As part of our new series interrogating interim injunctions, I profiled the Vifor-Symed dispute over iron carboxymaltose. I lamented the fact that over forty-four months since the ex parte interim injunction was issued, arguments over the validity of the order were still pending. Some of the anonymous comments on that post were extremely insightful, questioning the assumptions on which this series of posts was premised on. Here, I attempt to counter one such argument advanced in the comments – the claim that patentees suffer huge and unquantifiable losses in the absence of injunctive relief due to a phenomenon known as price erosion. Simply put, price erosion is the tendency of patentees to react to the launch of a competing generic product by abandoning their earlier pricing strategies in order to avoid the prospect of the generic competitor undercutting their market share. If, as claimed, the phenomenon manifests itself in the real world, then it is argued that losses to the patentee become both large and incalculable.
In essence, this is the claim, advanced with some variation here and here:
- In patent cases, the utility of an injunction lies in protecting the patentee from harm whose value cannot be ascertained, or harm that the defendant cannot compensate him for financially.
- The harm that patentees face, if injunctions did not issue, is of such an irreparable nature – it cannot be assessed or compensated for financially, on an ex post basis, because market forces render its value unascertainable.
- This is because, especially in the pharma industry, patentees face stiff competition from generics, whose manufacturers have not incurred the high costs of research and drug discovery, and therefore do not have to offset these costs while pricing their drugs.
- Consequently, generic manufacturers are able to easily undercut the prices set by patentees for these drugs, thus leaving them in a Catch 22 situation – stick to their original (monopolistic) pricing strategy and watch their market share (and consequently, revenue) crumble, or slash prices by 40-50% to stay competitive in the market, and watch their revenue crumble.
- In response to this, patentees bite the bullet, slash prices and make whatever money they can off the drug.
- Such price cuts make it impossible to keep track of how much the patentee’s potential revenue in a situation where the injunction did not issue would be. Since the computation of damages relies on comparing potential revenue without the injunction against potential revenue with the injunction, and the unavailability of the former term due to market forces makes such a calculation impossible, the losses incurred by plaintiffs in patent cases are unquantifiable.
- Since the losses are unquantifiable, they meet the “irreparable harm” threshold for the grant of an injunction.
- As an added bonus, it is possible that if the injunction does not issue, the case may take years to decide, and the patentee company may be unable to stay afloat due to competition from generics, leading to the possibility of a plaintiff for whom justice delayed becomes justice denied.
While the argument appears perfectly sound on first reading, I’d like to highlight its biggest flaw here – the assumption that price-slashing by patentees is prevalent, thus serving to render the harm they suffer unquantifiable.
The Price Erosion Bogeyman
From a survey of drug prices we’ve conducted, it appears that the assertion that price slashing by the patentee is a routine reaction to the introduction of generics in the market is not backed by empirical evidence. On the contrary, all the empirical data we’ve seen so far indicates the opposite – patentees stick to the pricing strategies they’ve come up with, regardless of how much a generic equivalent is available to the consumer for in the market. Here are a few examples:
1. Januvia
Merck’s branded version of sitagliptin is available on the market at Rs. 315 for a strip of seven 100mg tablets. Glenmark launched its generic equivalent Zita in April 2013. While a strip of Zita is available at Rs. 199, Merck seems to be sticking to its guns, with no reduction from as early as 2012.
2. Tarceva
Roche’s branded version of Erlotinib is available at Rs. 4,030 per tablet, despite the presence of four significantly cheaper alternatives on the market – Natco’s Erlonat at Rs. Rs. 801 per tablet, Glenmark’s Erleva at Rs. 968.25 per tablet, Alkem’s Erlokem at Rs. 1,080 per tablet, and Intas’ Erlotib at Rs. 1,100 per tablet. The first generic equivalent was launched around January 2008, and Roche was reported to be selling the drug at Rs. 4,800 per tablet at the time. Again, there has been no “price-slashing” – while there’s been a reduction in price, it doesn’t appear to be guided by the entry of competing generics.
3. Nexavar
Bayer’s branded version of sorafenib retails at Rs. 280,430 for a monthly dose of 120 tablets, while Cipla’s generic Soranib is available on the market for Rs. 6165 for a similar quantity. In March 2012, when a compulsory license was issued to manufacture the drug, Bayer was reported to be selling Nexavar at Rs. 280,000 for a monthly dose.
I understand that three drugs is an incredibly small sample space, but I chose these drugs since they’ve all been the subject of fairly public litigation. In case our readers would like to point us to other examples, we’d be more than happy to add them on to this list. From what we have right now, however, it’s increasingly apparent that patentees seem unlikely to cut their prices when faced with competition from generic drugs. This flies in the face of assertion 5 above, and consequently assertions 6 and 7, which depend on it, must fall.
The suggestion that price-slashing is a recurring feature in the pharmaceutical industry, therefore, doesn’t seem to contain any empirical backing. Of course, we’re open to examples that provide contrary illustration. But for the moment, it appears that with patentees sticking to their guns regardless of generic competitors, the unquantifiability of losses to the plaintiff in patent cases seems more myth than fact. Slaying this mythical beast represents a step in the direction of our broader programme questioning the wisdom behind interim injunctions – if harms are not “unquantifiable” on the plaintiff’s side, then they’re unlikely to meet the irreparable harm threshold required for an injunction to issue. Thus, the promiscuity in awarding injunctive relief to patentees seems all the more unjustified in light of the apparent quantifiability of their losses due to the introduction of competing generic products.
Januvia is the worst example you could have chosen. Even the Delhi High Court (and that too a judge like Justice Bhat who laid down the law on public interest in Roche v. Cipla) recognized the fact that Merck’s pricing was fair, since the price differential was very low and that too it was attributable to customs duty paid by Merck. It appears that in the garb of public interest, you would like to argue that the innovator company should suffer losses while selling its drugs. The drug is for a lifestyle disease and is much more prevalent amongst the affluent section of the public. The price of Javunia is much lesser in India than in other countries. Merck did not reduce its price after Glenmark’s entry probably because its price was already fair considering all these factors.
A broad assertion that all generics are good because they are available at lower prices without any analysis about the price differential, its justification and the disease involved is too perfunctory and I would suggest you do deeper research into these cases.
At a general level, you should also conduct a wider research apart from the public litigation. Innovator companies have dropped prices of several drugs after generic entry.
Dear Anon,
While your comment is extremely pertinent in the larger debate over pharmaceutical pricing and the prevalence of generic drugs in the market, I think you’ve read too much into this particular post. I’m not suggesting that all generics are good because they are available at lower prices – in fact, I’m not commenting upon the virtues of price undercutting by generic manufacturers at all. I’m merely examining whether, in fact, such undercutting takes place.
Thus, while Januvia would not have been a good example in the overall branded drugs v. generic drugs debate (for the reasons you’ve outlined – the prima facie reasonability of Merck’s pricing, the fact that diabetes is a lifestyle disease, etc.), I’d say it’s still a fairly valid example when we’re examining the presence or absence of price erosion as a phenomenon. We’re not going into the question of whether such price undercutting is a good thing – the scope of this post is limited to the impact of price undercutting (if it exists) on the quantifiability of losses on the plaintiff’s side.
Thus, the question I’ve tried to answer here is whether patentees reduce prices IN RESPONSE to the introduction of generics, thus making it harder to compute the losses they incur in the absence of interim injunctions. In the cases of Januvia, Nexavar and Tarceva, the answer is clear – they do not.
With respect to the final point you make in your comment, we’re completely in agreement, and will do our best to study any other example you may have in mind that counters these illustrations. Do let us know if you can point us to any specific examples where this phenomenon has manifested itself.
Thanks for writing in!
See http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/staff_working_paper_part1.pdf at page 81 onwards
Dear Anon,
Thanks for pointing me to this report.
As I understand it, this report (and the pages you cited) studies pharmaceutical price effects using EU-specific data. I think this is significant because originators (especially the “Big Pharma” multinationals) do not price their products uniformly across the globe. Thus, it’s very likely that a Merck or a Roche would price their product higher in the EU (more developed states, higher healthcare budgets, overall higher capability to purchase expensive drugs) than in countries like India (developing country, almost non-existent public health system, lower capability to purchase expensive drugs).
If you buy this assumption, it’s easy to see how a drop in originator drug prices in response to generic entry in the EU would not necessarily imply the prevalence of a similar phenomenon in India. The fact is that originators simply have more “room to manoeuvre” in the EU setting than in India, due to various factors. Thus, while originators are able to cut prices in the EU without making losses on the drug, it’s possible that such a response is rendered impossible by their already low price points in developing markets.
The most radical example I’ve seen so far of this differential pricing policy is Merck’s for Januvia – the drug was introduced at a fraction of its US price! See http://www.livemint.com/Companies/bQMFNMPw2lUm49D0lOFEQI/Merck-prices-diabetes-drug-at-fifth-of-US-rate.html
Thanks for sharing out this survey, pricing of drugs should be made affordable for the benefit of the users; it doesn’t have to be determined by the introduction of generics in the market.