Patent

MPP faces licensing issues


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We had earlier mentioned that the Medicines Patent Pool had gotten into an agreement with it’s first pharmaceutical company. However, it appears that there are certain problems with the licensing agreement, the interpretation and understanding of which is under dispute by two traditional heavyweights in this field.
I-Mak released a briefing paper on the Implications of the MPP and Gilead licenses on Access to Treatment which addressed certain concerns that they had with the license; and Knowledge Ecology International (KEI) put forward a response expressing their disagreement with parts of I-Mak’s paper. The main issue seems to surround the question of what these licenses do for ‘new use’ patents. I’ll explore this question in this post, along with a few other smaller issues with the licenses. 
Aside from their direct impact, these issues are important because this being the first agreement with a pharmaceutical, will act as a template for future licenses as well; and its very possible that other pharmaceuticals may treat this as a ceiling limit as far as terms go. 
1) New Use of Known Products:
The deal struck between Gilead and MPP included 4 products for HIV treatment – tenofovir disoproxil fumarate (TDF), emtricitabine (FTC), elvitegravir (EVG), cobisitat (COBI) and a combination pill comprising all four drugs known as the ‘Quad’. The license allows the patented products to be used in a field of use as defined in the license. For products using TDF as the sole ingredient, the field of use is HIV and Hepatitis B. However, the problematic part arises with EVG and COBI, where the field of use covers these products for any use that is consistent with use approved by the FDA or other applicable foreign regulatory authority. Thus if a new use of one of these known products is discovered (let us say hypothetically a treatment for TB), then the licensee will be required to pay royalty for this new treatment as well.  It also means that in order to sell this TB treatment, the licensee will be locked into the restrictions provided by this current license. 
However, countries like India do not allow new use patents. This means that absent this extended field of use provision, generics would’ve otherwise been able to produce this treatment without needing to pay a royalty to Gilead. However, the presence of this ‘any use’ clause, has the same effect as a new use patent being granted, even in countries which do not allow it. This does not encourage new use patents per se, but for all purposes of the generic company, it effectively grants one. 
While a generic can choose to terminate a license on a product, it cannot choose to opt out of only the ‘new use’ of the product. Thus, it doesn’t present a realistic choice for a generic company which is producing the product for its original use already, since it is unlikely that it would make business sense to stop a product that is already selling to start producing another one. 
2) Forming a global patent system?:
I-Mak has pointed out that the TDF patent has only been granted in Indonesia, and yet royalties need to be paid for it in all territories – with a change in the royalty rate from 3% -> 5% if the patent is granted. 
Also, the license cannot be severed based on territory. It’s already clear that a royalty would be charged even in countries in which the product is not patented. Adding this ‘new use’ product to the equation, royalty will have to be paid in countries which do not allow ‘new use’ patents too. Thus even if a product is not patented in India in the first place, it’s ‘new use’ will now be protected under this license and royalties will have to be paid on it, effectively granting ‘new use patent’-like privileges over the product in all territories covered by the license, as well as the other restrictions brought on by the license
Other notable factors: 
a) The terms of the license hold good up even in the case of a controversial patent as long as the status of the patent is under dispute. In a country like India, by pushing the case through various levels of adjudication, this could take up enough years of royalty generation so as to not actually make much of a difference whether the patent is eventually granted or not. 
b) The production of the Active Pharmaceutical Ingredient (API) for the licensed drug is restricted to Indian generic companies located in India. This removes countries like Brazil, China and Thailand from the equation, as well as Indian companies with manufacturing sites outside India. 
While the MPP is no doubt well intentioned with this ambitious project, it is important that they take into account these licensing issues so as to ensure that the current negotiations with other pharmaceutical companies can at least take these into consideration – though practically, it will be very hard to press for a more access friendly deal now that the MPP/Gilead licenses are already in place. I-Mak has suggested a set of recommendations which could help towards this cause. They can be viewed at the end of the document here
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4 comments.

  1. AvatarJamie Love

    I will comment on two issues. First, there is an important distinction between new patents and new uses for a patented invention. The Gilead license for TDF is limited by a field of use to HIV and Hepatitis B. For EVG and COBI, the field of use includes “any use that is consistent with” the labels approved by the US FDA or other “applicable foreign regulatory authority.” I hope readers of Spicy IP can appreciate the distinction. It is a positive in the Gilead license that the new products will have the expanded field of use, not a negative. The patent pool offers sub-licenses to patents that are licensed to the pool. New patents present new issues. As I-MAK and Krista Cox of KEI both pointed out, license holders can pick and choose which products to license (via the termination clause), and they can freely bust patents or operate outside of the license under a compulsory license, without risk of breaching the contract. As for the royalties being paid in countries where there is no patent, this is an issue, particularly for TDF (if a company chooses to license TDF). Technically, the royalty is paid in India, where Gilead is trying to establish a patent claim. Since CIPLA is very unlikely to sign a license for TDF, I’m not sure how important this provision is for the TDF license. Of course, even for the other products, it has the effect of creating a royalty obligation. How big a royalty obligation? For the non-TDF products: a 5 percent royalty on the generic price. This type of royalty will depend the competitive cost of manufacturing the product. For something like Atripla, if it was under the license (it is not, because of EFV is not included), the three drug combination is available from generic manufacturers for about $.6 per day. 5 percent would be $10.95 per year, on a product that sells for $25k in the USA. For many countries, the issue is their exclusion from the license, rather than the license terms.

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  2. AvatarSwaraj Paul Barooah

    Hi Jamie, thanks for your comment. I think there might’ve been some technical glitch which delayed your comment from showing up. (unless you were talking about a separate comment made earlier?)

    There is certainly an expanded field of use with the EVG and COBI licenses. However, in the case where a new use of a patented product is found, then in some countries, this new use can be patented. However, not all countries grant these new use patents. This effectively extends the patent term over that product, and hence the license term as well.
    Therefore, as I see it, unless a country grants these ‘new use patents’, the expanded field of use is unnecessarily expanding into an area where the license is not required at all – ie, royalties need not be paid.

    I agree with your point that Cipla is unlikely to sign a license for TDF. And also that a 5% royalty rate on a small revenue generating (for generics) drug, is a relatively small amount. And certainly, the much bigger issue as you pointed out is that countries like Brazil have been left out.

    However, I would like to add 2, possibly abstract-ish, points about it:

    a) With the Gilead licenses probably serving as a template for future licenses, these effects should be brought to light, regardless of whether this particular instance makes much of a difference or not. Thus, it is not ‘bad’ that a 5% royalty is being charged, but it is a fact that must be acknowledged nonetheless.
    b) In the larger framework of what is an appropriate remuneration for companies making (life saving) drugs, the question of how much – is something that cannot be answered till pharma accounts are transparent (ie, never). So, while you could say that a 5% cost is barely anything, so it shouldn’t make a difference, it can also be reversely put as – if it’s too small to make a difference, why charge it? There will be at least one patient who will not be able to buy it because of that small increase.
    My point is Not that royalty shouldn’t be charged at all, just that it seems like a mostly pointless exercise is defending a particular rate, when we don’t have cost figures, but only look at ‘access’. If we are looking only at access, then certainly a product which does not have a patent, new use or otherwise, should not have any royalty attached to it?

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  3. Avatarrajeev

    Hello Mr Barooah
    You have pointed that licencee cannot only opt of ‘new use’ of the product as it will not make sense to the licencee to stop production of existing commercially successful product line. But in case a FDA compliant new use is discovered and the licencee intends to commercially exploit it without any refernce to the patentee then such a situation would certainly be perceived by the patentee to grossly inimical to his interests making him to engage in legal recourse. No matter what the odds are for the litigation to succeed it will surely be a comforting situation for any stakeholder. The prime requirement of any business entity is to have predictability about costs and have an environment which allows him to focus on market. Hence I feel that this licensing agreement allows to build partnerships reducing future uncertainties. It is a choice between having free lunch while fighting it out or having a peaceful lunch after paying for it.

    Also the point of global patent systems. It ios not the question of circumventing the gloabla patent laws. It is more a question of bringing a semblance of order and choice for the licencee and allow convergence of public good and patentee interest. MPP in its wisdom has provided a pathway for making medicines available where the territorial patent regime has been found deficient.
    Future licences agreements will be crafted better based on the feedback of this.

    R.K.Jain Patent Agent

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