30 April 2013Americas

A global approach: Novo Nordisk's IP strategy

In 2012, the financial health of global pharmaceutical companies was front page news. Some of the market’s biggest players teetered on the brink of so-called ‘patent cliffs’, losing exclusivity on their biggest-selling products, while some generic drugs makers enjoyed double-digit sales growth.

The economic situation isn’t quite as bleak as some headlines would have you believe— ratings agency Moody’s predicts a stable industry outlook for the next 18 months—but in 2013, brand owners’ financial worries over patent losses are coupled with fears over an increasingly hostile global attitude towards perceived pharmaceutical monopolies.

In April, India’s Supreme Court rejected Novartis’s application to patent an updated version of its leukaemia drug Glivec on the basis that it does not fulfil the unique additional patentability criterion under Section 3d of the Indian Patent Law, in a landmark decision that could prevent innovators from receiving patents on new versions of blockbuster products in a country that’s home to the world’s second biggest population.

In Indonesia, the government is planning to implement one of the world’s largest compulsory licensing agreements covering HIV and hepatitis drugs, which will allow generic companies to manufacture products still protected by patents; and in the US, Europe, Australia and South Africa, governments have been cracking down on reverse patent settlements and announcing legislative changes to close “ever-greening loopholes” in an effort to bring down the cost of healthcare.

“There is definitely a trend towards a more hostile IP environment,” says Lars Kellberg, corporate vice president at Novo Nordisk.

“India seems to be violating international standards on claims interpretation and making it almost impossible to promote improved products, while Indonesia seems to have followed its example on granting compulsory licenses [India issued its first compulsory license to German manufacturer Bayer in 2012]. In Australia, the government has openly criticised extending the life of pharmaceutical patents for up to five years.”

Headquartered in Denmark, Novo Nordisk is one of the world’s biggest healthcare providers, specialising in diabetes care, haemophilia care, hormone replacement therapy and growth hormone therapy. With sales of diabetes care products in 2012 of more than DKK 60 billion ($10.5 billion), Novo Nordisk is the world leader in diabetes care and holds a global value market share of 26 percent.

"Making it more difficult to protect improvements on successful products could have severe consequences, and could reduce investment in research and innovation."

As a leading innovator, the company has been watching these global developments closely. As diabetes is on the rise—the World Health Organization predicts it will be the seventh biggest cause of death by 2030—producing insulin is a lucrative but fiercely competitive business; which makes an effective IP regime vital to the company’s success.

“We are critically dependent on our ability to protect our drugs. Pharma is a high risk, high reward business model, where most projects never result in anything, but the incentive to fail is that if you do pass regulatory hurdles and meet these challenges, you will be successful and use the patent system in place to protect this. Making it more difficult to protect improvements on successful products could have severe consequences, and could reduce investment in research and innovation,” he explains.

Of course, regulators and governments have to strike a balance between encouraging innovation and ensuring healthcare products are safe, affordable and widely available to those who need them most.

But if innovators who develop brand name products cannot protect their investments, there will be little incentive to innovate, says Kellberg.

This hostility towards big pharma is not limited to Asia and developing nations, he adds. In Europe, restrictions on filing divisional applications have undermined the effectiveness of IP protection, while in the US, he believes regulatory hurdles are increasingly difficult to overcome.

The FDA approved more drugs in 2012 than in 2011, but earlier this year, Deloitte published a report stating that cost of developing a drug has risen 23 percent to more than $1 billion. In February, Novo Nordisk’s stock market value fell when the US Food and Drug Administration failed to approve its longlasting insulin product Tresiba until further clinical trials had been conducted.

"If things don't work our as planned, departments have to work together to create a contingency plan so there are sufficient alternative opportunities when a successor project fails."

“In most, maybe even all cases, we now have to commit to conducting additional research many years after a product has been launched in the market, which significantly decreases the profitability of that product. Those that do receive approval will be subject to a further range of post-marketing approval commitments,” Kellberg adds.

To survive in such a challenging environment, Kellberg believes it is vital that pharmaceutical companies, particularly bigger players, take a creative and long-term approach to managing their IP, starting with preparing for patent expirations.

“It’s surprising that the industry doesn’t take action earlier to be in a better position when existing patents expire. Management should be acutely aware of the fact that as an industry, the assets we have need to live longer—we have to make sure we are continuously able to improve accessibility, convenience and life cycle.”

Kellberg also recommends creating a balanced development portfolio by pursuing a mix of high-risk break-through development stage drugs which are significantly better than products already on the market and lower risk incremental improvements to existing drugs.

An appropriate risk-balancing portfolio increases the overall likelihood of succeeding with a product upgrade when established ones lose their patent exclusivity. The success of this strategy, he says, relies on IP teamsco-operating with business development and research departments to protect against worst case scenarios.

“IP departments can and should take a more active role in assessing long term exposure to expirations, and they should be central to supporting innovation,” says Kellberg.

“There’s a culture in the pharma industry that in-house IP teams patent innovation, but they don’t direct it. But our interests and the interests of the rest of the company go hand-in-hand: the better the product, the more likely you are to secure a strong patent and better protection. If things don’t work out as planned, departments have to work together to create a contingency plan so there are sufficient alternative opportunities when a successor project fails,” he adds.

Novo Nordisk’s global IP team is made up of 60 patent attorneys, administrators, and paralegals. With products in more than 180 countries and employees in 75, one of the team’s biggest challenges is ensuring its products are properly protected around the world.

To do this, the company has set up patent units in Denmark, the US, India and China. There are around 900 patent families on Novo Nordisk’s books, says Kellberg, which are regularly “pruned” and added to. Each jurisdiction presents a unique set of challenges, but Kellberg says it is emerging markets that are the most demanding when it comes to filing and prosecuting applications.

“In Latin America, it’s very difficult to get patents, because it takes so long: by the time one is granted, it is often just a few months before expiration. In China, the requirements for supporting patentability are also problematic—you have to submit a lot of data to make a compound seem attractive, and it is required that such data be present in the application as filed even though it may take several years to produce,” he explains.

To keep up to date with market developments, Novo Nordisk employs a team whose priority is monitoring IP developments and making the company aware of important changes. “There is a lot of active discussion about patenting across the company and we have a guidebook for patenting in different markets, which is regularly updated,” he explains. When it’s needed, the company also seeks outside help from local law firms.

For Novo Nordisk, this strategy has had impressive results: the company’s revenues grew 12 percent in 2012. But as Kellberg points out, companies like Novo Nordisk will only continue to innovate if there is an incentive— in an already high-risk industry, the risks presented by inadequate IP protection or a hostile regulatory environment could deter companies from developing there at all.

He underlines that the company is fully committed to strengthening its leadership in diabetes and changing possibilities in haemophilia and other serious chronic conditions. But it is important to keep in mind that growing the business and delivering competitive financial results is what allows Novo Nordisk to help patients live better lives, offer an attractive return to shareholders and contribute to communities, he adds.

As one of the continent’s most productive industry, Kellberg believes that European governments should be doing everything in their power to ensure fair and reasonable market conditions for pharmaceutical companies in key emerging markets. A key part of this, he says, will be the outcome of free trade agreements, which the EU is negotiating with the ASEAN nations, Singapore, India and Central America and which will determine the IP terms on which trading takes place.

He is keen to point out that the perfect industry is not one controlled by innovators: rather, he believes it should be a collaborative effort between generics, brand name manufacturers, academia, law makers and regulators.

“Everyone in society has a role—you need academic basic research for identifying new drug targets, innovators to develop new therapies and improve on existing drugs, you need generics to copy those medicines and sell them at low prices, and you need a legal and regulatory framework that supports that.

"It’s really important for governments in Europe and around the world to make sure there are fair market conditions, because if you do, local business will benefit through technology transfer and research and development will benefit.”

For many companies, growth in emerging markets is slowing: for multinational companies, sales rose only six percent last year instead of the double-digit increase predicted. While the industry is stable, Kellberg believes real growth can only be achieved by a global push to create innovation-friendly environments.

“If every country contributes equally to supporting innovation, and creating this far IP environment, then every country will benefit. The market will get bigger, and the incentive for developing will be higher.”

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