Just what the doctor ordered

U.S. Department of Health and Human Services

Kathleen Sebelius, Secretary of the U.S. Department of Health and Human Services, administers polio vaccine to a child in New Delhi, India.

Article Highlights

  • The rhetorical war over access to pharmaceuticals in poor countries admits to no middle ground.

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  • Are profits being put before public health?

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  • The solution lies in win-win deals between drug companies and domestic health agencies/foreign donors.

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The rhetorical war over access to pharmaceuticals in poor countries admits to no middle ground. On one side are public health activists along with health officials in developing countries, who see any attempt to price drugs significantly above their manufacturing costs as an outrage. The World Health Organization concurs: "In many countries, patents hamper the public's access to life-saving medicines -- in other words, profits are being put before public health."

On the other are western drug companies and their governments, who argue that intellectual property rights must be respected and prices set high enough to cover the vast R&D costs of the next generation of life-saving compounds. As Miles White, a former chairman of the Pharmaceutical Research and Manufacturers Association of America (PhRMA) put it, "We must extend the benefits of innovation to those who need them; but, first, we must have that innovation. If we take away the fuel, the fire will soon burn out."

Happily, though, the gulf is more apparent than real -- a point worth some special attention this week, as delegates from around the world convene at the XIX International AIDS Conferencein Washington, DC. One reason is that (unbeknownst to the media) most of the drugs needed in poor countries are not under patent. The other is that, beneath the belligerent façade, cooler heads are prevailing: While governments have failed to chart a way forward in high-profile negotiations, drug producers are recognizing that solutions increasing medical access without sacrificing maintaining intellectual property protection really are possible. In fact, a path-breaking deal between California-based Gilead Sciences and Indian generic drug maker Matrix offers a model for how it can be done.

"While governments have failed to chart a way forward in high-profile negotiations, drug producers are recognizing that solutions increasing medical access without sacrificing maintaining intellectual property protection really are possible." -Roger Bate

Debates over intellectual property protection for drugs occur in many bodies worldwide, most of which have a dog in the fight. In the legislative battle over U.S. health care reform, for example, pharmaceutical companies were able to brush aside efforts to open the border to cheaper imported medications. By contrast, the World Health Assembly, the one-country, one-vote governing body of the World Health Organization, regularly proclaims the need to increase drug access. And though these statements rarely lead to substantive policy changes, western pharma still sees them as threatening.

But since its inception in 1994, the World Trade Organization has been the primary battleground. The WTO's founding charter details members' responsibility to protect IPR in theAgreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS, for short). Many WTO signatories, notably India, initially offered no pharmaceutical product patent protection, and so negotiated a transition perioduntil 2005 to establish product patents. The transition period for the 32 "least developed" countries extends through January 1, 2016.

Some health activists and developing country officials protested that TRIPS undermined nations' ability to intervene in domestic health emergencies. This led to the 2001 Doha Declaration on TRIPS and Public Health, which "affirmed the sovereign right of governments to take measures to protect public health." Two years later the WTO went a step further, allowing developing countries lacking manufacturing capability to bestow their emergency patent exemption on another country. Pharmaceutical companies in the designated country could then sell relevant drugs to the country in need.

Disagreements over other IPR measures -- notably trademark enforcement -- are ongoing and were stoked by the signing of the Anti-Counterfeiting Trade Agreement (ACTA) in October 2011. Although ACTA has not yet been ratified, India worries that its large generic manufacturing industry will be targeted. This spring, at the WTO's TRIPS Council India continued attempts to limit WTO influence over issues of drug quality. The Indian government concluded that IPR issues were "distinct from issues of quality and safety," and not part of the WTO mandate.

While this is a reasonable position in principle -- IPR issues can be treated separately from quality -- India blocks most efforts in other multilateral agencies, such as the WHO, to combat substandard and fake pharmaceuticals. Until there is a real public health attempt to combat poor quality medications, the WTO is right to continue to show an interest in how lack of IPR protection and poor quality products are linked.

Meanwhile, health activists, pharmaceutical companies, and governments shout the virtues of their positions past each other. Rather than addressing its own failure to enforce TRIPS, India (among other countries) focuses on the risks of strong IPR enforcement. India's patent office and courts have seemingly bowed to pressure from domestic producers to deny patent protection to several deserving oncology products including Novartis' Glivec and Roche's Tarceva, and HIV products including Gilead's Viread.

Virtually every national patent system includes provisions for compulsory licensing, where governments require patent holders to license production by competitors under some circumstances. The aforementioned 2003 WTO declaration permits compulsory licensing to manufacturers in other countries when the country in a health crisis has an inadequate indigenous industry. But the provision has been little used, arguably because the pharmaceutical industry is prepared to fight the initiatives case-by-case, and the World Bank pressures developing countries against invoking it.

Indeed, it's been used only once (in 2008), when Rwanda asked Canada to produce antiretroviral drugs for use against AIDS; Apotex, a generics maker, managed to produce and ship seven million doses. But as a spokesman for Apotex noted, "the biggest flaw is that we are asking the developing world to navigate the First World's legal nightmare."

While the bitterest fights between drug companies and activists have been over HIV drug access, it is also the arena in which a recognition of the political realities have led to successful conflict resolution. The conflict reached its apex in 1999, when 42 drug companies sued the South African government for importing patent-breaking copies of their products from India. In light of the compelling need for HIV drugs -- fewer than 10,000 of the millions of infected people on the continent were being treated at the time -- the lawsuit was a public relations disaster, and was subsequently withdrawn.

In that suit, the plaintiffs had correctly argued that many of the therapeutic compounds being produced in India were sub-standard. However, standards have risen in the interim, at least in part because some western pharmas have decided that if they can't lick ‘em they can join ‘em: Using their technological and economic leverage, they've been crafting licensing agreements with their Indian counterparts that make a lot of sense for both. The deal offered by Gilead Sciences illustrates the trend.

The funds used to buy drugs for poor Africans, it's important to note here, come from foreign governments and non-profits, which have the last word on purchases. And Indian producers have historically struggled to maintain the consistent, high-quality production standards needed to win large pharmaceutical contracts from donors including the U.S. government and the Global Fund.

Gilead's Viread (generically, Tenofovir Disoproxil Fumarate, or TDF), is arguably the best HIV drug available, but, as mentioned earlier, it was denied a patent in India in 2008. Nonetheless, it continued to negotiate deals with Indian companies to make TDF. The model is simple: Gilead retains its patent rights in rich countries, but provides technical assistance in making TDF to be sold in poorer countries in return for a five percent royalty. Gilead's most successful Indian partner is Matrix Laboratories. Over the past four years, Matrix has sold far more TDF than Gilead, producing treatments for over 500,000 patients in 35 countries, mostly in Africa. Matrix doesn't need Gilead's approval to make and sell TDF. Why, then, did it agree to pay royalties to the American company?

Gilead's manufacturing know-how, plus assistance with quality control, allowed Matrix to get tentative approval from the U.S. Food and Drug Administration to market TDF in just five months. And even after paying the modest royalty, its costs were lower than those of competitors who chose to go it alone on TDF. Matrix will also benefit from any future refinements of Gilead's technology.

Gilead has also submitted its HIV medicines to patent "pools," where generic manufacturers can bargain for the right to produce drugs still under patent protection. This approach has significantly expanded its reach: Some 1.1 million people have been treated with Gilead's anti-retrovirals since 2006.

Gilead's approach won't resolve all drug IPR disputes between India and the west. But it certainly offers a path for western companies to expand access to medicines without threatening their IPR claims -- which is the stated aim of many of them. There's even a little money in it for the companies, and should be more as living standards rise in developing countries.

Imitation is the highest form of flattery. GlaxoSmithKline now has licensing agreements with the South African-based generics firm Aspen Pharmacare. Merck has launched a joint venture with Chinese generics manufacturer Simcere Pharmaceutical Group with the goal of providing "improved access to quality medicines in major therapeutic areas," while Merck is partnering with Sun Pharmaceuticals to the same end in India.

Stricter TRIPS implementation is in the broad public interest because it increases incentives to innovate. But TRIPS is really a distraction from the job of increasing medicine access in the developing world. The solution lies in win-win deals between drug companies and institutional purchasers (domestic health agencies or foreign donors) that segment the market and tier prices sensibly. Thus, while the media will no doubt continue to focus on unsubtle issues of who's stealing who's intellectual property and who's price-gouging, thankfully the real action is in making hybrid deals that recognize the political realities, and move on.

 

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About the Author

 

Roger
Bate
  • Roger Bate is an economist who researches international health policy, with a particular focus on tropical disease and substandard and counterfeit medicines. He also writes on general development policy in Asia and Africa. He writes regularly for AEI's Health Policy Outlook.
  • Phone: 202-828-6029
    Email: rbate@aei.org
  • Assistant Info

    Name: Katherine Earle
    Phone: (202) 862-5872
    Email: katherine.earle@aei.org

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