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Nobody Wants the First Pill

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

By Will Offensicht  |  April 25, 2013

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!