Monday, June 16, 2014

Amgen's R&D and Roche's Tarceva Patent Mediation In India: Risks, Prices, and the Right off Access to "Essential" Drugs

There are two stories in the recent pharma news that are completely unrelated. In this week's post I will ponder their possible relationship. In the first story, Damien Garde of FiercePharma reported that a highly-regarded biotech industry analyst, Geoffrey Porges, is highly critical of Amgen's ambitious and risky R&D efforts.1 In the second story, also in FiercePharma, Eric Palmer reported that a court in Delhi, India, has ordered Roche and Cipla to enter into mediation of their dispute over the patent on Roche's cancer drug Tarceva.2
In the first story, on Amgen, there are two very interesting points made by Porges, as reported by Garde. The first is that over the last 10 years Amgen has spent $30 billion in R&D and that the resulting drugs have brought in only $15 billion in cumulative revenue. The second major point is that:

Compared to its Big Biotech peers, the company has a pipeline particularly loaded with what Porges terms "breakthrough" assets: first-in-class agents with unproven targets and unknown safety profiles. At the moment, 80% of Amgen's pipeline is made up of such breakthrough therapies, according to Bernstein's numbers, compared to just 33% for Vertex Pharmaceuticals and 38% each for Gilead Sciences and Celgene [stock symbols omitted].3

In last week's post Profit or Drugs? (June 9, 2014), I discussed the issue underlying Porges's critique of Amgen and took the position that the goal of pharmaceutical policy is to make the rewards from high-risk research ("breakthrough" in Porges's terms) more attractive than the returns from comparatively low-risk research ("me-too" drugs in pharmaceutical policy terms). However, my purpose in highlighting the Porges/Amgen story is not to defend the choices Amgen has made in allocating its R&D efforts or criticize Porges's analysis of Amgen's strategy (although it would seem more appropriate to measure the payoff of a decade's R&D budget by profits in the decade following, rather than the decade in which the R&D was performed). Rather, it is simply to use the Porges/Amgen story to illustrate a point that would seem obvious but all too often is either minimized or even denied by pharmaceutical industry critics: High-risk pharmaceutical research is indeed very expensive and not at all certain to pay off.

In the second story, concerning the Indian court's order directing Roche and Indian drug company Cipla to mediate their dispute over Roche's Tarceva, the background to the dispute is familiar to most persons interested in pharmaceutical policy. The Roche-Cipla dispute is just a small part of the broader issues of access to expensive and important drugs in developing countries and the barriers to access presented by patents and international agreements concerning the enforceability of patents. India, in particular, has brought the patent issue to the fore in recent months because it has a pharmaceutical industry that is technically capable of copying such drugs and because its highest court has issued extremely controversial decisions on the validity of some of the patents in question.4 My purpose in this post is not to delve into the underlying merits of the Tarceva patent, or even to examine the more general question of whether the Indian Supreme Court's approach to obviousness in pharmaceutical patents is either appropriate or legitimate under international trade law.5 Instead I will attempt to use Amgen's R&D budget and the Indian patent issues to help illuminate the relationship between pharmaceutical companies' risks, prices, and the widely-recognized human right of access to "essential" drugs.6

In this blog I have argued that pharmaceutical companies set prices for their drugs based on their estimate of what the market will bear and therefore high prices for drugs are not really the result of the high cost of pharmaceutical research and development (see my posts of April 12th and 18th). However, as Geoffrey Porges's critique of Amgen shows, investors do expect blockbuster profits from drug companies, and the very high prices that "the market will bear" for life-saving drugs are the way investor expectations are ultimately satisfied. And, of course, without investors willing to put money into biotech and pharmaceutical companies, there would be no R&D. That leaves us with the question of how to satisfy the human right to "essential" medicines when such a large percentage of the world's population cannot afford to pay high prices for the drugs they desperately need. To answer that question we must first answer two others. First, if pharmaceutical companies charge what the market will bear, why are they charging more than the market will bear in the Indian market, or the sub-Saharan African market, or the South American market? Second, how are we to fulfill the human right to optimal attainable health, particularly when that goal entails the use of patented pharmaceuticals?

As to the first question, if drug prices in Britain, for example, are lower than prices in the U.S.,7 why are prices in India not proportionately lower still? The answer is largely because pharmaceutical companies are concerned that by making expensive drugs widely available, at very low prices in very-low-income countries, those drugs will be diverted into a "gray market" in higher income countries, with the potential to significantly reduce profits on those drugs in countries where they can, in fact, be sold at a significant profit.8 As to the second question, how are we to fulfill the human right to optimal attainable health, the answer must be by collective responsibility in the developed world. Quite simply, we ought not to place the burden of satisfying the right to health primarily on the pharmaceutical industry of the developed world any more than we place the burden of satisfying the right to basic nutrition primarily on the agricultural industry of the developed world.9

Remember the investors who expect blockbuster profits from pharmaceutical companies? If we place the burden of human health on the pharmaceutical industry, then we put the pharmaceutical industry at a disadvantage relative to, for example, Take-Two Interactive Software, Inc., the company which sells Grand-Theft Auto V, a highly profitable product that is utterly devoid of any obligation to persons in developing countries.10 Investors, as a rule, go where the profits are. It is not in the interest of global health to send investors scurrying from Amgen to Take-Two Interactive. Whatever happens to Roche's patent dispute in India, we should hope that Roche's profits are sufficiently attractive to investors that Roche's R&D budgets can continue and even grow. For many years I have been paraphrasing the famous line from The Graduate and telling my seminar, "Just one word, Benjamin. Biotechnology." I would really rather not be compelled to change that to, "Just three words, Benjamin. Violent Video Games."

1 Damian Garde, Analyst: Amgen's Moonshot R&D Spending Is Bad For Business, in FiercePharma, available at (June 13, 2014), hereinafter "Garde-Amgen."
2 Eric Palmer, Roche and Cipla are ordered to mediate in a new twist on Indian IP fight, in FiercePharma, available at (June 13, 2014).
3 Garde-Amgen supra note 1.
4 See e.g. Novartis AG v. Union of India, (2007) 4 MADRAS L.J. 1153, available at (concerning Novartis's Gleevec, widely considered to be a breakthrough cancer drug).
5 For those interested in an analysis of the Novartis/India issue see Linda L. Lee, Trials and TRIPS- ulations: Indian Patent Law and Novartis AG v. Union of India, 23 Berkeley Tech. L. J. Article 12 (February 2014) available at
6 World Health Organization, Access to essential medicines as part of the right to health, available at (visited June 15, 2014).
7 Kai Ruggeri, Ellen Nolte, Pharmaceutical pricing: The use of external reference pricing, Rand Europe, available at (2013).
8 Keith E. Maskus, Parallel Imports In Pharmaceuticals: Implications For Competition And Prices In Developing Countries, Final Report to World Intellectual Property Organization (Draft: April 2001) available at
9 I first made this point in my remarks at a symposium on international issues in intellectual property protection: Symposium, Legal Reform: The Role Of Public Institutions And Legal Culture, 35 Cal. W. Int'l L.J. 237 (Spring 2005).

10 John Rawls, A Theory of Justice (Cambridge, Mass.: The Belknap Press of
Harvard University Press, 1971) provides a framework for thinking about all issues concerning the relationship between those with talents, whether video-gaming or biochemistry, and those who are least-advantaged, such as critically ill persons in the developing world.

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