June 9 (Bloomberg) -- China’s drug market is primed for “explosive growth,” making its pharmaceutical companies attractive takeover targets for drugmakers about to lose patents on their most popular medicines, according to KPMG LLP.
Products worth more than $30 billion will lose patent protection this year, leading more drugmakers to consider buying or joining with companies in China, the world’s third-biggest drug market, according to a KPMG report released yesterday.
The report said that large pharmaceutical companies are turning away from traditional mergers that boost margins and reduce costs, and are looking for unconventional acquisitions such as firms that have unique uses for drugs, according to the report.
“The pharmaceutical market will experience explosive growth in the coming years,” KPMG said, adding that the expansion would be fueled by rapid environmental, economic and social changes that follow urbanization. “The industry now feels there is a better business model in zeroing in on the end customer rather than on bulk manufacturers of generics.”
As an example, KPMG mentioned Nasdaq-listed SciClone Pharmaceuticals’ purchase of NovaMed Pharmaceuticals Inc., a China-based specialty company, in April. NovaMed has a portfolio of 18 drug products spanning major therapeutic areas including oncology, cardiovascular disease and central nervous system disorders.
China’s pharmaceutical market is predicted to grow at least 25 percent this year, according to U.S.-based research firm IMS Health.
Pfizer Inc. on June 3 unveiled plans for a potential joint venture with Zhejiang Hisun Pharmaceutical Co. to produce branded and low-cost generics, as it seeks revenue sources before it loses U.S. patent protection in November for Lipitor, the cholesterol medication. Lipitor was the world’s best-selling drug last year with $10.7 billion in sales.
KPMG also said foreign companies investing in China risk running afoul of new Chinese laws, such as the 2008 PRC Anti-Monopoly Law, as well as other laws such as the U.S. Foreign Corrupt Practices Act and the recently enacted U.K. Bribery Act.
Compliance can be difficult due to China’s lack of transparency in transactions and less-than-complete business records to support corporate payments, KPMG said.
“It becomes even more murky and ambiguous in the health-care, medical device, and pharmaceutical sectors given the significant use of distributors, agents, and other third-parties,” the report said.
The law may see those groups as part of the company, but they don’t typically “have the internal controls in place to adequately maintain their own books and records,” KPMG said.
Pay-for-Delay Drug Deals Said to Be Target for Rule at FTC
The U.S. Federal Trade Commission is considering using its rule-making power to stop so-called pay-for-delay deals between brand-drug manufacturers and makers of generic medicines after failing to get judges or Congress to act, three people familiar with the process said.
FTC Chairman Jon Leibowitz, pushing to abolish these deals, is studying how the agency could prohibit brand-name manufacturers such as Cephalon Inc. and Sanofi Aventis SA from paying generic-drug makers such as Watson Pharmaceuticals Inc. to drop patent lawsuits that might get generics to market faster, the people said. The people declined to be identified because the decision-making process isn’t public.
Leibowitz estimated in an interview May 3 that the deals cost consumers about $3.5 billion a year in higher prescription drug prices by slowing the introduction of generics.
A rule to block certain patent settlements would be unusual for the FTC because it would involve antitrust rather than consumer protection and it could be made on the agency’s own initiative under its basic statutory authority rather than at Congress’s specific direction, said Bert Foer, president of the American Antitrust Institute in Washington.
Efforts by the FTC to challenge the settlements in federal courts have failed and Congress hasn’t moved to outlaw them. The settlement amounts are confidential, Peter Kaplan, an FTC spokesman, said by e-mail.
Generic drugs account for 78 percent of all retail prescriptions in the $307.4 billion-a-year U.S. pharmaceuticals market, according to the IMS Institute for Healthcare Informatics. Consumer spending on generic drugs is growing as patents expire and patients choose lower-cost options, IMS said on its website.
The FTC may try to issue the rule under an expedited procedure it hasn’t often used, the people said. One precedent was in 1971, when the FTC passed a rule that required labeling octane content at the gas pump.
“Any potential attempt by the FTC to move forward unilaterally with such a rulemaking would be unprecedented,” said Sean Heather, executive director of the global regulatory cooperation project at the U.S. Chamber of Commerce. “The ‘if you don’t at first succeed try, try, and try again’ approach to policy making by an independent agency isn’t appropriate.”
In recent years, the FTC has slowed its rule-making, partly as a result of procedures, set up under a 1975 law, that Liebowitz has described as “cumbersome.” Final rules under this process take almost seven years on average to implement, said Jeffrey Lubbers, a professor of administrative law at American University in Washington. The FTC hasn’t initiated any new rules under this system since 1980, he added.
Drug company lobbyists say the settlements can benefit consumers when brand-name drugmakers allow generic equivalents to get to market before patents expire.
“Patent settlements have never prevented competition beyond the patent expiry, and generally have resulted in making lower-cost generics available months and even years before patents have expired,” said David Belian, a spokesman for the Generic Pharmaceutical Association, a Washington-based trade group whose members include Mylan Inc. and Anchen Pharmaceuticals Inc.
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Asia Pacific Battles Tui AG Over New Zealand ‘Tui’ Trademark
Asia Pacific Breweries Ltd.’s DB Breweries unit is asking New Zealand’s high court to permit the registration of its trademark for Tui beer in several categories, New Zealand’s National Business Review reported yesterday.
The application was blocked by Germany’s Tui AG, which holds several “Tui” trademark registrations, the newspaper reported.
DB has sold its Tui beer since 1889, according to the Business Review.
The case has its origins in the Intellectual Property Office of New Zealand’s refusal to grant DB new “Tui” registrations, the Business Review reported.
Williams Cheese’s ‘Amish Country’ Mark Barred to Competitor
Williams Cheese Co. of Linwood, Michigan, has succeeded in its trademark action against another Michigan cheesemaker.
Amish Country Cheese Spread LLC of Sturgis, Michigan, has until July 1 to sell off all infringing products and to change its name, according to a June 2 court order.
Williams sued the Sturgis-based cheese company in federal court in Bay City, Michigan, April 22, accusing it of infringing the “Amish Country” trademarks. These included the “Amish country” phrase and a horse-and-buggy design.
Amish Country had been selling products under what Williams said was an infringing name, causing “actual confusion as to the origin of cheese products” it sold, according to the complaint.
No money damages were awarded and each party was ordered to pay its own attorney fees.
The case is Williams Cheese Co. v. Amish Country Cheese Spread LLD, 1:11-cv-11762-TLL-CEB, U.S. District Court, Eastern District of Michigan (Bay City).
EMF, Operator of K-Love and Air 1 Networks, Claims Infringement
Educational Media Foundation, the operator of non-profit Christian-themed radio networks, sued a Texas broadcast company for trademark infringement.
The suit, filed June 3 in federal court in Amarillo, Texas, accused Chermion Enterprises Inc., of Amarillo of infringing “love” and “air” trademarks. These marks are used by EMF for its K-Love and Air 1 networks, according to court papers.
EMF, whose radio programming is heard in multiple markets in 48 states, said it will be harmed if Chermion continues to operate as “AirLove.” Both entities broadcast in a similar format, with an emphasis on what EMF calls “contemporary Christian programming.”
Rocklin, California-based EMF asked the court to bar Chermion’s use of “Air Love,” including registering it as a trademark with the U.S. Patent and Trademark Office, and using the airloveradio.com domain name. It seeks be transferred control and registration of that domain name.
The California company also asked for awards of attorney fees and litigation costs. It said it doesn’t’ seek to recover any other financial compensation in connection with the case.
Chermion Enterprises didn’t respond immediately to an e-mailed request for comment.
EMF is represented by David L. Patterson, Neal G. Massand, Eric T. Fingerhut and Shannon M. McKeon of Detroit’s Dykema Gossett PLLC.
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Dunkin’ Seeks Declaration It Doesn’t Infringe Software Copyright
Dunkin’ Brands Inc., owner of the Dunkin’ Donuts chain and the Baskin-Robbins ice cream stores, sued a California software company over copyrights.
In the suit filed June 7 in federal court in Boston, Dunkin’ Brands asked the court to declare it isn’t infringing copyrights belonging to VBConversions LLC of Santa Monica, California.
According to court papers, Dunkin’ received a letter from VBConversions accusing the food company of infringing copyrights and making multiple copies of computer code used in a software program belonging to the California company. VB asked for $130,000 in compensation for what it said was infringement.
Dunkin’ said it investigated VB’s claims and said that the alleged employee who was accused of copying the code was an independent contractor. In response it received a second letter claiming Dunkin’ was “vicariously” liable for the contractor’s actions and that the allegedly infringement was deliberate.
Dunkin’ said in court papers that any alleged copying of the program was performed in Canada and not by its employee or an employee of its affiliates. It said it hasn’t profited in any way from the use of this material, and that it hasn’t worked around any technological measure designed to prevent copying of the program.
The food company said in court papers that the company “has engaged in a pattern dating back to at least 2006 of demanding outrageous sums of money from those who have used its software without a proper license.” According to Bloomberg data, VBConversions or its owner David Crook have filed 14 copyright-infringement cases since 2006 against a wide range of defendants, among which are McKesson Corp., Microsoft Corp., Autodesk Inc. and Honeywell International Inc.
The program that the various companies are accused of infringing converts older programming languages to a new one, making it easier for programmers to create software components for their employers.
Dunkin’ asked the court to declare it hasn’t infringed the VBConversions’ copyright or the Digital Millennium Copyright Act, and asked for awards of attorney fees and litigation costs.
VBConversions didn’t respond immediately to an e-mailed request for comment.
Dunkin’ is represented by Eugene A. Feher and Jacob W. Schneider of Hayes Bostock & Cronin LLC of Andover, Massachusetts.
The case is Dunkin’ Brands Inc., v. VBConversions LLC, 1:11-cv-11020-DJC, U.s. District Court, District of Massachusetts (Boston).
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Kirkland & Ellis Scores IP Litigator From Latham & Watkins
Kirkland & Ellis LLP hired Michael W. De Vries for its IP practice, the Chicago-based firm said in a statement.
De Vries, a litigator, joins from Los Angeles-based Latham & Watkins LLP. He has represented clients in the semiconductors, software, pharmaceutical, medical devices, investment banking, telecommunications, heavy machinery, media and Internet industries.
In addition to patent cases, he has also handled trademark, copyright, trade secret and unfair competition disputes.
DeVries has an undergraduate degree and a law degree from the University of California at Berkeley.
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