PATENTS AND THE HIGH COST OF MEDICINES

By Martin Khor

Consumers worldwide have been grumbling about the rising cost of medicines, and AIDS patients are especially hard hit by the high cost of treatment.  Last week, the World Trade Organisation began a special discussion on how patents granted to drug companies have allowed them to jack up the prices of medicines, and what can be done about it.  This article provides a background to the patents-drug issue. 

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The rising cost of medicines has been of major concern to consumers and health groups worldwide in recent years.

In particular, the high cost of medicines for AIDS has meant that medical treatment is beyond what can be paid for by the many millions of patients with HIV of full-blown AIDS.

Health groups as well as many governments have identified the granting of patents on pharmaceutical drugs as a major cause of the rising prices of medicines.

This controversial topic was highlighted at the World Trade Organisation in Geneva last week as governments of developing countries, backed up by citizen groups, assailed the patents regime for allowing drug companies to charge exorbitant prices.

Fifty developing countries put forward a paper asserting that nothing in the WTO's agreement on intellectual property (known as TRIPS) should prevent member countries from taking measures to protect public health.

The debate took place on Wednesday in a special one-day session of the WTO's TRIPS Council in Geneva.

It had been called in the wake of worldwide public outrage on how the patents granted to drug companies have enabled them to jack up the prices of medicines needed to treat life threatening diseases such as AIDS.

Also last week, more than a hundred non-governmental organisations (NGOs) issued a seven-point challenge to the WTO to deal effectively with the drug-patent problem.

At a press conference in the United Nations building in Geneva, three leading NGOs (Oxfam, Third World Network and Medicins Sans Frontier) presented a joint NGO statement, asking the governments in the WTO to:

**  Adopt a pro-public health stand confirming that TRIPS allows countries to use measures (such as compulsory license and parallel importation) to locally make, or import and export cheaper versions of patented medicines;

** Enable governments to grant compulsory licenses on a "fast track" basis for health purposes, by removing burdensome conditions imposed by TRIPS.

** Stop putting pressure on developing countries aimed at preventing them from exercising their rights to take measures to obtain cheaper medicines.

** Agree not to take up complaints in the WTO's dispute system against developing countries for taking such measures.

** Allow developing countries to exclude medicines from being granted patents, to ensure that medicines are more affordable to the poor.

The drugs-patent issue exploded recently when 39 drug companies sued the South African government for introducing a law that makes it easier to issue compulsory licenses for medicines, and when the US took a case in the WTO against Brazil, also in relation to its law on compulsory license.

Governments in developing countries and health NGOs were outraged that companies and rich-country governments had been aggressively trying to prevent developing countries from exercising their rights to override patents through legitimate means, as allowed under TRIPS.

Previous to 1995, when TRIPS was set up, about 50 countries had excluded drugs from patentability.  Such an option is now disallowed as TRIPS obliges all WTO member countries to allow medicines to be patented.  This is why the finger is being pointed at the WTO for denying countries the choice they previously had of whether to allow drug patents.

Companies owning a patent have the exclusive right to make or sell the product. This monopoly allows the drug companies to shut out competitors. They have been able to jack up the prices of their patented medicines far above the production cost and above what would have been freely competitive levels. 

The high and rising prices have made medicines much less accessible to patients, thus hindering the treatment of infectious diseases which kill 11 million people worldwide each year.

There is, however, a saving grace in TRIPS.  In situations of emergency, in the interests of public health and on other grounds as well, a government is allowed to issue a compulsory license to another company (or to a government agency) to produce or import and sell the patented drugs.  Thus cheaper or generic versions of the branded drugs can be made available.

In issuing a compulsory license, the government need not get the permission of the patent holder, although it has to consult with the company and pay it some compensation.

Controversy arose when countries such as South Africa, Brazil and Thailand tried to make use of compulsory licenses to produce or import AIDS medicines to reduce costs.

The annual cost of a "cocktail" of three drugs to treat AIDS patients annually is around US$10,000-15,000 (when sold in the rich countries).  Very few patients in developing countries can afford treatment at this rate.

However, in India a local company, Cepla, is offering to sell (and export) a combination of AIDS medicines at the rate of less than US$300 a year.  In India, medicines are not yet subjected to patents until 2005 and thus a local company can legally produce its own versions of drugs that are patented in other countries.

Many develoiping countries are interested to import drugs from Cepla or from other companies that sell medicines are a far lower cost.  Importing under compulsory license or through "parallel importing" is allowed under TRIPS.  However, pressure has been put on some countries not to take these measures, and many countries have thus been confused whether or not they can or should import cheap generic versions of drugs.

The Brazilian government itself began producing AIDS drugs, and because of this competition the prices of similar branded products dropped by 79 percent.  Due to the lowering of costs, the government has been able to offer free treatment to AIDS patients.  It has one of the most successful AIDS treatment programmes, halving the death rate and saving US$472 million as a result of reduced hospitalisations.

A US challenge to part of the Brazilian law enabling compulsory licensing is now before the WTO.

The drug companies were afraid that competition from cheaper drug versions would displace the demand for their patented drugs, or that they would have to drastically reduce their prices to be competitive.

They were concerned that the India and Brazil examples of local production of generic drugs might spread, or that developing countries would import the cheaper drug versions from other developing counties, thus eating into their sales.

They thus lobbied governments of rich nations to put fear into developing countries not to issue compulsory licenses either to produce or import drugs.  As part of this strategy to dampen the spirits of developing countries, a court case was taken up against the South African government by 39 drug companies to challenge its medicines amendment act that facilitated compulsory licensing.

This aroused outrage in South Africa and around the world that the drug companies were so obsessed with maintaining super profits that it did not care whether millions would die of AIDS.  In South Africa a quarter of the adult population has HIV and life expectancy is projected to drop by twenty years by the year 2010. 

By insisting on their patent rights to make excessive profits, the companies were seen to be depriving patients of a chance to get treatment.   The huge campaign by NGOs in  South Africa and other countries caused the collapse of the drug industry's image, and the court case was withdrawn.

Similarly, the case taken up in the WTO by the US government against Brazil has aroused indignation that rich countries are trying to intimidate poorer countries from using the flexibility allowed by TRIPS to sideline patent rights when the public interest warrants it.

After all, if treatment for AIDS is not a good enough ground for issuing a compulsory license, then hardly anything else can be considered a valid ground.  And if this is so, then the compulsory license provision in TRIPS would be practically useless.  Developing countries would then be at the full mercy of monopoly pricing, and their people condemned to seeing medicines priced out of their reach.

The extreme urgency of this situation prompted the developing countries (led by the Africa group)  to seek a special discussion in the WTO to resolve the issue.  They hoped that at the least the WTO will confirm that countries have the right to effectively make use of compulsory licensing and parallel imports to offset abuses caused by patents.

The NGOs have also demanded that all attempts to intimidate developing countries should stop, and that there be no more cases brought against them in the WTO.

This is the background to the special meeting that was held on 20 June in the WTO's Council on TRIPS.   The outcome of this meeting was highly anticipated because it will have an important bearing on the future of healthcare and public health in the developing world.  

About the writer: Martin Khor is Director of the Third World Network.