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MEDICINES FOR THE FUTURE

Y.V.S.T. Sai, IRS
Shyamprasad Institute for Social Service
Hyderabad

"Health for All" is the cherished dream of  all the countries. Yet, one third of the world's population lacks access to essential drugs. Over 50 per cent of people in poor Afro-Asian countries do not have access to even the most basic essential drugs [1]. Global turnover of pharmaceutical Industry in the year 1999 was about US $ 185 billion out of which USA, Europe and Japan together take a share of more than 80%. Indian industry commands a tiny share of 1.3%. Bulk drugs account for 21 %  of this share and formulations take 79 %. More than 20,000 registered manufacturers operate in India. Share of  MNCs in Indian industry had fallen from 75% in 1971 to around 35 % at present, mainly due to flexibility in Patent laws. Indian exporters also have major presence in generic markets and over 60 % of Indian bulk drug production is exported [2]. Fears are galore in several quarters that, after 1-1-2005, the situation may under go drastic change with the dangers of small industry being wiped out, few big players acting as contract manufacturers for foreign MNCs. However, Indian MNCs like Dr Reddy Labs and Ranbaxy are likely to derive major benefits.  Several billions of dollars are spent every year in the world on R&D to find cures to diseases. However, out of this, only 5 % is on diseases affecting population of  developing countries. Some of the giant pharmaceutical corporations seemed to have instructed their scientists not to look in to development of drugs that would not generate minimum revenue of US $ 500 million.

            Some of the international experts feel that the real problem in lack of access is not patents. Drug prices rise with per-capita income, fall with per-capita consumption volume, fall with price controls, and rise with patent protection. Economic theory identifies four reasons for  price differences: retail price discrimination, vertical pricing inefficiencies, free riding on fixed distribution costs, and differential price controls [3] . As per the report of IIPI [4], without patent incentive, state of art drugs would not be available even to the wealthiest customers in Africa. Acute lack of access to drugs prevails, though several antiretroviral drugs are not patented in Africa. Even off-patent drugs are unavailable. Lack of health care infrastructure for testing, storing, distributing medicines and monitoring patient compliance is cited as the reason. Therefore, even if AIDS drugs were given free, not more than 10 to 20 % of Africans would benefit. As per IIPI, patients in poor countries require two kinds of subsidies. An indirect subsidy form consumers in developed countries in the form of higher prices and a direct subsidy of funding by their own governments. Hence, financing emerges to be the most critical aspect and TRIPS or no TRIPS, access to medicines in poor countries like those in sub-Saharan Africa would remain a distant dream if finances do not exist. The role of State is of paramount importance in such setting.

            The situation varies in countries like India and Brazil, which established reasonable  infrastructure. Here, abnormal drug prices could deprive access for large chunks of (especially rural) population. Trends of household expenditure in India show that there is increase in expenditure in health and most of it is from out of pocket expenses. After 1-1-2005,  as per the view of Jayshree Watal [5], drugs that are already in market, may not witness price rise and  patent applications are filed only in important markets. Close substitutes also, determine the price of the product and it is rare to see a disease conditions with only one drug to cure. As per this view, price increase on account of product patents could be about 250 % under certain conditions.      

The average cost of producing a new, innovative drug, is expected to be around US $ 100 million to 800 million.  This requires huge investments in R&D and the contribution of the private sector is undeniable. Patents are necessary to ensure flow of funds into R&D [6]. However, it has to be watched, whether the income from patents generated by foreign firms would be used to develop medicines for poor or whether patents would provide incentives for local R&D or only lead to importation.
           
        At present, even in countries like USA, the patent system is under crisis due to
  • grant of patents on developments of secondary or no technical relevance, which are often effectively used to block legitimate competition;
  • doubtful nature of cost efficiency of pharmaceutical R&D
  • underestimation of role of public sector in drug research
  • lax application of standards resulting in  “low quality” patents with broad scope
  • huge costs of litigation stifling competition and
  • ever greening of patents through refinement in processes

In this regard, Médecins sans Frontières (“MSF”) and other NGOs,  raise the following concerns [7]:

  • Though increased patent protection leads to increase in number of new drugs, higher prices would prevent access leading to widening access gap between rich and poor.
  • Enforcement of WTO rules can cause negative effect on local manufacturing capacity and  sources for generic drugs may be remove and
  • TRIPS may note encourage adequate R&D in developing countries  due to lack of profit potential

During the course of trade negotiations under Uruguay Round that led to formation of WTO, developing countries had to bargain from a position of weakness and had no other go excepting conceding to the Agreement on TRIPS as part of the package deal. TRIPS Agreement is seen as a major victory for pharmaceutical companies and they try to ensure that protection levels are jacked up further. With the plight of AIDS patients invoking international reaction, the matter was hotly debated at the fourth Ministerial Conference of Members of WTO countries at Doha held in November, 2001. A declaration on TRIPS was demanded by developing country members. Pharma Industry argued that a declaration was not necessary because patents are not the real problem and weakening patent protection causes devastating effects on R&D. In fact,  US companies asked the USTR to re-open the negotiations even after an agreement was reached. The generic drug industry welcomed the Declaration but expressed fears  about possible unilateral pressures on scuttling  full use of the Declaration [7].

            At the end of a prolonged debate, The Ministerial Conference at Doha affirmed the sovereign right of governments to protect public health. This is an important achievement because it explicitly accords primacy to public health over private IPRs and clarifies Members' right to use the safeguards available under TRIPS [8]. TRIPS Agreement does not require patents to be granted for human genes, new therapeutic uses of known substances nor on methods of medical treatment. Market exclusivity is also not envisaged under TRIPS Agreement. Safeguards available in the TRIPS agreement are in the form of compulsory licensing, government use, parallel imports and price regulation. "Bolar Exception" which permits research and testing by generic manufacturers before expiry of the patent is held to be valid by the Dispute Settlement Body of WTO in the case of  complaint of European Union against Canada. Bolar exception does not need extension for patents. Only stockpiling of drugs before expiry of patent term is not allowed.  Against this back drop, Commission on IPRs established by Government of U.K examined  legislations of 63 developing countries and found that only 8 countries specifically included a Bolar exception in their laws [9]. Why this situation prevails has to be understood.  

           In the context of  implementation of the Doha declaration, the following issues are worth examination:            
  • Efforts are necessary to obtain voluntary license before compulsory licenses are given, licenses can be issued only on case to case basis and for limited duration and scope
  • reasonable royalty has to be paid to the defaulting patent owner who refuses to sell his drugs at reasonable cost and this amounts to honouring the defaulter
  • the issue of compulsory licensing could be subject matter of  lengthy dispute and in the case of crisis, what kinds of time frames are found to be reasonable in making requests to the patent owner and consequent acceptance or rejection from his side has to be seen
  • without transparent criteria that are capable of speedy implementation,  tremendous damages could occur before compulsory licensing is granted
  • repeated attempts of compulsory licensing may invoke adverse reactions from trading partners
  • in case of parallel importation, though the "exhaustion principle" is not subject to dispute settlement mechanism (as per Article 6 of TRIPS agreement), countries like USA allow only "national exhaustion" and EU allows only "regional exhaustion"

Apart from the above issues of implementation, there are fundamental issues, which cast doubts over the very validity of TRIPS. Agreement on TRIPS   has been carved out of existing national standards of  developed countries and serious thinking is required on the issue whether such a standard could be treated as a universal minimum. History shows that IPR laws of developed countries evolved over a period of time and along with technological advancement enjoyed by those countries. A simple question that arises here is that is there any justification in forcing developing countries that stand at various stages of development to adopt accelerated standards which may not suitable for development of their societies. Also, as there is no adequate mechanism of  health insurance and the responsibility of public health falls squarely on the shoulders of State, it is worth asking whether developing countries would be in a position to safeguard human rights after conceding to a uniform yardstick of IPRs. Evidence from developed countries suggests that  price of a drug falls steeply, as soon as its patent term expires. For example, Hatch-Waxman Act of USA facilitated early entry of generics into the market in 1984 and the share of generics rose from 19 % in 1984 to 47 % in 2000 [9]. One may ask why countries like India should be deprived of taking advantage of lower prices when developed countries used the same technique few years ago.

            Some of the experts feel that TRIPS agreement is an asymmetric agreement. Under TRIPS, while protection is provided high-technology fields such as semiconductors, biotechnology, pharmaceuticals and software, areas like contribution of public research, usage of germplasm from poor countries and role of traditional knowledge are entirely excluded [8]. TRIPS could be balanced only when explicit recognition is given to all these factors through transparent procedures of valuation and legislation. The entire patenting process may have to be reviewed in this regard.

            It is also worthwhile to examine why patent rights of equal effect and duration should be granted to inventors who have made different contributions, some of them significant and others less. Every year, US grants thousands of patents for trivial developments or for substances that already exist in nature and which have merely been discovered but not invented. Patents for large numbers of trivial inventions are no great worry, because their economic value is scant or limited. However, when such patents are used by large corporations to aggressively assert rights against potential  competitors and  to elbow out  small and medium sized firms with no means for costly and lengthy litigation out of the market, the issue assumes dangerous dimensions. Median cost of US Patent litigation in 1998 as reported by New York Times was US $ 1.2 million [6].

            Ever widening of subject matter and scope are also of fundamental concern.  Yet, current trend of patenting in pharmaceutical products is revolving around variations in production processes without much activity in new therapeutic compounds. Instead of  promoting new products, this could lead to extension of  monopolies. For instance, number of new chemical entities approved for use by US FDA declined to 27 in 2000, compared to 60 in 1985 where as number of patents granted for new drug compositions was about 6730 in 2000. In the year 2000, over 355,000 DNA sequences were published in patents, a 5000 percent increase over 1990. These sequences are patented without much information about the end use raising legal and ethical questions. Data exclusivity as granted in regions like USA and European Union may extend the effective period of  patent beyond its proper term [9].

            Non-recognition of contribution of basic research done by public institutions grants undue advantage to private firms. In many cases, discovery of important new drugs is done by public institutions, and private firms develop upon this research and obtain patents. 70 % of the drugs with therapeutic gain are produced with government involvement. While granting patent to a private firm this aspect has to be kept in mind [6].

            Coming back to the implementation issues, Paragraph 6 of the Doha Declaration mandates measures for countries without any manufacturing facilities. Currently, at the TRIPS Council of WTO, discussions are being held on this issue. USA states that only medicines are to be covered under the discussions. Developing countries say that all pharmaceutical products like diagnostic kits and technologies related to treatment should be covered. Besides, to determine eligibility for exports, criteria like development, income or size are advocated by developed countries [10].  At present, there is no significant progress in the discussions as Members are largely restating their old positions. Recently, Switzerland proposed that exports to be sent to such destinations should be clearly marked and diversion should be prevented through distinct labeling and packaging marks [11].  Members of WTO have to find reasonable solutions for this problem.

               In issues outside TRIPS Agreement, constant pressures are being applied on developing countries to implement "TRIPS plus" legislations as TRIPS permits higher standards. Countries like USA are utilizing this provision to create a ratchet of IPRS through BITs (Bilateral Investment Treaties) and treaties under other organizations like WIPO. Bilateral treaties of USA with Jordan and Nicaragua could be cited as examples in this regard.

            Drug cartels are also going to be a major nuisance as  evident from the recent vitamin cartel episode [12]. Last year, European Commission levied the biggest  fine of 855 million Euros on  some of the world's largest pharmaceutical companies for operating an illegal price-fixing cartel for Vitamins throughout the 1990s. Senior executives of 13 drug companies collaborated and cheated European consumers for billions of  dollars through price fixing of vitamins used in  products such as cereals, biscuits, drinks, pharmaceuticals and cosmetics. Roche, was given the biggest fine of 462  million euros and  BASF was fined 296 million euros. In the absence of sophisticated set-up for investigation, what would governments of developing countries do  to face these cartels is a question worth examination.

Some of the measures outside TRIPS suggested  to make drug prices affordable are [13]:

  • Price controls to restrict manufacturers' selling prices;
  • price negotiation for high volume or pooled purchasing;
  • reduced import duties and national or local sales taxes;
  • distribution of price information on drug ingredients and finished doses;
  • reduced distribution, dispensing and marketing costs;
  • promoting competition through generic products and prompt manufacture of generic drugs upon expiration of patent terms;
  • promoting conditions that would be conducive to differential pricing of pharmaceuticals
  • voluntary licensing under certain conditions for newer life-saving drugs still on patent
  • differential pricing in various market segments and
  • Purchase of patents by governments from patentees to keep them in public domain so that any one can manufacture the drug

Against these suggested measures, vital questions that would require answers are:

  • Whether political economies of countries would permit drug companies to have inter country and intra country differential pricing
  • How to separate markets and keep them insulated
  • Why at all drug companies would be interested in resorting to differential pricing when they have the powerful weapon of TRIPS in their hands and most importantly
  • Why developing countries should grant rights in the form of TRIPS to foreign companies located at foreign lands without any perceptible benefit to population of their own countries and the search for solutions outside TRIPS

            Experts feel that it is in the own interest of developing countries to seek  establishment of an IPR regime which would narrow down the scope of the subject matter, grant  period of protection  based on the breadth and content of invention, flexible from country to country (based on levels of development and intra-country distribution of income and wealth), flexible from industry to industry (distinction from goods essential to life and luxury goods) and provides extensive safeguards to the society from misappropriation of  patent rights.   Excessive emphasis on IPR protection may only lead to a situation where developing countries would  protect intellectual property of developed countries by spending billions of dollars from their resource poor treasuries without any perceptible benefit accruing to their own population. Also, roots of the problem transgresses beyond simple and protection and the real solution lies in developing a culture of creation of Intellectual Property. It is imperative to develop such culture and establish linkages between industry and science. In this regard, one should welcome the trend of partnerships between public and private institutions for research. Public research is the underlying factor responsible for private efforts in development of new drugs. In the absence of sizeable markets, private R&D would not reach the shores of poor countries. Therefore, developing countries may have to seek assistance from international projects of  public-private research.

            International community should give cognisance to the views of Commission on IPRs established by government of U.K which sums up the situation in a nice manner. The commission states that the present IPR system is not as beneficial for developing countries as for industrialized countries. The system increases costs of access for products and technologies of interest to poorer regions. The commission recommends that developing countries should not be coerced into adopting stronger IPR standards without regard to the impact on their development and poor people. On medicines, the commission agrees that without patent incentives, R&D investment would not be higher. Nevertheless, the IPR system does not play much role in stimulating research relevant for developing countries. The commission also states that countries should apply TRIPS based on their own development milestones and not by arbitrary dates. The report also discourages patent protection for plants and animals and recommends that IPR applicants should be made to disclose the geographical origin of the genetic resource and provide proof of informed consent from the community [9]. All these issues are worth serious deliberation at the conference.

References:

 1. "WTO Agreements & Public Health",  Joint Study by WHO and WTO Secretariat, Published by WTO Secretariat, 2002
 2. Information available under the head Indian Pharma Industry at www.indiainfoline.com
 3. Keith E. Maskus, "Parallel imports in pharmaceuticals: implications for Competition and prices in developing countries", Final Report to World Intellectual Property Organization Under terms of Special Service Agreement, Draft, April 2001
 4. "Patent protection and access to HIV/AIDS pharmaceuticals in Sub-Saharan Africa", Report Prepared For The World Intellectual Property Organization by International Intellectual Property Institute, 201 Massachusetts Avenue, N.W., Suite C-3, Washington, DC, 20002
 5. Watal, J. "Access to Essential Medicines in Developing Countries: Does the WTO TRIPS Agreement Hinder It?", Science, Technology and Innovation Discussion Paper No. 8, Center for International Development, Harvard University, Cambridge, MA, USA (2000)
 6. Carlos Correa, "Patent Law, TRIPS, and R&D Incentives: A Southern Perspective", CMH Working Paper Series, (WHO) Commission on Macroeconomics and Health, Paper No. WG2:12, University of Buenos Aires, November 2001
 7. Ellen ‘t Hoen, "TRIPS, Pharmaceutical Patents, and Access to Essential Medicines: A Long Way From Seattle to Doha",
 8. Ellen ‘t Hoen, "The Declaration on TRIPs and Public Health: A Step in the Right Direction", Bridges Doha Special,  November/December 2001, Year 5 No.9
 9. "Integrating Intellectual Property Rights and Development Policy", Report of the Commission on Intellectual Property Rights, London, September, 2002, Commission on Intellectual Property Rights, c/o DFID, 1 Palace Street, London SW1E 5HE
10. BRIDGES Weekly Trade News Digest - Vol. 6, Number 29    6 August, 2002
11. Bridges Weekly Trade News Digest, Volume 6, Number 32, September, 2002
12. Global price fixing, WTO Activist (wto-activist@iatp.org), 11/24/2001 
13. Report of the Workshop on differential pricing and financing of essential drugs, WHO and WTO Secretariats, 8-11, April, 2001,  Høsbjør, Norway

 

 
 
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