Bharati, please can you explain the challenges you face in bringing litigation in the pharma space?
The approach to litigation in the pharmaceuticals sector is a little different from the approach taken in other industries. There are two main reasons for this. First, patents are territorial. A patent approved in the US may not get approved in India. From a business perspective, it is always important to keep costs low, which means you want a global product. However, our ability to sell the same product into different markets depends on being granted a patent.
That is the first challenge: how do you create a global product in the pharma space? It is a question of balancing the commercial desire to market a global product with the territory-specific nature of patents which, even if granted, may have different scopes. Because the patent’s scope is different in each jurisdiction, one’s strategy might change from market to market. However, you do not want to claim something in one market that contradicts claims you have made in other markets. That is the strategic dilemma I face as IP counsel.
Layered on top of that is the big unknown for everyone in this sector: the Food and Drug Administration (FDA). One never challenges them; their word is final. But they are most unpredictable. If you file a product with the FDA you do not know when or in what form it will get approved, yet you have to file patents for that same product in other markets while you wait for approvals. It is a very dynamic situation and the strategic gambles must be well executed.
Does your strategic approach fundamentally change when it comes to filing for patents or litigating in the generics space?
To a large extent, this is also driven by the structure of the generic pharma industry in the US, which is, of course, the biggest market for any business in this sector. Since 1984, the US has incentivised generics manufacturers to bring patent challenges with a view to bringing generics to market at an earlier stage and thus improving the range of treatments available to consumers.
The incentive is to award anyone bringing a successful patent challenge with a monopoly lasting 180 days. During those 180 days only the brand, i.e. the defeated patent owner, and the generic manufacturer, the successful challenger, are on the market.
As a generics manufacturer, if you are the sole challenger and you are granted a 180-day monopoly you will make around $300m. In more than 95% of cases, the money that a generics company will make in those six months is several times what you would make in five years. Therefore, all generics businesses want to be the first one to take a shot at winning that monopoly. That’s what we all work for.
With so much at stake, there must be a huge scramble once a challenger files. How intense is the competition among IP counsel at generics businesses?
Surprisingly, as recently as 2016 I was involved in challenges where we were the sole filer seeking to gain that 180-day monopoly! However, because the rewards are so large, the number of challengers is rising steadily. For example, in 2019 you would typically find around 25 others filing a challenge on day one, and sharing the rewards. As counsel, that changes the strategic calculations I must make. I may now be looking at a product that will be shared with more than 20 other filers and the rewards will fall in proportion.
Considering a successful challenge can make or break a company’s finances, do you take the approach of ‘spend whatever is necessary to win’?
Quite the opposite. The first law of most businesses is that they will not spend money unnecessarily. This is why the larger players in the Indian generics market, particularly those aiming to take a share of the US market, will have large in-house IP teams. This is an industry that controls [external] lawyers extremely well, and I’m sorry but that’s the only thing that works. You do as much of the work in-house as possible then hand it to a law firm to complete the final piece. If you do that properly then the cost of a matter will be a tenth of the sum you would pay a law firm.
That’s the value of having an in-house legal team in this space. We can set the parameters quite tightly. We know the brand, the product and its value, and we pretty much know who our competitors will be. We can more or less predict what our market share is going to be and what our cost price will be because there’s a lot of discounting that happens in the space. We also know that very few products will sell for more than three years. That means we can act as a business team by taking all of that information and asking what the business case for a challenge is. If the business case is that in three years you’ll make $3m but you can see that you will spend $3.5m on litigation then it is a non-starter. If I devote time and resources to this my management is going to look at me, ridicule me, and then kick me out if I even consider spending one dollar of their money on pursuing the litigation.
Therefore, you have to start working from the very beginning on an IP strategy that is in sync with the business’s needs, but you also need to keep reviewing it through the litigation strategy to make sense of when it is time to settle.
How do these settlements play out? Does one side renounce all claims on the patent or do you come to some sort of understanding?
Arbitration in the pharma industry is very different. It’s all about settlement. Over the past four or five years, the trend has been for companies to approach each other and say, ‘There’s no sense in fighting, let’s just settle’. But you settle somewhere midway. For example, if the patent is expiring in 2027, you meet halfway and ask to enter the market in 2023. Then it is a question of what you get in return. It could be a royalty, a license, or an upfront payment for avoiding litigation costs – that’s becoming the norm at pharma companies now because the business case for a challenge is changing and, consequently, the dynamics determining whether it is worth pursuing a dispute have changed.
Of course, at times you will also want to litigate to get to a position of comparative strength, but it’s always an informed decision. Litigation is important to get market share, but when we consider whether or not to litigate it is with an absolute eye for what we are spending and whether the return on that investment makes sense. My key performance indicator is how much I save, in percentage terms, over the approved budget for the fiscal year. That is how I get appraised. So while litigation is very important, it’s a question of how we can use litigation to get even more value for the business.
Litigation is, in a sense, something we look forward to because it gives us something we can use as leverage to try gain concessions which can be used as differentiators in the market.
It sounds like a market set up for litigation funders. Are they making a big play to support challengers?
Most of the big generic pharma companies have always funded their own cases because they want to keep control of the returns. What is interesting when it comes to third-party funding is that, because everyone wants to make a play for the US, there are a number of smaller companies trying to make a play for patent challenges. These companies may be well set-up with research and manufacturing but they don’t necessarily have the money to pursue litigation. In heavily regulated markets, such as the US and the EU, when you file a dossier on a patent challenge you can say with near certainty that litigation is imminent. You know that you are going to be sued, which means the smaller parties will start to scout for funding partners.
There is a community in the US, whether venture capitalists or small firms that come together, who are willing to fund disputes that are on the smaller side – so from $5m to $15m for litigation – but they fund with the understanding that they will then own the asset, meaning the dossier, after settlement. Of course, they will then look to sell that asset.
In the pharma space, third-party funding is a means of getting access to the asset so it can be sold at a higher cost. This is similar to taking care of the liability (i.e. the litigation). One settles litigation to get a confirmed date on which the market can be accessed. That settlement confers certainty, and that certainty increases the asset value, which is what the venture capitalist is looking at. The bigger companies don’t need this. Before entering a country they will run a business case which includes a litigation cost.
Have data and analytics changed the way challenges are filed?
I think my world is a little bit more defined because I’m working with patents. The tools that have helped me are few, but they are there. Now, one can access analyses of judges and the kinds of cases and rulings they have given. That can help you understand whether a judge is pro-patent or pro-generic. That information helps because you can then decide if you want to challenge jurisdiction or not.
Other trackers we have are things like an invoicing system, which give us a complete analysis by the phase of the litigation. This helps us understand where we’re spending and where to get income from.
So some of these tools help us to monitor and understand what the judges are doing, what the timeline for each court ruling is or the behaviour of plaintiffs that one comes across every now and then. It helps us take different strategy decisions and perhaps I will know if a particular strategy is open to settlement or not. However, there is no way to codify the tactics and strategies that help pharma companies succeed. It comes down to having smart counsel who know the space well and can act on instinct.