Malta employs patent quirk to cash in on copycat drugs: The Mediterranean island has become the generics industry's new home

By FT.com / September 19, 2005 02:44 AM

In a chilled low-pressure room that contrasts sharply with the humid Maltese weather outside, a poster reminds the white-coated staff of Actavis that they have just six weeks to finish work on a new drug.
Every day counts as the 320 employees of the generic-drugs manufacturer finalise their latest launch, exploiting an anomaly with patents that is turning the tiny Mediterranean island into an unexpected investment location for the pharmaceutical industry.
"Malta will be the powerhouse for western Europe for our production and increasingly for the development of new products," says Robert Wessman, chief executive of Actavis.
His staff are gearing up for the end of October, when they will begin to ship across Europe large volumes of sertraline, a low-cost copy of Pfizer's antidepressant Zoloft, which they are authorised to sell on the first day after the patent expires.
Actavis has its headquarters on the far side of Europe, in Iceland. But while the climates of the two islands could not be more different, they have one thing in common: for a long time they have both operated without heavy patent restrictions .
Nearly a thousand years after the Knights Hospitaller established their centre in Malta to treat the wounded of the Crusades, that latitude is again helping the country become a centre for medicine and health.
"Pharmaceuticals is becoming a very important sector and can help transform us into a knowledge economy," says Tonio Fenech, parliamentary secretary at Malta's ministry of finance.
To date, it has approved inward investment packages to lure 20 small human and veterinary pharmaceutical businesses and is in discussions with another six. Malta recently hosted an international conference on generics, and is awaiting visits from two Indian companies.
The key allure is the island's modest size. Malta, which was under British control until 1964, has strong intellectual property protection laws. But given its population of just 400,000, few pharmaceutical companies bothered to incur the costs of registering local patents.
Malta also interprets the so-called Bolar provision in a way that is generous to the generics industry. The Bolar provision allows competitors to start developing copycat products six years after a pharmaceutical company first applies for authorisation to market a new drug, even while the drug is is still patent-protected.
No such rival drug based on the same chemical composition can be launched until the patent expires. But the extra three to four years' lead time gives an edge in the low-margin, highly competitive generic industry sector. The first into the market often wins and keeps the greatest share.
"Without this patent situation in Malta, we could not do development, up-scaling, validation or stockpiling in Europe," says Mr Wessman, who acquired the local factory in 2001.
The previous owner - a Netherlands-based international group - sold generics to developing countries, but was increasingly squeezed by undercutting from lower-cost Indian generics companies, and rising European regulatory standards.
Mr Wessman recognised the need to diversify Actavis' activities outside Iceland, and says Malta's employees cost less than half as much, were flexible and spoke English. The island also offered soft loans, generous tax breaks and subsidised office space.
Steinthor Palsson, who runs the company's Malta factory, adds that the island's small size means it is easy to contact senior government officials directly. "The lines of communication are short," he says. "That's very handy when you want to impress a visitor."
Joseph Tabona, chairman of Malta Enterprise, the local inward investment agency, concedes that the current favourable conditions will not last forever.
The leading drugs companies have now begun registering their patents in Malta, although they cannot do so retrospectively. There is also pressure to tighten the Bolar provision across Europe. The even lower costs of the rising number of Indian generics companies are posing a fresh challenge.
"We have a window of opportunity for 15 years," says Mr Tabona. "We view generics as a stepping stone to other things such as 'health tourism' as we construct a new hospital."
Philip Micallef, managing director of the local operations of Amino Chemicals, a manufacturer of the "active pharmaceutical ingredients" used in medicines, says he is very happy in Malta. "We can develop and register products here and start selling them midnight of the expiry date of the patent."
But if the island's size has helped win it a temporary advantage it also brings problems. He says the arrival of new companies is putting pressure on the infrastructure, and has already led to rivals poaching the relatively small number of qualified personnel.
"For the country, more pharmaceutical companies helps, but to be honest, for us, the fewer competitors the better," he says.

ANDREW JACK
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