Nobody Wants the First Pill

Developing new drugs costs more than governments are willing to pay for.

The New York Times reports that the Indian supreme court turned down Novartis' request for an Indian patent on Gleevec, "a highly effective treatment for leukemia."  Gleevec is a refinement of a drug which was introduced in the early 1990's.  The earlier drug is out of patent, so the vast Indian generic drug industry could make the earlier drug without any patent issues.

Indian law allows a court to deny an improvement patent if the improvement doesn't give "enhanced or superior efficacy."  Novartis' improvement was important enough that all the Indian drug manufacturers want to make the new version, but that wasn't enough of an innovation for the court to grant the patent.

The Times' Take

The Times applauded, saying that the ruling "should help protect the availability of cheap generic drugs for poor patients."

By denying the patent, the Indian court took serious money away from Novartis:

The ruling will allow the sale of generic versions of Gleevec in India and other countries where it is not patented at less than one-20th of the roughly $70,000 a year it costs in the United States. It will not affect the price of the drug in America.  [emphasis added]

The Business View

The Economist had a different slant.  Instead of leading with the savings that the poor would enjoy, they opened with:

NOVARTIS spent nearly 15 years seeking a patent in India for Glivec, a medicine for chronic myeloid leukemia.  That quest reached its dead end, at last, on April 1st.  India's Supreme Court rejected the Swiss drugmaker's patent application.  Glivec (marketed in America as "Gleevec") is a blockbuster, earning the Swiss drugmaker $4.7 billion last year.  Its prospects in India are now zilch.  [emphasis added]

This is an early salvo in what looks like a long-term fight.  Western drug markets are saturating and it's becoming harder and harder to find worthwhile new treatments.  India and the rest of Asia are attractive markets because of their large populations and increasing wealth, but they don't want to pay American prices for drugs.

The Economist explains:

Innovative drug companies have faced two key questions in India.  First, will India's young patent regime, in place since 2005, provide the same protection as those in America and Europe?  Second, will Indian regulators tolerate high drug prices?  The answer to both questions seems to be "no."

An Ounce of Imitation is Worth a Pound of Innovation

Asian drug firms have focused on copying drugs which are discovered in the West.  This avoids the multi-billion-dollar cost of research followed by getting a drug through the FDA approval process followed by figuring out how to manufacture it reliably.  Indian firms don't spend a penny on drugs which don't work, in contrast to drug discoverers who get only one success for every 10 or 15 drugs on which they spend significant money.  They do have to set up their own manufacturing facilities, but they can buy lots of samples for analysis to help figure out how to make them.

Skipping the research and approval cycle lets Indian drug firms sell drugs for a lot less money than American firms charge, but it means that there's no reason for Western companies to research drugs that benefit Asian diseases.  The Gates Foundation pays researchers to find drugs for Africa, but focusing too much on keeping drug costs low removes incentives to undertake the huge cost of finding new ones.

The American approval process is so expensive that the first pill costs $1 or 2 billion.  Once the drug is approved and the manufacturing process revved up, the second pill costs picopennies.

Nobody wants to pay for the first pill.  Everybody wants to free-load on the drug companies and buy all their pills at second-pill prices.  No wonder we're seeing fewer and fewer truly new miracle cures!

Will Offensicht is a staff writer for and an internationally published author by a different name.  Read other articles by Will Offensicht or other articles on Business.
Reader Comments

Since Will brought up the subject of not being able to make any real money on new drugs let me ask about the Huge money making cancer research in this country. How much of the millions being collected is paying for any real research or simply keeping thousands employed?
Any creditable advance would go to a large organization or several, not to a single person or small shop somewhere, making the incentives hardly worth it.
Who's going to make a breakthrough announcement and why would they? Because it's the right thing to do...........right.

Hope I'm wrong.

April 25, 2013 1:39 PM

It takes an adult to not grab for the easy way out and actually invest in the future. I don't think it will happen in India for a while. China has the same problem, but if they do come up with drugs they will want patent protection.

As to the cost of new drugs, we are approaching the point in computer processing where we may be able to design drugs by molecular topology, and folding technology. A molecule can be then designed to fit into the surface of the target and tear open the skin of a microbe thereby killing it. New things are coming, and expenses should go down in the next 20-30 years.

April 25, 2013 3:58 PM

The Times really is REALLY opposed to paying drug companies back their research investments. They're bemoaning the fact that the FDA won't let generic drug companies make OxyContin. They're more concerned for people buying pills cheap than for giving an incentive to invent new drugs.

An "extended release" form of OxyContin was approved in the mid-1990s. Although the active ingredient, oxycodone, was supposed to be released gradually for patients who needed round-the-clock pain relief, some users found ways to crush, break or dissolve the tablets so that the narcotic could be taken in a big, potentially fatal dose.

In 2010, Purdue Pharma won F.D.A. approval to market a reformulated product that had the same ingredients but was harder to break or crush. It was less usable for snorting; if dissolved, it would form a gel that would be hard to inject. Purdue Pharma withdrew the old and more easily abused product from the market.

This week, just as the company's patent was set to expire, opening the way for generic competition, the F.D.A. ruled that the old formulation had been withdrawn for safety or effectiveness reasons. Generic companies, which had been poised to offer cheaper copies of the old formulation, could no longer do so.

The public can only hope that generic companies succeed in marketing their own abuse-deterrent formulations so that they can compete with Purdue Pharma's product without infringing its patents on the new formulation, which could extend until 2025. That would help keep prices down and protect the public.

Protect the public! From what? Protect the public from any new drugs, of course.

April 25, 2013 6:17 PM

One more thought. Where does the profit from these drugs go? It goes back into new drug research. Sure we could stop the "greedy" drug companies and cut off their profits. That works just about as well as the old story about killing the goose that laid golden eggs to get at all that gold. Kill the profit and no more life saving drugs. But socialists don't think beyond tomorrow's election. And besides, if people live longer, it will again break the government's already broken budget for health care.

April 25, 2013 6:40 PM

The Times is at least consistent. They dn't like genetic patents either:

I’m all for innovation and the right to protect intellectual property, but when there is a clear monopoly and human lives are at stake, we need legislative action for rational and appropriate pricing. We don’t make vaccines prohibitively expensive so only the rich can protect themselves. Nor should we let other preventive measures that can save thousands of lives be priced at levels far above what normal “market conditions” would suggest.

May 21, 2013 7:13 AM

When human lives are at stake even then the government has no role in pricing in a free society. The company that developed the drug spent at least hundreds of millions, probably billions on that drug. The drug companies do not manufacture drugs and cater to the rich, they cater to their stockholders. If drug companies were compelled to sell at what congress of all people thought was a fair price then we would have few drugs discovered. To miss this point is either socialistic/communistic in thinking or does not understand how we became the shining light on the hill to the rest of the world. It is only with profit can someone benefit from these drug discoveries.

May 21, 2013 4:20 PM

@Bassboat you know that and I know that. I suspect that our ruling elites know it, too. BUT they get so many votes by lying about it that they aren't about to stop.

Democrats have nothing else to offer BUT redistribution. Government doesn't add value, it destroys value. Government programs don't make clients better off, government programs lock people in and boost the budget.

Even some liberals are admitting that pushing kids to colleges where they can't make it via affirmative action hurts more than it helps.

JFK's "man on the moon by the end of the decade" inspired a HUGE amount of economic activity and wealth creation. Then came LBJ's Great Society with its war on poverty. JFK's program was the LAST Democrat program that actually benefited the country.

However, the people on the dole want to stay there and vote accordingly. It's hard to run against Santa Claus.

May 21, 2013 7:09 PM

The NY Times wants courts to play Santa Claus. They don't want to admit that when the government controls a product as tightly as they control drugs, the manufacturers can't really be said to be in charge of the product.

There's no way to follow through on harm drugs cause once the patent expires and anyone can make the drugs.

At lest they did identify the issue in the case:

The high court has now cut off her last pathway to compensation. In 2011, it ruled that generic-drug manufacturers could not be held liable for failing to warn consumers about a drug’s dangers because they must generally use the same safety label as the brand-name version they are copying. Now the court has also held that consumers cannot sue generic manufacturers for failing to design a safer drug because the generic must be chemically equivalent to the brand-name drug.

The New Hampshire case involved a conflict between state laws and court decisions requiring manufacturers to design products that are not “unreasonably dangerous” (based on an analysis of whether the potential for harm exceeds the usefulness of a product) and federal laws that restrict the ability of generic companies to take corrective action on their own.

The majority opinion, written by Justice Samuel Alito Jr., argued that the generic company Mutual Pharmaceutical had no way to comply with New Hampshire law because it had no power to unilaterally change the chemical composition or the warning label, and thus could not be held liable.

The four dissenting moderate liberals argued persuasively that the company could, in fact, comply with state law without changing the drug’s label or ingredients. It could continue to sell the drug and pay compensation for any harm it caused as a cost of doing business, or it could remove the drug from the market.

The decision leaves the regulation of generic drugs in a perilous state. A report released Monday by Public Citizen, the consumer advocacy group, listed 434 generic drugs for which no brand-name product remains on the market to initiate changes in the warning labels to flag newly discovered risks. Even so, the generic companies have an obligation to notify the F.D.A. about any risks they detect so that the agency can work with them to modify the warning labels.

For a more permanent solution, the F.D.A. told the high court it was considering a rule that would allow generic manufacturers, like brand-name manufacturers, to change their labeling in some circumstances. That could once again make them liable — and rightly so — for harm and allow consumers to sue them if they failed to warn of dangers.

June 29, 2013 3:54 PM
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