Update 2 (CL Case-Bayer vs Natco) – R&D costs – the truth behind the spin

At the final hearing being held at the IPAB in Chennai today, Bayer’s lawyers cited the DiMasi study and said it is expensive to produce a new drug like sorafenib, at a cost which range from USD 1 to 2 billion (Bayer’s lawyer seems to be a little confused about the cost of R&D figures as he keep juggling between 1 billion to 2 billion and between USD and EUR). They argue that this should have a bearing on the interpretation of the term ‘reasonably affordable price’ in the CL provision (section 84) of the Indian Patents Act.  In addition to this, Bayer’s lawyers also argue that the 6% royalty on the generic sales is not enough compensation for their investment in R&D and royalty should be more than 15% and perhaps even more.

There is no sound basis for this USD 1.5 billion figure; it is an average estimated by Bayer relying on industry’s data. Their actual investment in the development of this particular drug is not available for independent review.

Our view: Bayer refuses to disclose to the IPAB any financial information on the actual development costs for sorafenib, or the subsidies it has received from governments like the US.

Knowledge Ecology International’s (KEI) investigation reveals that sorafenib received four orphan drug designations in the US, which made the company eligible for taking a 50 percent tax credit of the costs of qualifying trials from their federal income tax.

And, Security Exchange Commission (SEC) filings by Bayer’s development partner show that investments through the FDA approval of Nexavar were $137 million, not only for the approved indication, but for several other possible uses of the drug.

KEI filed an affidavit in the case, which is available here

All of this is not being shared with the IPAB, instead Bayer presents a number of studies, mostly authored by researchers and economists, majority of them have close financial ties to the pharmaceutical industry.

In contrast independent research institutions that are developing drugs for neglected diseases are now putting out their actual costs of R&D in a transparent manner. For example the Drugs for Neglected Diseases initiative (DNDi) estimates its costs of development to range from EUR 10-40 million for improved treatments, and EUR 100-150 million for a new chemical entity. DNDi’s briefing document– ‘Why an Essential Health R&D Convention is Needed’ publishes these figures.

Is Bayer simply confusing the IPAB using the high end of industry assertions of drug development cost. Are prices reflective of actual R&D costs?

On day one of the hearing, Bayer lawyers presented a comparative of price of its branded sorafenib with oncology drug prices by other originator companies like Novartis pricing of imatinib (Gleevec) and Roche’s pricing of rituximab (Mabthera).

Our view: The problem with the current patent system is that it allows companies to charge the price that the market (comprising of the wealthy) can bear and not a price related to actual R&D and production costs. That is what Bayer is doing by pricing sorafenib at approximately Rs. 2, 80,000 per patient per month.

Drug companies like Bayer work hard to hide any verifiable figures from review by independent authorities which in this case was the Indian Patent Controller and now the IPAB. And then these companies never link their alleged costs to the high returns earned by them in a very short time. It is worth mentioning here that Nexavar sales globally have already touched $1.0 billion in 2011.

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