Breakingviews: Big pharma needs new compact with emerging markets

Customers buy medicine from a chemist (R) in Srinagar August 29, 2008.

MUMBAI (Reuters Breakingviews) - India has joined Thailand and Brazil in granting a licence to a local generic drug maker at the expense of a global player. The likes of Bayer (BAYGn.DE) may protest but a compromise -- with multinationals obliged to take a price hit in return for continued patent protection -- is probable.

Bayer may not lose too much sleep over losing 200 customers in India -- even if they were paying a whopping $5,600 per month for its cancer treatment, Nexavar. But the precedent that India's patent office has set in granting Natco (NATP.NS), the local generic maker, the right to breach Bayer's patent could give big pharma players a serious headache. If the ruling goes unaltered, Bayer will earn a 6 percent royalty on a drug sold for $176 a month.

It is the first time India has used its 2005 Patent Act to this effect. Other cases are pending, though, and this ruling could open other avenues for India's vibrant generic makers such Dr Reddy's (REDY.NS) and Cipla (CIPL.NS).

Multinationals -- not just Bayer -- might decide that the downsides in India, and other emerging markets, are too high to launch expensive new drugs. In India, after all, local generic makers cannot apply to force the patent open unless the drug is already marketed in the country. But will multinationals really want to cut themselves off from such markets? And in fact, India's Patent Act can only be used after the drug has been marketed locally for three years. That still gives big pharma some time to sell at higher price points.

It's probable that patent-holding pharma multinationals will continue to operate in India. But in-patent drug prices may, eventually, drop to stave off compulsory revocations of protection. Meanwhile gains made on higher volumes will compensate for lower pricing. Besides, as emerging market pharma companies start to develop valuable intellectual property themselves, they are likely to be more careful when trying to force open other firms' patents.

Big pharma needs to build a new compact with emerging markets. With imaginative, strategic, thinking both sides could benefit. The quality and quantity of end-user health services should also improve.

CONTEXT NEWS

-- Germany's Bayer has lost a landmark ruling in India, forcing it to grant a licence for Nexavar, its cancer treatment, to Natco Pharma, a local generic drug producer, Reuters reported on March 12.

-- The Indian Patent Office issued its first ever compulsory licence to Natco in a move that could end the German drug maker's Indian monopoly over the kidney and liver cancer treatment. In exchange for the licence, Natco must pay Bayer a 6 percent royalty on its net sales and must sell the drug for $176 a month. Bayer currently charges around $5,600 a month of the drug. Natco's drug will be for use only in India, the decision said. Bayer has said it is considering an appeal.

-- Fewer than 200 Indians used the drug in 2011, according to the New York Times.

(Editing by Robert Cole and David Evans)

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)