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Guide for Policy
Makers and Researchers: Understanding the
challenge Making Essential
Medicines Available to the World’s Poor
This guide provides a brief introduction to a diverse set of debates and initiatives aimed at improving access to medicines for the world’s poor. The global pharmaceutical industry is explained, and the situation in rich and poor nations contrasted in order to highlight current efforts and challenges involved in providing access to pharmaceuticals in resource poor nations. The World Health Organization estimates that over 1/3 of the world’s population lacks access to essential medicines; those medicines necessary to ensure that most major illnesses present in a population can be treated. Making access to medicine a reality involves individuals making decisions about their own health, decisions by global bodies such as the United Nations, along with decisions made by local, regional, and national governments and organizations. This guide provides a starting point for those interested in building an understanding of how all of these decisions fit together to provide or hinder access to medicines. The conditions in each nation and region vary substantially and it is beyond the scope of this guide to highlight those differences or discuss the circumstances in each country or region. Rather, the patterns and challenges that are faced around the world are highlighted. Wherever possible links and references to materials that provide more detailed and current information are provided. Because many of the issues highlighted here involve high profile international bodies there is a wealth of information online. The Pharmaceutical Industry in the developed and developing world[1] The development of pharmaceuticals takes place in wealthy developed countries and targets health problems that are prevalent in those countries. The vast majority of pharmaceuticals are also consumed in developed countries. Approximately 85% of pharmaceuticals are consumed in the developed world[2] and 99% of new medicines are invented in the United States, Japan or the European Union.[3] The need for pharmaceutical products is just as great in the developing world, but the resources and infrastructure necessary to create, purchase and deliver pharmaceuticals are largely absent.
The most striking aspect of
the pharmaceutical industry, and the most important to understanding the
challenges involved in improving access to pharmaceuticals in developing
nations, is the way in which the industry is integrated into the industrialized
nation state. Government regulation
structures and facilitates virtually every aspect of the pharmaceutical
industry. Government regulation creates
the conditions under which pharmaceutical innovation is possible - patent
legislation and other mechanisms that provide marketing exclusivity allow
pharmaceuticals to be profitably invented and sold. Government regulation also directly supports pharmaceutical
innovation through monetary grants for research. Billions of dollars are spent by governments each year on
research that improves the scientific understanding of disease and chemical
compounds in ways that support the development of new drugs. Government regulation also ensures the
safety of pharmaceutical products through rigorous drug approval processes. Drug
approval processes in turn, both ensure that patients trust the drugs that are
marketed to them and help to minimize the legal exposure of companies selling
drugs that may have serious adverse side effects. Government regulation controls the sale of pharmaceuticals
through doctors and pharmacies and governments continue to monitor the safety of
pharmaceuticals once they are available for sale. In Europe, Japan and Canada government backed health insurance plans are
also the largest purchaser of pharmaceuticals.[5] It is not exaggeration to suggest that the
pharmaceutical industry could not exist, in anything resembling its current
form, without the complex web of government regulation and support now in
place. The
various roles that government plays in regulating the pharmaceutical industry
are to some extent in conflict. On
the one hand, encouraging innovation requires patent protection and policies
that grant market exclusivity, which drives the price of pharmaceuticals up,
while on the other hand, governments as payers for health care wish to provide
the widest possible access to needed pharmaceuticals at the lowest cost.[6] Rich country governments operate in an
environment with sufficient resources to meaningfully regulate the price of
pharmaceuticals in order to meet national priorities, provide the regulatory
environment necessary to the success of the pharmaceutical industry, and at the
same time allow pharmaceutical companies to make a profit that encourages the
development of new drugs. In developing nations, governments generally
exert considerably less control over pharmaceutical companies and the prices
charged for pharmaceuticals.[7] Limited budgets prevent governments in most
developing nations from providing meaningful regulation for pharmaceuticals;
systems to regulate which drugs are sold and the quality of the drugs that are
sold are often lacking.[8] The size of the market for pharmaceuticals
is too small to attract private sector investment in drug development, and
governments do not have the resources to fund research themselves.[9] Individuals rather than governments or
insurace plans purchase the majority of pharmaceuticals in developing nations.[10] Lastly, recent global agreements limit the
ability of poor country governments to deny patent protection to
pharmaceuticals, thus limiting the ability of governments to make medicines
available at lowest cost (see box for details).[11] The benefits that pharmaceuticals do provide in poor nations are, from the perspective of development and regulation, a spill over from the industrialized nation pharmaceutical industry. This means that pharmaceuticals tend to have sub-optimal impact in poor nations. Because the pharmaceuticals that are bought and sold in developing nations have been invented by the developed world pharmaceutical industry for use in rich countries, some are not appropriate for use in the developing world.[12] Many drugs require climate-controlled storage that is unavailable in many parts of the world or complex diagnosis and testing in order to be effective. Additionally, because drugs are developed for rich country markets, the drugs that are invented only target diseases that are prevalent in the developed world. There is no effective drug treatment for a number of tropical diseases because there is no economic incentive for private sector development of such drugs and insufficient public sector knowledge and expertise in developing nations.[13] The need to better manage pharmaceutical research, development and regulation in poor countries is clear. The next section examines the pharmaceutical industry in more detail in order to highlight problems in the developing world.
Structure of Drug Development in Rich and Poor Nations[15]
Figures 1
and 2 illustrate the structure of pharmaceutical innovation and consumption in
the developed and developing world.
Figure 1 illustrates the cycle of demand, innovation and consumption in
the developed world. In developed
countries, the cycle begins with an economic evaluation of possible research
programs by pharmaceutical companies.
Companies review the state of biomedical knowledge and their own
expertise, seeking to evaluate where further research may lead to the
development of a drug that will be economically successful.[16] Because economic success depends on demand,
and demand is, to a large extent, shaped by the health needs of people in
developed countries, such needs actually drive research. Once a
research direction is selected, time and resources are spent to identify and do
preliminary testing of new chemical entities (NCE) that might treat the
targeted condition. When promising NCEs
are identified they undergo more rigorous testing.[17] NCEs will generally be patented at this time
as well. The patent ensures that if a
NCE is successfully developed into a medicine appropriate for human
consumption, the firm making the investment will have a period of market
exclusivity.
Much of
the pharmaceutical development process is dictated by regulatory requirements
intended to insure that new drugs are proven to be effective and safe before
they are sold to the public.[18] The studies undertaken generally take years
to complete and require an investment of hundreds of millions of dollars. Recent work done by the International Conference
on Harmonization (ICH) has led governments in the world’s most important
pharmaceutical markets, the United States, the European Union, and Japan, to
adopt substantially the same criteria for drug approvals.[19] This means that the clinical testing done to
gain approval in one developed country is likely to be sufficient to gain
approval in other developed countries.
If testing is successful, which means that the NCE is effective and
relatively safe, the NCE will be approved for sale. This has an ancillary benefit in poor nations in that they have
the option of adopting ICH standards for drug review and following the
developed country lead in drug approvals.[20] Once
approved the NCE is branded and marketed to physicians and possibly
consumers. If the new drug provides
significant clinical benefit over existing therapies, either better treatment
or lower rates of side effects, it is likely to be widely prescribed. Drugs that do not provide significant
clinical benefit over existing treatments may still be widely adopted if they
enter a market with low rates of competition.
Individuals respond differently to each drug, so if there are only a few
drugs in a therapeutic class all are likely to be widely prescribed, even if
the drugs have similar rates of side effects and benefits. This means that even drugs that do not
provide a statistically significant clinical benefit over existing therapies
may be financially successful.[21] Payment
for the drug in the European Union and Japan will come primarily from
government, while in the US and Canada government and private insurance pays
for the majority of drug expenditures.
Total drug expenditure typically amounts to between 1% and 2% of GDP in
developed nations.[22] Additionally, even in the US and Canada, individuals
who are unable to pay for medicines can generally gain access through
government programs designed to ensure access for people who are unable to
afford medicines without assistance. Once a
drug is on the market the medical profession and national regulatory bodies
monitor consumption. This helps to
ensure both that individual patients receive optimal benefit and that any
dangers posed by a drug, in the form of a severe adverse reaction not found
during clinical testing, are identified and responded to. A
clinically successful drug that treats a common ailment can be worth billions
of dollars in sales per year.[23] The
situation in developing countries is strikingly different. In the developing world there is no cycle of
innovation and consumption. Rather,
there is only consumption of drugs invented for rich country markets. Figure 2 illustrates dynamics of consumption
in the developed world. Weak economic
demand means that private industry will not invest in creating pharmaceuticals
that target the health needs of developing countries.[24] Additionally, differences between the health
infrastructure in developed and developing countries are not considered in the
drug design and development process, resulting in the development of drugs that
may be difficult to store or administer.[25]
Drugs that
are likely to have a significant market in a developing country are likely to
be patented and sold in that country.
As of 1995 developing counties are obligated under TRIPS to allow
pharmaceuticals to be registered for patent protection. Patents only need to come into force at the
end of 2005 in most developing countries and 2016 in least developed countries.[27] However, virtually all developing countries
have implemented patent protection for pharmaceuticals well in advance of this
deadline.[28] Patents
have the potential to raise the cost of pharmaceuticals in poor countries.[29] The extent to which this will actually
happen and to which patents will hinder access to needed medicines is not yet known. The reason for this uncertainty is firstly,
because patent protection has only recently been available in poor nations and
secondly, because there is ongoing conflict over the extent to which poor
nations can override patent protection in order to protect public health. The patenting of drugs in poor nations is
the current subject of significant debate and the topic of Chapter 2.
In the poorest regions of
the world most pharmaceuticals are not patented. Because there is likely to be no market for high priced
pharmaceuticals in those regions, even if it is possible to register patents in
those nations the expense of doing so likely outweighs the economic
benefit. One recent study of
Sub-Saharan Africa, where virtually of the countries studied did offer patent
protection, found that only in South Africa, by far the region’s most wealth
country, are more than 8 of 15 HIV/AIDS medicines patented, with the median and
mode number of patents being 3 of 15.[34] In developing countries with a sizable middle
class pharmaceutical companies are likely to register for patent
protection. Because there are dramatic
income disparities between the richest and poorest people in developing
nations, despite widespread poverty there is a significant market for high
priced pharmaceuticals in many poor nations.
Brazil, for example, is the world’s 9th largest
pharmaceutical market, but only 48% of the population has access to even
essential medicines.[35] If patent protection leads to higher priced
pharmaceuticals in poor nations this will make providing access to medicines
significantly more difficult. The manner
in which drugs are approved and regulated in developing nations varies
significantly, but generally, the approval process, regulation and enforcement
of regulation are weak. Generally,
developing nations do not have the resources necessary to create an effective
drug approval regime that is capable of ensuring only safe and effective
medications are sold. The World Health
Organization (WHO) has a number of ongoing initiatives to enhance drug safety
in developing countries. These focus on
reciprocal licensing, through which drug importing and exporting states
guarantee to one another that sufficient inspection and safety protocols are
implemented, along with model guidelines to assist in the implementation of
policies and programs that can increase the safety and efficacy of drugs
allowed onto the market.[36] Despite international support drug
regulation is still lacking on most poor nations. According to the WHO only 1 in 6 member countries, primarily
developed countries have a developed drug regulation system.[37] Marketing of pharmaceuticals is also largely unregulated in developing countries. This means that misleading or false information about available pharmaceuticals may be communicated to consumers. When true information is communicated such information by still bias consumers in favor of more expensive brands. This is particularly problematic in regions of the world with low education and literacy rates. In such places marketing materials may be a primary source of health information.[38] The WHO estimates that worldwide 50% of medicines are prescribed, dispensed or sold inappropriately and that 50% of patients fail to take their medicines correctly.[39] While these problems exist in developed countries, due to pharmacy or physician error, or non-compliant patients, they are far more serious in developing countries where access to well-trained health care professionals and pharmacists is scarce. In India for example, 70% of people who purchase pharmaceuticals consult a pharmacists and not a doctor and 50% of people avoid free government hospitals due to fear of poor service and non-accountability.[40] Even where
people have access to accurate information about the pharmaceuticals that they
need, and systems exist to ensure that people get the correct medicines in the
correct doses, poverty remains a major barrier. According to the WHO, 1/3 of people in the developing world are
unable to afford essential medicines.
In some particularly poor regions of the world, in particular
Sub-Saharan Africa, the number of people without economic access to essential
medicines is above 50%.[41] Conclusion
The global pharmaceutical industry is clearly controlled by a relatively small number of large institutional players, primarily global pharmaceutical manufacturers and developed world governments. The industry is clearly structured to serve the developed world. There is, however, the potential for significant spillover benefit in poor nations as can be seen in the case of HIV/AIDS. The research, in particular the advances in basic scientific funded by developed world governments, is also of potential benefit to efforts now underway that aim to develop drugs outside of the global pharmaceutical industry to treat diseases that predominantly affect developing nations (see Chapter 3 for a more detailed discussion of these initiatives). However, the economic exclusion of poor nations from significant involvement in regulating and shaping the global pharmaceutical industry suggests the need for different models as efforts are made to provide access to medicines for the world’s poor.
[1] The division of the world into developed and developing world countries is somewhat artificial. There are significant differences between the world’s developing nations. Countries in Eastern Europe for example are far wealthier than those in Sub-Saharan Africa. This guide tends to minimize those differences and may make some generalizations that do not apply well to wealthier developing nations. [2] See Table 1.1 below. [3] Borrus, Michael. “The Global Pharmaceutical Market.” Hass School of Business, 2002 citing IMS Health report 2001 hereinafter “The Global Pharmaceutical Market.” [4] The patentee is the entity (person, company or institution) who owns the patent. [5] Ikegami, Naoki & John Creighton Campbell. “Health Care Reform in Japan: The virtues of muddling through,” 18(3) Health Affairs 56 at pp. 62-64. Garrison, Lou & Adrian Towse. “The Drug Budget Silo Mentality in Europe: An Overview,” 6(s1) Value in Health s1, July 2003. [6] Jacobzone, Stephane. “Pharmaceutical Policies in OECD Countries: Reconciling Social and Industrial Goals.” Labour Market and Social Policy Occasional Paper No. 40, OECD, Paris, 2000. [7] While a strong majority of poor nations lack the capacity to effectively regulate pharmaceuticals there are limited exceptions. India, for example, has a system of price controls on pharmaceutical products. See Parmar, Sharron & Vivek Divan, “Drug Financing and Price Control: Legislative Intervention in the Public Interest,” in Putting Third First: Vaccines, Access to Treatment & the Law, Canadian HIV/AIDS Legal Network, 2002. [8] WHO. “Effective Drug Regulation: What can countries do?” WHO, Geneva, 1999 at pp.13-14. [9] Henry, David & Joel Lexchin. “The pharmaceutical industry as a medicines provider,” 360 The Lancet 1590-1595, 2002, at 1592. [10] WHO. “Selected topics in health reform and drug financing.” Geneva: Action Program on Essential Drugs (WHO/DAP/98.3) hereinafter “Selected topics in health reform”, at p.4 and16, individuals’ expenditures account for 65 to 81 percent of overall heath care and over two-thirds of pharmaceutical expenditures. [11] See generally, Cohen, Jillian Clair & Patricia Illingsworth. “The Dilemma of Intellectual Property Rights for Pharmaceuticals: The tension between ensuring access of the poor to medicines and committing to international agreements,” 3(1) Developing World Bioethics 27. [12] Schweitzer, Stuart. “Pharmaceutical Economics and Policy.” Oxford University Press, New York, 1997, hereinafter “Pharmaceutical Economics and Policy” at p. 128. [13] Trouiller, Patrice et al. “Drug development for neglected diseases: a deficient market and a public-health failure,” 359 The Lancet 2188-2194 at p. 2189. [14] DiMasi, Joseph A. “Winners and losers in new drug innovation,” Medical Marketing and Media, 26(6), 98-110, Sept 2001. Hereinafter “Winners and losers” [15] This section depends heavily on Stuart Schweitzer’s excellent analysis of the pharmaceutical industry - “Pharmaceutical Economics and Policy” see note 8. Please see his book for a more complete account of the industry. For current information on the pharmaceutical industry see the Scrip Magazine, PjB Publications, http://www.scripmag.com. [16] Ibid at p. 30. [17] Ibid at p. 34. [18] See generally Blanchard, Randall IV. “The U.S. Drug Approval Process: A Primer.” CRS Report for Congress, 2001, Order Code, RL30989, available online at http://rxpolicy.com/studies/crs-approvalprocess-0601.pdf. [19] See the ICH website, http://www.ich.org in particular the page of IHC history and future activities http://www.ich.org/ich8.html accessed 2003-08-07. [20] The ICH has been criticized by groups such as MSF for threatening to raise the bar for approval of medicines in rich markets too high, thus stifling competition from developing countries. See for example MSF Access to Essential Medicines Campaign "Fatal Imbalance: The Crisis in Research and Development for Drugs for Neglected Diseases."MSG, Geniva, 2001. [21] “Pharmaceutical Economics and Policy” at 103. [22] OECD data indicate that countries spend between 6% and 13% of their GDP on health and between 10% and 20% of their health budget on pharmaceuticals. See www.odec.org accessed 2003-08-12. [23] Grabowski, Vernon H, DiMasi, JA. “Returns on research and development for 1990s new drug introductions,” Pharmacoeconomics, 2002, 20(Suppl 3), 11-29. [24] See note 5. [25] For example, there is reason to fear that wide spread use of AIDS drugs requiring complex adherence regimens in poor countries could lead to drug resistant strains of HIV, see Pharma, “Danger Head: Drug-Resistant Strains Show There Are No Simple Solutions.” At http://world.phrma.org/challenges.drug.resistance.html accessed 2003-08-12. See also Health Gap Coalition, “Myths vs. Reality: Distortion About AIDS Drugs & The Developing World.” 2001, available at http://www.globaltreatmentaccess.org/content/press_releases/01/061001_HGAP_PP_MYTHS.pdf accessed 2003-08-12 for coverage of initiatives to simplify AIDS drug regimens for poor regions. [26] While this figure represents the drug development cycle as it applies to the development of new pharmaceuticals in developing countries it is not meant to imply that there is no drug development at all in those countries. For example India has a small number of increasingly innovative pharmaceutical companies that develop new drugs for both developed and developing country markets. These companies, however, are subject to the same market pressures as developed country pharmaceutical companies and so can be expected to focus their drug development efforts on diseases that affect rich countries. 27] See the box “Where are medicines patentable” for a discussion of TRIPS, the international law relating to patents and current conflict between rich and poor nations over the implementation of patent protection for pharmaceuticals. [28] See WTO website, http://www.wto.org/english/thewto_e/whatis_e/tif_e/dev6_e.htm accessed 2003-08-12, only 11 developing countries were on record as not having implemented patent protection for pharmaceuticals. [29] See Lanjouw, Jean O. “The Introduction of Pharmaceutical Patents in India: ‘Heartless Exploitation of the Poor and Suffering’?” Economic Growth Center, Yale University, Center Discussion Paper No. 775, 1997 hereinafter “The Introduction of Pharmaceutical Patents in India” for a discussion of the likely effect of pharmaceutical patents in India. [30] Gwatkin, Davidson and Michel Guillot. “The Burden of Disease among the Global Poor: Current Situation, Future Trends and Implications for Strategy.” World Bank, Washington, 2000 p. 9. [31] Moran, Mary. “Reneging on Doha.” Médecins Sans Frontières, 2002. [32] Ibid. The “Reneging on Doha” study shows that there are patented medicines for the most important causes of mortality in Africa, but does not address off patent medicines. Most of the medicines on the WHO essential medicines list are off patent medicines. This, in together with the “Reneging on Doha” study suggests that there are pharmaceuticals to treat the majority of the major diseases affecting poor nations. [33] WHO. “World Health Report: Making a difference, 1999.” WHO, Geneva, 1999 at p. 23. [34] Attaran, Amir & Lee Gillespie-White. “Do Patents for Antiretroviral Drugs Constrain Access to AIDS Treatment in Africa?” 286(15) Journal of the American Medical Association 1886. Please not that this paper was enormously controversial when published. It has been used by the innovative pharmaceutical manufacturer lobby to suggest that patents do not affect access to medicines. The paper does not make such an argument, and can not responsibly be taken to imply that patents do not generally affect access to medicines. [35] Schweitzer, Stuart. “Pharmaceutical Economics and Policy.” Oxford University Press, New York, 1997, p 129. [36] See the WHO website “Essential Drugs and Medicines Policy” at www.who.int/medicines and in particular the section on “Quality Assurance and Safety of Medicines” at http://www.who.int/medicines/organization/qsm/orgqsm.shtml. See for example Woo-Ming, RB. “The drug regulatory and review process in Guyana,” Journal of Clinical Pharmacology, 33(1), 14-21 for a review of Guyana’s success in adopting WHO programs to improve the safety of drugs entering the country. [37] According to the WHO only 1 in 6 member nations have well-developed drug regulation systems. WHO Essential Drugs and Medicines Policy website, Drug Regulation and Quality Assurance Systems page at http://www.who.int/medicines/strategy/quality_safety/stqsmdrqa.shtml accessed 2003-08-12. [38] Mintzes, Barbara. “Blurring the Boundaries: New trends in drug promotion.” HAI-Europe, 1999, available at http://www.haiweb.org/pubs/blurring/blurring.intro.html accessed 2003-08-12. Covers drug promotion in developed and developing world, see in particular Ch. 1. [39] World Health Organization, “Promoting Rational Use of Medicines: Core Concepts”, WHO, Geneva, World Health Organization, 2002 [40] Script, Nov. 1, 2002, Issue 2795, p. 19, Study by the National Pharmaceutical Pricing Authority. [41] Habiyambere, V, et al. “Progress of WHO Member States in developing national drug policies and in revising essential drug lists.” World Health Organization, Geneva, 1998. WHO document number WHO/DAP/98.7. See Table 6, p. 12. Hereinafter “Progress of Who Member Sates”
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Access to Medicines: Current Information There are several websites devoted to the topics covered in this guide.
§ The Consumer Project on Technology (CPTech) website provides a comprehensive introduction to intellectual property rights and health. o Consumer Project on Technology: http://www.cptech.org/ip/health/ § CPTech also runs a moderated discussion group, IP-Health, that covers recent developments related to intellectual property regulation and access to pharmaceutics. o IP-Health: http://lists.essential.org/mailman/listinfo/ip-health § The Doctors Without Borders/Médicins Sans Frontières (MSF) Access to Essential Medicines Campaign website provides a critique of current international efforts to provide access to medicines. The MSF website focuses both on intellectual property regulation as it effects access to medicines and on the development of drugs to treat diseases specific to developing countries. o Doctors Without Borders (MSF): http://www.accessmed-msf.org § The World Health Organization (WHO) website on essential medicines is a good starting point for information on the factors that affect both the price and the quality of medicines dispensed in the developing world. E-Drug is a discussion group devoted to current issues related to the efficient provision of drugs in the developing world. o World Health Organization: http://www.who.int/medicines/ o E-Drug: http://www.essentialdrugs.org/edrug/about.php § The World Trade Organization (WTO) website provides a good overview of the Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement, the most recent and most important treaty covering intellectual property. o World Trade Organization: www.wto.org § The World Intellectual Property Organization (WIPO) website provides a more general introduction to global regulation of intellectual property. o World Intellectual Property Organization: http://www.wipo.org/ § The Bridges website provides extensive coverage of intellectual property regulation as it pertains to development and access to medicines. o Bridges: http://www.ictsd.org/iprsonline/resources/health.htm § The ELDIS website focuses on development issues and has a section devoted to intellectual property rights. ELDIS provides current news updates and summaries of articles related to intellectual property in the developing world, including access to pharmaceuticals. o
ELDIS on Intellectual Property Rights: http://www.eldis.org/ipr/index.htm
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Understanding Patents on Pharmaceuticals Patents
are a policy tool used to encourage innovation and the diffusion of
knowledge. Patents provide an incentive
for inventors both to invest in creating new useful knowledge, and to make that
knowledge public. A patent grants to
the patentee[1] the right to
control the use of an invention for a period of time, generally 20 years. The patentee can license the use of the
invention to others, or produce and sell the invention without competition.[2] The patent is an incentive and reward
because it ensures that the patentee will be able to benefit from any
commercial opportunities that derive from the invention. At the end of the patent period the
invention is no longer protected and can be used by anyone. The need for patent protection in order to encourage the creation of new pharmaceutical products is clear.[3] Pharmaceuticals are expensive to invent but cheap to copy and manufacture. Estimates of the cost of developing a new drug vary between $200 million and $900 million.[4] Even at $200 million, drug development requires the expenditure of a massive amount of capital. In contrast, producing copies of a drug that already exists is a relatively inexpensive exercise. Without patents (or some other sort of protection) every drug, would be copied by rival companies, that did not have to spend millions on drug development, and price competition would make it impossible to recoup the research investment. Without patent protection companies would be unwilling to invest the hundreds of millions of dollars necessary to invent new drugs. While patents do encourage innovation they also have a cost. Generally, the price of an item under monopoly is higher than it would be under conditions of competition. This means that some people who could afford the item under conditions of competition are unable to afford the item when sold at a higher, monopoly price. Economists refer to the lost sales as dead weight loss. If it is a life saving drug that is under patent protection, and the patent monopoly causes a dead weight loss, patent protection poses a serious ethical dilemma, between encouraging innovation that will help people in the future, and the current health of individuals in need of medicines that have already been invented.[5] In the case of some drugs, in particular drugs to treat HIV/AIDS, patent protection has had the effect of limiting access.[6] In developed nations, governmental programs for the poor generally ensure that people will have access to the medicines they need. This means that in developed nations there is generally no dead weight loss due to patented pharmaceuticals. In poor nations, however, the prices charged by pharmaceutical companies may cause dead weight loss. The government in many developing countries cannot afford to provide drugs for people who cannot pay. Most households in developing countries pay for their own medicines.[7] It is important to note that patents are not the only or even primary cause of limited access to essential medicines in poor countries. While there is a potential for dead weight loss, many people in poor countries cannot afford life saving drugs even if they were sold for the same price that they cost to produce.[8] In addition, regulatory and institutional barriers play important roles in limiting access to medicines in developing countries. For example, in India drug patents have been largely non-existent for the past 30 years, yet over 70% of the population still lack access to needed pharmaceuticals.[9] What high in-patent prices do for pharmaceuticals is place them even further out of reach for many of the world’s poor. This makes the job of governments and organizations mobilizing resources to provide access to medicines more difficult than it would otherwise be.
[1] The patentee is the entity (person, company or institution) who owns the patent. [2] Correa, Carlos. “Integrating Public Health Concerns into Patent Legislation in Developing Countries.” South Centre, Geneva, Switzerland, 2001, p. 2. [3] Patents are not the only policy tool that can be used to encourage the production of pharmaceuticals, tax incentives, grants of market exclusivity outside of the patent system, research grants can all encourage the development of pharmaceuticals. Patents remain the dominant policy tool used to encourage innovation and it is widely accepted that patents on pharmaceuticals are a precondition for industry research. There are, however, areas of medical science and drug development where patents may stifle innovation. This issue has been intensely debated in the context of genomics. See for example Caskey, Thomas. “Gene Patents – A Time to Balance Incentives,” 14 Trends in Biotechnology 298-302, (1996). See also Bar-Shalom, Avital & Robert Cook-Degan. “Patents and Innovation in Cancer Therapeutics: Lessons from CellPro,” 80(4) The Milbank Quarterly 637, (2002) for a case study detailing the potential of overbroad and inflexible patents to restrict innovation. See also the Canacan Foundation website for details of ongoing litigation seeking to challenge patents arising from research done with donated human tissue at www.canavanfoundation.org, see the first judgement in the case at Greenberg v. Miami Children’s Hospital Research Institute, Inc. 264 F.Supp.2d 1064, S.D. Fla., 2003. [4] See DiMasi, JA, et al. “The Price of Innovation: New Estimates of Drug Development Costs”, Journal of Health Economics, 22(2), 151-185. 2003 for the $900 million estimate. See Public Citizen, “America’s Other Drug Problem: A Briefing Book on the Rx Drug Debate.” Public Citizen, 2002, Washington, DC for the lower $200 million estimate. [5] The presence or absence of a patent alone does not determine drug pricing or profitability. The price of a patented pharmaceutical is highly dependant on the degree of clinical benefit the drug provides over existing treatment options and the number of other drugs that treat the same condition. See Schweitzer, Stuart. “Pharmaceutical Economics and Policy.” Oxford University Press, New York, 1997, p. 102. [6] Until recently the price of pharmaceuticals in South Africa was significantly higher than lowest available generic prices due in large part to patent protection. Treatment Action Campaign. “The Competition Commission Complaint: Questions and Answers.” TAC website, accessed 2003:08:05, http://www.tac.org.za/Documents/DrugCompaniesCC/QuestionsAndAnswers.pdf [7] Balasubramaniam, Kumariah. “Access to Medicines: Patents, Prices and Public Policy – Consumer Perspectives,” in Global Intellectual Property Rights: Knowledge, Access and Development, eds. Peter Drahos & Ruth Mayne, Palgrave MacMillan, 2002. [8] See Chapter 1 page 7 (including footnote 30). [9] See Lanjouw, JO. “The Introduction of Pharmaceutical Patents in India: ‘Heartless Exploitation of the Poor and Suffering’?,” NBER Working Paper NBER No. 6366, p. 30. 1997 available at http://www.cgdev.org/nv/lanjouw_drugs.pdf |
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Where are Medicines Patentable: international trade and
patents in poor nations. The Trade Related Aspects of Intellectual Property Regulation (TRIPS) agreement radically altered the role of international trade law in promoting and enforcing intellectual property protection around the globe. TRIPS is an international agreement that requires members of the World Trade Organization (WTO) to implement strong intellectual property protections in their domestic law. Along with this change, patent protection for pharmaceuticals, and the impact that such patent protection is likely to have on access to medicines for the world’s poor, has become a major source of conflict between rich and poor nations. This chapter discusses TRIPS, and explains why it has become the centre of heated debate. The New Global Intellectual Property Rules
While there have been international agreements on intellectual property and patent protection for over 100 years, such agreements have been largely unenforceable.[1] Until 1994 countries were largely free to design their own intellectual property regimes.[2] This meant that countries could choose to provide no patent protection for pharmaceuticals. In 1994, the countries that founded the WTO approved a package of agreements that all WTO member states must accept and implement in their domestic law. The TRIPS agreement was one of those treaties. TRIPS is the first comprehensive multilateral intellectual property agreement that requires the domestic implementation of specific levels of intellectual property protection and enforcement mechanisms for IPRs.[3] As a WTO agreement, non-compliance with TRIPS can be challenged under the WTO dispute resolution process, leading to trade sanctions against countries that fail to implement the agreement. Under TRIPS all WTO member states must implement 20-year patent protection for all inventions that meet general criteria for patentability. Countries must also enforce patents equally, regardless of industry, and provide the same protection to all persons, provided they are citizens of, or corporations registered in, a WTO member country. TRIPS specifies a minimum level of intellectual property protection, and grants countries some latitude in national implementation, but broad exceptions for pharmaceuticals are not possible.[4] By 1994, most developed countries already had patent laws that were largely in compliance with TRIPS.[5] Developing nations were given until the end of 2005 to bring their legislation into compliance. In 2002, the world’s Least Developed Counties (LDCs) where given an extension until 2016 to bring their legislation into compliance.[6] However, by 2002 most developing countries were TRIPS compliant. Poor country governments agreed to TRIPS reluctantly in order to gain other concessions from rich countries, such as the lowering of trade barriers on agricultural products.[7] As a result, some developing country governments have had trouble implementing the TRIPS agreement. India, for example, has a vibrant, but non-innovative pharmaceutical industry that has been nurtured by the absence of patent laws on pharmaceuticals. The Indian Parliament has several times rejected proposed amendments to patent protection laws that would bring the laws in line with the requirements of TRIPS.[8] TRIPS Flexibilities and Access to MedicinesAt a result of developing country concerns[9] over the rights of governments to limit TRIPS protection in order to safeguard public health, at the WTO Ministerial Meeting in Doha, Qatar, 2001, the WTO member states issued a the ‘Doha Declaration’ on the TRIPS agreement and public health, stating at paragraph four: We
agree that the TRIPS Agreement does not and should not prevent members from
taking measures to protect public health.
Accordingly, while reiterating our commitment to the TRIPS Agreement, we
affirm that the Agreement can and should be interpreted and implemented in a
manner supportive of WTO members' right to protect public health and, in
particular, to promote access to medicines for all.[10] While this declaration suggests that governments can take a number of measures to protect public health, the extent of that power is not well defined. In particular the Declaration seems to support the position that nations can engage in compulsory licensing in order to facilitate access to medicines, more on compulsory licensing below. However, the authority of the Declaration is unclear. Ministerial declarations can provide guidance to tribunals arbitrating trade disputes and interpreting the clauses of WTO agreements. Ministerial declarations cannot, however, override the text and substance of WTO agreements.[11] There have been no trade disputes related access to medicines since the Doha Declaration was issued, so the impact that it will have on TRIPS remains unclear. The TRIPS agreement itself provides some recognition that intellectual property rights can be overridden in order to safeguard public health. Article 8(1) of TRIPS holds that: Members may, in formulating
or amending their laws and regulations, adopt measures necessary to protect
public health and nutrition, and to promote the public interest in sectors of
vital importance to their socio-economic and technological development,
provided that such measures are consistent with the provisions of this
Agreement.[12] In addition, the two most widely recognized flexibilities allowed under TRIPS, parallel importation (See here for more on parallel importing)[13] and compulsory licensing, may grant countries significant flexibility to override pharmaceutical patents, particularly in light of the Doha Declaration. There is debate over the circumstances under which, and the obligations that accompany, the issuing of compulsory licenses. Compulsory licensing occurs where a government grants a license for the use of a patent without the consent of the patent holder. Debate is even more heated over the provision of an alternative to compulsory licensing for countries that cannot practically issue such licenses because they do not have domestic pharmaceutical manufacturing capacity. Many developing countries lack the necessary technology and expertise to manufacture generic pharmaceuticals. Under current international law these countries lack a mechanism for overriding patent protection in order to gain access to needed pharmaceuticals in even the most dire of circumstances. The Doha Declaration, at paragraph 6, committed WTO member states to resolving this issue by the end of 2002, but to date, no solution has been forthcoming.[14] [1] The Paris Convention for the Protection on Intellectual Property, 1883, amended 1979 is the most important treaty protecting patent rights prior to the TRIPS agreement. The Berne Convention for the Protection of Literary and Artistic Works, 1886, amended 1979, is the most important treaty protecting copyright prior to the TRIPS agreement. Both agreements continue in force. See the WIPO website for the text of both agreements: http://www.wipo.int. [2] Some regional trade agreements, such as NAFTA, incorporated IPR protections, but this is a relatively recent trend. [3] There are a number of treatises and articles discussing the general attributes of TRIPS. Gervais, Daniel. “The TRIPS Agreement: Drafting History and Analysis.” Sweet & Maxwell, London, 1998, [hereinafter “The Trips Agreement.”] provides a comprehensive article-by-article analysis, including drafting history, of the agreement, prefaced by a useful history of the agreement’s negotiation. [4] Carlos Correa provides an analysis of the flexibilities available to developing nations in the TRIPS agreement in “Integrating Public Health Concerns into Patent Legislation in Developing Countries.” South Centre, Geneva, 2001. [5] Even in the run-up to the Uruguay round of trade talks intellectual property exceptions for pharmaceuticals were not unheard of in the developed world. Canadian patent law only closed compulsory licensing exceptions for pharmaceuticals in 1993, and prior to 1987 had wide intellectual property exceptions for the treatment of pharmaceuticals. See Jones J.C.H et al. “Patents, brand-generic competition and the pricing of ethical drugs in Canada: some empirical evidence from British Columbia, 1981-1994,” 33 Applied Economics 947, 2001. [6] See Extension of the transition period under article 66.1 of the trips agreement for least-developed country members for certain obligations with respect to pharmaceutical products. Decision of the Council for TRIPS of 27 June 2002 for the text of the decision extending until 2016 the deadline for LDCs to implement TRIPS, accessed 2003-08-18, available on the WTO website at http://www.wto.org/english/news_e/pres02_e/pr301_e.htm. [7] The introduction and first section of Prof. Gervais “The Trips Agreement” contains a description of the negotiations leading up to the TRIPS agreement. Abbot, FM. “WTO TRIPS Agreement and Its Implications for Access to Medicines in Developing Countries,” British Commission on Intellectual Property Rights, 2002 has a detailed discussion of TRIPS and its implications for access to medicines. [8] See Cullet, C. “Amended Patents Act and Access to Medicines After Doha,” Economic and Political Weekly, 38(24), p. 2278 available at the International Environmental Law Research Centre website, http://www.ielrc.org/Content/N02051T.html for a discussion of recent changes to India’s patent laws. [9] Much of the pressure that resulted in the passage of the Doha Declaration resulted from pressure exerted by civil society organizations, in particular, highlighting the high price of drugs to treat HIV/AIDS in Sub-Saharan Africa. See Tully, Danielle L. “Prospects for Progress: The TRIPS agreement and developing countries after the Doha Conference,” 26 Bost College L Rev 129 at p. 140. Also, MSF has an extensive website devoted to access to medicine issues at http://www.access-meds.org. See also www.haiweb.org for information from Health Action International and http://www.oxfam.org/eng/campaigns_camp_cutcost.htm for information of Oxfam’s Cut the Cost Campaign. [10] “Declaration on the TRIPS agreement and public health.” Doha 2001 Ministerial Meeting, Adopted 14 November 2001, paragraph 4. Available at the WTO web site at http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_trips_e.htm accessed 2003-08-18. [11] Sykes, Alan O. “Public Health and International Law: TRIPS, Pharmaceuticals, Developing Countries, and the Doha ‘Solution’,” 3 Chi J Int’l L 47, 2002 at p. 55. [12] The text of the TRIPS agreement can be found on the WTO website, www.wto.org at http://www.wto.org/english/docs_e/legal_e/legal_e.htm#TRIPs, accessed 2003-08-18. [14] There is a tremendous amount of academic commentary on this issue. Haag, Thomas, A. “TRIPS Since Doha: How far will the WTO go toward modifying the terms for compulsory licensing,” 84 Journal of the Patent and Trademark Office Society 945, 2002 provides a review of the suggestions for resolving the Doha Declaration received from developing nations, the European union and the United States. |
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Overview of the global pharmaceutical industry: markets and inventiveness The modern
pharmaceutical industry came of age with the introduction of regulations
demanding that new pharmaceutical products be proven both safe and effective before
they can be marketed and sold. In the
United States such legislation was introduced in 1962 with an amendment to the
Food, Drug and Cosmetics Act.[1] Since the introduction of the requirement
that pharmaceutical products demonstrate efficacy in order to gain approval the
industry has been a major driver of advances in health technology and spending
on research and development. In 2002
the global pharmaceutical industry generated over 400 billion dollars in revenue
and invested roughly 16% of that amount, or 60 billion dollars, into research
and development for new drugs.[2] Investment in research
In addition
to the 60 billion dollars spent on drug development by industry, pharmaceutical
companies also benefit from billions of dollars in government spending. The United States National Institute of
Health (NIH) spent over 20 billion dollars in research and development in 2001,
a significant portion of which went to drug development.[3] Much of the government-funded research is
directed toward basic science that produces understandings of disease processes
that can be used as a basis for developing new drugs.[4] Government funding is, though, also used to
directly subsidize the cost of drug development.[5] A 1998 Boston Globe article reports
that 45 of the 50 top-selling medicines introduced between 1992 and 1997
received government funding for some stage of their development.[6] Firm Structure
A small number of large pharmaceutical companies account for the bulk of new drug development and pharmaceutical sales. In 1994 the top 10 firms accounted for 34% of sales. Between 1963-1999 the top 4 firms accounted for almost 20% of new chemical entities (NCE) approved in the United States and only 20 firms accounted for close to 60% of NCEs invented world-wide.[7] Currently, companies based in the United States account for just under half of global drug development. The US accounted for well over half of all internationally accepted drugs invented between 1970 and 1992. The bulk of the remaining drug development activities took place in the European Union, with Japan a distant third.[8] Recent mergers mean that an increasingly small number of companies control global drug development and sales. Over the past 15 years the rapid development of biotechnology has created a market space for smaller pharmaceutical firms, generally pursuing the development of one drug. Large pharmaceutical companies have had limited success innovating with this technology, possibly because it continues to change at a rapid pace. However, the cost of bringing a new drug to market runs into the hundreds of millions of dollars, and because there is a significant risk that the drug will fail to win approval, many small companies with only one drug candidate have had difficulty finding sufficient capital to develop their drugs. Partnerships between the large pharmaceutical companies and small biotechnology companies allow the large pharmaceutical companies to gain access to the latest technology and allow biotechnology companies to finance the development of their drugs.[9] Markets
As Table 1.1 demonstrates, global pharmaceutical sales are highly stratified by region, with North America, the European Union and Japan accounting for 85% of global pharmaceutical sales in 2002. The growth in pharmaceutical sales, averaging 8% in 2002, has also been significantly higher than the rate of inflation in most ODEC countries. The introduction of increasing numbers of drugs that must be taken for the lifetime of the patient,[10] along with increased in per-capita health problems due to the aging of the population in most developed countries, is leading to a high rate of growth in the number of prescriptions written and rapid growth in pharmaceutical sales.[11] In the United States and most other developed countries pharmaceuticals are the fastest growing component of the health care budget.[12] The high cost of pharmaceuticals is a significant issue even in developed countries with significant economic resources.[13]
Innovation
There is
conflicting evidence as to the rate at which pharmaceutical innovation is
increasing. One way to measure
innovation in the pharmaceutical industry is to examine rates of drug approval by
the United States Food and Drug Administration (FDA). The FDA must approve all prescription medicines sold in the
United States. Evaluation of the FDA’s
data show, on the one had, an increasing rate of NCE approvals but virtually no
growth in the rate of inventiveness for the most innovative class of
drugs. In the five
years between 1989 and 1994, the FDA approved 350 new drugs. In the following five years, between 1995
and 1999, 569 new drugs were approved, an increase of 219. However only 7 of the 219 additional new
drugs can be considered truly innovative in that they provide a substantial
medical benefit over existing therapies.[15] Overall, between 1989 and 1999 the
pharmaceutical industry invented 153 NCEs that can be considered highly
innovative and 208 NCEs that can be considered moderately innovative. The remaining drugs given approval were
reformulations of existing chemical compounds.
This suggests that the rate of innovation is not increasing for the most
innovative class of products. However,
the pharmaceutical industry remains an important locust innovation, introducing
an average of 15 breakthrough and 20 non-breakthrough drugs each year.[16] Conclusion
The picture
of the pharmaceutical industry that emerges from this brief review is of a
highly profitable, highly innovative industry dominated by a small number of
multinational drug development corporations.
Virtually all drugs that reach the market and wide spread use come
through these corporations. The drugs
that have been invented by this industry have saved hundreds or thousands of
lives and make life more pleasant for millions of people on a daily basis. It is also clear that the benefit that is
derived from this industry is highly skewed towards the developed world. Most of these drugs are sold and consumed in
rich countries. Whether the industry
can be persuaded to find ways of providing more benefit to the developing
world, and whether the model presented by these companies can be adapted for
use in poorer regions, remains an open question.
[1] DiMasi, Joseph A. “Winners and losers in new drug innovation,” Medical Marketing and Media, 26(6), 98-110, Sept 2001. Hereinafter “Winners and losers” [2] Borrus, Michael. “The Global Pharmaceutical Market.” Hass School of Business, 2002 citing IMS Health report 2001. The DND Working Group. "A Survey of Private Sector Drug Research and Development." MSF/DND Working Group, 2001, footnote 6 for research spending. [3] Public Citizen. “Rx R&D Myths: The Case Against the Drug Industry’s R&D “Scare Card”.” New York: Public Citizen’s Congress Watch, May 2002 at p. 7. Accessed 2003:07:31 at http://www.citizen.org/documents/rdmyths.pdf. Hereinafter “Rx R&D Myths” [4] A large study of government contributions to privately patented research undertaken by CHI Research found that 70% of private patents depend to some extent on public research. CHI Research Newsletter, v(1) “Industry Technology has Strong Roots in Public Science,” 1997. [5] “Rx R&D Myths” at p. 8. [6] Article by Alice Dembner, “Public Handouts Enrich Drug Makers, Scientists,” The Boston Globe, April 5, 1998 as reported in “Rx R&D Myths” [7] “Winners and losers” [8] Schweitzer, Stuart. “Pharmaceutical Economics and Policy.” Oxford University Press, New York, 1997, p 28. [9] “Pharmaceutical Economics and Policy” at pp. 118-119. [10] Drugs to treat a growing number of chronic diseases must generally be taken for the lifetime of the patient. [11] National Governors Association: Health Policy Studies Division. “States Face Increased Expenditures on Pharmaceuticals.” National Governors Association, 2000, available at http://www.nga.org/cda/files/000203PHARM.pdf accessed 2003-08-12. [12] National Institute for Health Care Management, “Prescription Drug Expenditures in 2001: Another Year of Escalating Costs.” NIHCM Foundation, Washington, May 6, 2002 hereinafter “Prescription Drug Expenditures in 2001”. [13] See for example Dixon, Kim. “AARP Steps Into Drug Re-Importation Debate,” Health-Reuters, Aug. 7, 2003 and Public Citizen’s Watch website at http://www.citizen.org in particular http://www.citizen.org/congress/reform/drug_industry/ accessed 2003-08-09. [14] IMS Health. “2002 World pharma sales growth: slower, but still healthy.” IMS Health website at http://www.ims-global.com/insight/news_story/0302/news_story_030228.htm accessed 2003-08-08. [15] The most innovative drugs are defined as those that received FDA fast-track approval. Fast-track approval is given to those drugs that fulfill one of four possible conditions, 1) they are shown to be more effective than existing treatments, 2) the drug substantially reduces side effects, 3) patient compliance is significantly improved, or 4) the drug can be used to safely and effectively treat a new sub-population. [16] “Prescription Drug Expenditures in 2001” |
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The Cost of Patents in South Africa With over 5,000,000 people infected, South Africa is home to more HIV/AIDS positive people than any other country. South Africa also has strong patent protection laws that protect pharmaceutical products. Most HIV/AIDS medications are patent protected under the South African legal system.[1] International pressure has lead to recent price-cutting by pharmaceutical companies[2], but the price of pharmaceuticals from originator companies remains above the lowest price generics available in countries without patent protection for HIV/AIDS drugs.[3] In South Africa, pharmaceuticals are priced so that they are available to the rich, in some cases because they can afford to pay out-of-pocket for the medicines or, more commonly, because South Africa has a developed health insurance industry that covers a significant portion of wealthy South Africans. Because 25% of South Africans earns less than $1000 per year and 50% earns less than $2500 per year, the cost of HIV/AIDS medications, even at $700 or $800 per year, remain far out of reach for most of the population. HIV/AIDS drug prices in South Africa remain significantly higher than lowest world prices. However, even at the lowest world prices, currently close to $300/per year, the medications would remain out of reach of a significant portion of the infected population. Estimates, released by the Treatment Access Campaign, South Africa’s largest civil society organization working on the HIV/AIDS issue, estimated that the government could provide antiretroviral treatment, including drugs, distribution, testing, and monitoring of treatment to the entire infected population using generic pharmaceuticals for $14 billion dollars in the most expensive year of the program. The cost, if name brand pharmaceuticals were used, would be $24 billion, an increase of over 70%[4] and close to 10% of South Africa’s 113 billion GDP.[5] On August 8, 2003 the South African government announced plans to implement a national HIV/AIDS drug plan that will provide HIV/AIDS drugs free of charge.[6] The announcement followed shortly after an announcement by Aspen Pharmacare, a South African generic pharmaceutical company that it would being production of Zerit, an HIV/AIDS medication. Aspen also announced plans to begin producing 4 other HIV/AIDS medications.[7] While generic competition may be necessary on order to achieve lowest possible prices,[8] the introduction of generic pharmaceutical production in South Africa and plans to provide HIV/AIDS drugs free of charge have the prospect to dramatically improve the lives of millions of people in the country.
The South African government's announcement was particularly striking in light of its prior denial of any connection between HIV and AIDS. This denial led the government to largely ignore the problem and likely contributed to South Africa's status as the world's most HIV infected country.
[1] Attaran, Amir et al. “Do Patents for Antiretroviral Drugs Constrain Access to AIDS Treatment in Africa?” Journal of the American Medical Association, 286(15) p. 1888, 2001. [2] Pharmaceutical industry prices were generally close to rich country levels prior to 2001, when pharmaceutical companies reacting to political and civil pressure began to offer deep discounts. Reuters. “Drug Company Cuts AIDS Drug Prices in S. Africa”, Reuters NewMedia, 2001:11:30. Hoffman, Gerjo. “Firm slashes Aids drug prices.” News23.com, 2003/04/28, accessed 2003:08:25, www.news24.com. [3] MSF. “Untangling the web of price reductions: A pricing guide for the purchase of AVRs for developing countries, fouth Edition.” MSF, Geneva, May 2003 p. 7. [4] Treatment Access Campaign. “The Costs and Benefits of Preventing and Treating HIV/AIDS: A Treatment Action Campaign Fact Sheet, 2003:02:05, accessed 2003:08:05, http://www.tac.org.za/Documents/TreatmentPlan/CostsAndBenefitsOfTreatmentAndPrevention.pdf [5] UNDP. “Human Development Report.” UNDP, New York, 2003, p. 280. Note that the GDP figure is 2001 and that the most expensive year of the treatment program is projected to be 2015. [6] U.S. Wire. “South Africa to provide HIV/AIDS drugs.” 2003-08-11. [7] U.N. Wire. “South African company will produce first generic AIDS drug.” 2003-08-7. [8] Ibid. |
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The pharmaceutical industry in the
developing world: generic and branded
Disease
profiles in the developed and developing world are not the same but contain
some overlap. Of the top 5 causes of death,
there is only one that overlaps between developed and developing nations,
ischaemic heart disease.[1] Of the 13 top causes of mortality in Africa
only 8 can be considered to significantly affect the developed world.[2] Because the modern pharmaceutical industry
has invented thousands of medications over the past 40 years, there are
medications of at least moderate effectiveness that can be used to treat most
of the diseases prevalent in poor nations.[3] However, in the case of medicines used to
treat infectious diseases, many are in danger of losing their effectiveness.[4]
Because
there is significant divergence between the mortality and disease profiles of
rich and poor nations drug development efforts benefit rich nations far more
than poor nations. Drugs are developed
to treat diseases that affect a relatively small number of the world’s
sick. This has resulted in what is know
as the ‘10/90 gap.’ Currently 90% of
research dollars are being spent on diseases that account for only 10% of the
world’s health burden.[5] Because of the negative impact that disease
has on productivity this disparity is research funding also helps to perpetuate
the wide gulf between economic productivity in rich and poor nations.[6] Patents and Generic Pharmaceuticals
Until
recently many developing nations did not offer patent protection on
pharmaceuticals. In countries that
developed generic[7]
manufacturing capacity this lead to a situation where a high percentage of the
pharmaceutical market is generic. Generic
companies produce copies for drugs they did not invent and do not engage in
pharmaceutical innovation themselves. A
vibrant generic industry developed in a small number of developing countries, in
particular India, Brazil and Argentina.
In the
absence of patent protection the generic industry copies and sells most new
drugs soon after their international launch.
Many Indian made generic pharmaceuticals are sold at a fraction of the
cost of the brand name patent protected equivalent. For example, HIV/AIDS drugs that cost $12,000-$15,000 in
developed countries are available from India’s generic pharmaceutical sector at
less that $300 per year.[8] Recently 10 Latin American countries invited
generic and innovator companies from around the world to negotiate lowest price
offers for drugs to treat HIV/AIDS. All
but one of the name brand firms that invented the drugs refused to participate[9],
allowing generic firms, primarily based in India and Argentina, to set the
pricing bar.[10] In both the
developed and developing world the presence of generic pharmaceuticals can lead
to prices that are significantly lower than those charged by name brand
pharmaceutical companies.[11] However, it is competition that drives these
lower prices. In countries where there
is generic production but no real market competition generic products may not
have lower prices. This has been
reported in Brazil.[12] Where patent protection exists generic
pharmaceuticals and competition can generally only be introduced after the
patent period had expired, generally 20 years.
Where patent protection does not exist generic pharmaceuticals can be
produced at any time. In areas with a
patent protection regime the introduction of the first generic competitor is
generally at a price 25% lower than the established branded product. If a larger number of generic manufacturers
enter the market the price can be expected to fall to a point close to the
price of production.[13] In a country such as India, with hundreds of
generic pharmaceutical manufacturers, competition is generally fierce, leading
to overall low drug prices.[14] The Brand Name Pharmaceutical
Industry and the Developing World in Conflict
Brand name
pharmaceutical companies are a natural target for people frustrated with the
continuing health disparities between the world’s rich and poor. In 2002 the gross sales of the
pharmaceutical industry were larger than the combined GDP of the world’s 95
poorest nations, and larger than the GDP of all but 12 nations worldwide.[15] In addition, the name brand pharmaceutical
industry has been the most profitable global industry for several years
running, and has had a rate of return triple the average for all industries
since 1996.[16] Whether or not pharmaceutical industry
profits are justified by the need to compensate for a high rate of risk
inherent in drug development and high research costs,[17]
the industry’s wealth and profitability make it a logical target for civil
society organizations looking for resources to help improve access to medicines
in poor countries. Conflict over the price of
medicines
Though
money to purchase medicines does not guarantee access,[18]
without adequate financial resources, either from government, individuals or
donors, access to medicines is imposable.[19] Developing countries generally lack the
resources to buy pharmaceuticals for their populations. The poor tend pay for the most medicines they
consume in developing countries,[20]
but poverty blocks access completely for many.[21] In this context, drug companies charging
prices for pharmaceuticals in excess of the cost of production are clearly
contributing to difficulties in facilitating access to medicines for the poor.[22] In both
developing and developed countries drug companies have been accused of charging
unconscionably high prices for the drugs that they invent and produce. In the United States, seniors’ organizations
and consumers rights groups such as the American Association of Retired Person
and Public Citizens Watch have long campaigned for lower drug prices for
consumers in the United States.[23] Global civil society organizations such as Médicins
Sans Frontières (MSF), Oxfam, Health Action International (HAI) and Health Gap
have been heavily involved in demanding that the pharmaceutical industry
facilitate or provide access to affordable medicines for the world’s poor.[24] The
pharmaceutical industry has responded to calls for affordable medicines in poor
countries. In particular, some AIDS
medicines have been offered to the nations of Sub-Saharan Africa at zero or
dramatically lowered cost.[25] Pharmaceutical manufacturers have engaged in
a significant number of other initiatives to provide low cost or free drugs to
treat other diseases.[26] However, while some drug donation programs
have been effective, with the exception of programs to provide AIDS drugs, drug
donation programs tend to be time limited and have a history of problematic
results.[27] Of more importance may be emerging
public/private partnerships between pharmaceutical companies and civil society
organizations seeking to treat diseases that affect predominantly the world’s
poor.[28] Despite
positive responses from the pharmaceutical industry there remain areas of
tention and difficulty. The
pharmaceutical industry has not provided a systematic response to calls for
lower drug prices in poor nations. As
recently as February 2003 prices for some AIDS drugs were higher in Guatemala
than Switzerland.[29] The price of medicines continues to vary
widely in developing countries. In developing
countries that depend on brand name manufacturers to supply pharmaceuticals,
the price of medicines can be higher than the price charged in the United
States.[30] Conflict over the patenting of
medicines
The area of
conflict between the pharmaceutical industry and civil society organizations
that has been the most intense over the past 4 years has been over the patent
rights of the pharmaceutical industry in developing nations. Name brand pharmaceutical companies have
lobbied intensively and succeeded in having patent protection for
pharmaceuticals extended to developing countries through multilateral trade
negotiations. The Trade Related Aspects
of Intellectual Property Rights (TRIPS) agreement and the associated Doha
declaration have become an international flash point in the ongoing World Trade
Organization negotiations. There is
significant disagreement about the merits of patent protection for developing
nations and over the specific obligations that poor nations now have to protect
pharmaceutical patents. Developing
nations, and in particular the United States, in response to pressure from the
innovative pharmaceutical industry had made compromise between the patent rights
of companies and the right of government to override patent rights to provide
access to drugs for the world’s poor very difficult. These issues are currently being negotiated at the World Trade
organization. See here
for details on TRIPS, Doha declaration and associated conflict. Conclusion
It is clear that poor nations receive significant benefit from the medicines invented by the global pharmaceutical industry. It is equally clear that they do not receive as much benefit as they could if access to medicines was a global priority. This is clearest in the case of drugs to treat HIV/AIIDS. Without the global pharmaceutical industry these drugs would not exist, and many in developing countries who have access to these drugs would already be dead. On the other hand, it has been a struggle to convince pharmaceutical companies to provide these drugs for free or at the lowest possible cost. The pharmaceutical industry is driven by business interests and the need to make a profit. Conflict exists over the extent to which pharmaceutical companies should be allowed to profit from, and the extent to which such companies should be expected to help, in providing medicines to the world’s poor. Conflicting visions of the pharmaceutical industry’s rights and obligations are currently shaping the conflict over the extent to which poor nations should be allowed to override pharmaceutical company patents in order to encourage the production of low cost drugs. The compromise that is reached is likely to have a major impact on current and future debates over the pharmaceutical industry’s role in providing medicines for the world’s poor. [1] Gwatkin, Davidson and Michel Guillot. “The Burden of Disease among the Global Poor: Current Situation, Future Trends and Implications for Strategy.” World Bank, Washington, 2000 p. 9. [2] Moran, Mary. “Reneging on Doha.” Médecins Sans Frontières, 2002. [3] Ibid. The “Reneging on Doha” study shows that there are patented medicines for the most important causes of mortality in Africa, but does not address off patent medicines. Most of the medicines on the WHO essential medicines list are off patent medicines. The WHO list, in together with the “Reneging on Doha” study suggests that there are pharmaceuticals to treat the majority of the major diseases affecting poor nations. [4] WHO. “World Health Report: Making a difference, 1999.” WHO, Geneva, 1999 at p. 23. [5] Currat, Lewis J. “The Global Forum for Heath Research: An Overview,” in ed. Secretariat of the Global Forum for Health Research, “The 10/90 Report on Health Research 1999.” Global Forum for Health Research, 1999. [6] Report of the Commission on Macroeconomics and Health. “Macroeconomics and Health: Investing in Health for Economic Development.” Geneva: WHO, 2001 hereinafter “Macroeconomics and Health” at p. 22-23. [7] ‘Generic’ here refers both to medicines that are under patent but legally copied due to permissive local patent laws and medicines that are produced after the expiry of patent protection. [8] International Treatment Access Coalition. “A Commitment to Action for Expanded Access to Treatment for HIV/AIDS.” WHO, Geneva, 2002 – provides price range for generic and name brand pharmaceuticals to treat HIV/AIDS. Available at http://www.who.int/hiv/pub/prev_care/en/ITACdocE.pdf accessed 2003-08-12. [9] Abbot Laboratories was the only name brand pharmaceutical firm that agreed to participate. [10] See ip-health discussion list, 2003/06/10, “10 Latin Am. countries reject big pharma price cuts in favor of generics," 2003/06/09 Latin American price negotiations - $365 for AZT+3TC+ NVP at http://lists.essential.org/pipermail/ip-health/, accessed 2003/07/28. [11] Bala, K and Kiran Sagoo. “Patents and Prices,” HAI News, 112, April/May 2000 hereinafter “Patents and Prices” available at http://www.haiweb.org/pubs/hainews/Patents%20and%20Prices.html accessed 2003-08-08 see Table 3. [12] Jillian Cohen, Assistant Professor, Faculty of Pharmacy, University of Toronto, personal communication. [13] Frank, Richard G. & David S. Salkever. “Generic Entry and the Pricing of Pharmaceuticals,” Journal of Economics and Management Strategy, 6(1), pp.75-90, 1997, at pp. 83-84. [14] Lanjouw, Jean O. “The Introduction of Pharmaceutical Patents in India: ‘Heartless Exploitation of the Poor and Suffering’?” Economic Growth Center, Yale University, Center Discussion Paper No. 775, 1997 at p. 16. [15] UNDP, “Human Development Report 2003: Millennium Development Goals: A compact among nations to end human poverty.” UNDP, New York, 2003 at Table 12, “Economic Performance.” The 95 poorest nations have a combined GDP of 387.7 Billion dollars as compared with 400 billion dollars in revenue for the pharmaceutical industry, see note 18. [16] Public Citizens Watch. “Pharmaceuticals Rank as Most Profitable Industry, Again.” April 17, 2002, citing data from Fortune Magazine. Report available at http://www.citizen.org/documents/fortune500_2002erport.PDF accessed 2003-08-08. [17] Pharmaceutical Research and Manufacturers Association of America. “Why do Prescription Medicines Cost so Much.” June 2000, available at http://www.phrma.org/publications/publications/brochure/questions/questions.pdf accessed 2003-08-08 at pp. 2-3. [18] See here for sources of information on the barriers to access to medicines that result from a lack of technical, institutional and physical capacity. [19] “Macroeconomics and Health.” at p. 86-87, even medicines that are not under patented are too expensive for the world’s poorest to afford. [20] WHO. “Selected topics in health reform and drug financing.” Geneva: Action Program on Essential Drugs (WHO/DAP/98.3) at note 6. [21] Habiyambere, V, et al. “Progress of WHO Member States in developing national drug policies and in revising essential drug lists.” World Health Organization, Geneva, 1998. WHO document number WHO/DAP/98.7. See Table 6, p. 12. see note 10. [22] “Macroeconomics and Health” at 87. [23] See for example Dixon, Kim. “AARP Steps Into Drug Re-Importation Debate,” Health-Reuters, Aug. 7, 2003 and Public Citizen’s Watch website at http://www.citizen.org in particular http://www.citizen.org/congress/reform/drug_industry/ accessed 2003-08-09. [24] See the MSF Access to Medicines website at http://www.access-meds.org, the HAI website at http://www.haiweb.org/, the Oxfam Cut the Cost website at http://www.oxfam.org/eng/campaigns_camp_cutcost.htm and the Health Gap Press Release from 23 April 2003 available at http://www.healthgap.org/press_releases/03/042303_HGAP_PR_TAC_GDA_embassy.html. [25] For example Boehringer Ingleheim supplies nevirapine free of charge to a number of poor countries. See the Boehringer Ingleheim website at http://www.boehringer-ingelheim.com/corporate/asp/archive/adetail.asp?ID=694 accessed 2003-08-11. In addition drug manufacturers have lowered the price of other AIDS drugs and relaxed patent protection on two aids drugs, paving the way for the production and use of generics without protest from manufacturers. See Clack, Andrew & Julian Borger, “Cheaper AIDS drugs for Africa,” The Guardian, 2001-03-15. [26] “Macroeconomics and Health” at note 119. [27] WHO, “Guidelines for Drug Donations.” WHO, Geneva, 1999. [28] Wheeler, Craig & Seth Berkeley. “Initial lessons from public-private partnerships in drug and vaccine development,” 79(8) Bulletin of the World Health Organization 728-734, 2001. [29] Ford, Nathan. “Public health and company wealth,” 326 BMJ 1296, 2003. [30] “Patents and Prices” note 26, see Table 7. |
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Technical, Institutional and Physical Capacity There are a number of organizations that are devoted to improving the technical and institutional capacity of developing nations to provide access to medicines. § The WHO Essential Drug and Medicines Policy website contains a wealth of information on efforts to improve the efficiency and efficacy of drug delivery. o WHO Essential Medicines: http://www.who.int/medicines/ § The International Network for Rational Drug Use (INRUD), a coalition of organizations devoted to testing and disseminating strategies to promote rational drug use also has significant resources on their website. INRUD has a twice-yearly newsletter that contains summaries of recent developments in the area and of the group’s activities. The organization also has a bibliography containing over 5,500 entries related to rational drug use available on CD-ROM. o INRUD: http://www.inrud.org/ § Health Link Worldwide provides materials designed to help in the implementation of rational drug procurement/use policies. o Health Link Worldwide: http://www.healthlink.org.uk/ § The International Dispensary Association (IDA) is the world’s largest non-profit supplier of essential drugs. IDA’s website provides an introduction to the drug procurement process. o IDA: http://www.ida.nl/ |
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Economics for an Optimal
Solution: Price discrimination without parallel importation If manufacturers could know in advance how much each person was willing to pay for their product, they could charge each person that amount. The manufacturer would then sell to each person willing to pay more than the cost of production, charging each the maximum that each was willing to pay. Generally, however, manufacturers have no way to evaluate how much each potential customer is willing to pay, and so set one price for a product. Any given price for a product will tent to be less than some people are willing to pay and more than other people are willing to pay. In the case of patent protected pharmaceuticals, as discussed here, the price charged is generally significantly higher than the cost of production, and significantly higher than it would be under conditions of competition. This means that, in the absence of health insurance, many people to whom the product could be profitably sold do not buy the product, resulting in lost revenue to the company and many people who could benefit from the drug not doing so.[1]
Companies can, however, in some circumstances charge different prices for their products in different locations. One way to lower prices in poor nations, and for a company to earn more money in those nations, would be for a company to charge a lower price in poor countries, or even a different price in every country, depending on the ability of people to pay.[2] A company adopting such a strategy could sell more, earn a greater profit, and provide more people with access to their drug. This is one solution that proponents of strong intellectual property rights for pharmaceuticals in developing nations offer, in order to encourage the availability of medicines at low cost in poor countries.[3] Problems with the implementation of the parallel importation solutionThere are two main reasons that pharmaceutical companies are reluctant to implement widely divergent pricing in different countries. First, companies fear that customers in rich countries will resent paying prices that are many times higher that rates charged in developing countries. Particularly in the United States, there is a large consumer movement that feels they are being overcharged for pharmaceuticals.[4] Second, companies fear parallel importing, the practice of buying drugs in a low cost jurisdiction and exporting them for resale in a high cost jurisdiction. Because pharmaceutical companies make most of their profits by selling patented drugs at high prices in developed nations they are generally unwilling to price discriminate if doing so will jeopardize rich country sales. Currently, parallel importation occurs between rich countries. For example, drug prices tend to be lower in Canada than the United States due to Canadian regulations that limit prices on patent protected pharmaceuticals. This has lead to a thriving drug export business from Canada to the U.S. As the Canada/US prescription drug business has grown, drug companies have taken action to stop it. Recently, Pfizer Inc., one of the world’s largest pharmaceutical companies, took action to limit supplies of their patent protected drugs in Canada, in order to discourage the parallel import of pharmaceuticals between the two countries.[5] Some parallel importation may occur between rich and poor countries, though this is less clearly documented. There have been isolated reports of drugs donated to poor nations, or sold to poor nations at deep discounts, being diverted back into rich country markets.[6] The European Union recently introduced legislation to help prevent the importing of pharmaceuticals from poor nations, where those drugs have been sold at a significant discount. The European Union scheme also introduces a product labelling protocol that may help to identify drugs sold at low prices in poor nations, thus preventing the illicit resale of those drugs in rich nations.[7] Other problems with parallel importationWhile parallel importation and fear of alienating rich country customers are important factors limiting the practice of price discrimination, there is reason to believe that price discrimination, even in the absence of these barriers, will produce sub-optimal results. Price discrimination, under conditions of monopoly, will not lead to the lowest possible price.[8] It will lead to the price at which the pharmaceutical company believes it can maximize its profit. This optimal profit price, in developed nations, is generally far higher than the cost of production. For example AIDS drug regimens that cost $12,000 per year the United States cost less than $300 to produce. In poor nations the optimal profit price is likely to remain well above the cost of production. Income discrepancies between the middle class and poor in developing nations may mean that a company earns more money by pricing a drug for consumption by the middle class, well above the cost of production, even when this places the drug out of reach of the poor. In developed nations, historically, prices for pharmaceuticals only drop significantly with the introduction of a large number of generic competitors.[9] There is evidence to suggest that lowest possible prices for pharmaceuticals are never achieved in jurisdictions that offer significant patent protection, even after patent protection expires.[10] Competition between manufacturers tends to drive down prices. In poor countries, where consumers have limited incomes, price sensitivity can be expected to play a large role in helping to promote the use of the lowest cost alternative. Preference for the lowest cost alternative can, in turn, be expected to drive down prices under condition of competition. Price discrimination may help to promote lower prices on poor nations, however, while patent monopolies exist, drug prices are likely to remain higher than they would be under conditions of competition. Vigorous generic competition, on the other hand, is likely to result in lowest possible drug prices and thus widest possible drug availability in developing countries.
[1] Sykes, Alan O. “Public Health and International Law: TRIPS, Pharmaceuticals, Developing Countries, and the Doha ‘Solution’,” 3 Chi J Int’l L 47 at pp. 64-66. [2] Ibid. [3] Ibid. [4] See for example Dixon, Kim. “AARP Steps Into Drug Re-Importation Debate,” Health-Reuters, Aug. 7, 2003 and Public Citizen’s Watch website at http://www.citizen.org in particular http://www.citizen.org/congress/reform/drug_industry/ accessed 2003-08-09. [5] See ip-health archive, “Pfizer Moves to Stem Canadian Drug Imports.” August 7, 2003 at www.cptech.org/ip-health/archive accessed 2003-08-18. [6] See for example Boseley, Sara & Rory Carroll. “Profiteers Resale Africa’s Cheap AIDS Drugs” The Guardian 10/4/02, accessed 12/06/03 and available at http://www.guardian.co.uk/aids/story/0,7369,804387,00.html and Wendo, Charles. “Uganda's state-owned drug firm pressured to drop drug deal,” 361 Lancet 9372, 2003. [7] See http://europa.eu.int/comm/trade/csc/med08_en.htm,
and for offical text of announcement see http://europa.eu.int/eur-lex/en/dat/2003/l_135/l_13520030603en00050011.pdf
[8] Hoel, Ellen ‘t. “Pills and Pocketbooks: Equity Pricing of Essential Medicines in Developing Countries.” MSF Campaign for Access to Essential Medicines, Geneva, 2002. Available online at www.accessmed-msf.org, under the ‘Reports and Publications’ link accessed 2003-08-18. [9] Jambulingam, Thanigavelan & David H. Kreling. “Relationship Between the Number of Firms and Generic Price Competition,” 6(3) Journal of Research in Pharmaceutical Economics 39, 1990 p. 58. [10] Jones, J.C.H., et al. “Patents, brand-generic competition and the pricing of ethical drugs in Canada: some empirical evidence from British Columbia, 1981-1994,” 33 Allied Economics 947, 2001. |
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