Trends

Settling it out

Of late, pharmaceutical companies seem to be resorting to out-of-court settlements, in a bid to put an end to time consuming legal hassles and piling up bills. Suja Nair analyses recent out-of-court settlements

There is fierce competition between Big Pharma companies and generic drug-makers all over the world to claim a lion's share in the global pharma market. The generic drugmakers based in cost-effective economies are definitely posing a serious threat, due to which we notice patent cases being filed by the innovator companies against the generic contender and vice versa. However of late, out-of-court settlements seems to be the new mantra among pharma companies. Some settlements have called for the generic firm to neither challenge the innovator company's patents nor sell a generic version of the patented drug until the patent expires.

The latest example is the settlement between Ranbaxy Laboratories and AstraZeneca. Besides Ranbaxy, the Swiss company was challenged by the Israeli Teva Pharmaceutical Industries and Dr Reddy's Laboratories. All three companies have been embroiled in legal action since 2005 over AstraZeneca's Nexium.

In mid April, Ranbaxy and AstraZeneca reached four basic agreements, all specific to US market. Two of these agreements concern esomeprazole magnesium capsules (the active ingredient in Nexium), while the third pertains to omeprazole 40mg tablets, and the fourth agreement pertains to felodipine ER capsules. The agreement settles the patent infringement litigation filed by AstraZeneca following Ranbaxy's submission to the US FDA of an Abbreviated New Drug Application (ANDA) for a generic version of Nexium/esomeprazole magnesium. Under the settlement agreement, Ranbaxy concedes that all six patents asserted by AstraZeneca in the patent litigation are valid and enforceable.

Though Ranbaxy 'has lost' face by conceding these points, it has gained rights to a potential windfall. It will enable Ranbaxy'a US subsidiary Ranbaxy Pharmaceuticals Inc (RPI) to produce its own version of heartburn treatment Nexium from 2014. RPI will also distribute the only generic esomeprazole magnesium product in the US market. Separately, Ranbaxy will also be allowed to produce some of AstraZeneca's Nexium supplies for the US market from May 2010. That will include the manufacture of esomeprazole magnesium from May 2009.

Ranbaxy has filed a Consent Judgement with the US district court for the district of New Jersey reflecting the terms of the settlement agreement. With the court now having entered the Consent Judgement, the settlement agreement is final, and the patent infringement litigation against Ranbaxy has been dismissed.

But unlike Ranbaxy, Teva and DRL seem to be in no mood for any settlement. It will be double blow to AstraZenca, in case these companies get the FDA nod. For Ranbaxy too, it will spell lower than expected revenues as it will not be permitted to make the drug till the patents expire. These arrangements only go to show building pressure on innovator companies to protect their products from generic competition.

Some out-of-court settlements however unravel as the regulator may accuse parties of resorting to unlawful practices in an attempt to create a monopoly situation and keep prices high. In March 2006, Sanofi-Aventis and BMS announced that they had reached an agreement with Canadian manufacturer Apotex to settle a patent infringement lawsuit over Plavix. Under the terms of the agreement, Apotex would be granted an exclusive license to launch a generic version of Plavix in the US market in 2011, some months ahead of patent expiry. However, in July 2006, the agreement failed to receive clearance from the US antitrust authorities and became the subject of criminal investigation. Furthermore, a number of provisions had been built into the agreement, lessening the potential damages faced by Apotex if it were to launch its generic 'at risk' in light of failed antitrust clearance. This Apotex duly did in August 2006, flooding the market with its product over a three-week period.

As a result, BMS's fourth quarter sales of Plavix declined by 62 percent year on year, from $906 million in 2005 to $343 million in 2006. Beyond the financial impact of Apotex's 'at risk' generic launch, it is the perceived ability of the small Canadian player to 'out-manoeuvre' its larger US rival that has proven to be destabilising, and this was ne of the factors which forced BMS's CEO Peter Dolan to resign in September 2006.

Recently Sun Pharma also joined the league of Indian pharmaceutical companies such as Ranbaxy, DRL and Lupin when it went for an out-of-court settlement with Novartis over the generic version of Alzheimer drug Exelon. This settlement turned out to be a positive one, as it opened up an opportunity for Sun Pharma to launch its generic capsules a few months before the scheduled patent expiry, when no other generic company was present in the market. Competitors who are reportedly targeting Novartis's Exelon (Watson Pharmaceuticals, Ranbaxy and DRL), are yet to come clean on their plans to market the generic version. US-based Watson Pharma and India's DRL were also first to file on this product. The Hyderabad-based company has also received final approval to market rivastigmine tablets in the US on October 31st, 2007.

This trend only goes to show how innovator companies are trying to leverage the maximum benefit by tying up with their former rivals, ie the generic players to ensure their hold.

It remains to be seen if generic companies will completely discard their previous aggressive stand in favour of a more conciliatory attitude, or reserve this as a last option.

suja.nair@expressindia.com