received in principle approval from its board to spin off its R&D assets into a separate company based in the US. Sun Pharma spun off its R&D way back in 2007 into Vadodara-based Sun Pharma Advanced Research Company (SPARC) but Glenmark’s strategy, more than a decade later, is clearly a strategy to move closer to where the pharma R&D action is. With a pipeline of eight R&D pipeline assets, which include five clinical and three pre-clinical assets, Glenmark clearly feels that the US is the best place to scout for partnerships to take these molecules to the next phase. According to the company, Glenmark has already generated around $250 million through eight out-licensing deals for novel molecules to global pharma companies including Merck, Eli Lilly, Sanofi and Forest Laboratories.

Glenmark’s move comes as we near the April deadline for the annual Special 301 review conducted by the office of the United States Trade Representative (USTR). 12 countries, including India, are on the 2018 Priority Watch List.

As both India and the US head into major elections this year, issues like the Priority Watch List and the threat to withdraw the generalised system of preferences (GSP) scheme for Indian exporters have become political brownie points that parties hope will translate into crucial votes from corporate interests. India may remain on the 2019 Priority Watch List but withdrawal of the GSP scheme could hit the industry quite hard.

For the past few years, India’s case at the USTR’s submission process has been presented by Dilip Shah, Secretary General, Indian Pharmaceutical Alliance (IPA). IPA’s 2019 Special 301 submission repeats many of its arguments from previous years as most of the objections raised remain the same.
For instance, while the US pharma association Pharmaceutical Research and Manufacturers of America (PhRMA) deems section 3(d) of the Indian Patents Act as TRIPS-non-complaint, IPA had argued in its 2016 submission that it is in fact India’s alternative to the US Hatch Waxman provisions, which prevent ever-greening of patents.

There have been several improvements. Shah points out that as India’s patent office has added manpower and streamlined procedures, patent examination time has been brought down drastically. Patents pending examination have reduced from 204,177 as on March 31 2017 to 127, 881 as on December 31 2018. Indications are that patent examination backlog will be eliminated in about two years. India now examines trademark applications in about one month, one of the lowest timelines in the world and registrations are completed in a year or less. With the reduction in patent examination time, the time taken by pre grant opposition too will reduce

Another oft cited grouse has been the single compulsory license granted by India’s authorities but Shah counters that even developed countries in Europe such as Netherlands and Switzerland are exploring the possibility of compulsory licensing as a means to control prices of new drugs. To the complaint that India has ‘excessive reporting requirements’, Shah points out that Indian patent applicants face these requirements as well.
Pharma companies in India, especially exporters, will thus need to watch this space very carefully in the days to come.