Jeremy Warner's Outlook: More collusion than co-operation? Shire's Emmens defends his Adderall deal with Barr

Dangers of Koizumi's shrine visit defiance; Delights of business class travel
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The Independent Online

Shire's Matthew Emmens is either being very smart or very stupid in the way he has settled an ongoing patent dispute with Barr Pharmaceuticals. Certainly the chief executive of Britain's third-largest pharmaceuticals company is being quite brave, for the US Federal Trade Commission has begun to take a particularly jaundiced view of such transactions, which it regards as a form of commercial collusion.

Last month, Bristol-Myers Squibb was banned outright from paying a generic drug maker, Apotex, to delay the launch of its generic version of Bristol's top selling anti-clotting drug, Plavix. The transaction was thought so questionable that the US Justice Department was sent in to conduct a criminal investigation. The penalties in that particular case could be extreme.

The Shire deal falls some way short of what Bristol-Myers was trying to do, but the underlying purpose is much the same. Barr had been planning to launch a generic version of Shire's "extended release" attention deficit disorder drug Adderall. The patent was being vigorously defended against this challenge by Shire in the courts. Now Barr has agreed not to market this product in the US until April 2009, giving Shire a near three-year reprieve.

Unlike the Bristol-Myers case, there is no payment, or not in hard cash anyway. But there are two related transactions which sceptical regulators might regard as amounting to much the same thing. In one of these transactions, Shire agrees to take on the development costs of one of Barr's innovations, in return for which it gets rights to the technology in European markets. Barr has also agreed to pay for the rights for a quick-release version of Adderall.

Is this all just common sense cooperation between two pharmaceutical companies who otherwise would have spent untold millions beating each other to a pulp in the labyrinthine process of US patent litigation? Or is it collusion that prevents the early launch of low-cost, generic competition to Shire's best-selling product?

Changes to the law in the US were meant to make generic challenge to established patents easier, thus helping to reduce America's gigantic drugs bill. Yet Big Pharma is with growing success managing to circumvent this intention by settling with generic competitors in return for a stay of execution.

As for Mr Emmens, he may just have structured the deal with Barr cleverly enough to avoid outright veto. There is no overt link between the patent infringement settlement and the other two transactions, which in any case seem to stand on their own merits.

To hand over hard cash to persuade a generic company to withdraw from the market, as happened in the Bristol-Myers case, is plainly pushing the boundaries too far. As it is, the generic version of Adderall, though delayed, will none the less come to market long before the patent expires. The only obvious beneficiaries of the alternative - a protracted patent dispute - would have been the lawyers. Anything that derails the legal gravy train might be regarded a triumph.

Dangers of Koizumi's shrine visit defiance

Every year since he became Prime Minister of Japan, Junichiro Koizumi has visited the shrine, incongruously located in a Tokyo suburb, to honour Japan's war dead. To the fury of the Chinese government, he did it again yesterday. What made it particularly sensitive this time around is that he chose the anniversary of the country's wartime surrender for this year's visit. It was almost as if he wanted in his dying months as the Japanese premier further to inflame relations with China.

This might seem an odd subject for a business editor to comment on, yet if you believe, as I do, that the tensions symbolised by these visits have the potential in the long run for geo-political conflict equal to if not more significant than the Middle East, then they are likely to be of the utmost interest to financial markets.

In Europe, it is unthinkable that historic national rivalries would ever again erupt into outright military conflict. The same thing could not yet be said about the Eastern fringes of Asia. China has long been a military super power. Its growing economic might is a further challenge to Japan that may lead to increasingly strained relations.

Japan, once the dominant economic force in the region, is threatened by the rise of China. The two are already at loggerheads over fishing and oil prospecting rights. Add in North Korea, an ally of China, and all the elements are there for a particularly violent eruption of seismic activity. The tectonic plates seem poised to slip.

It is impossible to exaggerate the strength of feeling that Mr Koizumi's apparent act of defiance in visiting the Yasukini shrine generates in China. Think of the offence that would be caused in Britain and large parts of the rest of the world if, say, the German Chancellor, Angela Merkel, were regularly to pay homage at the site of Hitler's Berlin war bunker, and you'd have it about right.

The Yasukini shrine honours 2.5 million war dead, including 14 class A war criminals, many of them once charged with atrocities against Chinese nationals. Yet President Koizumi chooses conveniently to airbrush these unpalatable truths from his consciousness, as indeed do large parts of the Japanese population.

China is now Japan's biggest trading partner, and its largest export market, having recently displaced the US in this regard. What's more, the Chinese development story has helped underpin Japan's economic recovery. In economic terms, China is as vitally important to Japan as the eurozone is to Britain. So why does Mr Koizumi, an otherwise reasonable politician out of the modern mould, do it, knowing the harm it inflicts on Sino-Japanese relations?

The one word answer is politics. It is estimated that more than a fifth of the ruling LDP's electoral support still has a direct connection to a living Japanese war veteran. To help secure this support, Mr Koizumi made an electoral promise to visit the shrine, and he has kept it. The diplomatic damage it causes is by the by.

Mr Koizumi has announced his intention to stand down as prime minister this autumn, so provided his successor doesn't make the same promise this particular source of friction should begin to subside. Whether we will see a corresponding thaw in relations between the two nations is more open to question.

Growing trade links might suggest that the two will eventually be able to put the past behind them, but there is nothing like national pride and perceived self interest to get in the way of common sense. There are still hundreds of Chinese nuclear missiles trained on Japan.

Something that would be regarded as taboo even five years ago - that Japan rearm itself with its own independent nuclear deterrent - is now discussed openly among right-leaning politicians. Despite the enforced disarmament that took place after the Second World War, Japan would be ready to retaliate within weeks if the need arose, they claim. There is no reason to doubt them.

Alarmist nonsense? Perhaps. It would be nice to think that politicians are all these days grown-up people who put economic prosperity before ancient national rivalries. Yet the potential for the Sino-Japanese standoff to explode into something much more serious should never be underestimated. In future years, it may be a risk financial markets will be forced to take on board.

The world's economic weight is shifting eastwards. Hitherto unpredicted influences are about to come charging in.

Delights of business class travel

Overheard in a posh City restaurant: "Surely business-class travellers won't be affected by these new security arrangements?" Oh dear.