MDN

Managing IPR Issues In Strategic Partnerships And Contract

Research

Dr. M.D. NAIR

Hyderabad

25.8.2003

MDN Role Of IPR Protection In Healthcare Industry

- Of All Business Segments, The Healthcare Industry is the most R&D- Intensive and Innovation-driven Industry.

- The rate of Obsolescence in this Industry is the highest. > 60% of the Drugs used today did not exist 20 years back.

- In 2001, the U.S FDA approved only 24 New Drugs the lowest number in the last ten years.

- During the same period 8 of the leading Companies failed to get even one major drug in the market.

- On an average only 3 out of the 10 drugs in the market recover their R&D costs and the other 7 are an additional burden on them.

- The costs of a new drug including for failures are estimated around $ 800 million

- In order to recoup such investments an economic reward system has to be assured and IPR is one of the instruments to assure that .

MDN

Drug Discovery In Need Of An Overhaul

Report of Andersen Consulting (1997).

To keep pace with the need for 10% annual growth, top 10 companies need to launch 5 NCEs each per year with average turnover of US$ 350 mio. each.

Today, they are launching an average of 0.45 NCEs per year and only 8% of new drugs reach the threshold sales.

The strategies employed by large Companies are to get bigger and bigger.

MDN

How Big Can You Grow?Ciba-Geigy-Sandoz (Novartis)

Marion-Merrill-Dow-Hoechst Roussel-Rhone Poulenc- Rorer (Aventis)

Richardson-Merrell-Proctor & GambleKabi-Pharmacia-Upjohn

Bristol-Myers-SquibbAHP-American Cynamide

Astra-ZenecaBayer-Sterling

Glaxo-Burroughs Wellcome- SKBBASF-Knoll-Boots

Roche-SyntexPfizer - AHP-Pharmacia-Upjohn

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Pitfalls Of The Western Model Of R&D

- High and unaffordable costs of R&D, the cost of a new product developed quoted at >U.S. $ 800 Mio. and a time period of 10 to 15 years.

- No product will be developed by the MNCs, which does not have a potential market of < U.S.$ 350 Mio per year.

- The products needed by the developing countries are unlikely to command such markets.

- India is one of the Countries, which has the capability to discover new drugs and hence could be a leader among developing countries in this field.

- Government can Support the Industry to achieve this, in many ways.

MDN

In Pharma Business Like Everywhere Else There Are

Davids And GoliathsLarge MNCs are becoming Goliaths by mergers and believe that bigger is better.

Others believe that Davids are effective too:

Look at Amgen, Genentech, Janssen, etc.

The Goliaths cast a wide net to catch big fish, but in the process, their boats might capsize.

India can take only ‘David’ Route.

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“ In the old Darwinian

economics, the big ate the small – in

the future, the fast will eat the slow. “

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Indian Drug Discovery Research Model.

Even the largest Indian Companies do not have the resources, technical skills or marketing

ability to reach global markets.

Companies therefore need to follow the Japanese model of carrying out limited discovery programs, patenting the products and licencing the patents to major MNCs Drug Development.

A strong Patent is thus an essential pre-requisite for entering into an effective and commercially

rewarding collaboration with a leading Company.

MDN New Approaches For Indian Research*

*These unique strengths should be converted into Intellectual Property worthy of licensing

System-based Alternate Systems Of Medicine

Therapeutics-basedNew indications for existing drugs through clinical research

Product-basedBiotechnology, NDDS, Chiral Products

Process-relatedBio-catalysis and other eco-friendly and cost-effective processes.

MDN

Competitive Structure Of Indian Pharma Industry

Current Emerging

Poor IPR protectionHighly fragmentedCommodity markets

Industry rivalry highPrice wars

High IPR protectionConsolidation through mergers and acquisitionsExclusive markets via own IPR or LicencesMore realistic competitionLess Price wars, more profits

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Strengths & Weaknesses Of Indian Pharma Industry

Strengths Weaknesses

1. Mature Industry with strong manufacturing base

1. Inadequate resources

2. Strong in chemistry and Chemical Process Engineering

2. Poor R&D background and culture

3. Abundance of new talent 3. Inadequate clinical and regulatory network.

4. Entrepreneurial spirit 4. Low profitability of industry

5. Possibility of networking with Indian Scientific Diaspora abroad.

5. Commodity markets in the absence of IPR

6. Lack of International marketing strengths

MDN

Indian Companies’ Strategies Should Be To:

Compete where you can,Collaborate when you must

Objective:

Building Win-Win strategies to ensure growth and progress in the Corporate world through Strategic Alliances.

Partners however have to follow minimum ground Rules. Accepting global IPR protection systems is one of them.

MDN

Major Issues Affecting The Pharma Industry

IPR Issues

-Implementation Of TRIPS Agreement By 1.1. 2005

- Fair & Equitable resolution of Contentious Issues:

- Patentability Of Life Forms

- Compulsory Licences

- Geographical Indications

- Biological Diversity Act.

- Trade Secrets and Data Exclusivity.

- Para 6 Of Doha Declaration

MDN Indian Industry Can Achieve Global

Standards, & Acceptance as well as Access Global Markets if they respect an internationally harmonised Patent

System

Thereby It Can enter into collaborations And Strategic Alliances

in Areas Such as :

-R&D for New Drugs

-Contract Production

-Manufacturing Base For generic Drugs

-Development & Marketing of Traditional Products

MDN

Paradigm Shift In Approaches To Ensure Growth And increased

Profitability- In Knowledge Industries, instead of total vertical integration, emphasis on Core Competencies.

- More Externalisation to supplement and augment internal core competencies.

- Except in cases of Committed Joint Ventures, no Permanent Partners, only Permanent Interests.

- Partnerships To Be based on Common Objectives, Strategic Match, Meeting of the Minds and Mutual Benefits (Win-Win).

- Joint Venture Partnerships To be based on Shared Responsibilities, Shared Risks and Shared Benefits.

MDN Nature Of Strategic Alliances

Apart from Acquisitions where a large Company buys out a smaller one, the other forms of alliances are:

- Mergers on defined terms and guaranteed rights for Stake Holders.

- Joint Ventures with Equity Participation from both Partners equally or unequally.

- Short or Long Term Contractual Partnership for:

- R&D.

- Custom Production.

- Manufacturing.

- Marketing.

Patents and Trade Marks , two important Intellectual assets of a Corporation are important only when the Contract is for joint R&D. In other cases the Patents would have been already obtained and both confidentiality & exclusivity guaranteed to the Patentee.

MDN

Key IP Issues That Strategic Alliance

Agreements Should Address

- Define the IP that is brought into the joint venture.

- Ensure that the parties own the IP that they claim to own.

- Ensure that IP is valid and does not infringe others’ property or are in the public domain.

-Clearly define the ownership of future IPs.

-Establish Patent Prosecution obligations.

-Agree on terms of cross licensing of IPs to one another.

-Finalise the value of the IPs brought in by the partner .

-Define each partner’s rights to IP in case of termination of an alliance.

MDN

Importance Of Strategic Alliances & Contract Research

- Cost Of R&D on New Drugs prohibitively high even for the top Corporations and pressures for cost reduction.

- Difficulties in developing and Sustaining State Of the Art Competencies in an ever-changing technology scenario.Lack of internal Capacity to pursue too many leads.

-Availability Of cost-effective, quality outsourcing.

MDN

International Scene- Strategic Alliances between Pharma Companies have gone up from 248 in 1987 to 635 in 2000.

- 20% of R&D Budgets were being allocated to external alliances in 2002 .

- Market for outsourced drug discovery services expected to grow to $ 8 Bio. by 2005.

- From 1995 to 1997, more than 60 Agreements made between Pharma Companies and Combinatorial Chemistry / Discovery Chemistry Companies.

- It is estimated that based on the growth in Clinical Trials over the last five years, another 24,000 qualified people would be required by CRO industry in the next three years.

- Quinteles, Parexel, Covance & PPD together have spent $ 95 Mio. for electronic data processing alone.

MDN

Alliances Through Licenses

Exploitation of Intellectual Property is often the Corner stone of Strategic Alliances.

For example two firms one with a mature product line and a weak pipe-line would like to

join hands with another firm with a new invention to enhance their portfolio.

If the second Company lacks the critical mass and skills required for product development, there is a perfect partnership, provided their

chemistry gels.

.

MDN

Benefits Of Licensing

In- Licensor Out- Licensor- Access to Novel technologies - Commercialisation

complementing existing ones. Of your invention.

- Access to IP and Scientists skilled - Minimises risk of

in Intellectual Property. Development.

- Reducing Risks inherent in early R&D. - Ensures sharing of

revenues.

- Expansion of Patent & Product Portfolio. - Ability to leverage

global presence.

MDN Key Issues in Collaborating with large MNCs

1) Maintaining Confidentiality through out the period of Agreement and even afterwards.

2) Respecting Patents and other IPs including Trade Marks, Trade Secrets (Know-How).

3) Valuation of all activities.

4) Meeting Statutory as well as partner’s regulatory and other standards.

5) Well-defined Deal structures.

6) Strict adherence to terms of the Licensing Agreement.

All these to be negotiated at the beginning and remember that you are primarily negotiating with people and not Organisations

MDN

Successful Collaborations depend on:- Appropriate Due Diligence.- Understanding of the Nature Of the Deal Structure.- Strategic Match.- Quality Of Science & Scientists.- Quality of Facilities, Infrastructure & Resources.- Relevance of Patent portfolio, Timing and Nature of the Deliverables.- Complementarity of Strengths with possible synergies.- Value For Money.- Transparency in all dealings & Mutual Trust.

Failure Of Collaborations has been due to absence of one or more of these factors

MDN

Types Of Contract Research.1) Contract R&D

2) Custom Production of R&D molecules for Pre-clinical & Clinical Research.

3) Contract Production for Marketing

3) Clinical Research

Why Would India Be A Strategic Location For Contract Research ?

MDN

Areas Where India has strengths In Pre-clinical Testing Of Drugs

In-vitro screening & Animal pharmacology studies.

Areas where India Needs To Develop more Expertise

Animal toxicology studies including Carcinogenicity.

Animal Reproductive and Teratology studies

Animal ADME studies

MDN

Clinical Testing

Open larger multi-centered trials.Phase-III

To determine efficacy at tolerated dose levels. Requires efficacy only against a placebo; not another drug. Short-term studies II-A and longer term II-B – 200-300 patients.

Phase-II

Normal healthy male volunteers to determine human tolerance and threshold of therapeutic dose; ADME studies

Phase-I

IND Application

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Good Clinical Practice (U.S.A.)

ORIGINS

1961Thalidomide

1962Drug Amendments Act 1963

IND Procedure

1964Declaration of Helsinki

1977Proposed FDA Regulations covering

obligations of Sponsors, Monitors

and Clinical Investigators

MDN

WHY THE COSTS GO UP? More Stringent Clinical Trials & More Voluminous Data

4,2371,321Average No. of Patients per NDA

6830Average No. of Clinical Trials / NDA

1999-001981-84

MDN Compulsions of MNCs To outsource

Clinical Research:Complexity of Regulatory Standards

No. of Words In Documents

800,000Average IND Submission to FDA

24,942European Legislation on when and where one can smoke

300American Declaration of Independence

179The Ten Commandments

67Archimedes Principle

24Pythagoras Theorem

MDN

FOR INDIA TO BE A GLOBAL PHARMA R&D PLAYER AND A CENTRE FOR OUTSOURCING ,

WE NEED SYSTEMS & FACILITIES FOR GLP, GCP, GMP ETC.,

ACCEPTABLE BY INTERNATIONAL REGULATORY

AGENCIES.

MDN

Why Destination India ?

Contract R&D -

Synthesis & Pre-clinical Screening, Skilled Manpower, Infrastructure & Low Cost.

Custom Synthesis & Contract Production-

Chemical Synthesis, ChemicalTechnology & Low Cost.

Clinical Research-

Availability of Clinical Subjects, Skilled Clinicians, Expertise in Statistical Analysis & Documentation, Language & Communication And Low Cost

MDN

I find the important thing in life is not so much where we stand, as in what direction we are moving.

Oliver Wendell Holmes

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Alice: “ Which direction should I go? ”

Cat: “ It depends a great deal on

where you want to go. ”

Lewis Carol in Alice in Wonderland

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Alice: “ But I don’t know where I want

to go? ”

Cat: “ In that case, it really doesn’t

matter which direction you take.”

Lewis Carol in Alice in Wonderland