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An innovator-generics marriage queers the pitch for the pharma industry and patients alike

Generics are generics


And innovators are innovators
And never the twain shall meet«

The above aphorism took a slight beating with the Novartis-Sandoz merger. But with the proposed takeover of Ranbaxy by Japanese
multinational Daichi-Sankyo recently, it has all but died a natural death.

The question to ask now is, what implication would the creation of this Ardhnarishwar-like entity (legend has it that Hindu god Shiva appeared in
this half male-half female form before Brahma, the creator god, to demonstrate the concept of duality) will have on the future of intellectual
property. How will this new ³duality´ of pharmaceutical corporations impact the oft-witnessed hostile battles between innovators and generics?
Immediately following news of the proposed take over by Daiichi Sankyo, Pfizer and Ranbaxy announced a settlement in relation to a patent
challenge over Pfizer¶s multibillion dollar and most heavily litigated drug, Lipitor. Although one is not certain of the extent to which the proposed
takeover speeded up the settlement, one might hazard a guess that with parent Daiichi¶s pervasive ³innovator´ cloak, Ranbaxy¶s aggressive
patent challenge days may be coming to an end.

The Novartis-Sandoz arrangement bears out the above point: although Sandoz is one of the biggest generic manufacturers, it files much fewer
patent challenges than the other generics in the big league, including Ranbaxy.

Most analysts have missed the fact that Daiichi Sankyo is interested in Ranbaxy for another value proposition. Amongst Indian pharmaceutical
companies, Ranbaxy is best suited for serious R&D and innovation, as borne out by two facts:

1. Ranbaxy files more patents than other Indian pharmaceutical companies (in fact, it is the second-highest US patent-filer from India after
CSIR). Ranbaxy¶s once-a-day CIPRO pill (Cipro-OD) for Anthrax, which was licensed to Bayer, is often touted as one of the most successful
examples of incremental innovation.

2. It is the only generic company to have supported incremental innovation during the days of the muc- bandied-about Mashelkar Committee
report.

Given India¶s reputation as a low-cost R&D centre, Daiichi could cut significant R&D costs by relocating some of its R&D to Ranbaxy labs in
India.
One may ask: if Ranbaxy had serious notions of becoming an innovator, then couldn¶t they have done this on their own? Why did they have to
³sell out´?

The following circumstances might help explain Ranbaxy¶s choice:


1. The risk and investment involved in bringing new drugs to the market is colossal. It is therefore not easy for companies like Ranbaxy, which
have hitherto been proficient in generic manufacturing, to acquire R&D skills for new drug discovery and drum up related investments overnight.
The only other sensible alternative to being taken over by an MNC is to enter into partnerships and collaborations with such innovator
companies.
Thus far, such partnerships have not yielded any notable successes. In fact, the first such partnership between Novo Nordisk and Dr Reddy¶s
Lab (DRL) for developing an anti-diabetic molecule discovered by DRL was a colossal failure, with Novo Nordisk pulling out mid way through
the clinical trials. Current collaborations between Ranbaxy and GSK,, and between Glenmark and Eli Lilly are yet to produce any significant
result.

2. Despite Ranbaxy¶s focus on R&D and innovation, it could never really walk the talk. Illustratively, in 2003, when Ranbaxy unveiled ³Garuda´,
its vision document for the future, it forecast a turnover of $5 billion by 2013, with 40% of the turnover coming from innovatorproprietary
products. While it may close in on the $5 billion target by 2012, its forecast of 40% revenues from innovator products seems far-fetched. After
all, in 2008 (after an efflux of five years since it unveiled Garuda), more than 95% of its sales still came from generics.

The one area the Ranbaxy-Daiichi collaboration can cash in on in a big way is ³follow-on biologics,´ i.e. generic versions of biotech drugs. The
ball game here is different, as evidenced by the fact that the FDA and US Congress are still struggling with the nature of guidelines that ought to
be evolved for approval of such drugs. Most experts acknowledge that follow-on biologics are not traditional generics and require significant
R&D capabilities. A simple showing of bio-equivalence may not suffice here, as the drugs are very complex. In fact, the first few ³follow-on
biologics´ were introduced by innovator companies, and not by traditional generic manufacturers. With Ranbaxy acquiring serious R&D skills via
Daiichi, Ranbaxy could be a forerunner in the follow-on biologics business.

But, where does all of this leave the patients?

One cannot but help get the feeling that as innovators and generics cosy up together, patients may be at the receiving end. More patent
settlements will impact patients¶ access to cheap generics. If, on the other hand, such partnerships result in lower R&D costs, we can expect
more cheap drugs in the market. Only time will tell whether the creation of such dual entities will prove a bane or a boon.

The ³Ranbaxy Daiichi´ model is here to stay and one can expect more such entities in the coming years. As to how these hybrid structures go
about resolving their inherent schizophrenia remains to be seen. However, there is no gainsaying the fact that such models will significantly
impact the IP policies of pharmaceutical corporations. Importantly, this ³duality´ will make it easier to find common ground and ³middle path´
solutions between the hitherto-warring factions