TESTING TIMES

New Delhi, Dec. 26: Out-of-court settlements and market exclusivity agreements could gain popularity as generic drug manufacturers seek to get a foothold in the regulated markets of the US and European countries.

According to analysts, out-of-court settlements, similar to the one inked by Ranbaxy and Cephalon Inc on narcolepsy drug Provigil, will benefit both the parties while cutting down on the cost of litigation.

This is Cephalon's second agreement with a generic drug manufacturing company in a short span. Earlier this month, the company had entered into a similar agreement with Israeli generic drug manufacturer Teva for Provigil.

Analysts said out-of-court settlements provide generic companies a ready market without going through the hassles of patent litigation and the usual process of creating a market for a new drug.

"Though generics offer cheaper alternatives to existing, branded drugs, it is not a cakewalk for the pharmaceutical companies. The generics segment not only faces intellectual property-related hazards but also market challenges. There is intense competition from the market," said a senior executive of a domestic generic drug company.

According to analysts, Indian drug companies have several products in the pipeline. Ranbaxy alone is expected to introduce about 47 products. A majority of these would come under Para 4 filings, where a generic company either seeks to invalidate the original innovating firm's patent or tries to prove that its copy of the original drug doesn't infringe the patent.

Analysts feel that out-of-court settlements and market exclusivity agreements could eventually be executed for many of these products.

According to the settlement between Cephalon and Ranbaxy, the Indian pharma company will be granted a non-exclusive royalty-bearing right to market and sell a generic version of Provigil in the US three years before Cephalon's patent expires in 2014.

"For both the companies, it is a win-win situation. While for Cephalon, the big-selling drug continues to get protected for five more years, Ranbaxy gets a ready market to sell their generic version in the US without attracting patent infringements. Considering that the sales of Provigil is expected to cross the billion-dollar-mark by 2011, it still offers an enormous opportunity to the generic version," said an analyst.

Generic drug manufacturing companies have been suffering losses since 2004 in major litigation challenging patents in international courts. A report on Asia Pacific markets prepared by broking and research firm CLSA said 2004 was a particularly bad year in litigation of generic companies. Of the 11 key patent litigation during the year, there were nine unfavourable and only two wins for the generic drug companies.

During the last six months, Ranbaxy and Dr Reddy's, two of India's largest drug companies, have lost two key patent challenges.

Dr Reddy's has lost its challenge against Eli Lilly over the schizophrenic drug, Zyprexa, in April. The Lipitor ruling in the UK and US was the next big disappointment for the Indian generic drug industry.