TWN Briefings for WSSD No.7
Pills, Patents and Profits: The Fight for Affordable Medicines for All
By Cecilia Oh
Six years ago, the advent of antiretroviral (ARV) therapy revolutionized treatment for HIV/AIDS patients. ARV drugs now save, extend and improve the lives of people with AIDS. Yet, only 4% of the people in developing countries who need such treatment have access to it. Thousands die every day because they cannot the treatment. This daily tragedy raises the question of why these life-saving drugs are so expensive.
A comparison of prices for HIV/AIDS drugs illustrates the fact that drug companies sell their medicines at much higher prices than those charged by generic producers. The US price of 3TC (Lamivudine) marketed by Glaxo is US$3,271 per patient a year, whilst Indian generic producers, Cipla Ltd and Hetero Drugs Ltd offer their generic versions for US$190 and US$98, respectively. For Zerit (Stavudine), Bristol-Myers Squibb’s US price is US$3,589 per patient a year, compared to US$70 and US$47 from Cipla and Hetero, respectively. For Viramune (Nevirapine), the US price offered by Boehringer Ingelheim is USD3,508, compared to the Cipla and Hetero prices of US$340 and US$202, respectively. Cipla’s recent offer of US$350-600 for one year’s supply of a three-in-one combination of these three drugs is further proof that the US$10,000-15,000 price for the branded medicines is too exorbitant.
PATENTS AND PRICES
Prices of branded or patented drugs are often far higher than prices of similar products by alternative or generic sources. When drug companies sell a product in different countries, they often adopt price differentiation, setting price levels according to what the individual market can ‘bear’. So, where no alternative is available, the product can be sold at the highest price possible. Where generic alternatives are available, the price of the patented drug drops. Profit maximization through elimination of competition and maintenance of market monopoly seems to be the main objective, and patent protection is the most effective tool for international drug companies to keep out competition from generic producers and maintain monopoly control.
It is now recognized that the current regime of patents being ‘globalized’ by the WTO is one important cause of this problem. The TRIPS Agreement in the WTO obliges all WTO Members to recognize patents in respect of drugs, thereby enlarging and entrenching the rights of patent holders at the expense of consumers. The effect of such all-encompassing patents has been to confer monopoly rights on international drug companies in the production and distribution of their patented drugs. By shutting out competition, TRIPS gives drug companies the ability to charge high monopoly prices for their drugs.
The crux of the issue is how to make medicines more affordable to more people who need them. HIV/AIDS drugs are just one high profile example. Many other drugs for tuberculosis, malaria, cancer, asthma, diabetes and Parkinson’s Disease, among others, are made unaffordable, simply because drug companies have been able to block competition from other firms and products through the use of patents.
THE DOHA DECLARATION ON TRIPS AND PUBLIC HEALTH
While TRIPS obliges WTO Members to provide patent protection for drugs, it also allows them to take certain measures (e.g., government use of patents, compulsory license, parallel importing and exceptions to patent rights), which override or limit patent rights under certain conditions. These measures have, in fact, been introduced by the developed countries as means of balancing patent rights with the public interest of encouraging competition, consumer protection and, in the case of drugs, access to affordable medicines.
There are many examples of the use of compulsory licensing and government use of patented inventions, on grounds of public interest, in the developed countries, all of which are deemed TRIPS-consistent. In developed countries like the US, Canada, the UK and other EU countries, governments have broad powers to override patent rights, through compulsory licensing, government use and exceptions to patent rights. Parallel importing is also allowed under TRIPS, which states that WTO Members are free to choose their own regime of exhaustion of patent rights.
Yet, developing countries were hesitant to use the same measures. Through a combination of political pressures, legal challenges and other tactics, the developed countries and the drug company lobby have endeavoured to discourage and prevent developing countries from exercising their rights under TRIPS to use compulsory license or parallel import measures.
The public outcry over such moves generated an international debate and led to a worldwide campaign on patents and public health. Developing countries pushed for an interpretation of TRIPS which guaranteed the right of WTO Members to use measures such as compulsory licences and parallel imports. The result is the Ministerial Declaration on the TRIPS Agreement and Public Health, adopted by the WTO Members at the Doha Ministerial Conference (November 2001). The Doha Declaration states that the TRIPS Agreement ‘does not and should not prevent Members from taking measures to protect public health’. It also reaffirms the right of Members to issue compulsory licences (and the freedom to determine the grounds on which the licenses are granted) and confirms the right of WTO members to make use of parallel importing.
The Doha Declaration represents a political victory for the developing countries and civil society organizations that fought for the recognition of the basic principle that the public health interests should take precedence over commercial interests in the implementation of TRIPS and patent laws.
TRANSLATING POLITICAL GAIN INTO PRACTICAL REALITY
The hard-fought victory at Doha must now be translated into a practical reality in the developing countries. Indeed, the Doha Declaration not only clearly confirms the flexibility available in TRIPS but stresses that countries should implement TRIPS in a manner to promote access to medicines for all.
Implementing the Doha Declaration would involve three key elements: (a) the need to align national patent legislation to put into effect the rights so recently affirmed at Doha; (b) the need to assess and determine the appropriate option (or combination thereof) suited to the national situation regarding drugs; and (c) the need to clarify and establish administrative procedures and practical policies for implementation.
There should be appropriate compulsory licensing, government use and parallel import provisions in the national laws, which should be used. Developing countries that are able to locally manufacture drugs on a viable scale should promote such production. Where necessary, compulsory licenses can be issued, or government use made to enable such production. Where production is not possible, the options of parallel importing and compulsory licensing to import a generic equivalent could be employed.
For the local manufacture of the drugs, options include 1) manufacture of drugs that are not under patent locally, where there is no restriction (in terms of the patent laws) on the production of the drugs; 2) manufacture through government use, or for public, non-commercial purpose, where a public agency or a government contractor undertakes the production of a patented drug on the ground that such production is required to fulfil a public (and not-for-profit) purpose; and 3) manufacture under compulsory license, where the private and public sector can produce the patented drug on a commercial basis. Manufacture under a compulsory licence can also be done as a joint venture between local and foreign companies. There are however, limitations on the export of drugs produced under compulsory licence.
For import of drugs, there are a number of options, too. 1) Import under Government use, or use for public, non-commercial purposes, where the government or its agent can import generic versions of a patented drug from countries where the product is not under patent, or where the manufacturer has a compulsory license to produce in its country. 2) Import through compulsory license, where a compulsory license can be issued by the government to an applicant (a company, government agency, NGO, etc) to import generic versions of patented products from other countries where the products are not patented, or where the manufacturer has been given a compulsory license to produce its own version of the patented product in its country. 3) Import through parallel importing, where a company or NGO or government agency can import a patented drug from another country where the same patented product is sold at a lower price. The importer does not need a compulsory license to import. The condition is that the importing country must have adopted the appropriate legislation allowing this measure.
In designing a suitable implementation system for these options, the following should be kept in mind: (1) the system should not be overly legalistic or expensive to administer; (2) the provisions for ‘government use’ and compulsory license should be strong as TRIPS gives governments broad powers to do so. The provisions in developing countries should not be weaker than the US, UK or other developed country provisions. (3) There should be clear guidelines for fulfilling the conditions for the use of government use and compulsory licenses, e.g., for payment of compensation to the patent holder. In some developed countries the compensation is 2% to 8%, and a recent UNDP report had suggested a 4% average.
The experience of the developed countries has shown that measures like compulsory licensing and government use have proved effective in mitigating against monopoly control of the market and in inducing price reductions. The mere existence of the legal provisions may also be sufficient to persuade patent holders to act reasonably, and balance the bargaining positions of the negotiating parties. For instance in Brazil, the fact that the government had enacted compulsory license laws, and the serious preparations it made to issue compulsory licenses contributed to the significant decline in the cost of the relevant patented drugs.
WSSD: SUPPORT AND STRENGTHEN PUBLIC HEALTH
The issue of public health and patents is also to be addressed in the WSSD process. The draft Plan of Implementation, makes references to the issue of public health and patents. In particular, Paragraph 88, specifically refers to the TRIPS Agreement and public health issue. However, the text of the paragraph contain different options which remain in square brackets, meaning that there has not been agreement on the final text.
It is likely that negotiations on this paragraph will focus on two opposing options; one which supports and strengthens the spirit and objectives enshrined in the Doha Declaration on TRIPS and Public Health, and the other which seeks to limit the political gains obtained in the Doha Declaration. The Doha Declaration is significant because it recognises the negative impacts of an inflexible implementation of TRIPS, and therefore, the need to balance commercial interests in patent rights with that of public interest in ensuring access to medicines. To preserve this political gain, the Plan of Implementation must stress the need for all governments to respect and implement the legal rights affirmed by the Doha Declaration.
Developing countries in the WTO, fought a hard battle to have recognition of the flexibility in TRIPS which enable Members to take measures to protect public health and promote access to medicines. It will be important to ensure that these efforts are supported in the WSSD, and that the political and legal gains made in Doha are not diluted or negated in Johannesburg. Indeed, the WSSD process should build on the political momentum generated by the Doha Declaration and the international campaign on access to medicines.