REMEMBER the fright over anthrax? The deadly disease and the German drug company Bayer became tangled in a political row two years ago when parcels laced with anthrax spores arrived mysteriously on desks in America.

Bayer owned the patent for Ciprofloxacin, the only drug known to be effective in combating the disease. With the dust of the World Trade Centre barely settled, the Bush Administration was in no mood to discuss the niceties of intellectual property. Tommy Thompson, the US Health Secretary, told Bayer that unless it cut the price of Cipro he would cancel the company’s patent.

It was a watershed for the drug multinationals. If a Republican White House could think of tearing up a patent, intellectual property was not sacred anywhere.

Since then, Washington has gone further, backing World Health Organisation initiatives to cut the price of anti-Aids drugs. On a tour of Africa last month, President Bush did a high-wire balancing act, asking for “a common-sense policy that, on the one hand, protects intellectual property rights and, on the other hand, makes life-saving drugs more widely available”.

The drug multinationals know the President’s prescription is analogous to having cakes and eating them. It is the rights on blockbuster drugs that are the foundation of the industry’s huge profit margins, its vast research facilities and lofty share prices. Back in the US, Mr Bush has shown a willingness to curb the overenthusiastic exercise of patent rights. New rules come into force this month that will prevent companies from using dilatory tactics, such as multiple lawsuits to delay patent expiries. The new rules also outlaw the filing of frivolous patents relating to packaging or non-therapeutic ingredients, another legal tactic used by branded drug companies. The President said: “We cannot afford to have generic drugs delayed because of loopholes in the laws and regulations.”

Worse is on its way for drug companies. A Bill is moving through Congress that could turn the designer boutique that is the US prescription drug market into a discount warehouse. In July the House of Representatives voted by a massive majority in favour of the Pharmaceutical Market Access Bill, which would allow Americans to buy prescription drugs reimported from countries, including Canada, where government regulations force manufacturers to supply the drugs at much lower prices.

The bipartisan Bill gained the support of 87 Republicans, reflecting mounting anger at the cost of medicines. The mood could extinguish pro-business opposition in the Senate, leaving just the President with the politically unpalatable option of using his veto to protect big business. Even that might prove futile as American pensioners are already flouting the law, buying drugs from Canada via the internet.

In Bombay and Bangalore, generic drug makers are smiling. They have seen this before. In 1970 India scrapped patent protection of original molecules, allowing anyone to reverse-engineer a drug and sell it cheaply. For a country with huge health problems and rudimentary infrastructure, patent protection was a luxury it could not afford. Foreign drug companies fled, and they left a door wide open.

In walked Dr Reddy’s and Ranbaxy Labs, the local upstarts, which have transformed themselves in a decade from backstreet pirates to ferocious courtroom litigants. By successfully challenging US patents that are due to expire, generic manufacturers can secure a 180-day exclusive right to market a drug. Dr Reddy’s made a mint in 2001 selling a generic version of Eli Lilly’s Prozac, taking an 80 per cent share of the market in the space of eight weeks. Using the same legal route, Ranbaxy has gained 90 per cent of the market for GlaxoSmithKline’s antibiotic Ceftin.

Branded drug companies are expected to lose their legal rights to some $40 billion (£25 billion) worth of sales over the next few years, a potential goldmine for India’s generic drugs industry. But the Indian companies know better than anyone that, ultimately, the generic game is self-defeating. When Dr Reddy’s lost its six-month exclusive right to sell its copy of Prozac, rivals stepped in, sales slumped and Dr Reddy’s share price plummeted.

Manufacturing is a game anyone can play. With the benefit of patent protection, GSK sells its anti-Aids cocktail Combivir to the NHS for £11 a daily dose, but its manufacturing cost is just $1 a day, the price it has agreed for poor countries.

India has done a dollar a day. It is not a future worthy of aspiration. In 2005 India will return to the fold with patent laws that will scupper the backstreet pirates. The challenge is therefore to discover new drugs through research, and Dr Reddy’s has had some false starts: two diabetes drugs failed to survive clinical trials despite support from the major European companies Novo-Nordisk and Novartis. The going is tough, as the drug multinationals know only too well.

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