Multinational drug-major Bristol-Myers Squibb (“BMS”) entered into a Licence Agreement dated 11 December 2013 (“Agreement”) with the United Nations-backed Medicines Patent Pool (“MPP”) for the AIDS drug “Atazanavir”. As per the press release, this will benefit 110 developing countries which account for 88.5 percent of people living with HIV/AIDS in developing countries. We had earlier discussed about MPP in several posts [See here and here for the more pertinent.] In this post, I intend to introduce you all to the Agreement touching upon certain vital clauses. [For Business Line reports on this development, see here and here.]
At the cost of repetition, MPP is a United Nations backed organisation offering a public-health driven business model that aims to lower the prices of HIV medicines and facilitate the development of better-adapted HIV medicines such as simplified fixed-dose combinations and special formulations for children. It was founded in 2010 at the request of the international community through the World Health Organization-based financing mechanism -UNITAID. It works by creating a pool of relevant patents for the purpose of sub-licensing them to generic manufacturers and other producers. This will facilitate generic competition which will bring down prices and help stimulate innovation. [For more, see here.] The patent holders are paid royalties by those using the patents (can even include pending patent applications), with the pool managing the negotiations, the licensing arrangements and payments. Gilead Sciences was the first pharmaceutical company to enter into a licence agreement with MPP. [See here and here.]
Licence and Sub-licence
According to Clause 2.1 of the Agreement, “Upon the terms and subject to the conditions set out in this Agreement, BMS hereby grants to MPP, and MPP hereby accepts, a non-exclusive, royalty-free, non-transferable license, with the right to grant sublicenses (which will be royalty-bearing under the conditions of clauses 2.3 and 3) under the Licensed Patent Rights and the Licensed Manufacturing Know-How to make, or have made, use, offer for sale, sell, have sold, export or import the Licensed Compound and Licensed Products anywhere in the world exclusively for ultimate use in the Field in the Territory.” [“Territory” refers to the 110 countries set out in the Agreement and “Field” means the prevention, treatment or control of HIV and AIDS.] According to Business Line, the existing agreements of BMS with the Pune-based Emcure, the Gurgaon-based Ranbaxy, multinationals Mylan and Aspen cover about 50 countries. The Indian generic manufacturers will now be able to manufacture cost-effective medicines and export them to the 110 countries set out in the Agreement. Thus, the Agreement prima facie appears to be beneficial to the Indian pharmaceutical companies. As observed by Business Line, Indian generic companies including Aurobindo, Shasun, Laurus, Hetero and Shilpa Medicare have in the past made use of the patent pool on various HIV drugs.
“Exclusively for ultimate use in the Field in the Territory” in the context of Indian law
I would like to note that BMS, the licensor, can license only those rights which it enjoys / will be enjoying under the Indian law. Naturally, MPP, the licensee, cannot sub-license a right which it or BMS doesn’t enjoy. In this context, I would like to comment upon “exclusively for ultimate use in the Field in the Territory” of Clause 3.1 of the Agreement (see the underlined part of the Clause 3.1 stated above) and ‘new use patent’. [Note that “Licensed Patent Rights” in Clause 3.1 refers to rights under granted patents and pending patent applications. See the sub-head below titled ‘Royalty’ for verbatim definition of “Licensed Patent Rights”. For the definition of “Field” and “Territory”, see the above paragraph.] At the outset, I would like to note that the issue is quite hypothetical in nature. I have, however, decided to delve into it assuming the significance that a similar clause in an agreement of this nature may partake in future.
“Exclusively for ultimate use in the Field in the Territory” means that the medicine shall be used for the sole purpose of prevention, treatment or control of HIV and AIDS. This clause may be read in the light of ‘new use patent’ which is not recognised by the Indian law. Section 48 of Patents Act, 1970, confers upon the product patentee the exclusive right to prevent third parties, who do not have his consent, from the act of making, using, offering for sale, selling or importing for those purposes that product in India. The ‘act of using’ in Section 48 of Patents Act, 1970 is a blanket act which is not circumscribed/limited by any purpose. In other words, the ‘act of using’ is not conditioned by any purpose. Therefore, “exclusively for ultimate use in the Field in the Territory” may have little significance as far as India is concerned. Thus, if the medicine is found to be useful in the treatment of say, TB, in some distant future, then this clause may not preclude the licensee or sub-licensee from using the medicine for that new purpose viz., the treatment of TB. However, this clause will have the intended implications vis-à-vis countries which provide for ‘new use patents’.
On royalty, Business Line reported as follows: “Generic drug-makers producing chemically-similar versions of BMS’ atazanavir will pay royalties to MPP if they are in markets were patents are granted, Juneja explained. But in India, where the patent application is pending, there will be no royalty till a patent is granted, he added.” I do not agree as the statement is incongruous with the text of the Agreement. According to Clause 3.1 of the Agreement, “As a consideration for the sublicense granted to the Sublicensees under the Sublicense Agreements, each Sublicensee will be required to pay to MPP, for the duration of the Royalty Term, a royalty of 3% on the Net Sales of Licensed Products in the countries within Territory where Licensed Patents Rights are granted and in force. No royalties will be due by the Sublicensees for sales in those countries within the Territory in which BMS was not collecting royalties before the Effective Date from its own licensees in relation to the Licensed Patent Rights.” It is pertinent to know the ambit of “Licensed Patent Rights” in this regard. According to Clause 1.1 of the Agreement, “Licensed Patent Rights means: (a) the patents and patent applications of BMS in the Territory related to the Licensed Compound, including those listed on Schedule B; (b) any continuation, continuation-in-part (but only to the extent that such application includes new data in support of claims previously submitted in a prior originally filed application), divisional, and continued-prosecution applications of any patent applications included in paragraph (a); (c) any patents issuing from any patent applications included in the paragraphs (a) and (b),in each case, including any renewals, extensions, patents of addition, supplementary protection certificates, revivals, re-examinations, and reissues thereof.” It is, thus, evident that the “Licensed Patent Rights” emanates from both patents and patent applications. Accordingly, Schedule B titled “Licensed Patent Rights” sets out both granted patents and pending patent applications. BMS enjoys two patents in India. Nine patent applications are still pending. This leads us to conclusions which negate the Business Line report. The royalty will have to be paid even in markets where patent applications are pending. Accordingly, Indian generic manufacturers will have to pay royalty both in case of granted patents and pending patent applications. It must, however, be noted that Clause 3.1(b) of the Agreement waives royalties “owed by the Sublicensees on sales of pediatric formulations Developed and sold by the Sublicensees”.
I am not sure of the implications of the Agreement on the existing license agreements between BMS and generic manufacturers on “Atazanavir”. According to the Agreement, “MPP desires to obtain a license from BMS on these patent and know-how rights as set out in this Agreement and BMS desires to grant such licenses to MPP, all on the terms and conditions set out in this Agreement, solely to allow MPP to grant sublicenses to various manufacturers of pharmaceutical products that would be interested in obtaining such a sublicense, in order to promote access to the Licensed Products in the Territory.” The Agreement doesn’t give MPP an exclusive right to grant sub-licenses. Instead the licence given to MPP is for the sole purpose of granting sublicenses. Therefore, the implications upon the existing agreements cannot be opined in the light of incomplete facts.
HIV/AIDS is a life-long disease. People on Anti-retrovirals (“ARVs”) eventually will need newer and more potent drug combinations when they develop resistance or side effects (known as second-line treatment). According to UNITAID, every year an estimated 2-3% of people on life-sustaining ARVs need to make a switch to these second-line drugs. According to the WHO estimate, over 1 million people will need second-line treatment by 2016. The agreement is expected to give a boost to the second-line treatment of HIV/AIDS. According to the official press release, the instant Agreement is MPP’s first agreement covering a World Health Organization (WHO)-preferred second-line therapy. I would, however, like to caution that this model cannot be perceived as a panacea or a substitute for investment in R&D. A nation may commit that mistake only at its own peril; getting caught in a vicious cycle to its own detriment.
H/T: I would like to thank Swaraj for his inputs.