Pharma’s dirty deals to stall generics

Illustration: Yogendra Anand / CSE

Towards the end of 2022, generics manufacturer Sandoz triumphed in a patent suit filed by Genentech which had claimed that the Swiss-based company had infringed its patents by launching a generic version of its blockbuster drug Esbriet. Big money was at stake since Esbriet, used to treat a serious lung disease called idiopathic pulmonary fibrosis, accounts for sales of $1 billion annually.

There is no infringement, ruled a US appeals court which rejected Genentech’s bid to block Sandoz's copycat version of Esbriet, dealing a hard blow to the innovator company.

The case is of interest here because Genentech filed lawsuits against Sandoz and 17 other companies in early 2019, most of these generic manufacturers from India, starting with Cipla. The large number of suits filed by Genentech is an indication of how determined the company was to block low-cost versions of Esbriet from coming into the market and eroding its profits.

The December judgement which upheld a lower court ruling is firm in the view that Sandoz's drug would not infringe Genentech patents. Some of the patents claimed to have been infringed were invalid, the appeals court said.

This is obviously a win for generic drug makers, but before we hail the court verdict, let us look at the main litigants in this case. Sandoz is a global leader in generic medicines and biosimilars and a part of Swiss drug giant Novartis—even if an independent subsidiary. Genentech is a US biotech corporation headquartered in San Francisco, California and an independent subsidiary of another Swiss-based multinational, Roche.

What does this battle of the giants imply for generics in general, and in particular for the Indian pharmaceutical sector? Nothing significant, given the major shifts that have taken place in the equation between generic companies and patent-owning Big Pharma.

For one, multinationals and/or their generic divisions occupy almost all the top slots in the ranking of global generic producers, upturning the popular David versus Goliath notion of generic firms battling the big bad innovator companies.

For instance, in the 2022 ranking by Generic Bulletin, the top slots are occupied by Sandoz (with a turnover $9. 63 billion), Teva of Israel ($8.98 billion), Pfizer ($8 billion) and Viatris of the US ($6.97 billion). Sun Pharma ($4.83 billion) and Aurobindo ($3.16 billion) are the only two Indian companies to make the cut to the top 10. There are, of course, other Indian entities lower down on the list, but the composition reflects the changed realities of the pharma industry, where the generic business is closely controlled by the innovator companies.

Dirty deals have become a regular feature. How do they work? Big Pharma has been using what is called “pay-for-delay” agreements, in which generic companies collude to keep their low-cost medications out of the market for specified terms in return for compensation of some kind or the other.

Such deals involving Indian generic makers, too, are common in the US, where even an iconic Cipla has been named in these anti-trust cases lawsuits. Innovator companies have been charged with paying hefty sums or offering such licensing deals to keep potential competitors from launching low-cost generic versions of the drugs as they squeeze monopolistic profits from their patented drug. As we pointed out, Esbriet brings in revenue of $1 billion a year.

The sleaze is widespread and there is hardly any company which is not besmirched. The New Year began with the report that Novartis (parent company of the world’s top generic-drug maker Sandoz) had decided to end a classic pay-for-delay legal battle with a series of settlements. The Swiss multinational told Fierce Pharma, an online industry tracker, that it will pay $245 million to wholesale buyers and retailers who had accused the company of colluding with Endo’s Par Pharmaceutical to push back the launch of a generic version of Novartis’ high blood pressure med Exforge. It is interesting that the claims came from the pharma trade and not patient groups or the insurance sector.

The litigation arises from a deal Novartis and Par signed in 2011 to put off the launch of a generic version of Exforge until September 2014, more than two years after the expiry of the patent. In return, Novartis agreed not to launch its own authorised generic of Exforge during a six-month period of exclusivity that the Par generic automatically secures as the first copycat version of the Novartis drug. So Novartis continued to profit from its monopoly even though it had no patent protection. Such are the devious ways of Big Pharma in which generic companies willingly collude.

In a report titled How Drug Company Pay-Offs Cost Consumers Billions, the US Federal Trade Commission (FTC) explained the modus operandi of the pay-for-delay agreements which it says have arisen as part of patent litigation settlement agreements between brand-name and generic pharma companies.

“Pay-for-delay pacts are win-win for the companies involved: brand-name pharma prices stay high, and the brand and generic share the benefits of the brand’s monopoly profits.” Consumers, however, pay a big price. “They miss out on generic prices that can be as much as 90 percent less than brand prices since the innovator companies brand-name drug that costs $300 per month could be available for as little as $30 per month”.

Agreements with compensation from the brand to the generic on average prohibit generic entry for nearly 17 months longer than agreements without payments, where the average is calculated using a weighted average based on sales of the drugs. Such pacts have been declared illegal by the courts in 2003. Yet, FTC estimated in 2010 that agreements at the time protected at least $20 billion in sales of brand-name pharmaceuticals from generic competition. Obviously, it is much, much higher now.

The role of Indian generics in this price-fixing reflects a sad decline. From feisty companies and daring entrepreneurs who transformed the pharma industry with life-saving generics for HIV/AIDS and cancer patients, Indian generics have become compliant adjuncts of multinationals. They readily acquiesce with the voluntary licensing regime of innovator companies, no longer willing to take on giants with compulsory licences (CLs). Perhaps they know that an equally subservient government will not rock the boat by issuing CLs.

The idea is no longer about the urgent need to make medicines more accessible. It is about guaranteeing bottomlines, whether through legal means or illegal collusion.

This was first published in the 16-31 January, 2023 print edition of Down To Earth