Illustration by Bloomberg View
Illustration by Bloomberg View

Novartis AG feels stung by the Indian Supreme Court’s decision this week to deny patent protection to the company’s Gleevec cancer treatment. Its spokesmen have gone so far as to threaten to withhold investments and even products from the country.

This reaction may be understandable, given how essential patents are to the pharmaceutical industry. It’s not realistic though. India’s high court made a decision that makes sense for India today -- no matter how unfair it might seem to Novartis. The benefits the country realizes from allowing its generic drugmakers to market their own versions of Gleevec are far greater than the penalties Novartis threatens to impose.

The ruling doesn’t mean, however, that world-class drug companies like Novartis can’t make healthy profits in India. To do so, they will have to be as innovative with their business model as they are with their products.

Novartis filed its case in 2006 after Indian authorities denied its patent application for Gleevec on the grounds that existing drugs could be patented only if the updated formulations significantly improved efficacy. According to Novartis, new Gleevec was safer than original Gleevec. As Novartis points out, 40 countries have given patent protection for new Gleevec. But those countries aren’t India.

The vast majority of India’s 1.2 billion people can’t afford patented drug prices -- for instance, $2,200 for a month’s supply of Gleevec is 2.3 times the average month’s income. And India’s generic drug companies are happy to pump out discounted pills, such as generic Gleevec for $175. This robust, $26 billion industry also produces generics for the rest of the developing world, which is a big reason global health advocates were thrilled by the Indian court’s decision.

At this point, rather than try to punish India, Novartis should accept the reality of the pharmaceutical market there. A high-price/high-profit model complemented by drug giveaways for the very poor just won’t work in India, or any other emerging economy.

What will work? India’s thriving generics market may suggest an answer. It shows that Indians will pay for drugs, though not as much as what people pay in Zurich.

Just as pharmaceutical companies worked with global health advocates to develop tiered pricing for HIV drugs based on national income, they will need to establish different prices for income groups within a single, large country, such as India.

This won’t be easy. The companies will need to work closely with governments to ensure that the elite who can pay patented prices do so, that the middle class pay less but something, and that the very poor get a free or almost-free ride.

Pharmaceutical companies complain that this approach is impossible, that a gray market would drive out anything but the cheapest price. However, Novartis’s experience with Coartem, its drug treatment for malaria, suggests otherwise. Novartis sells the drug two ways to the developing world: to the private market in nice packaging, for dispensing in drugstores to wealthy clientele; and to the public sector in blister packets, at a fraction of the cost, for distribution to the poor.

The growing health insurance system in India will make tiered pricing easier. About one in four people have insurance, much of it government sponsored, which means Indians in the middle class can afford patented pharmaceuticals -- as insured people do the world over, by paying largely indirectly, through their premiums.

As this insurance system grows, along with India’s entire economy, the country will become a bigger market for prescription drugs. By 2020, the pharmaceutical industry expects emerging markets to make up 38 percent of revenue.

It’s increasingly clear that, in the short term, patents won’t guarantee drugmakers’ profits. Before the Novartis decision, India had begun compelling pharmaceutical companies to issue licenses to domestic generic companies to make their patented drugs. China amended its law last year to allow Chinese companies to make low-cost versions of medicines under patent protection.

In years to come, though, these countries will want to provide strong patent protection: Their own inventors will need it, and the cost of lost investment will begin to outweigh the public health advantages of weak patents. Rather than expect these countries to play entirely by industry rules now, companies like Novartis should stick around for that day and find ways to make a profit in the meantime.

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