Large multinational pharmaceutical companies have been quick to voice their disappointment with the Supreme Court judgment dismissing Swiss drug maker Novartis AG’s appeal seeking patent for its anti-cancer drug, Glivec. Coming on the top of the government’s decision to grant compulsory licence for another cancer drug Nexavar, the ruling is portrayed as “yet another example of the deteriorating innovation environment in India”.

There are not-so-veiled threats that the judgment will hit innovation in the pharma sector in India, that multinational companies will be wary of making investment or introducing new, innovative drugs in India, and that it would be in India’s interest to promote a policy environment that supports continued R&D of new medicines”.

These are familiar scare tactics of Big Pharma, used frequently to browbeat regulatory regimes in the emerging markets into granting patents liberally. Their hollowness is exposed when we examine the facts of the case.

The dispute was centred on Novartis’ drug Glivec, used to combat a rare type of cancer and stomach tumours. The original invention pertained to a compound, Imatinib, having anti-tumour properties and for which Novartis was granted a US patent in 1996. Since India did not allow product-specific patents then, Indian companies made and sold generic versions of the drug, which cost less than 10 per cent of the patented drug. Subsequently, Novartis filed a patent in India for ‘beta crystalline’ form of a ‘Mesylate’ salt derived from Imatinib. The company claimed that it was a new substance with superior therapeutic efficacy compared with Imatinib in its original ‘free base’ form.

This claim was rejected first by Patent office at Chennai, then by Madras High court and then by Intellectual Property Appellate Tribunal on the same ground: the drug was “only a new form of a known substance”, that it is not a new medicine but an amended version of a known compound. Having lost its case in all these forums, company appealed to the Supreme Court.

It is this appeal that the Supreme Court has now rejected, basically stating that the said product did not constitute a new chemical entity. A mere change of form, which enables more effective administration of the underlying active ingredient (Imatinib) cannot be the basis for granting patents. It noted that Novartis offered no research data in support of the claimed greater therapeutic efficacy of the substance.

The case has brought out in bold relief the validity and interpretation of section 3(d) of the Patents Act which sets strict restrictions on multiple patents for one drug. More specifically, it prohibits patents on a newer form of a known drug unless it offers a significant advance in efficacy. The aim is to prevent “ever-greening” in which pharmaceutical companies essentially keep profitable drugs under patent indefinitely by making minor, non-essential modifications and then pretending that the subsequent drug is “new”.

The judgment is a blow for economic nationalism. The Supreme Court has sent a signal that the Indian law on patents will be judged and interpreted on India’s own terms and not on the basis of certain standards of the Western world. While the verdict might make multinationals like Novartis more wary of the Indian market, it could boost prospects of domestic companies, such as Natco, Cipla and Ranbaxy, manufacturing generic versions of the medicine.

According to a Natco spokesperson, its generic version of the drug is priced at Rs. 9600 for a month’s therapy, as against Rs. 110,000 for Novartis’ Glivec. About 16,000 patients in India use Glivec, a vast majority of whom receive it for free, Novartis says. By contrast, according to industry reports, the generic Glivec is used by a little more than 300,000 patients.

A judgment in favour of Novartis would have dealt a big blow both to patients and drug makers in India. If Novartis had won the case, it would have become easy for MNCs to get patents here as easily as in wealthy countries, and on new formulations of old medicines already in use. The impact on patients would be severe, as treatment costs would rise significantly. India’s status of being the ‘pharmacy of the world’ would also be impacted by the judgment, as domestic companies have played an important role in providing cheap life-saving drugs not only in India but also to other countries.

The Supreme Court has taken special care to emphasise that it is not against invention, innovation or protection of intellectual property rights. It clarified that the judgment did not apply to all improvements in products. It said it had not barred patent protection “for all incremental inventions of chemical and pharmaceutical substances.” It would be a “grave mistake” to read this judgment to mean that it prohibited all fundamental changes in a product, the verdict said. Only that even the so-called incremental inventions must pass the twin test of demonstrable novelty and significant advance in efficacy. This is both lawful and reasonable. But it strikes at the heart of ‘ever-greening’ of patents. And that is the crux of the matter.

Over the last few years, large multinational pharmaceutical companies have been focusing on emerging markets, as growth in developed markets has slowed on patent expiries. Then again, costs of research have risen steeply even as its efficacy in yielding blockbuster drugs has declined sharply. As the pipeline of blockbuster drugs has almost run dry, large multinationals want to retain their pricing power by making minor modifications to their existing molecules. A study published in a British medical journal said barely five per cent of all newly patented drugs could be rated as breakthrough.

But the going in these markets has not been smooth. The Supreme Court’s refusal to grant a patent to Glivec is another episode in this battle between emerging markets and Big Pharma.

That may explain why Novartis has declared that the verdict “discourages future innovation in India”. “This ruling is a setback for patients and will hinder medical progress for diseases without effective treatment options,” said Ranjit Shahani, vice-chairman & managing director, Novartis India. The US-India Business Council said over 40 countries, including China and Russia, had granted a patent for Glivec and that India now stood out as unique for not granting the same to this “incremental innovation”.

There is no reason for India to be scared or feel ostracized on this count. First, India has not turned its back on granting patents or protecting intellectual properties. India’s patent law does give 20-years exclusive rights for firms or individuals to make commercial use of their inventions. Moreover, patents today are also granted on products and not only on processes, as in the past. There is thus enough in the current patent law for multinationals to leverage their bona fide intellectual property strengths - the operative word of course is ‘bona fide’.

For all their bluff and bluster, multinationals are too shrewd to neglect a thriving and potentially large market like India. And India has not been stingy about granting patents. In a reasonably short period of time, one-tenth of India’s Rs. 75,000 crore local pharmaceuticals market already comprises patented products.

Secondly, other countries also take steps to protect interests of patients and local industry. The US turns down patents for being ‘adaptive’, ‘cumulative’ or ‘incremental’. Drug pricing is regulated in many emerging markets and global companies are aware of this reality. For instance, AstraZeneca has seen “extraordinary volume growth” in China but pricing has not been strong. In Thailand, regulators have forced MNCs to lower prices even of patented products. Several countries have gone for compulsory licensing or restricted the ever-greening of patents.

If a patent is meant to reward innovation and encourage further research and development, then in fairness it has to be granted only to products embodying genuinely new knowledge. Some multinationals are damaging their own long-term interests in India by charging prices that make their drugs unaffordable to even ordinary folk, keeping these in short supply and, on top of this, portraying Indian generic pharma manufacturers as villains.

Imperatives of growth and fairness require a fine balance to be maintained between interests of patients and innovators. A lax patent regime is not in the long term interests of patients. What we need is a wider use of price controls while respecting and rewarding genuine innovation. Drug sales at controlled prices will benefit patients while denying copycats a chance to make profits by free-riding on someone else’s hard work.