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The Intellectual Property Rights in the new world order are governed by an agreement called Trade
Related Aspects of Intellectual Property or TRIPS which is a part of WTO agreement. The WTO
agreement allows all the s overeignties to have their own laws and procedures but they should align
with the TRIPs agreement for IPR Issues. This agreement has lot of flexibilities and is not a rigid
agreement. India, which ascends to WTO on 1st January, 1995, has used these flexibilities well. The
case in point is monumental judgment on Compulsory Licensing in the pharmaceutical products by the
Controller of Patents, Mumbai. This case, titled Natco Pharma Ltd. v. Bayer Corporation,2 involves
Bayers patented drug Nexaver which is used in treatment of liver and kidney cancer. This judgment
has laid down the foundation for development of jurisprudence of compulsory licensing for
pharmaceutical products under the provisions of Indian Patent Act while compiling with the provisions
of the WTO Agreement. The objective of this paper is to study the compliance of compulsory license
granted by the Indian authorities vis--vis with the TRIPS requirements in the case of Nexaver.
Scheme of Paper
Part-1 of this paper explores concept of Compulsory License. This part presents survey of Compulsory
License granted in pharmaceutical sector in last decade. Part-2 of this paper examines provisions of
TRIPS and Indian Patent Act, 1970(as amended) relating to compulsory license. Part-3 deals with facts
of the Bayer v/ s Natco case. Part-4 deals with arguments advanced by both the parties and decision
arrived at. In the last part author concludes the paper with recommendations.
Part-1 Concept of Compulsory Licens e
A compulsory license is non-voluntary license. It is termed as Other use without the authorization
of the right holder (Article 31) under the TRIPS agreement. CL is an authorization given by the
national government or its agency to a person without or against the consent of the title-holder, for
1
Dr Charu Mathur, Advocate-on-Record Supreme Court of India. Adjunct Faculty IMT (Centre for Distance Learning), Ghaziabad. She did her
Ph.D on A Comparative Study of various Legislations for synerzing Patent protection in Pharmaceutical sector. Author can be contacted at
charumilind@gmail.com
2
Compulsory License Application No. 1 of 2011, Application for Compulsory License under Section 84(1) of the Patents Act, 1970 in respect of
Patent No.215758 at http://ipindia.nic.in/ipoNew/compulsory_License_12032012.pdf accessed on 24-07-2012
the exploitation of a subject matter protected by a patent or other intellectual property rights. In this
section we shall limit ourselves to CL in Patents, particularly for pharmaceutical patents.
The origin of the concept of compulsory licenses lies in the UK Statute of Monopolies Act, 16233, It
was granted to make patented invention work locally. The 19th century French law imposed the
forfeiture of a patent in the case of non-working. S.22 of the UK under the Patent Act of 1883
provided for grant of CL in cases in which the patent was not being worked in the UK, the reasonable
requirements of the public were not satisfied, or any person was prevented from working or using an
invention. This is the key provision that has influenced the development and growth of CL in other
countries as well as for making inroads in Paris Convention. Despite stiff opposition from the US Paris
convention accepted the working obligation. At The Hague in 1925 compulsory licensing was
adopted as the main means to ensure the exploitation of a patent. Art 5A of the Paris convention
provides that the forfeiture of the patent would only apply where a compulsory license proved to be
ineffective as a means of addressing the non-working of a patent.
Paradoxically, the United States patent law does not provide for compulsory licenses but it has
granted 100s of CL under its Anti-Trust law. Some of them are even royalty free CL4, some required to
make the results of its research readily available to other industry members, or to transfer the knowhow actually used in production5.
Post WTO regime CL has become route for medical reach. Governments of various countries (as shown
under the table) have granted CL and on various occasions have declined to grant CL and in some
have taken alternative route to CL. For example, Cipla was refused CL on nevirapine, lamivudine,
zidovudine, stavudine, didanosine, efavirenz, indinavir, abacavir, and combinations of these drugs by
South Africa. Similalry, South Korea denied the request for compulsory license on imatinib mesylate,
also known as Gleevec. In yet another alternative route, the Colombian government rejected a
request for compulsory licensing the HIV drug Lopinavir/Ritonavir in 2009 but set out maximum prices
for the drug. This cap has cut down the price down by 54-68%. The table below gives birds eye view
of various CL granted in last decade or so.
Year
Country
National
Income
20052006
Argentina
Upper
Middle
2007
Brazil
Upper
Middle
Pharmaceutic
al
Company
Roche
Drug(s)
involved
Disease
Outcome
Oseltamivir
(Tamiflu)
Avian
flu/Pande
mic Flu
VL
Bristol Myers
Squibb
Atazanavir
sulfate
HIV/AIDS
Discount
Correa, C., (1999a) "Intellectual Property Rights and the Use of Compulsory Licences: Options for Developing countries", T. R. A. D. E
Working Papers 5, South Centre, Geneva.
4
FTC v. Xerox Corporation (Goldstein, 1077, p. 124 Goldstein, Sol (1977) A study of compulsory licensing. Licensing Executive Society (LES),
122-125. In one single case (U.S Manufacturers Aircraft Association Inc.), about 1,500 patents were compulsorily licensed (Goldstein, 1977, p.
123)
5
(Reyataz)
2001,
2007
Brazil
Upper
Middle
Merck
Efavirenz
(Stocrin or
Sustiva) and
Indinavir
(Crixivan)
HIV/AIDS
2001
Brazil
Upper
Middle
Roche
Nelfinar
(Viracept)
HIV/AIDS
2005
Brazil
Upper
Middle
Abbott
Lopinavir+rito
navir
(Kaletra)
HIV/AIDS
20052009
Brazil
Upper
Middle
Gilead
Tenofovir
(Viread)
HIV/AIDS
2001
Canada
High
Bayer
Ciproflaxin
(Cipro)
Anthrax
2010
Ecuador
Lower
Abbott
HIV/AIDS
2002
Egypt
Lower
Middle
Pfizer
Lopinavir +
ritonavir(Kalet
ra)
Sildenafil
(Viagra)
2005
Indonesia
Lower
Middle
Boehringer
Ingelheim
HIV/AIDS
20032004
Malaysia
Upper
Middle
Bristol-Myers
Squibb
and
GlaxoSmithKline
Lamivudine
(Epivir) and
Nevirapine
(Viramune)
Didanosine
(Videx),
Zidovudine
(Retrovir),
and
Lamivudine+Z
idovudine
(Combivir)
HIV/AIDS
CL price
slashed
from $315
to $ 58
2004
Mozambiqe
LDC
GlaxoSmithKline
, Bristol-Myers
Squibb,
Lamivudine
(Epivir),
Stavudine
HIV/AIDS
CL. 1st
license by
African
NCD
Discount in
2001
brought
$1.59/ pill
to $1.10. In
2007 from
discount
moved to
CL to
provide pill
@ $ 0.45
from Indian
generic
Pharma
company.
Discount
(30% of US
price)
Discoumt
($4137 to
$1000 pp
per year
Discount,
generic
production
by 2009
Discount
$2.50 to $
0.95 per pill
CL (price
slashed by
27%)
CL to ALL
Egyptian
pharmaceut
ical
companies
who wish to
manufactur
e.
CL royalty
at 0.5% net
sales
Boehringer
Ingelheim
(Zerit), and
Nevirapine
(Viramune)
country as
these
companies
failed to
produce the
drug.
Royalty at
20% of net
revenue.
CL for 2
years
2007
Rawanda
LDC
Apotex
(Canadian
generic
supplier)
Lamivudine+
Nevirapine+Zi
dovudine
(FDC)
HIV/AIDS
2005
Taiwan
High
Roche
Osetamivir
(Tamiflu)
Avian Flu
VL
2006,
2010
Thailand
Lower
middle
Merck
Efavirenz
(Stocrin or
Sustiva)
HIV/AIDS
CL again CL
renewed in
2010.
Payment
0.5% of net
sales
2007
Thailand
Lower
Middle
Abbott, SanofiAventis
Lopinavir+rito
navir
(Kaletra)
andClopidogre
l (Plavix)
HIV/AIDS
Cardiovas
cula
disease
20072008
Thailand
Lower
middle
Novartis
Cancer
20072008
Thailand
Lower
Middle
Novartis,
Sanofi-Aventis,
Roche
2001
US
High
Bayer
2004
Zambia
LDC
BoehringerIngelheim and
Bristol-Myers
Squibb
Imatinib
Mesylate
(Glivec or
Gleevec)
Letrozole(Fem
ara),
Docetaxel(Tax
otere), and
Erlotinib
(Tarceva)
Ciproflaxin
(Cipro)
Lamivudine
(Epivir),
Stavudine
(Zerit), and
Nevirapine
(Viramune)
CL. As
policy
Abbott
brought
cost of
Kaletra at
$1000 per
patient per
year for low
and middle
ncome
countries.
Discount
75%
Cancer
CL
Anthrax
Discount
HIV/AIDS
CL Royalty
not to
exceed
2.5% of
turnover of
product
Art. 30 Exceptions to Rights Conferred: Members may provide limited exceptions to the exclusive rights conferred by a patent, provided
that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate
interests of the patent owner, taking account of the legitimate interests of third parties.
Where the law of a Member allows for other use of the subject matter of a patent without the
authorization of the right holder, including use by the government or third parties authorized by the
government, the following provisions shall be respected:
Thus, the first requirement is that the law of member nation must allow the other use of patented
product or process. Use without authorization can be done either by the Government itself or by 3rd
party if it is authorized by the government of the member state to do so. Thus, if a company has been
given license to manufacture, import, distribute drugs then it would mean that it is been authorized by
the government to do so.
(a) authorization of such use shall be considered on its individual merits;
This simply means that the member state cannot just keep on exemption patented products
or process. It has to examine each and every case individually.
(b) such use may only be permitted if, prior to such use, the proposed user has made efforts to
obtain authorization from the right holder on reasonable commercial terms and conditions
and that such efforts have not been successful within a reasonable period of time. This
requirement may be waived by a Member in the case of a national emergency or other
circumstances of extreme urgency or in cases of public non-commercial use. In situations of
national emergency or other circumstances of extreme urgency, the right holder shall,
nevertheless, be notified as soon as reasonably practicable. In the case of public noncommercial use, where the government or contractor, without making a patent search, knows
or has demonstrable grounds to know that a valid patent is or will be used by or for the
government, the right holder shall be informed promptly;
Art 31(b) mandates that before CL can be issued the proposed user must (mandatory
requirement) make an effort to obtain authorization from the right holder. Further the offer
should be made at reasonable commercial terms and conditions. Thus, an entity first of all
should make an effort and this effort should fail within a reasonable period of time, only then
Member nation can mandate for CL. Art 31(b) further mandates three possibilities where this
mandatory requirement may be waived of i.e. in case of (i) a national emergency, or (ii)
other circumstances of extreme urgency or (iii) in cases of public non-commercial use. Even
in these cases patentee must be notified as soon as possible. The crux of this sub-article is
that before CL can be granted proposed user must make an effort to obtain authorization
from rightful owner at reasonable commercial t&c.
(c) the scope and duration of such use shall be limited to the purpose for which it was
authorized, and in the case of semi-conductor technology shall only be for public noncommercial use or to remedy a practice determined after judicial or administrative process to
be anti-competitive;
Art 31(c)
for limited purpose for which it is authorized. CL is not blanket licensing, it is for limited time
period for limited purpose to a particular entity or to various entities as desired by the
member nation.
(d) such use shall be non-exclusive;
The most important and pertinent point to note is that CL is a non-exclusive license. It can be
given to other persons also and it does not limit the patentee to use himself. Thus, by granting
CL the patentee does have exclusive right to use vis--vis others except the one to whom the
CL is given.
(e) such use shall be non-assignable, except with that part of the enterprise or goodwill which
enjoys such use;
The entity to whom CL is issued it cannot further assign to anyone else. This CL is given for a
limited purpose only.
(f)
any such use shall be authorized predominantly for the supply of the domestic market of the
Member authorizing such use;
The other important safeguard provided to patent holder is that member nation can grant CL
only for its own domestic market and nor for export.
(g) authorization for such use shall be liable, subject to adequate protection of the legitimate
interests of the persons so authorized, to be terminated if and when the circumstances which
led to it cease to exist and are unlikely to recur. The competent authority shall have the
authority to review, upon motivated request, the continued existence of these circumstances;
The CL is issued only to meet certain exigencies if those circumstances are removed or are
not likely to re-occur then the CL over the patented product will be undone. In such
circumstances the patent holder shall again have exclusive right to deal in that product. This
is however open for request by the patent holder and to the entity who is granted CL of the
patented product.
(h) the right holder shall be paid adequate remuneration in the circumstances of each case,
taking into account the economic value of the authorization;
It is very important to note that even if a patented product is given CL then also the patent
holder will be compensated adequately. This is generally based on the sale of product or
process for which CL is granted.
(i)
the legal validity of any decision relating to the authorization of such use shall be subject to
judicial review or other independent review by a distinct higher authority in that Member;
Further the decision of grant or refusal to grant of CL is always open for judicial review by the
higher judicial authorities of the member nation.
(j)
any decision relating to the remuneration provided in respect of such use shall be subject to
judicial review or other independent review by a distinct higher authority in that Member;
Even any decision regarding remuneration to be paid to patent holder is always open for
judicial review by the higher judicial authorities of the member nation. This can be challenged
by both the parties i.e. patent holder as well as to the entity to whom CL is granted.
(k) Members are not obliged to apply the conditions set forth in subparagraphs (b) and (f) where
such use is permitted to remedy a practice determined after judicial or administrative process
to be anti-competitive. The need to correct anti-competitive practices may be taken into
account in determining the amount of remuneration in such cases. Competent authorities
shall have the authority to refuse termination of authorization if and when the conditions
which led to such authorization are likely to recur;
Thus, Art 31 of TRIPS provides adequate checks and balances for grant of CL. It further takes
care that the patent holder is not unjustly treated, he is adequately compensated. The CL is
open for scrutiny and it can be de-licensed if the circumstances forcing member nation to
asking patent holder to compulsorily issue CL changes. Further if patent-holder is creating
anti-competitive market then after applying administrative or judicial process it can be granted
without applying any safeguards.
The Grounds for grant of CL are not specifically mentioned under the TRIPS Agreement. It
merely lay down the conditions and procedural safeguards that are to be followed while
granting CL. As seen above the grounds covered under Article 31 would be emergency and
extreme urgency, public non-commercial use by government or third parties, dependent
patents and anti-competitive practices. Apart from Art 31, Article 8.29 of TRIPS
allows
members to take measures necessary to protect, inter alia, public health and nutrition or to
prevent abuses, provided that such measures are consistent with the Agreement10. These are
not exclusive grounds on which CL can be granted but are inclusive ones. They do not limit the
members possibility to grant compulsory licenses on other grounds. Further The Doha
Declaration on TRIPS and Public Health11, confirms, that countries are free to determine the
grounds for granting compulsory licenses.
Now, let us examine provisions relating to CL under Indian Laws.
B. INDIAN PROVISONS RELATING TO CL
Chapter XVI(s. 82-98) of the amended Indian Patent Act,1970 is devoted to CL. S. 84 of the
Act provides for grant of CL. The grounds on which a compulsory licence can be granted under
the Act, can be subdivided into the following categories:
(i) Abuse of patent rights (dealt with broadly under s 84);
(ii) Public Interest (dealt with broadly under s 92).
Let Examine s. 84 and s.92 of the Act. The sentences in italics are content of relevant sections
and underneath in the normal text are its analysis.
84. Compulsory licences
(1) At any time after the expiration of three years from the date of the [grant] of a patent,
any person interested may make an application to the Controller for grant of compulsory
licence on patent on any of the following grounds, namely:
(a)
that the reasonable requirements of the public with respect to the patented
affordable price, or
(c)
U/s 84(1) a person has to make an application to the Controller of Patents for grant of
CL. This application for CL can be made only after 3 years of grant of patents. Thus, even in
Art 8.2 Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of
intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international
transfer of technology. As given at http://www.wto.org/english/tratop_e/trips_e/t_agm2_e.htm accessed on 08-09-2012
10
An EU Contribution, Legal Issues Related to Compulsory Licensing under the TRIPS Agreement in Compulsory Licensing and Data
Protection at http://trade.ec.europa.eu/doclib/docs/2006/may/tradoc_122031.pdf
11
case of CL a rightful patent holder has clear three years period to exploit the invention. S.
84(1) (a) further provides three grounds on which CL can be issued. The first ground is that
the patented invention has failed to satisfy reasonable requirements of public. This means that
if patented invention is unable to meet the needs of public for which it is invented then the
Controller of patents may grant CL for the patented invention. This is in sync with the very
philosophy for grant of patent. As patents are rewards for disclosing the invention for benefit
of mankind. If that patented invention is not available to public i.e. to say for example the
production is low then CL may be granted to meet the reasonable requirements of the public.
The Second ground for grant of CL is that the patented invention is not available to
public at a reasonably affordable price. The idea behind grant of patent is to create limited
monopoly as a reward for disclosing invention. This reward is given because the invention has
helped in the progress of mankind. It is a reward for well-being of society. However if the
patented invention is put at exorbitant prices that public fails to be benefited out of that
because of unduly high prices then CL can be granted. Here the affordability of each nation is
to be undertaken. This sub-section s.84 (1) (b) is at the crux of grant of patent for Nexavar in
Bayer v/s Natco case. Net socio-economic benefit for grant of patent is to be seen.
(2) An application under this section may be made by any person notwithstanding that he is
already the holder of a licence under the patent and no person shall be estopped from alleging
that the reasonable requirements of the public with respect to the patented invention are not
satisfied or that the patented invention is not worked in the territory of India or that the
patented invention is not available to the public at a reasonably affordable price by reason of
any admission made by him, whether in such a licence or otherwise or by reason of his having
accepted such a licence.
S.84(2) provides that a person even if he already having license from the rightful patent
holder still s/he/it can make an application u/s 84(1) to the controller for grant of CL if the
three exigencies mentioned in s.84(1) arises. Further s.84(2) provides that while opposing CL
the patent holder has right to plea that the three mentioned exigencies and that the patent is
not working in India. This is irrespective of the fact that while granting normal license any of
these pleas where considered by the patent holder and on the basis of these pleas he
considered to grant licence. In strict legal terms it means that there is no estoppel12 against
the rightful patent holders to plead (in opposing CL Application) what it has considered for
grant of normal license.
12
A legal principle that bars a party from denying or alleging a certain fact owing to that party's previous conduct, allegation, or denial.
10
(3) Every application under sub-section (1) shall contain a statement setting out the nature of
the applicant's interest together with such particulars as may be prescribed and the facts
upon which the application is based.
S.84(3) is the mandatory requirement which requires that whenever application u/s 84(1) is
made to the Controller it needs to have a statement made by the applicant(person seeking CL)
to set out its interest for seeking CL and to give the facts upon which he is building up his case
for grant of CL. This means that for grant of CL it is pertinent to give complete fcats and
circumstances which will convince the controller for grant of such CL.
(4) The Controller, if satisfied that the reasonable requirements of the public with respect to
the patented invention have not been satisfied or that the patented invention is not worked in
the territory of India or that the patented invention is not available to the public at a
reasonably price, may grant a licence upon such terms as he may deem fit.
s.84(4) gives huge discretionary powers to the controller to grant CL if he is satisfied that any
of the three exigencies mention in s.84(1) are met i.e. interests of public is not satisfied vis-vis patented invention or that the patented invention is not working in India and it is not
available at affordable price.
(5) Where the Controller directs the patentee to grant a licence he may, as incidental thereto,
exercise the powers set out in section 88.
The wide powers granted to controller are subject to restrictions imposed u/s 88 of the Act.
(6) In considering the application filed under this section, the Controller shall take into
account,
(i)
the nature of the invention, the time which has elapsed since the sealing of the
patent and the measures already taken by the patentee or any licensee to make full
use of the invention;
(jj)
(iii)
the ability of the applicant to work the invention to the public advantage;
the capacity of the applicant to undertake the risk in providing capital and
as to whether the applicant has made efforts to obtain a licence from the
patentee on reasonable terms and conditions and such efforts have not been
successful within a reasonable period as the Controller may deem fit: PROVIDED that
this clause shall not be applicable in case of national emergency or other
circumstances of extreme urgency or in case of public non-commercial use or on
establishment of a ground of anti-competitive practices adopted by the patentee, but
11
shall not be required to take into account matters subsequent to the making
of the application.
[Explanation : For the purposes of clause (iv), "reasonable period" shall be construed
as a period not ordinarily exceeding a period of six months.]
s.84(6) puts an onus on the controller to consider following facts before granting of
CL. He needs to be satisfied with the nature of the invention, time that has elapsed
since the grant of Patent to the patent holder. The law requires atleast 3 years must
be elapsed before the grant of CL. He also needs to look into the fact that if rightful
patent holder is doing enough in the public interest vis--vis patented product then is
there the real need for grant of CL? As for the applicant he has to see the financial
capabilities, as well as manufacturing capabilities of Compulsory License seeker. He
also has to see whether the applicant can work in public interest. The controller is
categorically required to be satisfied that the applicant has made commercial offer to
the rightful owner for the grant of license at reasonable terms and conditions and it
was rejected. He needs to submit documentary proof of the same.
(7) For the purposes of this Chapter, the reasonable requirements of the public shall be
deemed not to have been satisfied
(a)
reasonable terms,
(i) an existing trade or industry or the development thereof or the establishment of
any new trade or industry in India or the trade or industry in India or the trade or
industry of any person or class of persons trading or manufacturing in India is
prejudiced; or
(ii) the demand for the patented article has not been met to an adequate extent or on
reasonable terms; or
(iii) a market for export of the patented article manufactured in India is not being
supplied or developed; or
(iv) the establishment or development of commercial activities in India is prejudiced;
or
(b)
if, by reason of conditions imposed by the patentee upon the grant of licences
under the patent or upon the purchase, hire or use of the patented article or process,
the manufacture, use or sale of materials not protected by the patent, or the
establishment or development of any trade or industry in India, is prejudiced; or
(c)
if the patentee imposes a condition upon the grant of licences under the patent to
12
(d)
commercial scale to an adequate extent or is not being so worked to the fullest extent
that is reasonably practicable; or
(e)
scale is being prevented or hindered by the importation from abroad of the patented
article by
(i)
(ii)
(iii) other persons against whom the patentee is not taking or has not taken proceedings
for infringement
S. 84(7) provides various circumstances under which it shall be deemed that the reasonable
requirements of the public are not met. It provides that if the rightful patent holder has
refused to grant license and such refusal is detrimental to trading or manufacturing in India
then the reasonable requirements of the public are not met. Hence it opens up case for CL.
Secondly, it provides that if patent holder is unable to provide with adequate demand of
patented product at reasonable price then again it opens up the case for CL. If the article that
is manufactured in India and it has an export market and the demands for export market is
not be supplied or developed then also it opens up the case for CL. If the refusal to grant
license is detrimental to establishment or development of commercial activites then also
requirements of reasonable requirements of public are not met. Further the terms of grant of
license should not be such that it prejudices the development or establishment of any trade or
industry in India. Further this sub-section provides that rightful patent holder should not
hinder the working of patented invention or commercial sales by importing the patent article
from abroad by patentee himself or persons working for him. Reasonable public interest
requirement is not met if the patentee fails to take action the person who is infringing the
patented article. Thus, a duty is cast upon the rightful patent holder to protect his patented
products.
The other category for grant of compulsory license is Public Interest as envisaged u/s 92.
Unlike s.84 u/s 92 CL can be granted even before the expiry of 3 years of patents and the
exigencies for CL u/s 92 are:
(a) national emergency; (b) extreme urgency; or (c) public noncommercial use.
Revocation of Patents after Grant of Compulsory License s. 85 of the Patents Act
provides that after the expiry of two years from the date of order granting the first compulsory
license, the Central Government or any person interested may apply to the Controller for an
order revoking the patent. Only grounds available u/s 85 are:
13
(1) the invention has not been worked in the territory of India;
(2) the reasonable requirements of the public have not been satisfied; or
(3) the patented invention is not available to the public at a reasonably affordable price.
13
14
The drug Nexavar is the patented product of M/s Bayer Corporation. It is a life extending drug
in case of liver and kidney cancer patients. It extends life by 4-5 years. To develop this
product in February, 1994 Bayer established a research and development collaboration
agreement with Onyx Pharmaceuticals to discover, develop and market compounds that inhibit
the function, or modulate the activity, of the Ras signaling pathway or that appropriately
modulates the activity of this pathway to treat cancer and other diseases. Based on this
collaborative research under this agreement in 1999, a development candidate, BAY 43-9006,
was identified. BAY 43-9006 was later given the generic name sorafenib, and the brand name
Nexavar.
The Nexavar R&D Cost
While studying compulsory licensing it is vital to understand R&D cost involved in the
development of that product. This is critical as the usual stand taken by the patentee is that
the R&D cost is exorbitant and hence there should be no CL.
In the case for CL before the Patents Controller of India, the Bayer did not disclose the cost of
R&D involved in the invention of this drug. However, as per the affidavit filed by the Director
of a US based NGO called Knowledge Ecology International (KEI)17 came up with interesting
facts. To come at these numbers KEI dig into various fillings done before the Securities
Exchange Commission (SEC) of the USA. As Bayer has time and again tried to conceal the
R&D Expenditure for development of Nexavar, the relevant data is mined from Annual reports
of Onyx Pharmaceuticals. As per Onyx SEC fillings from 1994-1999 Bayer provided Onyx with
$26.1 million. In 2000 Onyx and Bayer started clinical testing of sorafenib. On October 8,
2004, Bayer received an orphan drug designation for sorafenib/Nexavar for the treatment of
renal cell carcinoma. This orphan drugs designation makes the drug eligible for eligible for a
50 percent orphan drug tax credit thus, lowering the net cost of the investments to both Bayer
and Onyx. Nexavar was approved for marketing by the US FDA on December 20, 2005, for the
orphan indication.
As per SEC 10-K reports, Onyx Pharmaceuticals spent $125 million, which was 50 percent of
Bayer's outlays on the development of the drug. Combined with the $26 million Onyx received
from Bayer from 1994 to 1999, the SEC filings report a combined Bayer/Onyx outlay of $275
million, which was spent to develop sorafenib as a treatment for several types of cancer,
including but not limited to the approved indication for cancer of the kidney, and also for
research on related products. Thus, the Total R&D for development of Nexavar was
$275million. Deduct Orphan Tax credit from the same this will further lower the R&D cost.
The Sales
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Sorafenib was launched in the market as Nexavar in 2006 and in the first year itself its sale
was staggering $165 million in sales, an amount nearly equal to all joint outlays on R&D from
1994 to 2004. In 2007, Bayer reported Nexavar sales of $371.7 million. By 2008, sales of
Nexavar were reported at $678 million, for a total of $1.2 billion within three years of approval
as an orphan drug.
The sales of Nexavar from 2006-2011 as extracted from Annual Reports of Onyx
Pharmaceuticals filed with SEC are presented as under.
Year
2006
166
2007
371
2008
678
2009
843
2010
934
2011
1008
Source:www.informaticsoutsourcing.com
COST IN INDIA
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India has population of 1.2 billion and hence it is a huge patient base for pharmaceutical
companies. But Indias per capita income is considerably lower compared to developed and
emerging markets. countries. Indias spending on healthcare (as % of GDP) is considerably
low coupled with the fact that most of the people in the country pay directly from their pockets
as opposed to insurance proceeds in the developed markets. In an effort to provide healthcare
to all the government does subsidize some medical costs for the poor but that is not sufficient.
It is a fact that even upper middle class family cannot afford drugs like Nexavar which costs
almost Rs 3 lakhs per month.
Nexavar is an expensive drug. The cost of cancer drug Sorafenib in 200mg tablet varies vastly
in branded and generic category. At the time of dispute the rate cost of Sorafenib from
Patentee Bayer in India was Rs 280,428 per patient per month. This comes out to19 $69,000
per patient per year. If we take todays exchange rate it will be way above 3, 35,000/-. The
generic drug sorafinib was available from Cipla for Rs 27,960 and Natco is providing the same
at Rs 8,880/- After the judgment for grant of compulsory license Cipla has slashed its price
further and now it is available for Rs 6,600/- per patient per month.
http://donttradeourlivesaway.wordpress.com/2012/01/17/update-on-first-compulsory-license-application-in-india-for-cancer-drug-sorafenib/
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Thus Bayer is charging almost 45 times the PCY of India. If Bayer adopts same pricing
in USA and starts charging 40 times PCY of US then the US patients would be paying
staggering $1.6 Million20 for the Nexavar supply for one year.
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2. The use for which the compulsorily licensed drug can be sold is only for treatment of liver and
renal cancer. This means that Natco cannot use this CL for second or subsequent use of
sorafenib.
3. Natco has to pay the royalty at a rate of 6% of net sales to Bayer. This is in consonance with
Article 31(h) of TRIPS Agreement read with s.90(1) of the Act. Further, Controller awarded
highest royalty rate of the royalty practices/ guidelines adopted reflected by the United
Nations Development Program (UNDP) which specifically recommends a range of 2% to 6%
for royalty rates depending upon the therapeutic value of the product.
4. The Controller has set the price at Rs. 8,800/- for one month treatment.
5. The applicant Natco as per its commitment has to provide the drug for free to at least 600
"needy and deserving" patients per year.
6. Natco has no right to "represent publicly or privately" that its product is the same as Bayer's
Nexavar.
7. Bayer has no liability for Natco's drug product, which must be physically distinct from Bayer's
dosage form.
PART 5-Conclusions and Recommendations
Natco v Bayer is a pioneer case. It establishes that the Indian laws are in consonance with the
TRIPS agreement. This case showcases that India is using TRIPS flexibility like CL effectively
to provide health care to its public. By applying the provisions of TRIPS effectively it has
succeeded in keeping its Constitutional Obligations. Article 2121 of the constitution of India
mandates Right to Life. This right to life would become meaningless if the medicines are
around and they cannot be administered because they are either too expensive or the
patentee is not producing them. Here the State (India) has done the right thing by granting
non-voluntary license to a firm who took the initiative to come forward and manufacture that
drug at very reasonable price for people residing in India.
The judgment given by the Controller of patents is very balanced and he has even awarded
the highest royalty of 6% on net sales. This should make a win-win situation for Bayer also. As
Bayer needs to appreciate that even before the CL was granted it had imported just 200bottles
of Nexavar in 3 years. The money it will earn by the royalty from Natco will be much more
than the business it was not doing in India.
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Art. 21 Constitution of India No person shall be deprived of his life or personal liberty except according to procedure established by law.
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However, the CL is not an option available for each and every patented drug. Hence the
sincere recommendation of the author will be to link health care system with insurance. It is
not feasible for anybody (including US Citizens) to spend $6,000 medicines every month from
their own pockets. The only sensible thing is to make it linked with insurance.
It is to be remembered that country like US who vehemently opposes CL forced Bayer to bring
down the prices of Ciproflaxin when the threat of Anthrax was looming high on its land and air.
After 9/11 faced with threat of bio-terrorism the US government made Bayer to ship 100
million tablets of Ciproflaxin by the end of the year for 95 cents each, and to donate another 2
million tablets beginning next week. The government also obtained options to buy an
additional 100 million tablets after this year at 85 cents each, and a further 100 million tablets
for 75 cents apiece. Thus being an assertive government the country which has always
opposed the CL forced the drug company to provide it with the stock at dirt cheap price. Thus
the important lesson for any government is to remain assertive if they believe that it is
essential for their public.
Finally, the author recommends that the pricing of Nexavar by Bayer has horribly went wrong
in India. It was charging 32 times more than the generic product! The big corporations must
be sensitive towards the developing and least developed markets. They should use differential
price mechanism intelligently for different markets.
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