Intellectual Property Dissertation
Inability of the current pharmaceutical patent and R&D
system to provide Africa with life-saving drugs during
the HIV/ AIDS crisis. It would be much better to have
an independent non-profit agency to research, develop,
produce and administer HIV/ AIDS drugs
ANNA WHITTLE
2003
1
Contents
Contents ........................................................................................................................ 1
Abstract ......................................................................................................................... 3
Introduction .................................................................................................................. 4
Part 1 ............................................................................................................................. 6
(i) Pharmaceutical companies are reluctant to disclose R&D costs .......................... 6
(ii) What comes within the umbrella of R&D? .......................................................... 6
(iii) Do pharmaceutical companies spend more on R&D than any other budgetary
item? ........................................................................................................................... 7
(iv) How can the industry claim so much of its expenditure is on R&D when they
can claim a large proportion of it back as tax credit? ................................................ 9
(v) How can the industry claim so much of its expenditure is on R&D when a large
proportion of this is carried out by the public? ........................................................ 11
(vi) Summary ........................................................................................................... 12
Part 2 ........................................................................................................................... 14
(i)Life saving drugs should not be subject to patent protection ............................... 14
(ii) Criticisms of the patent system .......................................................................... 15
(iii) Summary ........................................................................................................... 17
Part 3 ........................................................................................................................... 18
(i) An alternative to the patent system ..................................................................... 18
(ii) Summary ............................................................................................................ 22
Conclusion .................................................................................................................. 23
Bibliography ............................................................................................................... 25
2
The thesis of this paper is:
The current patent and R&D system is not working to provide Africa with life-saving
drugs during the HIV/ AIDS crisis. It would be much better to have an independent
non-profit agency to research, develop, produce and administer these drugs and to
distribute them in cases of national emergency.
____________________________________________
Abstract
The motivation of this dissertation is the failure of the patent system to provide
millions of HIV/ AIDS sufferers with life-saving drugs. In Africa the HIV/ AIDS
crisis has reached pandemic proportions. Without access to these drugs there will be
many unnecessary deaths, which could be prevented if the pharmaceutical industry
did not charge outrageous prices based on the research and development fallacy.
The main argument, which the pharmaceutical companies use to justify charging
high prices, is they cannot reduce prices because they need to recoup their costs for
research and development (R&D). This paper will illustrate that this statement lacks
truth, as pharmaceutical companies are reluctant to disclose R&D costs, they include
many hidden costs within the umbrella of R&D and that they do not fund a
significant proportion of R&D anyway.
Finally, I will suggest that life-saving drugs, such as those used to treat HIV/ AIDS,
should not have patent protection because patents hinder rather than facilitate
developing counties access to these treatments. The production of new drugs will not
dry up as a result because R&D is not solely dependant on incentives of patents or
profits. I will then suggest that the only way to eradicate the HIV/ AIDS crisis is to
establish an independent, non-profit agency to research, develop, produce and
administer lifesaving drugs and distribute them in cases of national emergency.
3
Introduction
“Sub-Saharan Africa is now home to 29.4 million people living with HIV/ AIDS.
Approximately 3.5 million new infections occurred there in 2002, while the epidemic
claimed the lives of an estimated 2.4 million Africans in the past year. Ten million
young people (aged 15–24) and almost 3 million children under 15 are living with
HIV. A tiny fraction of the millions of Africans in need of antiretroviral treatment are
receiving it. Many millions are not receiving medicines to treat opportunistic
infections, either. These figures reflect the world’s continuing failure, despite the
progress of recent years, to mount a response that matches the scale and severity of
the global HIV/ AIDS epidemic.”1
(UNAIDS: AIDS epidemic update December 2002)
HIV/ AIDS2 in Africa has spiralled to a point of crisis. The disease has reached
pandemic proportions and has been recognised by the UNGASS Declaration as a
“state of emergency”, threatening development, political security and the very fabric
of society.3 The patent and R&D system is clearly not working to provide these
people with life-saving drugs as an alarming 6,000 Africans die each day, and in the
absence of medical treatment, nearly all will die before 2010.4 Unnecessary lives will
be lost because only a tiny proportion have access to life-prolonging HIV drug
cocktails (approximately 0.001%5), which have been developed by multinational
pharmaceutical companies in the developed world, and will allow them to lead
“relatively healthy lives”.6 This is because the costs of these are astronomical, for
example, it is estimated to cost between 10 and 15 thousand US dollars 7 annually to
provide sufferers with these drugs. Such high prices are difficult for many people to
1
AIDS Epidemic Update December 2002. (www.unaids.org)
AIDS stands for ‘Acquired Immune Deficiency Syndrome’, AIDS is caused by a virus called HIV:
‘Human Immunodeficiency Virus’.
3
UNGLASS Declaration, supra note 5 at para. 8.
4
HIV Epidemic Restructuring Africa’s Population, by Lester. R. Brown, I Alert, 31 October 2000.
(www.glogalissues.org/Geopolitics/Africa/AIDS.asp)
5
Shazia Khan Afghan. The pharmaceutical Patent Controversy of the Twenty First Century. LL.M
International Commercial Law 1999-2000 p3.
6
John Christensen. AIDS in Africa: Dying by Numbers.
(www.cnn.com/SPECIALS/2000/aids/stories/overview/)
7
Patents and the High Cost of Medicines. (www.twnside.org.sg/title/et0119.htm)
2
4
meet in the developed world, so how can poorer countries have any hope of affording
them? The truth is that these costs are impossible for the vast majority of Africans,
which has the world's lowest average annual income at $315 per capita.8
The patent regime enables pharmaceutical companies to charge exorbitant prices for
drugs, because it gives them a monopoly in the market. This is the traditional
justification of the patent system as giving a monopoly to recoup costs of research
and development, is an incentive for society to further innovate. However, these
companies are abusing the system as they are charging unnecessarily high prices and
in doing so sacrificing the lives of millions of people in developing countries to
protect their profits. This can be illustrated by the fact that, although developing
countries comprise over 80 percent of the world’s population, they only represent 21
percent of global medicine sales.9
8
9
BBC News Online, ‘West urged to lift African imports’, Tuesday 29 May 2001. (www.bbcnews.com)
IMS Health. (www.IMS-global.com/insight/report/global/report.htm)
5
Part 1
(i) Pharmaceutical companies are reluctant to disclose R&D costs
Determining the R&D costs of producing a new drug is an extremely difficult (if not
impossible) task, as the pharmaceutical industry is unwilling to publicise such
information. This can be illustrated by the fact that the industry fought, and won, a
nine-year battle to keep congressional investigators at the General Accounting Office
from seeing the industry’s complete R&D records. Subsequently, it is tremendously
difficult to estimate these costs with any precision as information in the public domain
varies wildly and lacks evidential backing.
A study carried out by the Tufts Centre for the Study of Drug Development 10 (a
research group largely funded by the industry), shows that the cost to develop a new
drug has nearly tripled over the last decade. They estimate that it cost $231 million to
develop a new drug in 1987, yet $802 million to do the same thing in 2001.
The Association of British Pharmaceutical Industries, on the other hand, estimate that
‘on average, it takes around 10 to 12 years and £350 million to develop a new
medicine.’11 These high figures conflict with those suggested by Sykes,12 whose
approximation of £200 million per new medicine, is closer to Tufts 1987 estimate.
The problem with non-disclosure by the industry is that we do not know which of
these figures is accurate because it is impossible to identify what costs are counted
within the umbrella of R&D.
(ii) What comes within the umbrella of R&D?
It is difficult to ascertain the cost of R&D when it is impossible to identify what the
industry includes within its estimates. The exorbitant prices that the industry charge
10
Centre for the Study of Drug Development.
Tufts University web site: (www.tufts.edu/med/csdd/images/spspeak.pdf)
11
Association of British Pharmaceutical Industries, ‘Pharmaceutical Facts and Statistics’.
(www.abpi.org.uk/information/statistics.htm)
12
Sykes, R. (Chief executive of Glaxo Welcome), ‘EC must tackle Spanish threat to drugs R&D’, The
Guardian, 18 November 1995.
6
for their drugs would be justified if R&D strictly meant R&D, however it is often the
case that other expenses are included within this heading.
A report conducted by Families USA13 concluded that for the average-paid executive
in each of the nine pharmaceutical companies that market the top-selling 50 drugs, the
average compensation package – exclusive of unexercised stock options – was almost
$19 million in 2000. This is a phenomenal amount of money and would go a very
long way to providing HIV/ AIDS infected Africans with life saving drugs. More
astonishingly, William C. Steere, Jr, Chairman of Pfizer was paid $40.2 million
annually at the time of the study. According to Sykes estimates, Steer’s earnings alone
would fund ¼ of the R&D for a new drug. Since there is no transparency in the
industry’s expenditures it is very possible that it inflates its R&D records with
excessive administration costs.
Furthermore, according to a Public Citizen Report,14 the industry has spent vast sums
on political persuasion, including giving more than $19.07 million to political
candidates in the 2002 US election cycle.15 Additionally the industry use indirect
channels to exert political influence. For example, pharmaceutical companies have
helped to support the creation of grass roots organisations around specific diseases,
which lobby for measures that will increase the demand for their drugs.16
Consequently this means that the public is funding the industry’s pressure tactics and
in doing so also funding the preservation of patent protection on drugs. To include
such costs within the umbrella of R&D seems extremely unfair since lobbying
governments’ deliver no real health benefits.
(iii) Do pharmaceutical companies spend more on R&D than any other
budgetary item?
The pharmaceutical industry would have the public believe that they spend more on
R&D than they do on any other single budgetary item. However, statistics produced
13
Off the Charts: Pay Profits and Spending by Drug Companies. Website of Families USA.
(www.familiesusa.org/media/pdf/drugceos.pdf)
14
Public Citizen Report ‘The Other Drug War: Big Pharma’s 625 Washington Lobbyists.’
15
The Guardian, Saving Grace, 18.02.03, at p4.
16
Robert O’Harrow Jr, ‘Grass Roots Seeded by Drugmaker’, Washington Post, September 12, 2000.
7
by Families USA suggest otherwise, as they concluded that ‘all of the nine US
pharmaceutical companies that market the top-selling 50 drugs spent more money on
marketing, advertising, and administration than they did on R&D.’17 Additionally,
Public Citizen suggest that advertising is now the industry’s chief expenditure, and
has become increasingly so since the US relaxed its rules on Direct-to-Consumer
(DTC) advertising in 1997.18 For example in 1998 Schering-Plough spent $136
million advertising its allergy drug Claritin.19 Thus the industry spends millions and
millions on advertising and marketing ploys, which could be better substituted for
charging lower prices for drugs and funding more R&D programmes for ‘poor
peoples’ diseases. This was identified by Silverstein, who commented:20
“It’s obvious that some of the industry’s surplus profits could be going into research
for tropical diseases…instead, it is going to stockholders and promotion: In 1998 the
industry unbuckled $10.8 billion on advertising.”
It would be more beneficial to the consumer if the US followed the British example,
whereby the amount spent on advertising must be no more than 9% of its revenue. 21
This would prevent over excessive campaigns and in doing so would off set more
money, which could be used to lower prices and develop new drugs. To achieve this
greater regulation is needed of the industry as a whole and additionally the industry
must open its books to the public for greater transparency. However in light of the
industry’s triumph in its nine-year legal battle with the General Accounting Office, it
seems unlikely that we can expect to see this in the near future.
The industry also uses more unorthodox methods to ‘promote’ their products. Direct
contact with physicians by sale representatives of the industry has been one such
initiative. The problem with this is it seems illogical that the industry can influence
the gatekeepers of healthcare in this way, as this ultimately creates a conflict of
17
See note 13 at p 3.
R&D Myths: The Case Against the Drug Industry’s R&D “Scare Card.” Website of Public Citizen at
p20.
(www.citizen.org/publications/release.cfm?ID=7065)
19
See note 16 at p 20.
20
Ken Silverstein, Millions for Viagra, Pennies for Diseases of the Poor, The Nation, July 19 1999.
21
Shazia Khan Afghan. The Pharmaceutical Patent Controversy of the Twenty First Century. LL.M
International Commercial Law. Year 1999-2000, at p24.
18
8
interest between a physician’s duty to his/her patient and his/her obligation to the
industry. Additionally it has also been reported that outright bribes have been used to
persuade doctors to prescribe a company’s drugs.22 In sum a system that enables
healthcare to be influenced by economics is a wholly inadequate one.
(iv) How can the industry claim so much of its expenditure is on R&D when they
can claim a large proportion of it back as tax credit?
It seems inconceivable that the pharmaceutical industry can charge such high prices
for drugs when the government reimburses a large proportion of their R&D
expenditure. This appears to be a double win situation, so how can it possibly be
justified for one of the most profitable industries in the world?23
In the 1980’s the US government granted a 45 per cent tax credit for every dollar
spent on R&D and as the US Congress rightly pointed out, this meant that ‘every
dollar spent on R&D would cost the company only $0.54 dollars.’24 Public Citizen in
2001 indicated that in the two decades this figure has barely changed by concluding
that the industry’s tax rate is 40 percent less than the average for all other industries.25
Furthermore to add insult to injury, not only are R&D costs tax deductible, so too are
the over excessive marketing costs.26
This initiative would be excellent if the government were to set research priorities, as
politicians would be under public pressure to insist on R&D for less profitable
diseases such as HIV/ AIDS. However, this is not the case as there is little knowledge
or control over what development programmes tax credits are granted for. Thus
Geoff Dyer and High Williamson, ‘German Doctors Accused of Taking Bribes’, London Financial
Times, 12-03-02.
23
For example the pharmaceutical industry ranked the most profitable industry in Fortune 500’s 2002
results. (Public Citizen Press Release, April 18, 2002.)
(www.citizen.org/pressroom/release.cfm?ID=1088)
24
U.S. Senate, The Drug Manufacturing Industry: A Prescription for Profits, Staff Report of the
Special Committee on Aging (U.S. Government Printing Office, Washington, D.C., 1991.
25
See note 16 at p 15.
26
Berger, J.M. ‘Tripping Over Patents: AIDS, Access to Treatment and the Manufacturing of Scarcity.’
LL.M 2001, Faculty of Law, University of Toronto. Website of the Treatment Access Campaign.
(www.tac.org/za/archive.htm)
22
9
according to James Love27 the main criticisms of tax credits is there is no information
on who gets the credits or what the credits are used for, and secondly there is no
‘Needs Test’ for these credits, with credits granted even when the credit does not
influence investment decisions. Thus in the words of Michael Davis, ‘they’re in the
business of pouring out money into private industry and failing to keep track of it,
we’re talking about millions of dollars wasted and about people becoming exploited
because of excessively high drug prices.’28
The consequence of governments failing to monitor the industry has meant that
pharmaceutical companies are ploughing resources into ‘profitable’ drugs and not
‘poor persons’ drugs. For example critics of the industry have declared that ‘it would
rather find a cure for a bald American than a dying African.’29 The reason for this
according to McNeil is, ‘we’re an industry in a competitive environment – we have a
commitment to deliver performance for shareholders.’30 This is illustrated by the fact
that ‘of the 1,233 drugs that were licensed world wide between 1975 and 1997, only
13 were for tropical diseases that mainly affect the developing world.’31
A further criticism of the system is that although the government is paying for the
research they do not retain any intellectual property rights in it. This means that in
cases of national emergency – like the HIV/ AIDS crisis in Africa – governments’
have no control over the price of drugs. In this sense intellectual property has become
a tool to deliver profits to the industry and a dagger to sufferers who cannot afford
these high prices.
The public purse is funding a large proportion of the industry’s R&D process, so it
seems completely unjustified that drug companies can pass on costs, which they have
not incurred, to consumers through high drug prices. Since the industry received more
Love, J. ‘Paying for Health Care R&D: Carrots and Sticks. Website for the Consumer Project on
Technology.
28
Michael Davis, Specialist in Intellectual Property at Cleveland State University College of Law
adapted from Shazia Khan Afghan. The Pharmaceutical Patent Controversy of the Twenty First
Century. LL.M International Commercial Law. Year 1999-2000.
29
Story, A. ‘The Oxfam “Access to Essential Medicines” Project: Some Patent and Research and
Development Issues.’ October 2000, at p 5.
30
McNeil, D. ‘Drug Companies and the Third World: A Case Study in Neglect’, The New York Times,
May 21, 2000.
31
Story, A. ‘The Oxfam “Access to Essential Medicines” Project: Some Patent and Research and
Development Issues.’ October 2000, at p 10.
27
10
than $600 million in research related tax credits in 2000,32 you would have thought
that we would have seen a reduction in drug prices to reflect this.
(v) How can the industry claim so much of its expenditure is on R&D when a
large proportion of this is carried out by the public?
According to one academic, ‘the drug research conducted by pharmaceutical
companies does not start will a clean slate; instead this research is based, in great
measure, on the ideas and innovations of those who have worked previously in a
particular research area or related ones…it is the existence of a healthy and accessible
public domain in scientific information that provides the main source for private R&D
on pharmaceuticals.’33
This point is best illustrated using the example of the HIV/ AIDS antiretroviral drug
Zidovudine (AZT). This drug was initially synthesised by the Michigan Cancer
foundation on a grant from the National Cancer Institute (NIC) in 1964.34 However,
after NIC discarded of it as being too toxic to treat leukaemia, Burroughs Wellcome
(a British pharmaceutical company) in 1988 applied for and received a patent for the
idea of using AZT to treat HIV/ AIDS.
Glaxo-Welcome (formally Burroughs Wellcome) makes massive profits selling this
drug to HIV/ AIDS victims for sky-high prices. When Congressional hearings
questioned their high pricing of the drug, which had been developed largely by
government assistance, they claimed that high prices were necessary to recoup the
$231 million that ‘they’ had spent on developing the drug over a ‘ten to twelve year
period.’ However, this statement was highly inaccurate as it was the US government
32
Baker, D. and Chatani, N. (October 2002) ‘Promoting Good Ideas on Drugs: Are Patents the Best
Way? The Relative Efficiency of Patent and Public Support for Bio-Medical Research.’ Website of
Centre for Economic and Policy Research, at p 14.
(www.cepr.net/promoting_good_ideas_on_drugs.htm)
33
Story, A. ‘The Oxfam “Access to Essential Medicines” Project: Some Patent and Research and
Development Issues.’ October 2000, at p 9.
34
Additional Notes on Government Role in the Development of HIV/AIDS Drugs.
(www.cptech.org/ip/health/aids/gov-role.html)
11
that had carried out the initial testing and it was the government that had provided
resources throughout the entire process.35
This is evidence that the industry is willing to mislead the public into believing that
their steep prices are justifiable under the false pretence that they have spent millions
of dollars researching and developing the drug. Consequently the industry is making a
mockery out of society, by reaping profits for expenses, which strictly they have not
incurred.
Steven Salbu36 has suggested that the majority of drugs produced by the industry are a
‘quasi-public product’ and as a result ‘there should be some public sharing in the
fruits of investment.’ This seems a logical and justified statement to make in light of
the fact that the public have already contributed a substantial amount towards the cost
of these drugs.37 More reasonable prices would be a step by the industry in
recognition of this.
(vi) Summary
The current R&D system enables the pharmaceutical industry to favour economics
over human life. This is because the present situation – lack of government
intervention and absence of transparency – allows the industry to mislead the public
into thinking that high drug prices are justified in order to recoup the huge R&D costs,
which they have incurred. However this is a complete fallacy because in truth it is
almost impossible to know what criterion the industry includes within the term R&D.
Independent studies have provided some guidance on the matter by acknowledging
that the industry include ‘hidden’ costs within the umbrella of R&D. For example
compensation packages, political lobbying and promotional costs, to name just a few,
are recovered by the industry by charging the public excessive prices for drugs.
Moreover, often the public have already paid a substantial amount towards the R&D
of drugs through taxes and publicly funded research, so in effect the industry is
35
Shazia Khan Afghan. The Pharmaceutical Patent Controversy of the Twenty First Century. LL.M
International Commercial Law. Year 1999-2000, at p 24.
36
Salbu, Steven, AIDS and Drug Pricing, Washington University Law Quarterly, Fall 1993.
37
For example in 45 of 50 top selling drugs get government subsidies totalling nearly $175 million.
(Sember, A ‘Public handouts enrich drug makers, scientists’, The Boston Globe, 5 April 1998.)
12
operating on a double charging policy. This policy amounts to an apartheid between
rich and poor by imposing a death sentence on millions of Africans, just because they
cannot succumb to the ways of capitalism - where’s the justice in that?
13
Part 2
(i) Life saving drugs should not be subject to patent protection
“If national patent laws did not exist, it would be difficult to make a conclusive case
for introducing them…” (Penrose).38
The traditional justification of the patent system is that it gives ‘inventors’39 a
monopoly in the market as an incentive to further innovate. Thus it is argued that if
patent law did not exist and innovation was not rewarded, there would be depletion in
society’s pool of information. A further rationalisation of the system is that morally, a
person is said to have a natural right to the product of her brain, and consequently the
power to decide how, when, and by whom that product should be utilised.
Firstly, it seems a contradiction to call patents ‘moral’ when it is clearly ‘immoral’ to
have a system, which prohibits millions of Africans (and other HIV/ AIDS sufferers)
access to life saving drugs. Perhaps one could suggest that it is moral to award the
inventor for the product of her brain, but this should not be at all costs, as there is an
overriding morality (one would think) to alleviate human pain and suffering.
Pharmaceutical companies, however, appear to suggest otherwise by putting their
products out of the reach of the poor and thereby causing millions of unnecessary
deaths. Even more disturbingly it appears that the industry is oblivious to the harm
they are causing. For example Harvey Bale Jnr, Head of the International Federation
of Pharmaceutical Manufacturers Associations, recently commented: “ For people
with no income or little income, price is a barrier. I mean I can’t afford certainly a car
of my dreams, you know, which might be a Jaguar XJE or something like that.”40
Secondly, the argument that patents provide an incentive to innovate is undermined
when we consider that inventors of many revolutionary drugs have not relied on the
incentives of the patent system, but have instead been driven by selfless motives like
38
Penrose, E, The Economics of the International Patent System, 1951.
An inventor is someone who develops and introduces an ‘invention’. In this context ‘invention’ is a
term of the art and refers to any product or process that is potentially capable of patent protection.
40
The Guardian, AIDS Special: Saving Grace, 18.02.03, at p8.
39
14
the good of mankind. For example, Manuel Potarroyo, the developer of the world’s
first safe malaria vaccine, declined offers from the pharmaceutical industry totalling
$68 million for the vaccines rights. Instead he decided to donate the rights of the drug
to the World Health Organisation (WHO) because he felt “the benefits should go to
all of mankind”.41 Additionally Albert Sabin, the creator of a non-invasive vaccine
against polio, wanted his work to save “all the worlds children”42 so he refused to
hold a patent of the drug.43
Furthermore it is clear that some inventors do not believe that essential lifesaving
drugs should be monopolised by the pharmaceutical industry. For instance when
Jonas Salk, the creator of a vaccine against polio, was asked who owned the patent on
his drug, he relied: “Well, the people, I would say. There is no patent. Could you
patent the sun?”44 Another example is the Canadian researchers Banting and Best,
who discovered insulin in a publicly funded laboratory in 1921. Instead of selling the
patent of the drug to the industry for vast sums of money, they chose instead to sell it
to the University of Toronto for just one dollar.45
(ii) Criticisms of the patent system
A major flaw with the patent system is that it encourages secrecy as drug companies
are in competition with one another to develop and patent new drugs. The system
provides a huge incentive to keep information secret since the patent registry operates
on a first to register policy. This means that if information finds its way to competitors
they can receive a patent even though they were not the ones who invented the drug.
The effect of this on the ‘true’ inventor would be enormous since without obtaining
proprietary rights in the drug it is unlikely that they will be able to recoup their R&D
costs.
Story, A. ‘The Oxfam “Access to Essential Medicines” Project: Some Patent and Research and
Development Issues.’ October 2000, at p11.
42
In the early 1960’s it was estimated that the vaccine prevented 500,000 deaths and 5,000,000 cases of
paralytic polio in children.
43
Story, A. ‘The Oxfam “Access to Essential Medicines” Project: Some Patent and Research and
Development Issues.’ October 2000, at p11.
44
Ibid.
45
Ibid.
41
15
The problem with this is the right to keep a person from doing something is no social
asset, since “secrecy undermines scientific progress.”46 Thus the key to discovering
new medicines is hindered by this mentality, as a researchers greatest tool is a healthy
and accessible public domain in scientific information. Moreover the collaboration of
research findings by the industry would lead to faster and more effective medicines on
the market.
It seems paradoxical that in theory patents are supposed to lead to the disclosure of
inventions but in practice they actually conceal information. Nevertheless, the
industry is able to keep findings behind closed doors because of the evidential
difficulties in trying to prove that they are failing to carry out their obligations under
the Patents Act 1977.
A further fault with the current regime is that it provides an incentive for
pharmaceutical companies to R&D ‘copycat’ drugs,47 instead of new breakthroughs.48
The patent system enables the industry to be driven by economic as opposed to social
considerations, which provides an incentive to invest in copycat drugs as these occupy
a large share of the market.49 In the absence of patent protection there would be little
reason to restrict R&D to commercially attractive products as there is no benefit to be
gained from developing second and third drugs when the first one has already proven
to be effective and has obtained a good reputation.
Finally the patent system does not encourage the industry to engage in R&D for ‘poor
persons’ diseases. For instance it has been estimated that $70 billion is spent each
year in the world on R&D of new drugs, however, less than 10% of this is spent on
90% of the worlds health problems. Consequently patents provide the ultimate
Love, J. ‘Paying for Health Care R&D: Carrots and Sticks. Website for the Consumer Project on
Technology.
47
A copycat drug is a drug which is the same as one already on the market.
48
The patent system by providing an incentive to R&D copycat drugs is contradicting its traditional
justification of providing an incentive to further innovate.
49
Copycat drugs account for more than 70% of all R&D spending. According to the Food and Drug
Administration (FDA) the vast majority of drugs fall within the ‘copycat’ category. For example they
estimate that only 24% of drugs are classified as representing significant advances over existing drugs.
(Baker, D. and Chatani, N. (October 2002) ‘Promoting Good Ideas on Drugs: Are Patents the Best
Way? The Relative Efficiency of Patent and Public Support for Bio-Medical Research.’ Website of
Centre for Economic and Policy Research.
(Available at www.cepr.net/promoting_good_ideas_on_drugs.htm)
46
16
incentive to invest in ‘blockbuster’ drugs50 because they generate the highest market
return.51 In light of this it can be argued that since the industry invests very little in
tropical diseases, removing patent rights from a small percentage of their products
would have virtually no impact because “frankly, there is little to disturb.”52 (Alan
Story).
(iii) Summary
Under the current patent system the pharmaceutical industry has little incentive to be
socially responsible, but has huge financial incentive to be irresponsible and ensure
that a market for their drugs not only exists but also increases. This is clearly in
contradiction to the traditional justification of the patent system, which rationalises it
as a vehicle for society to further innovate and to enhance the quantum of information
in the public domain. Consequently, because theory and practice are clearly out sync,
it would be more beneficial if lifesaving drugs were removed from the patent regime,
as they are being exploited in a competitive environment in which they really play no
great part.
50
A blockbuster drug is one which is a big seller and will generate the company large profits.
In the absence of patents there would be little incentive to R&D ‘blockbuster’ drugs for the same
reasons stated in relation to ‘copycat’ drugs.
52
Story, A. ‘The Oxfam “Access to Essential Medicines” Project: Some Patent and Research and
Development Issues.’ October 2000, at p11.
51
17
Part 3
(i) An alternative to the patent system
“It is almost impossible to conceive of any existing social institution so faulty in so
many ways. It survives only because there seems to be nothing better.” (John
Jewkes)53
The discussion in this thesis so far has focused on the failings of the current patent
system, which enables the pharmaceutical industry to justify their exorbitant drug
prices under the R&D fallacy. This final section will propose that the only way to
solve the HIV/ AIDS crisis in Africa, and the rest of the world, is to establish an
independent non-profit agency to research, develop, produce and administer
lifesaving drugs and distribute them in cases of national emergency.
The HIV/ AIDS crisis has reached pandemic proportions in Africa. A new strategy to
solve this human onslaught is needed immediately before the disease reaches its peak
in 2050/2060.54 The failings of the current patent system have already led to the
implementation of several initiatives to curtail the crisis, however, even these have
proven to be either problematic or flawed. For example, the Declaration on the
TRIPS Agreement and Public Health (Doha Declaration) is supposed to allow poor
countries to disregard patents in the interests of public health and permit them to make
or buy generic alternatives. Additionally the Trade Related Aspects of Intellectual
Property Agreement (TRIPS) provides that compulsory licensing of patents should be
granted to governments in cases of national emergency or extreme urgency.55
However, in practice these declarations have not been able to take effect as richer
counties are bullying poorer countries to discount their rights by using the threat of
trade sanctions.56
53
John Jewkes, David Sawers and Richard Stillerman, The Sources of Invention (2nd ed., 1969), p187188.
54
Richard Feachem, UN Global Fund Chief, The Guardian, AIDS Special: Saving Grace, 18.02.03, at
p7.
55
Article 31 of the TRIPS Agreement 1994.
56
US bullying On Drug Patents: One Year After Doha, Oxfam Briefing Paper no. 33.
(www.oxfam.org.uk/policy/papers/24globalfund/24globalfund.html)
18
The most promising initiative so far has been the establishment of the Global Fund to
fight HIV/ AIDS, TB and Malaria, which was set up in response to widespread
criticism of governments’ apathy to the health crisis in developing countries.57 Its
objective is to raise $10 billion a year, which will be awarded in grants to poor
countries with approved plans for fighting the three diseases. However although its
intentions clearly represent a positive move by the West, in reality the scheme is
failing because the developed world is simply not injecting into the fund the amount
of money promised.58
To overcome the shortcomings of current times it would be far better to take crucial
lifesaving drugs, such as those used to treat HIV/ AIDS, out of the competitive
market. This could be achieved if governments’ establish an independent non-profit
agency to replace the pharmaceutical industry’s present role in the research,
development, production and administration of such drugs. This will comprise of top
scientists and researchers from around the world who will have the provision of state
of the art resources. The agency would in phased in gradually to replace the current
patent system. Placing the control of lifesaving drugs into the hands of a neutral
agency would lower prices dramatically and facilitate greater access since it would
not be driven by profit.
Additionally I recommend that crucial lifesaving drugs should not be patentable and
ought to fall within the class of general exceptions enlisted in section 1(2) of the
Patents Act 1977. The agency would still however be under a compulsory obligation
to place all research findings into the public domain, to facilitate the continuing need
for a healthy and accessible public pool of information. The effect of removing patent
protection from essential drugs would destroy the unlimited monopoly that the
industry currently enjoys. The agency would be free to use any formula or
compilation to produce drugs at cost price since they would not be restricted by
patents or obliged to pay expensive licensing fees to patent holders. This will mean
57
58
The Global Fund was set up by UN Secretary General Kofi Annan in June 2001.
So far only $2.2 billion has been pledged.
19
that drug prices will be comparable to the cost of generic drugs,59 such as the three in
one pill ‘Triomune’ produced by Indian generics company Cipla for just $304 a
year.60 Cutting prices from the industry’s $1, 058.50 a year61 to generic prices will
mean that HIV/ AIDS drugs will be in the reach of many more of the worlds’
population.
The establishment of this agency could be funded directly from the governments'
savings on tax credits and publicly funded research. The government by delegating
the industry’s current role to an independent agency would not incur expenses
whereby they receive no real benefit, and instead could use such funds to found an
agency, which would provide greater public health benefits. The other main
advantage, alongside enhanced public health provision, is that there would be no need
to raise taxes to support this transition. Additionally a secondary effect of these
savings is that it would free up government tax revenue, which could be used to
finance additional R&D of drugs and pay scientists and researchers competitive
compensation packages. According to Baker and Chantani the savings to the private
sector would be between $560 and $670 billion.62
The advantages of establishing an independent agency are numerous. Firstly, because
it is independent it will only be established by the government and not controlled by
them. This will mean that drugs will be researched and developed according to human
demand and not market demand. Furthermore the allocation of funds will be
independent of political influence, which under the current regime is prejudiced by
lobbying incentives from the industry, as decisions about spending will be made by
impartial health care professionals. The effect of this will be that less time and money
59
Generic versions of HIV/AIDS drugs often sell for less than 10% of the price of the brand drugs.
(Baker, D. and Chatani, N. (October 2002) ‘Promoting Good Ideas on Drugs: Are Patents the Best
Way? The Relative Efficiency of Patent and Public Support for Bio-Medical Research.’ Website of
Centre for Economic and Policy Research at p19).
60
The Guardian, AIDS Special: Saving Grace, 18.02.03, at p9.
61
Currently the three essential HIV/AIDS drugs are not produced in one pill. Glaxo Smith Kline sells
Combivir, which is Zidovudine (AZT) and Iamivudine (3TC) in one pill, for $620.50 a year and
Boehringer Ingelheim sells Nevirapine for $438 a year – totalling $1, 058.50 a year. (The Guardian,
AIDS Special: Saving Grace, 18.02.03, at p9).
62
Baker, D. and Chatani, N. (October 2002) ‘Promoting Good Ideas on Drugs: Are Patents the Best
Way? The Relative Efficiency of Patent and Public Support for Bio-Medical Research.’ Website of
Centre for Economic and Policy Research.
(Available at www.cepr.net/promoting_good_ideas_on_drugs.htm)
20
will be spent on ‘blockbuster’ and ‘copycat’ drugs, and more will be spend on killer
diseases such as HIV/ AIDS.
Secondly, the agency-approach would not offer incentives for secrecy like patents do.
Therefore, the top scientists and researchers working for the agency will be able to
collate their skills to work on producing cures for diseases rather than variations of
drugs already on the market which do not offer any new health benefits. Their work
will not be under confidentiality agreements, which will enable them to work along
side and in conjunction with their colleagues and researchers to produce more
effective dugs over a greatly reduced time period. Furthermore, the scientists and
researchers will in fact have the opposite incentive to secrecy, as having their findings
disseminated as widely as possible will enhance their reputations.
Finally the new system will not deceive the public about the cost of R&D. This is
because, unlike the industry, the agency will make the whole of its affairs transparent.
This will mean that extra hidden costs such as excessive administrative expenditure
and advertising campaigns cannot be included within the price of drugs. Additionally
there will be zero money spent on registering and protecting patents as these will no
longer exist, which will mean that there will be more funds to spend on the R&D of
other drugs.
The agency will research, develop, produce and administer drugs. They will be sold to
the public for cost price, which will not include any profit. In cases of national
emergency I recommend that it should distribute the vital lifesaving drugs to the
county/ countries in need for no charge. The capital to fund this scheme will derive
from government tax and loan savings, as well as charitable donations from
governments’ and the general public. In short this initiative will be in a unique
position, as it will have the resources and expertise to eradicate the HIV/ AIDS
pandemic once and for all.
A further way in which the agency approach would be more efficient and effective is
that it could contract out some or all of its work to pharmaceutical companies or
independent entities. The attraction of this is that such contracts could be subject to
competitive bids, which would save money, as contracts would be directed to the
21
lowest bidder. Alternatively the agency could create a system of prizes whereby
especially important breakthroughs would receive large monetary rewards.63 Again
this would be a low cost strategy, which would provide a huge incentive to embark in
research, which may otherwise not have been undertaken. This pharmaceutical
industry themselves have implicitly advocated that this is a far better approach to
finding a cure for life threatening diseases. For example in the wake of the Anthrax
scare in the US in the fall of 2001, the industry wanted the government to contract out
the development of an Anthrax vaccine.64 This indicates a realisation by
pharmaceutical companies that cures cannot be found with limited resources in a
competitive environment.
(ii) Summary
Replacing the current patent system with a new agency-approach will lead to more
efficient and effective treatments. It will offer transparency and accountability and
will be driven by genuine public health concerns rather than profit. The agency will
be at little if any extra financial cost but will bring huge public health gains. Its
advantages far outweigh anything that the pharmaceutical industry currently offers,
and most significantly it would operate on principles of realism rather than fallacy.
63
This would be similar to the Nobel Prize scheme.
Keith Bradsher, ‘Industry Seeks U.S. Contracts To Develop Antibiotics,’ New York Times, October
31, 2001 at pB10.
64
22
Conclusion
The current patent and R&D system is hindering rather than facilitating access to
lifesaving HIV/ AIDS drugs. This is because the existing regime provides incentives
to engage in R&D for profitable blockbuster drugs rather than focusing on killer
diseases, which affect a large proportion of the world’s population in the
underdeveloped South. Additionally, patents give the industry a monopoly on their
products, which mean that they can charge the public exorbitant prices. The
consequence of this is that of the 29.4 million African’s living with the virus, only a
tiny fraction of them will be able to afford essential antiretroviral drugs. The industry
is able to control access by asserting the R&D fallacy that if anything is done to lower
drug prices investment in R&D expenditures will suffer.
However in recent years the industry has been more susceptible to outside scrutiny,
which has highlighted the inadequacy of the R&D argument. Independent reports and
publications have opened the doors to this secretive institution by disclosing
information, which has clouded the industry’s reputation. For example it has been
divulged that the industry includes excessive compensation packages, political
lobbying schemes and expensive advertising campaigns, to name just a few, within
the price of their drugs. Subsequently, society has become aware that the industry’s
priorities lie in profits and not public health. A major flaw with the patent system is
the vast amount of political influence that the industry has, as it is able to control
government manifestos and manipulate public health decisions.
The only way to eradicate the HIV/ AIDS crisis would be to take health care
provision out of the private sphere. This is because it in inadequate to turn lifesaving
drugs into a commodity by placing them into the merciless free market. Furthermore,
the patent system provides no incentive for drug companies to collate their skills and
resources, as the current climate is extremely competitive. In order to bring
antiretroviral drugs into the reach of the worlds needy it would be better to establish
an independent non-profit agency to replace the industry’s current role in the
production process of these drugs. The approach of the agency would be more
humanitarian with an ethos of collaboration rather than polarisation. It is this principle
23
alone that is key to solving the HIV/ AIDS pandemic and discovering the miracle
cure. Thus as Isaac Newton has rightly acknowledged, but the industry rarely does:
“If I have seen far, it is by standing on the shoulders of giants.”65
Scotchmer, S, “Standing on the shoulders of Giants: Cumulative Research and the Patent Law,
“Journal of Economic Perspectives, Vol. 5, No. 1, Winter 1991 (29-41).
65
24
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