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Pfizer-Biocon Deal Goes Bust
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Other patent rulings are imminent. A long-running case involving the granting of an Indian patent for Swiss drugmaker Novartis' cancer drug Glivec is expected to be heard in the country's Supreme Court this month. The case does not involve the issue of compulsory license, but it has also pitted advocates of free trade and intellectual property rights against pro-generics campaigners who say a ruling in favour of Novartis could see other drugs in India priced outside of the reach of most of the population.
"This (Bayer) case might become a trend-setter, wherein generic players can make copies of patented products," said Siddhant Khandekar, analyst at ICICI Direct.
Pfizer was unhappy with the progress in the Biocon partnership and often complained that Biocon lacked systems and processes to deliver on commitments built into the product licensing deal.
Biocon has said it will look for regional partners and embark on an independent strategy to commercialize its insulin products in overseas markets.
Talking to CNBC TV 18, Kiran Mazumdar Shaw of Biocon said the breakup with Pfizer would not have any short-term impact on revenues for either company, but would reflect in the fourth quarter financials.
Biocon will retain payments already received from Pfizer, Biocon's chairman, Kiran Mazumdar Shaw, told Reuters after the companies announced the split on Tuesday.
"(We) will receive additional amounts as settlement from escrow," she said, without providing details.
Pfizer made upfront payments of $200 million to Biocon and the Indian drugmaker was eligible to receive additional development and regulatory milestone payments of up to $150 million in addition to royalties.
"We are tweaking down our estimates for Biocon for the fiscal year 2013 after this news, for sure," said Siddhant Khandekar, an analyst at ICICI Direct in Mumbai. "We expect a 1.5 to 2 rupees hit on their earnings per share, from 20.4 rupees down to around 18.4 rupees."
Deutsche Bank cut its target price for Biocon shares by 9 per cent to 215 rupees after Pfizer's exit, citing increased risk for the Indian drugmaker.
Biocon's shares fell more than 7 percent in early trading after the split was announced. At 1:30 p.m. (0800 GMT), the stock was down 5.16 per cent at 253.75 rupees. The overall market was up 1.2 per cent.
The companies cited "individual priorities" as the reason for the split, which immediately ends a relationship that stood to earn Biocon hundreds of millions of dollars in royalties.
"Biocon remains committed to delivering its Biosimilar Insulins portfolio to global markets in its endeavour to make a difference to diabetic patients across emerging and developed economies," Biocon Ltd CMD Kiran Mazumdar Shaw said.
"Biocon will continue to work with its existing partners in several markets and will pursue a commercial strategy on its own and through new alliances in other markets," she said.
Pfizer said it continues to be dedicated to developing a broad portfolio of biosimilars medicines, including monoclonal antibodies and recombinant proteins products, both internally and through collaborations.
"In addition, we will continue to be active in our own research and business development efforts for diabetes, which represents a huge unmet medical need, and we remain committed to seeking new solutions to help physicians and patients," Pfizer Biosimilars General Manager Diem Nguyen said.
"The development is definitely negative for Biocon's insulin sales as it will have to look for new partners," said Bino Pathiparampil, an analyst at Mumbai brokerage IIFL.
"This is mainly because of strategy confusion...Pfizer's business strategy has been changing over the last two to three years, which probably has led to this development."
The Bayer case underscores the still fractious relationship between global pharmaceutical firms and India. Companies like Pfizer, GlaxoSmithKline and Novartis are eyeing India and other emerging markets, notably China, as a growth opportunity but worry about property protection in a country that is also a leading source of cheap copycat medicines.
"Big Pharma" has recently struck some alliances with Indian drugmakers to tap into their generics expertise, but these have also not always run smoothly, with Pfizer on Tuesday scrapping a partnership with India's Biocon Ltd.
A New Reality
The Bayer ruling is likely to unnerve international pharmaceutical companies that see emerging markets like India as a major growth opportunity, but remain worried about intellectual property protection in such countries.
India's move to strip German drugmaker Bayer of its exclusive rights to a cancer drug has set a precedent that could extend to other treatments, including modern HIV/AIDS drugs, in a major blow to global pharmaceutical firms, experts say.
It is only the second time a nation has issued a compulsory license for a cancer drug after Thailand did so on four drugs between 2006 and 2008, also on affordability grounds. Thailand also issued licenses for HIV/AIDS and heart disease treatments.
"This could well be the first of many compulsory rulings here," said Gopakumar G. Nair, head of patent law firm Gopakumar Nair Associates and former president of the Indian Drug Manufacturers' Association.
"Global pharmaceutical manufacturers are likely to be worried as a result ... given that the wording in India's Patent Act that had been amended from 'reasonably priced' to 'reasonably affordable priced' has come into play now."
The new wording is seen as a lower threshold for compulsory licenses, which can be issued under world trade rules by nations that deem major life-saving drugs to be too costly. The licenses allow them to authorise the local manufacture or importation of much cheaper, generic versions.
Global drugmakers see emerging markets such as India as key growth opportunities, but remain concerned over intellectual property protection. Nair said HIV-related medicines were likely to be the most at risk by compulsory licenses in the future.
Pfizer has questioned the issue of affordability, saying many Indians are well off and can afford Western medicines.
"There is huge wealth in India," Pfizer CEO Ian Read told Reuters in London on Monday. "There are maybe 100 million people in India who have wealth equivalent to or greater than the average European or American, who don't pay for innovation. So this is going to have to be a discussion at some point."
Biocon said in November it was searching for a global partner for its experimental oral insulin pill, which if commercialized, could have entered the market as a direct competitor to the Pfizer-marketed drugs.
"The companies have agreed that due to the individual priorities for their respective bio-similars businesses, it is in their best interest to move forward independently," the companies said in the joint statement.
The October 2010 deal gave Pfizer exclusive rights to commercialize bio-similars of human insulin Glargine, Aspart and Lispro developed by Biocon.
The United States alone has 18 million diabetic patients and a healthcare cost of about $200 billion per year associated with the disease. By 2030, the number of people living with diabetes in the U.S. is expected to hit 30 million.
Biocon in January blamed poor financial results for the quarter to end-December on lower licencing income, and said it expected income from sales of its products by others would be the key driver of its growth.
"We have several strong regional partners...Now that Pfizer is not there, we will obviously now leverage these regional partners to expand their business," Mazumdar Shaw said, adding that the company would also explore new alliances.
All rights licenced to Pfizer reverted to Biocon on March 12, the statement said.