Pharma mergers & acquisition wave has roots in product-patent regime

It all began on August 28, 2006, when the Pennsylvania, US-based Mylan Inc bought Hyderabad-based Matrix Laboratories for $736 million.

Less than two years later, on April 20, 2008, Singapore’s Fresenius Kabi bought Dabur Pharma, and less than two months later, on June 11, 2008, Japanese innovator medicines company Daiichi Sankyo bought Ranbaxy Laboratories.

A year later, on July 27, 2009, French multinational Sanofi Aventis bought Shantha Biotech and within months, on December 16, 2009, US-based Hospira bought the injectables business of Orchid Chemicals.

Now Abbott Laboratories has picked up Piramal Healthcare’s domestic formulations business.

The mergers & acquisitions activity essentially picked up after December 31, 2005, when India adopted the product patent regime and introduced 20-year patent terms in conformity with World Trade Organisation (WTO)’s Trade Related Aspects of Intellectual Property Rights (Trips) agreement.

Industry experts said the 2005 (amended) Patent Act, which grants patent protection to a product and not the process used to manufacture a product, prevented reverse-engineering of patented drugs by Indian companies till their patent is in existence. This, they said, is one of the factors triggering buyouts.

“Of course there are other reasons like multinationals looking to consolidate in developing economies and patent expiries in the US and the European Union. The money offered by buyers is also another attraction. But after 2005, though the market for generics has been thriving, the overall scope for generics is limited,” said an intellectual property (IP) expert based in New Delhi, who earlier worked with some companies that were acquired.

Amit Sengupta, general secretary of All India People Science Network, said the product-patent regime has come into existence in several other developing countries, which curtails the ability of Indian companies to sell generics abroad while a patent is in existence.

“The regime is impacting capacity of domestic companies to produce all generics.”

Anuradha Salhotra, managing partner, at IP law firm Lall, Lahiri, & Salhotra, said the minute Trips came into effect, patent filings have risen and will continue to go up.

Estimates suggest in India, by 2015, when the Indian pharmaceutical market is expected to be worth $20 billion, about 15% of the drugs would be patented molecules.

About 70,000 patent applications are in the pipeline for process and examination in the country, according to the Patent Office.

“This only reduces the space for generics,” said Sengupta.
He said there is also a strong attempt at further tightening the Indian Patent Act and making it tougher for early entry of generic medicines through provisions like data exclusivity, patent linkage, etc.

“Multinationals have been lobbying for introduction of data exclusivity in India, which, if granted, would make generic companies conduct the full length of clinical trials, thereby delaying entry. This demand is coming not only from the multinationals, but also from the free-trade agreements that India is negotiating with the European Union and Japan,” Salhotra said.

Patent linkage—which makes the Drugs Controller General of India (DCGI) act like a patent office and deny authorisation to generic medicines if their innovators are patented — is another provision which multinationals are pushing for in India and can delay the entry of generis.

Experts said if India relents on such provisions, the scope for generic medicines would be further impacted.

“This is probably what domestic companies are realising and are thus exiting at a time when buyers are ready to pay exorbitant amounts,” Salhotra said.