Medicines for the Developing World: Promoting Access and
Innovation in the Post-TRIPS Environment
By Max Morgan
I. Introduction
The world market for pharmaceutical products is marred by two separate yet
related failings. The first can generally be described as a crisis of access, the second a
crisis of innovation. Underlying both is an issue that transcends the recent heated debates
surrounding the implementation of the World Trade Organization (WTO) Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) and its impact
on pharmaceutical prices. This issue is poverty.
The world’s current system of pharmaceutical innovation is driven by the demand
of consumers in developed markets such as North America, Europe and Japan. This
system has and continues to provide new and effective treatments against conditions
prevalent in these markets, including cancer, heart disease, and diabetes.1 Yet, these
diseases are not limited to patients in the developed world. Despite concurrent need in
developing countries, a dearth of resources nonetheless limits access to medicines to a
small fraction of privileged consumers who can afford them. According to the WHO, at
the beginning of the 21st century an estimated one-third of the world population still
lacked regular access to essential drugs, with this figure rising to over 50% in Africa and
Asia.2
A corollary problem with the current system of pharmaceutical innovation is that
diseases entirely or predominantly afflicting the poor in the developing world (so-called
“neglected” diseases) are ignored. Incentives to innovate new treatments for these
conditions are sub-optimal as monopoly rents that could plausibly be collected under
forms of intellectual property or market-exclusivity protection would be insufficient to
recoup the high costs and justify the high risk associated with pharmaceutical research
and development. Illustrative is Africa, which accounts for only 1.3% of the world
pharmaceutical market by sales.3 Innovator pharmaceutical companies have been
unwilling to focus their attention on new R&D for conditions localized to such a small
market, when the allocation of resources towards developing treatments for ‘global’
diseases promises a far more substantial return on investment through sales in the
developed world. Empirically, only 10% of the world’s expenditure on pharmaceutical
research is directed to health conditions that account for 90% of the global disease
Jean O. Lanjouw, “A Proposal to Use Patent Law to Lower Drug Prices in Developing Countries”,
Commission on Macroeconomics and Health Working Paper Series, Paper No. WG2:11, available at
www.chhealth.org, at 4. [hereinafter Lanjouw]
2
WHO. WHO medicines strategy 2000-2003: framework for action in essential drugs and medicines
policy. (Geneva: WHO, 2000), available at
www.who.int/medicines/strategy/MedicinesStrategy2000_2003.shtml, at 2.
3
Carlos Correa, “Patent Law, TRIPS, and R&D Incentives: A Southern Perspective”, Commission on
Macroeconomics and Health Working Paper Series, Paper No. WG2:12, available at www.cmhealth.org, at
9. [hereinafter Correa]
1
burden.4 Further, of 1,233 new drugs registered worldwide between 1975 and 1999, only
13 were indicated for the treatment of tropical diseases endemic to the developing world.5
Though the crisis of access and the crisis of innovation are united by the common cause
of poverty, each warrants unique solutions. The aim of this paper is to introduce
the reader to various policy initiatives, both current and hypothetical, with
promise for effectively addressing each issue, particularly in the context of
continued implementation of intellectual property protection in the developing
world. Absolutely essential to solving either problem is greater political and
financial commitment from both developed and developing world governments
and institutions. Persuasive arguments can and have been advanced that such
commitment is economically, morally and legally imperative.
The World Health Organization (WHO) Commission on Macroeconomics and
Health has concluded through economic modeling that sustained and adequate donor
financing of initiatives to improve the health of the world’s poor, in part through
improving access and innovation in pharmaceuticals, would create sustained economic
growth in developing countries and would repay donor investments several times over in
the form of expanded gains from international trade and increased global political
stability.6 The economic logic of global concerted action on international health
problems is made clear by a particularly compelling example: the campaign to eradicate
small pox. The total estimated cost of worldwide vaccination was $25 million, but
economists estimate the direct global savings to be approximately $275 million annually,
and $168 billion cumulatively.7
Beyond the promise of reciprocal economic benefits, governments have a legal
duty to combat global public health problems. The human right to access to medicines in
the context of epidemics such as HIV/AIDS, tuberculosis and malaria has been
recognized by the international community as a core element of the right to health
guaranteed in the International Covenant on Economic, Social and Cultural Rights.8 This
right creates duties under international law on both developed and developing world
4
Global Forum for Health Research (2000), The 10/90 Report on Health Research 2000 (Geneva,
Switzerland: World Health Organization), available at www.globalforumhealth.org. [hereinafter 10/90
Report].
5
Bernard Pecoul, Pierre Chirac, Patrice Trouiller, and Jacques Pinel, “Access to Essential Drugs in Poor
Countries: A Lost Battle?” J.A.M.A. 281(4), Jan. 27, 1999, 361-67, at 362. [hereinafter Pecoul and Chirac].
6
Commission on Macroeconomics and Health, Macroeconomics and Health: Investing in Health for
Development, Report of the Commission on Macroeconomics and Health, (WHO, Geneva 2001), available
at www.cmhealth.org, at 12-14.
7
S.K. Stansfield, M. Harper, G. Lamb, and J. Lob-Levyt, “Innovative Financing of International Public
Goods for Health”, Commission on Macroeconomics and Health Working Paper Series, Paper No.
WG2:22, available at www.cmhealth.org, at 1. [hereinafter Stansfield].
8
International Covenant on Economic, Social and Cultural Rights 26 December 1966, 993 U.N.T.S. 3, 6,
I.L.M. 360 (1967) (entered into force 3 January 1976); Committee on Economic, Social and Cultural
Rights, “General Comment No. 14 (2000):The right to the highest attainable standard of health (article 12
of the International Covenant on Economic, Social and Cultural Rights)” E/C.12/2000/4, 11 August 2000.
governments to address the current failings observed in the international pharmaceutical
market, and to prevent third parties from unduly limiting access to required treatments.
Finally, the current lack of initiatives to foster access to and innovation of new
pharmaceutical products for the world’s poor can only be described as a moral failure of
the highest degree. If the global community continues to allow people in developing
countries to die in unimaginable numbers where effective treatments exist and to allocate
enormous resources towards innovating new medicines for lifestyle illnesses while
completely ignoring diseases that are deadly to the world’s poor, one can only conclude
that “history will not judge us kindly.”9
However, even assuming that the requisite international political and financial
commitment can be garnered, it will need to be focused on concrete strategies that have
strong potential for success. This paper reviews and assesses various proposals to
address both the crisis of access and the crisis of innovation in pharmaceuticals. Part II
introduces the reader to some statistical and anecdotal evidence regarding pharmaceutical
access and innovation for both global and neglected diseases, attempting to divide
particular diseases into one of the two categories. Such categorization has important
consequences for implementing specific policies discussed later in this paper.
As background, Part III introduces the debate around extending pharmaceutical
patent protection to the developing world, lays out the universal requirements contained
in the WTO TRIPS Agreement, and highlights certain flexibilities available in the
Agreement that are important for mitigating the potential negative consequences of
universal patenting on pharmaceutical access. Part IV discusses the various factors
which act to constrain developing world access to currently existing pharmaceutical
products, situating price and patenting issues in the broader context of limited financing,
infrastructure, political commitment and other problems. Part V then directly addresses
the current and future link between pharmaceutical patenting and the gap in access to
medicines.
Part VI reviews and critically assesses several mechanisms aimed at achieving
differential pricing of pharmaceutical products to promote access in the developing
world. Part VII discusses so-called ‘TRIPS-plus’ intellectual property protection under
bilateral and regional free trade agreements (FTAs) and how it may create future
roadblocks to implementing differential pricing strategies. Part VIII then reviews and
critically assesses proposals and programs to stimulate R&D into neglected diseases, and
to ensure future access to the fruits of such R&D in the developing world.
Part IX concludes, and proposes a global bulk pharmaceutical purchasing fund
that would procure and deliver pharmaceuticals to the developing world and that would
be financed jointly by the developed and developing world through government
Amir Attaran, “How Do Patents and Economic Policies Affect Access to Essential Medicines in
Developing Countries?”, Health Affairs, Volume 23, Number 3 (2004), 155-166, at 166. [hereinafter
Attaran 2004].
9
contributions, as well as private donations. The promise of such an entity in solving both
the crisis of access and the crisis of innovation is highlighted.
II. Pharmaceutical Access and Innovation
The Drugs for Neglected Diseases Initiative (DNDi) separates global disease
burden into three separate categories.10 The first category, which is comprised of ‘global’
diseases such as cancer, and cardiovascular, metabolic, bone and joint diseases, affects
people in all countries and constitutes a major focus of the R&D-based pharmaceutical
industry. The second category consists of ‘neglected’ diseases, including malaria and
tuberculosis, which mainly affect people in developing countries, although minor demand
in wealthy countries has ensured that some R&D efforts exist. The third category, which
DNDi describes as the “most-neglected” diseases, is comprised of diseases that almost
exclusively affect people in poor countries who do not represent a viable market. This
category is outside the scope of the drug industry’s R&D efforts, and includes diseases
such as sleeping sickness, Chagas’ disease, dengue fever, leishmaniasis, intestinal
parasitic diseases, leprosy, lymphatic filariasis, schistosomiasis, trachoma, and
onchocerciasis (river blindness).
For simplicity of analysis, this paper will define two broad categories: ‘global’
diseases, for which the primary policy concern is promoting access to drugs in the
developing world; and ‘neglected diseases’, which will include malaria and tuberculosis
as well as the ‘most-neglected’ diseases identified by DNDi. In this latter category,
though fostering access to currently existing medicines is imperative, the primary policy
concern is stimulating R&D into new and improved treatments appropriate for resourcelimited settings.
HIV/AIDS is somewhat anomalous in that it has characteristics of both a global
disease and a neglected disease. A substantial developed world market has incentivized
the creation of new and effective treatments by the pharmaceutical industry for which
there is still limited access in poor countries. At the same time, the lack of purchasing
power of the vast majority of its victims, who overwhelming reside in the developing
world, has meant that little attention has been focused on developing treatments tailored
to their needs. Appropriately addressing HIV/AIDS treatment issues will thus require
both access-improving and innovation-inducing strategies.
Global Diseases and the Crisis of Access
For global diseases, incentives for pharmaceutical R&D from sales in the
developed world alone are likely optimal and perhaps supra-optimal. Empirical
economic evidence to support this claim is not offered here, and is difficult to surmise.
However, anecdotal evidence suggests at least a degree of validity to this assertion. For
example, the enormous proliferation of ‘me-too’ drugs (new drugs that are similar but not
10
Drugs for Neglected Diseases Initiative introductory brochure, DNDi: An Innovative Solution, (April
2004), available at www.dndi.org, at 6. [hereinafter DNDi Brochure].
the same as already existing medicines and that do not represent a therapeutic advance)11
to treat a plethora of global diseases suggests a vibrant and competitive R&D
environment. Additionally, between 1975 and 1999, a total of 1,393 new drugs were
registered worldwide, 1,377 of which were for the treatment of global diseases and
HIV/AIDS.12 These figures suggest that adequate capital resources are currently being
allocated to R&D on these conditions.
Yet there is an alarming inequity in who has access to the fruits of these R&D
efforts. For example, 50% of the world’s population lives in countries constituting
almost the entire global demand for drugs to treat cardiovascular disease13, suggesting
that the other 50%, comprised of citizens of low-income and least-developed countries
(LDCs), has almost no access. Further, though amazing advances have been achieved in
child vaccination worldwide, only a small fraction of children in poor countries receive
newer and important on-patent vaccines, which remain too expensive for widespread
dissemination.14 Solutions must be found and implemented to remedy this crisis of
access. One study estimates that delivering currently existing essential medicines reliably
to the developing world could save up to ten million lives per year, representing 18% of
the world’s mortality rate.15 However, in solving the current inequity, policy makers
must be careful to maintain the current incentive structures that have ensured innovation
of new and better drugs to treat global diseases, and which will undoubtedly continue to
do so into the future.
Neglected Diseases and the Crisis of Innovation
Though many of the medicines created for global diseases are very important for
citizens in developing countries, these countries also have unique disease epidemiology
and very different drug needs that are not taken into account in pharmaceutical R&D
expenditures.16 Neglected diseases can broadly be defined as seriously disabling or lifethreatening diseases for which treatment options are inadequate or do not exist, and for
which the potential market is insufficient to attract a private sector response.17 For most
neglected diseases, other than perhaps tuberculosis, 99% of the global disease burden is
localized to low-income developing countries and LDCs.18 Treatments for some of these
diseases do exist and are included on the WHO Model List of Essential Medicines, but
are often antiquated, very difficult to administer, ineffective due to drug resistance,
11
Correa, supra note 3, at 9.
P. Trouiller, P. Olliaro, E. Torreele, J. Orbinski, R. Laing, N. Ford, “Drug development for neglected
diseases: a deficient market and a public-health policy failure”, Lancet, Vol. 359, June 22, 2002, 21882194, at 2189. [hereinafter Trouiller].
13
Lanjouw, supra note 1, at 5.
14
M. Kremer, “Public Policies to Stimulate Development of Vaccines and Drugs for the Neglected
Diseases”, Commission on Macroeconomics and Health Working Paper Series, Paper No. WG2:8,
available at www.cmhealth.org, at 12. [hereinafter Kremer]
15
Attaran 2004, supra note 9, at 163.
16
Correa, supra note 3, at 19.
17
C. Milne, K. Kaitlin, E. Ronchi, “Orphan Drug Laws in Europe and the US: Incentives for the Research
and Development of Medicines for the Diseases of Poverty”, Commission on Macroeconomics and Health
Working Paper Series, Paper No. WG2:9, available at www.cmhealth.org, at 2. [hereinafter Milne]
18
Lanjouw, supra note 1, at 3.
12
and/or cause severe side effects.19 R&D is urgently needed to offer a wider range of safe
and effective treatments, yet current efforts are paltry.20 As of 2001, only 3
pharmaceutical companies worldwide were undertaking any R&D for malaria, and only 2
for all other tropical diseases.21 Research from the 1990’s indicated that, while $3,800
was being spent on research per cancer-related death and $1,000 per heart disease death,
only $84 was being spent per malaria death, which was by far the best funded of tropical
diseases.22 In 2001, total worldwide health R&D funding was $60 for malaria and $1933 million for tuberculosis, compared to approximately $985 million for HIV/AIDS.23
This has led to an appalling dearth in new drug development, with only 13 of 1,393 new
drugs registered worldwide between 1975 and 1999 being indicated for the treatment of
tropical diseases (including malaria), and an additional 3 being indicated for
tuberculosis.24 What makes this more frustrating is that public sector R&D has generated
a substantial amount of basic knowledge about these diseases, which could be used for
promising drug development leads.25
The gravity if this crisis of innovation is made concrete with a few examples.
Malaria kills 1 to 3 million people annually and accounts for 300-500 million new
infections each year26, almost 90% of which are in Africa.27 Interest in the development
of medicines for malaria has been primarily due to the existence of a market for
chemoprophylaxis among wealthy travelers28 and has led to the creation of some
important medicines such as chloroquine and mefloquine. However, these drugs are not
well suited to treating those infected in the developing world, and widespread resistance
is rendering them ineffective. New artemisinin derivatives offer the most promise, but
are urgently needed in fixed-dose combinations (FDCs) to ensure adherence and prevent
resistance. So far, Coartem (produced by Novartis) is the only FDC in existence, but is
expensive, has serious side effects, and must be taken with a fatty meal (impossible for
many patients in developing countries).29 A further problem is that new artemisininbased treatments continue to be as much as twenty times more expensive than
chloroquine.30 Though outdated, this means many African countries continue to rely on
chloroquine for their treatment programs. New drugs and an effective vaccine are in high
need yet R&D continues to be insufficient.31
19
DNDi Brochure, supra note 10, at 7.
Kremer, supra note 14, at 10.
21
Milne, supra note 17, at 14.
22
Ibid, at 18.
23
Ibid, at 35.
24
Trouiller, supra note 12, at 2189.
25
Bernard Pecoul, “New Drugs for Neglected Diseases: From Pipeline to Patients”, PloS Medicine,
October 2004 Vol. 1(1), available at www.plosmedicine.org, at 19. [hereinafter Pecoul].
26
Milne, supra note 17, at 39.
27
Kremer, supra note 14, at 10.
28
Milne, supra note 17, at 42.
29
Drugs for Neglected Diseases Initiative, FACT Sheet: The Drugs for Neglected Diseases Initiative
(DNDi) Fixed-dose Artesunate Combination Therapy (FACT) Project, available at www.dndi.org.
[hereinafter DNDi FACT Sheet]
30
MSF “Will the lifeline of affordable medicines for poor countries be cut?”
31
Milne, supra note 17, at 41.
20
Tuberculosis kills 1.7 million people each year, 98% of them in the developing
world. The accepted regimen, directly-observed-treatment-short-course (DOTS),
involves a cocktail of old, off-patent drugs that were developed 40 to 60 years ago, and
which need to be administered over a period of months with supervision to ensure
compliance.33 Despite being cheap (typically costing in the range of $10 per patient)34,
only 21% of patients received DOTS worldwide as of 1998.35 This highlights the need to
find innovative access solutions for drugs that do currently exist to treat neglected
diseases. However, DOTS is also very poorly suited for the developing world and is
becoming increasingly ineffective due to resistance. An alarming number of infectious
strains, “multi-drug resistant tuberculosis” (MDRTB), are resistant to all the major antitubercular drugs.36 New drugs are urgently needed in fixed dose combinations, yet no
new drugs for MDRTB are even in the pipeline.37 A vaccine does exist but is largely
ineffective.38
32
African sleeping sickness, which is entirely confined to tropical Africa, kills
150,000 annually, with 60 million people at constant risk.39 There are only 4 drugs in
existence to treat this disease, and only 10% of patients have access.40 The first-line
treatment, melarsoprol, induces fatal reactive encephalopathy in 5% of patients, and 30%
of patients do not respond to it at all.41 There is widespread resistance to all 4 of these
drugs42, and yet the current research pipeline is entirely empty.43 A final example,
leishmaniasis, is fatal without treatment and affects 12 million worldwide, with 200
million at risk.44 The most widely prescribed drug, pentavalent antimony, was
discovered a century ago, has serious side effects, requires prolonged treatment, and is
losing efficacy due to widespread resistance.45 New therapies are urgently needed, as are
FDCs of existing drugs.
32
Kremer, supra note 14, at 10.
Medicines Sans Frontieres, R&D System is Failing to Meet Health Needs in Developing Countries, MSF
Briefing Note, (MSF Campaign for Access to Essential Medicines 2005) available at www.accessmedmsf.org, at 8. [hereinafter MSF R&D System Failure].
34
Harvey E. Bale, Jr., “Comsumption and Trade in Off-Patented Medicines”, Commission on
Macroeconomics and Health Working Paper Series, Paper No. WG4:3, available at www.cmhealth.org, at
5. [hereinafter Bale].
35
Milne, supra note 17, at 37.
36
Ibid.
37
Ibid, at 38.
38
Kremer, supra note 14, at 10.
39
Milne, supra note 17, at 43.
40
Ibid, at 44.
41
Ibid, at 43.
42
DNDi Brochure, supra note 10, at 18.
43
Drugs for Neglected Diseases Initiative, DNDi’s R&D Portfolio: 2003-2004 (First Quarter), available at
www.dndi.org. [hereinafter DNDi R&D Portfolio].
44
DNDi Brochure, supra note 10, at 18.
45
DNDi R&D Portfolia, supra note 43.
33
HIV/AIDS: Concurrent Problems in Access and Innovation
UNAIDS estimates that 40 million people are currently living with HIV/AIDS
worldwide. Of these, 25 million live in Sub-Saharan Africa.46 The adult prevalence rates
in some countries, such as Botswana and Swaziland, are approaching 40%.47 The advent
of potent antiretroviral therapy (ART) has led to a revolution in the care of patients with
HIV/AIDS in the developed world. Though it is not a cure, ART has dramatically
reduced rates of morbidity and mortality, has substantially improved quality of life, and
has converted HIV/AIDS from a death sentence to a manageable chronic illness.48
However, though modest improvements in ART coverage in the developing world have
been realized through increased funding from sources such as the Global Fund to fight
AIDS, Tuberculosis and Malaria (GFATM) and through concerted policy action from the
WHO 3-by-5 Initiative, a substantial access gap remains. Of the 5.8 million people
needing ART in developing and transitional economies, only 700,000 (12%) were
actually receiving it as of December 2004. The numbers are worse in Africa, where only
310,000 (8%) of the 4 million people in need are being covered.49 Urgent action is
needed to continue to increase access, but it is important to ensure that any strategy
maintains the incentives to innovate new medicines for HIV/AIDS. The number of new
AIDS drugs in development has declined in recent years (from 250 in 1998 to 173 in
2001), which may in part be due to the enormous pressure on and backlash against
pharmaceutical companies involved in HIV/AIDS-related R&D.50
Though HIV/AIDS is not a neglected disease in terms of the magnitude of either
public or private sector investment in R&D, Milne argues that it is in terms of the types
of products that have ultimately resulted from that investment.51 The $5.3 billion global
market for HIV-related medicines52 has ensured that HIV/AIDS receives at least 80 times
the investment per fatal case compared to malaria53 and has led to the development of 20
highly effective ARVs in the past 17 years.54 However, though fixed-dose combinations
(FDCs) are urgently needed in resource-poor settings to improve adherence and prevent
the emergency of drug resistance55, the research-based pharmaceutical industry has paid
little or no attention to developing them. The dwindling number of pediatric AIDS cases
in rich countries has meant that no appropriate pediatric formulations exist to treat the
46
UNAIDS, 2004 Report on the Global AIDS Epidemic: 4th Global Report, UN Doc UNAIDS/04.16E
(June 2004), available at www.unaids.org, at 1. [hereinafter UNAIDS Report 2004]
47
UNAIDS at Country Level: Progress Report.
48
WHO, “Scaling UP Antiretroviral Therapy in Resource-Limited Settings: Treatment Guidelines for a
Public Health Approach, 2003 Revision”, (WHO Geneva 2004), available at
http://www.who.int/3by5/publications/documents/arv_guidelines/en/, at 5. [hereinafter WHO Treatment
Guidelines].
49
See WHO 3 by 5 Initiative website, coverage and need for antiretroviral treatment at
http://www.who.int/3by5/coverage/en/.
50
Kristine Novak, “The WTO’s balancing act”, J. Clin, Invest. 112:1269-1273(2003), at 1271. [hereinafter
Novak]
51
Milne, supra note 17, at 32.
52
MSF R&D System Failure, supra note 33, at 3.
53
Trouiller, supra note 12, at 2190.
54
MSF R&D System Failure, supra note 33, at 3.
55
WHO Treatment Guidelines, supra note 48, at 12.
growing number of children with HIV/AIDS in the developing world.56 Further, current
HIV vaccine research is almost entirely oriented towards HIV strains common in rich
countries, rather than Africa and Southeast Asia where a vaccine is most needed.57
Despite the fact that ARVs were developed according to the needs of patients in
rich countries, the WHO, as part of its strategy to have 3 million people on ART in the
developing world by the end of 2005, has been able to develop a set of ARV treatment
guidelines that are appropriate and effective for use in resource-limited settings.58
Because of simplicity in terms of numbers of pills per day, dietary requirements, and
monitoring, and because of low incidence of side effects, the WHO recommends a firstline regimen composed of two nucleoside reverse transcriptase inhibitors (NRTIs):
stavudine (d4T) or zidovudine (AZT), and lamivudine (3TC); plus a non-nucleoside
reverse transcriptase inhibitor (NNRTI): nevirapine (NVP) or efavirenz (EFV).59 It also
suggests that countries adopt a second-line regimen for those who cannot tolerate, or who
develop resistance to, the first-line regimen.60 This second-line regimen should include
two NRTIs: tenofovir (TDF) or abacavir (ABC), and didanosine (ddI); plus a protease
inhibitor (PI): ritonavir (RTV)-enhanced lopinavir (LPV/r) or ritonavir-enhanced
saquinavir (SQV/r).61 Thus, as a minimum, all countries should have access to at least 11
(5 first-line and 6 second-line) ARVs.
III. Patents and International Trade: An Overview
Can Pharmaceutical Patenting in Developing Countries be Rationalized?
The world’s primary model for developing new medicines is through the use of
the patent system to create incentives for private sector investment in R&D. As
discussed in Part II, this system has been quite effective at developing new treatments for
global diseases but has been a dismal failure at generating medicines for neglected
diseases.
A patent is generally granted to the inventor of a product or process and gives its
owner the right to exclude others from making, using, selling, offering for sale or
56
MSF R&D System Failure, supra note 33, at 3.
Kremer, supra note 14, at 14
58
See WHO Treatment Guidelines, supra note 48.
59
Ibid, at 13.
60
Ibid, at 11. Note: the WHO Treatment Guidelines for people living in developing countries differ from
accepted HIV treatment guidelines in developed countries. A standard first line HIV treatment protocol in
Canada (and the U.S., and the EU) would consist of a fixed dose combination of two NRTIs, e.g. Combivir
(AZT+3TC), plus a fixed dose combination protease inhibitor, e.g. Kaleestra (ritonavir/lopinavir). The cost
of this standard protocol is approx. $1300 CAD per person for 28 days of treatment. The WHO first line
protocol is similar to the first line therapy used in the developed world before the advent of protease
inhibitors. Today, NRTIs are not used alone in wealthy countries because they are less effective alone than
when combined with a protease inhibitor, and the likelihood of drug resistance developing is high. The
WHO Guidelines have been developed to promote the best possible therapy given limited drug availability
and extremely limited resources.
61
Ibid, at 28.
57
importing products that derive from or incorporate the protected invention.62 In exchange
for this temporary grant of monopoly (usually 20 years from the date of filing), the patent
holder must make full disclosure of his or her invention such that others skilled in the
same art are able to put the invention into practice once the patent expires.63 Additional
important requirements for the grant of a patent are that the invention must be new, nonobvious, and useful (otherwise described as ‘capable of industrial application’ in some
jurisdictions).64 With respect to new medicines, patent claims can be filed for new
pharmaceutical products, new processes to make pharmaceuticals, new formulations of
pharmaceuticals, new combinations of separate pharmaceuticals, and new uses of known
pharmaceutical compounds.65
Though some authors treat patents under the rubric of natural rights66, this paper
takes the position that patents are and ought to be viewed as instruments of economic and
social policy aimed at providing incentives for innovation and thus at generating longterm dynamic efficiency and economic growth. This rationale claims that without the
patent system, private investment into R&D would be sup-optimal or non-existent.67
Because it is difficult to prevent others from copying information, free-riders, in the
absence of a patent, could easily copy a new invention and market it. Under such
conditions, rational investors would not devote sufficient private resources to innovative
activity because they would not be able to recoup the substantial fixed costs associated
with R&D and because they would not be adequately compensated for assuming the
inherently high risks involved.68 By allowing owners to collect monopoly rents through
excluding competitors, patents create the incentives for such private investment into
R&D. Essentially, a bargain is struck between the patent owner and society. In return
for a limited period of monopoly granted to the patent holder, society gains full
disclosure of the new invention, which anyone can then copy upon patent expiration. In
theory, the resultant dynamic efficiency and economic growth that comes over time with
new innovation and with new information in the public domain justifies the static
deadweight loss to consumers as a result of monopoly pricing and reduced access to new
products.69
An implication of this instrumentalist justification is that patents and particularly
their scope of exclusivity ought to be open to scrutiny for success in achieving the social
and economic policy objectives outlined above. Where incentives to innovate are already
optimal or supra-optimal, additional patent protection is economically wasteful as
Yolanda Taylor (ed.), Battling HIV/AIDS: A Decision-Maker’s Guide to the Procurement of Medicines
and Related Supplies, (The World Bank, Washington, D.C. 2004), available at www.worldbank.org, at 106.
[hereinafter World Bank Procurement Guide]
63
Integrating Intellectual Property Rights and Development Policy: Report of the Commission on
Intellectual Property Rights, (CIPR, London 2002), available at www.iprcommission.org, at 12.
[hereinafter Integrating IP Rights].
64
Ibid.
65
Correa, supra note 3 at 10-12.
66
Michael J. Trebilcock and Robert Howse, The Regulation of International Trade, 2 nd Ed. (Routledge,
New York 1999), at 308. [hereinafter Regulation of International Trade].
67
Integrating IP Rights, supra note 63, at 14.
68
Ibid, at 14.
69
Ibid, at 14.
62
consumer deadweight loss is increased without any concomitant increases in dynamic
efficiency (innovation). In fact, an extension of the scope of patent protection is only
rational where the dynamic welfare gain from additional incentives to innovate outweighs
the static welfare loss to consumers from monopoly pricing.70 This revelation calls into
question the appropriateness of granting patents in developing countries for new
pharmaceuticals to treat global diseases, for which incentives to innovate are already
likely optimal because of patent protection in rich countries. Additionally, where
patenting fails to create sufficient incentives for innovation because potential consumers
would be unable to pay for the resultant new product (or someone else would be
unwilling to pay on their behalf), other policy tools to encourage innovation must be
devised. This is a particularly important with respect to neglected diseases, and must
inform policies that aim to induce R&D for new treatments for these conditions. Finally,
policy-makers ought to be cognizant of situations where patents create a so-called
‘tragedy of the anti-commons” by blocking further R&D.71 Where separate individuals
own patents over distinct elements of a hypothetical new product, and where no crosslicensing arrangement can be devised, each owner can block such a product’s
development. This partially explains the failure of originator pharmaceutical companies
to create fixed-dose combinations (FDCs) of drugs for the treatment of HIV/AIDS,
malaria and other conditions.
Typically, patents are granted on a country-by-country basis; although, in some
cases, such as the Organisation Africaine de la Proprieté Intellectuelle (OAPI), which
comprises 16 French West-African countries, and the African Regional Intellectual
Property Office (ARIPO), which comprises 15 English-speaking, African countries, they
are granted or at least reviewed on a regional basis.72 The implication is that an invention
may be patented in one country and not another, depending on various factors such as an
owner’s decision not to apply for a patent in a given country, or differing standards of
patentability across jurisdictions (though the latter will become less of a factor once the
WTO TRIPS Agreement is fully implemented).
Though the value of the patent system generally is often questioned, strong
evidence suggests that patenting makes an important contribution to stimulating R&D in
the developed world pharmaceutical sector.73 However, it is far from clear that extending
first-world level patent protection to developing world economies can be justified. Those
in favour of such extension often argue that higher levels of intellectual property
protection in developing countries will attract greater amounts of foreign investment and
technology transfer, and will spur on local innovative activity.74 However, the empirical
evidence to support this claim is unconvincing.75 Underlying it is the assumption that
70
Regulation of International Trade, supra note 66, at 309.
Integrating IP Rights, supra note 63, at 4.
72
World Bank Procurement Guide, supra note 62, at 106.
73
E. Mansfield, “Patents and Innovation”, Management Science, vol. 32:2 (1986), 173-81. See in
Regulation of International Trade, supra note 66.
74
Regulation of International Trade, supra note 66, at 310.
75
‘Global Intellectual Property Rights Issues in Perspective’, in M.B. Wallerstein, M.E. Mogee and R.A.
Shoen (eds) Global Dimensions of Intellectual Property Rights (National Academy Press, Washington,
D.C. 1993), at 366. See in Regulation of International Trade, supra note 66.
71
there is a latent supply of innovative capacity in a particular country’s private sector
waiting to be unleashed by the grant of IP protection.76 This is unlikely to be the case in
many developing countries where insufficient infrastructure and resources and the lack of
an educated work force tend to be more significant bottlenecks to innovative activity.
Trebilcock argues that the rational level of intellectual property protection that a
country decides to afford is determined by whether it has a comparative advantage in
innovation or rather imitation and adaptation of innovations made elsewhere.77 A
country where innovation is not a major source of economic growth will rationally
choose a less stringent intellectual property regime.78 Lax protection can lead to two
desirable outcomes: increased consumer welfare through access to new products, and
industrial development in the form of imitator industries, while causing little or no loss in
dynamic economic efficiency.79 In fact, many studies conclude that the most important
single factor determining the success of technology transfer to developing countries, a
key ingredient for economic growth, is the early development of indigenous
technological capacity through the emergence of imitator industries adapting innovations
from elsewhere.80 Both India and China have to an extent successfully employed such a
strategy, and in particular India has developed a flourishing domestic generic
pharmaceutical industry in response to lax IP protections.81 Even developed countries
such as Japan and Canada have very successfully used lax IP protection to promote
domestic economic growth.82 Particularly interesting is that many of today’s mostdeveloped countries excluded pharmaceutical products from patent protection until quite
recently: Germany until 1968; Switzerland until 1977; Italy until 1978; Spain until 1992,
Norway until 1992; and Finland until 1995.83 The logical level of IP protection for a
given country is thus related to its level of economic development and its level of
indigenous technological capacity, with stricter protection becoming rational over time as
innovative capacity evolves. Viewed in these terms, imposing strict IP protection in
many developing countries under current conditions can actually be an impediment,
rather than a catalyst, for economic development.
Others have attempted to justify the extension of intellectual property rights to the
developing world through global rather than domestic dynamic efficiency arguments. In
some form or another, these arguments state that the worldwide protection of intellectual
property rights will increase global revenues to innovators and thus yield greater amounts
76
Integrating IP Rights, supra note 63, at 15.
Regulation of International Trade, supra note 66, at 308.
78
Ibid, at 309-310.
79
Ibid, at 310.
80
S. Radovesic, “International Technology Transfer and Catch-up in Economic Development”, Elgar,
Cheltenham (eds.), at 242. Also K. Saggi, “Trade, Foreign Direct Investment and International Technology
Transfer: A Survey”, (World Bank, Washington D.C. 2000). See in Regulation of International Trade,
supra note 66.
81
Integrating IP Rights, supra note 63, at 3.
82
Regulation of International Trade, supra note 66, at 311.
83
F.M. Sherer and J. Watal, “Post-TRIPS Options for Access to Patented Medicines in Developing
Countries”, Commission on Macroeconomics and Health Working Paper Series, Paper No. WG4:1,
available at www.cmhealth.org, at 3. [hereinafter Sherer and Watal].
77
of innovation, which will in turn benefit consumers everywhere.84 This type of argument
is overly simplistic for at least two reasons. First, where the optimal level of innovation
has already been achieved or exceeded through incentives from sales in developed world
markets, increased intellectual property protection in the developing world may actually
cause a global misallocation of productive resources toward R&D.85 Second, marginally
increased monopoly rents to innovators through sales in many developing countries are
often unlikely to make any significant contribution to global R&D incentives86, while the
social costs of reduced access can be enormous. For example, the African continent in its
entirety accounts for 1.3% of global pharmaceutical sales87, which is unlikely to
contribute to incentives for multi-national pharmaceutical companies to conduct R&D,
while reduced access to medicines to treat deadly diseases such as HIV/AIDS can and has
proven to be enormously costly in economic and humanitarian terms. Thus, not only can
the expansion of IP protection to developing countries be domestically costly, but it can
also reduce welfare globally. Where diffusion of new technologies such as essential
medicines to the developing world is being compromised by patents, we should not allow
arguments about threats to further innovation to deter us from taking action to remedy
this situation, particularly given the weak and unsubstantiated nature of such claims.
The TRIPS Agreement: Politics Defeats Economics
Despite the soundness of such concerns, the WTO Uruguay Round negotiations
were successful in concluding the Agreement on Trade-Related Aspects of Intellectual
Property Rights (the TRIPS Agreement), which set minimum uniform standards of IP
protection and enforcement in all Member States88, and which entered into force on
January 1, 1995. Instead of being based on sound economic principles, the conclusion of
TRIPS is better understood as the product of global political forces.89 Powerful producer
interests such as the brand name pharmaceutical industry and powerful Western countries
with comparative advantage in innovation, such as the United States, were a significant
driving force behind the adoption of TRIPS. The overall American goal in negotiating
TRIPS was clear: to obtain rules that would ensure that US innovators’ IP rights were as
extensively protected abroad as domestically.90 Despite strong opposition among
developing country Members to the negotiation of IP rights within the WTO Global
Agreement on Tariffs and Trade (GATT), they eventually succumbed to the pressure of
American and other Western governments, in part because of promised concessions on
agricultural and textile tariffs, which to date have not materialized.91
84
Regulation of International Trade, supra note 66, at 310.
Ibid.
86
Ibid, at 312.
87
Correa, supra note 3, at 21.
88
World Bank Procurement Guide, supra note 62, at 108.
89
Integrating IP Rights, supra note 63, at 7.
90
Regulation of International Trade, supra note 66, at 320.
91
Integrating IP Rights, supra note 63, at 7.
85
TRIPS sets out the standard international trade law obligations of National
Treatment92 and Most-Favoured Nation93 and imposes a variety of procedural and
substantive obligations on all Members with respect to various forms of IP protection
including, but not limited to, patents, copyrights, trademarks, and undisclosed
information. With respect to patents, TRIPS requires that all WTO Member states
provide patent protection for any inventions, whether products or processes, in all fields
of technology, including pharmaceuticals, provided they are new, involve an inventive
step (non-obvious) and capable of industrial application (useful).94 Patents must be made
available without discrimination as to the place of invention and to whether the products
are imported or locally produced. Protection must be granted for a minimum of 20 years
from the date of filing95 and must confer on the patent holder the exclusive right to
prevent third parties from making, using, offering for sale, selling or importing for such
purposes a product that is the subject of his or her patent.96 Each Member is further
obliged to ensure the availability of enforcement procedures to remedy any act of
infringement97, and must authorize the issuance of injunctions98 and damages99 by its
judiciary.
A separate requirement of the TRIPS Agreement is that Members, when requiring
the submission of undisclosed study data as a condition of granting regulatory approval to
a drug which incorporates a new chemical entity, must protect study data against “unfair
commercial use.” Further, Members must protect data against disclosure, except when
protecting the public, or unless steps are taken to ensure that the data are protected
against unfair commercial use.100 The extent to which this provision prevents national
drug regulatory authorities (NDRAs) from registering generic drugs on the basis of bioequivalence is unclear, though negotiators directly rejected proposals to include concrete
pharmaceutical data exclusivity provisions, which would have completely prevented the
use of originator clinical trial data in registering generics during a period of 5 to 10 years.
Finally, international monitoring and enforcement of the TRIPS Agreement is
achieved by two separate mechanisms. First, the WTO dispute settlement procedure can
be used to resolve disputes under TRIPS101, and can result in the authorization of
retaliatory trade sanctions. Second, TRIPS created a new institution, the Council for
TRIPS, charged with monitoring domestic compliance.102 The Council also provides a
forum for consultations on IP issues.103
92
Agreement on Trade Related Aspects of Intellectual Property Rights, article 3, text available at
www.wto.org. [hereinafter TRIPS].
93
Ibid, article 4.
94
Ibid, article 27(1)
95
Ibid, article 33.
96
Ibid, article 28(1).
97
Ibid, article 41(f).
98
Ibid, article 44.
99
Ibid, article 45.
100
Ibid, article 39(3).
101
Ibid, article 64(1).
102
Ibid, article 68.
103
Ibid, article 68.
TRIPS, the Doha Declaration and the August 30th Agreement
Despite these uniform standards, TRIPS does provide certain flexibilities in an
attempt to balance conflicting national perspectives with respect to intellectual property
protection.104 Article 7, which sets out the objectives of the Agreement, acknowledges
that a balance of competing interests must be struck. According to that article, “the
protection and enforcement of intellectual property rights should contribute to the
promotion of technological innovation and to the transfer and dissemination of
technology, to the mutual advantage of producers and users of technological knowledge
and in a manner conducive to social and economic welfare, and to a balance of rights and
obligations.” Particularly relevant to pharmaceuticals, the Principles articulated in
Article 8 recognize that “Members may, in formulating or amending their laws and
regulations, adopt measures necessary to protect public health … provided that such
measures are consistent with the provisions of this Agreement”.
In concrete terms, TRIPS allows Member states to grant compulsory licenses and
to permit parallel importation of patented products sold abroad. Compulsory licensing,
which is defined as an authorization permitting a third party to make, use, sell, or import
a patented invention without the patent holder’s consent105, is governed by Article 31.
Though Members theoretically have unlimited scope to make use of compulsory
licensing, TRIPS imposes certain procedural and substantive requirements. Prior to
issuing a compulsory license, the proposed user must have made efforts to negotiate
authorization from the patent holder on reasonable commercial terms, and such efforts
must have not been successful within a reasonable period of time.106 This requirement
can be waived in the case of national emergency of other circumstances of extreme
urgency or in cases of non-commercial public use.107 This language is ambiguous and its
precise meaning has not been settled in WTO dispute settlement resolution. Article 31
further requires that the permitted use must be limited in scope and duration to the
purpose for which it was authorized108, and must be liable to termination when the
circumstances which led to it cease to exist and are unlikely to recur.109 In all cases, the
patent holder must be paid adequate remuneration, taking into account the economic
value of the authorization.110 Finally, and perhaps most controversially, Article 31(f)
requires that use authorized under a compulsory license must be “predominantly for the
supply of the domestic market”. Though again the precise legal meaning of this language
has not been settled through adjudication, much attention was paid in the context of
essential medicines to its potential to limit the capacity of countries without domestic
manufacturing capacity to make use of compulsory licensing to import generic drugs
from abroad.
104
Regulation of International Trade, supra note 66, at 322.
Sherer and Watal, supra note 83, at 13.
106
TRIPS, article 31(b).
107
Ibid.
108
Ibid, article 31(c).
109
Ibid, article 31(g).
110
Ibid, article 31(h).
105
Interestingly, some of the conditions of Article 31 are relaxed where a Member
determines that a compulsory license is required to remedy an anti-competitive
practice.111 The requirements of prior negotiation with the patent holder in Article 31(b)
and predominantly supplying the domestic market in Article 31(f) are not applicable in
such a circumstance, and the need to correct the anti-competitive practice may be taken
into account in determining the amount of remuneration required under Article 31(h).
The use of competition policy to address problems with access to essential medicines has
some promise and is briefly discussed below in Part VI.
Another concrete flexibility is that Article 6 of TRIPS allows countries to permit
parallel importation, which occurs when a patented product is sold abroad by the patent
holder and then imported without his or her consent.112 Incentives for this sort of trade
materialize when there is a sufficient price differential between two countries. The effect
of Article 6 is that any country may adopt the doctrine of international exhaustion of
rights, which prevents a patentee who has sold a product from exercising any
determination over the conditions of resale of the same product abroad.113 Whether or
not parallel importation and international exhaustion of rights are desirable for
sustainable solutions to increase access to medicines is controversial and will be
addressed below in Part VI.
TRIPS Article 2 recognizes the continuing applicability of the Paris Convention
for the Protection of Industrial Property, which created the so-called right of priority for
patent applications. Under this regime an inventor who files for a patent in one Member
country has one year to file for patents in all other Members before the subject matter of
his or her patent application will be considered publicly disclosed and thus not eligible
for protection in those other Members.114 The effect of this regime is that recently
invented drugs that are under patent in some countries, but not in others, are unlikely to
be eligible for patenting in the latter set of countries, except in the relatively small set of
cases where mailbox applications, discussed below, were filed.
TRIPS further permitted certain transitional arrangements with respect to its
implementation.115 All Members were given one year following the entry into force of
the Agreement to apply its provisions domestically (until January 1996), with developing
country and transition economy Members being given an additional 4 years (until January
2000).116 Further, to the extent that a developing country Member was obliged to extend
product patent protection to areas of technology that could not previously be protected in
its territory, it was permitted an additional 5 years to implement provisions related to
product patents for such areas of technology (until January 2005).117 In practice, this
extension was of little value as most developing countries already granted pharmaceutical
111
Ibid, article 31(k).
Sherer and Watal, supra note 83, at 30.
113
Ibid, at 31.
114
Paris Convention for the Protection of Industrial Property, article 4, available at www.wipo.org.
[hereinafter Paris Convention]
115
See TRIPS, supra note 92, Part VI.
116
Ibid, article 65.
117
Ibid, article 65(4).
112
product patents. One key exception is India, whose full use of the extension has ensured
access to low cost generic ARVs both domestically and in other developing countries up
until now.118 The Indian Parliament is currently in the process of implementing
pharmaceutical product patenting. This continues to be a central focus of advocates for
access to essential medicines who are concerned that the developing world’s primary
source of cheap generic versions of on-patent medicines will be cut off.119
Of further concern, where a developing Member such as India decided to avail
itself of the flexibility to delay the implementation of pharmaceutical product patent
protection until 2005, that Member was required to provide a means by which patent
applications for such inventions could be filed (so-called “mailbox” patent applications)
after TRIPS entered into force in 1995.120 Upon implementation of pharmaceutical
product patenting, the Member would then be required to review these mailbox
applications, and grant patents where warranted from the date of filing until the
remainder of the patent term expired.121 Once India fully implements its new patent law,
it will have to begin reviewing these mailbox applications, which could potentially render
illegal certain generic drugs already being produced and exported.
An additional extension was also granted for least-developed country Members
(LDCs).122 These countries were granted a blanket 10 year exemption from the TRIPS
Agreement from the date of its entry into force, with the understanding that the Council
for TRIPS could extend this period upon request by an LDC Member.123 Despite this
arrangement, most LDCs already grant patents for all inventions, including
pharmaceutical products.124
In response to concerns from developing world Members over the potential for
the TRIPS Agreement to impede effective responses to public health problems such as
HIV/AIDS, tuberculosis and malaria, the WTO 4th Ministerial Conference in Doha, Qatar
issued the “Doha Declaration on the TRIPS Agreement and Public Health”125 in
November 2001. In it, Members affirmed that “the TRIPS Agreement does not and
should not prevent Members from taking measures to protect public health” and 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.”126 It further resolved some ambiguities with respect to some of the
flexibilities available under TRIPS. First, it affirmed that Members have the right “to
Health Gap Global Access Project, Fact Sheet: Changes to India’s Patents Act and Access to Affordable
Generic Medicines After January 1, 2005, available at www.healthgap.org. [hereinafter Health Gap India]
119
Ibid.
120
TRIPS, supra note 92, article 70(8)(a).
121
Ibid, articles 70(8)(b) and (c).
122
For a list of least developed countries, see www.wto.org.
123
TRIPS, supra note 92, article 66.
124
Correa, supra note 3, at 20.
125
Draft Declaration on the TRIPS Agreement and Public Health, Ministerial Conference, Fourth Session,
Doha, 9-14 14 November 2001, WT/MIN(01)/DEC/W/2, available at www.wto.org. [hereinafter Doha
Declaration]
126
Ibid, paragraph 4.
118
grant compulsory licenses and the freedom to determine the grounds upon which such
licenses are granted.”127 Second, it clarified that Members have the right “to determine
what constitutes a national emergency or other circumstances of extreme urgency, it
being understood that public health crises … can represent a national emergency or other
circumstances of extreme urgency.”128 This clarification is important in that it allows
Members, in dealing with public health problems such as HIV/AIDS, tuberculosis and
malaria, to take advantage of the TRIPS Article 31(b) exception to the obligation to
negotiate with the patent holder prior to issuing a compulsory license. Third, Paragraph 7
of the Doha Declaration extended the exemption from TRIPS implementation for
pharmaceutical products until 1 January 2016 for LDCs, though the practical value of this
concession is limited since most LDCs already grant such patents.
Finally and perhaps most importantly, in recognition of the difficulties that WTO
Members with insufficient or no domestic manufacturing capacities could face in making
effective use of compulsory licensing due to Article 31(f) of the TRIPS Agreement, the
Doha Declaration instructed the Council for TRIPS to find a solution and report to the
General Council before the end of 2002.129
Despite significant delay caused by disagreements over the details of the solution,
the General Council finally adopted a compromise text on August 30th 2003.130 The
compromise solution takes the specific form of a waiver from the obligations set out in
paragraphs (f) and (h) of Article 31 of the TRIPS Agreement with respect to
pharmaceutical products (i.e. the obligations to only issue compulsory licenses that are
predominantly for the supply of the domestic market, and to pay adequate remuneration
to the patent holder when such licenses are issued). The obligations of a potential
exporting Member under Article 31(f) are waived to the extent necessary to produce
pharmaceutical products and export them to eligible importing Members so long as
certain procedural requirements are met.131 Any Member is eligible to be an exporter
under this Agreement, but limitations were placed on which countries are eligible to
import pharmaceutical products. Eligible importers include any LDC Member, and any
other Member that has made a notification to the Council for TRIPS of its intention to use
the system.132 However, such a Member must confirm in its notification that it has
established that it has insufficient or no manufacturing capacities for the pharmaceutical
product in question.133 At first glance, it appears that non-LDC importing Members
would be free to make a determination of insufficient or no manufacturing capacities on
their own, so long as they notify. However, the Chairperson’s statement clarifies that
127
Ibid, paragraph 5(b).
Ibid, paragraph 5(c).
129
Ibid, paragraph 6.
130
Implementation of paragraph 6 of the Doha Declaration on the TRIPS Agreement and public health,
Decision of the General Council of August 30th 2003, WT/L/450, 1 September 2003, available at
www.wto.org. [hereinafter August 30th Agreement].
131
Ibid, paragraph 2.
132
Ibid, paragraph 1(b).
133
Ibid, paragraph 2(a)(ii).
128
such notifications are subject to review by the Council for TRIPS.134 This seems
needlessly onerous, but given this limitation, it will be important for the Council to
interpret “insufficient manufacturing capacities” broadly to include situations where it is
economically infeasible to produce the pharmaceutical products in question, instead of
limiting the scope of this provision to situations where the technical capacity is
insufficient.135 Finally, many developed countries explicitly agreed not to use the August
30th Agreement as importers.136
Though the Agreement is not limited to specific diseases or pharmaceutical
products, it imposes several procedure hurdles, which may prove to render it ineffective.
The procedure envisaged under the Agreement is as follows. A Member desiring to
import under the system must first examine the pharmaceutical product in question to
determine its patent status and, in the case of a non-LDC Member, to determine that there
is insufficient or no domestic capacity to manufacture it. If a patent does exist on the
product, the Member must first negotiate with the patent holder to seek a voluntary
license on reasonable commercial grounds unless it declares a public emergency or other
situation of extreme urgency, or intends to make only public non-commercial use of the
product in accordance with TRIPS Article 31(b). If this negotiation is not successful
within a reasonable time, it must then issue a compulsory license for importation of the
pharmaceutical product. The potential importer must then submit a notification to the
Council for TRIPS listing the name and expected quantity of the pharmaceutical product
needed, declaring its assessment of insufficient or no manufacturing capacity, and
confirming either the non-existence of a patent in its territory or the issuance or intention
to issue a compulsory import license.137
A potential exporting Member must then seek a voluntary license from the patent
holder, and if this fails within a reasonable time period, must issue a compulsory license
for export to an interested generic manufacturer within its borders. Such a license must
be limited to production of the amount necessary to meet the needs stipulated by the
eligible importing Member, and must require the entirety of the amount produced to be
exported to that Member.138 An exporting Member must then provide notification to the
Council for TRIPS of the conditions of this license.139 Further, it must ensure adequate
remuneration to the patent holder in accordance with Article 31(h) of the TRIPS
Agreement, though this requirement is waived in the eligible importing Member to
prevent duplication of royalty fee payments.140
General Council Chairperson’s Statement, 13 November 2003, WT/GC/M/83, available at
www.wto.org.
135
It is undesirable from a global efficiency standpoint to require poor countries lacking comparative
advantage in pharmaceutical manufacturing to invest scarce resources in producing generic drugs
domestically as this is economically wasteful and inhibits the realization of economies of scale through
trade.
136
For the list of countries, See August 30th Agreement, supra note 130, Note 3.
137
Ibid, paragraph 2(a).
138
Ibid, paragraph 2(b).
139
Ibid, paragraph 2(c).
140
Ibid, paragraph 3.
134
To prevent potential trade diversion, the product produced under an export license
must be clearly identifiable through distinguishing packaging, colouring or shaping of the
product. Further in this regard, eligible importing Members must take reasonable
measures to prevent re-exportation of such products141, and other Members must ensure
the availability of effective legal means to prevent importation into, and sale in, their
territories of products produced under this system142.
Implementation of the August 30th Agreement requires substantial amendment to
patent legislation in most potential exporters and many potential importers. Several
potential exporting Members have begun to enact legislation in this regard, including
Canada, the European Union, Norway, the Netherlands and Korea.143 Some have
criticized these legislative initiatives at length for having created even more onerous
conditions than those set out in the Agreement.144 To the extent that these criticisms hold
water, new legislation ought to be amended. It is of critical importance that India
implements pharmaceutical product patenting in a manner that fully incorporates the
permitted August 30th flexibilities so that it can continue to be a source of cheap generic
substitutes for patented medicines in the developing world. As India moves to do so this
year, several civil society groups fear that draft legislation now under consideration
contains TRIPS-plus provisions that could curtail its ability to continue to supply cheap
generic drugs abroad.145
In conclusion, given the significant flexibilities in TRIPS, now reinforced and
expanded by the Doha Declaration and the August 30th Agreement, it is essential that
developing countries frame their patent legislation in a way that fully incorporates these
flexibilities so as to minimize the potential adverse affects of universal IP protection.
This will require unbiased technical assistance from developed countries and institutions
such as the World Intellectual Property Institute (WIPO), which MSF reports is currently
not the case.146 Some have called for the WHO or WIPO to develop a model TRIPScompliant law that makes maximum use of TRIPS flexibilities to achieve public health
goals.147 Where procedural barriers prove too burdensome, which could be the case with
the mechanism outlined in the August 30th Agreement, WTO Members should move to
improve flexibilities. To date no notifications have been made to the TRIPS council
under the August 30th framework148, suggesting that real problems exist that must be
addressed going forward. August 30th was conceived as a temporary solution, which
141
Ibid, paragraph 4.
Ibid, paragraph 5.
143
See http://www.cptech.org/ip/health/cl/cl-export-legislation.html.
144
See “Update: Canadian Patent Act amendment and generic pharmaceutical exports”, Canadian
HIV/AIDS Legal Network, 7 June 2004; and R. Elliott, “Generics for the developing world: a comparison
of three approaches to implementing the WTO decision”, available at www.aidslaw.ca.
145
Health Gap India, supra note 118.
146
Medicines Sans Frontieres, Drug Patents Under the Spotlight: Sharing Practical Knowledge About
Pharmaceutical Patents, May 2003, available at www.accessmed-msf.org, at 11. [hereinafter MSF Patents]
147
Access to Medicines in Underserved Markets: What are the Implications of Changes in Intellectual
Property Rights, Trade and Drug Registration Policy?, (DFID Health Systems Resource Center, London
2004), available at www.healthsystemsrc.org, at 28. [hereinafter Underserved Markets].
148
See http://www.wto.org/english/tratop_e/trips_e/public_health_e.htm.
142
would be replaced by an eventual amendment to the TRIPS Agreement.149 This eventual
amendment must compensate for any observed shortcomings in the current ad hoc
August 30th regime.
IV. Factors Constraining Access
Many factors can constrain access to medicines in developing countries.
Pharmaceutical patenting is only one such factor, others include inadequate
infrastructure, drug regulatory hurdles, insufficient financing and high drug prices.150 In
the context of neglected diseases, the central factor is that appropriate medicines often do
not exist. This dearth of innovation requires special policy initiatives, which is addressed
in Part VIII. This Part will address the factors underlying the gap in access to currently
existing medicines, including those for the treatment of global diseases and HIV/AIDS,
as well as the limited options currently available for neglected diseases.
Infrastructure
One central problem, broadly defined, is that developing countries and LDCs
often lack the requisite infrastructure to deliver medicines to those in need. Problems of
infrastructure can include a lack of distribution and supply systems, inadequate access to
health care generally (including a lack of access to appropriately trained medical
personnel who can diagnose and prescribe proper treatment), and insufficient laboratory
facilities (which are particular important for monitoring the administration ART for
HIV/AIDS). Improving infrastructure will be a key component of any strategy to scale
up access to medicines in developing countries and will entail significant costs. For
example, even assuming access to the lowest cost first-line ART regimen, currently $140
per person per year, the World Bank projects the total cost of scaling up ART in Burkina
Faso to be $620 per person per year due to additional costs associated with biological
monitoring, personnel and equipment.151 However, at least in the context of HIV/AIDS,
poor infrastructure has been shown in some pilot studies to be a less significant
impediment to scaling up access to ART than initially suspected, with sustained treatment
and good adherence being demonstrated in several resource-poor settings.152
Drug Registration
Drug registration refers to the process by which a national drug regulatory agency
(NDRA) confirms a medicine’s safety, quality and efficacy, in order to approve its use
domestically.153 Each country typically has a national drug regulatory authority (NDRA),
which is responsible for ensuring that drugs entering the domestic market are safe, high
quality and effective. Originator pharmaceutical companies must submit clinical trial
data to prove safety and efficacy, though many regimes allow potential generic
149
August 30th, para 10.
World Bank Procurement Guide, supra note 62. at xii.
151
Ibid, at 97, Table A.3.
152
Ibid, at 2.
153
Underserved Markets, supra note 147, at 7.
150
substitutes to be registered after patent expiry on demonstrating bio-equivalence to the
originator product.
The extent to which TRIPS creates an additional hurdle to the use of compulsory
licensing to promote generic substitution of patented medicines by requiring the
protection of originator company clinical test data is unclear and potentially a
disincentive to generic companies contemplating entering the market. MSF data suggests
that generic ARV registration status is a significant hurdle to accessing these drugs in
several countries.154 This paper takes the position that developing countries ought to
make full use of originator pharmaceutical test data in order to register generic substitutes
on the basis of bio-equivalence. The drafting history of TRIPS, as well as the pro-public
health interpretive mode evidenced in the Article 8 Principles and adopted by the Doha
Declaration, weigh strongly in favour of interpreting “unfair commercial use” in Article
39(3) narrowly, particularly where pressing public health concerns exist, suggesting that
TRIPS would not be an impediment to such an approach. However, TRIPS-plus
provisions in bilateral and regional Free-Trade Agreements (FTA), addressed in Part VII,
threaten to create more barriers to NDRA generic drug approval in developing countries.
Another regulatory hurdle is that seeking NDRA approval in each and every
country that a drug producer seeks to supply is extremely inefficient, unnecessarily
duplicative, and likely to often either increase drug costs or reduce incentives to register
in the first place. This has led to calls for initiatives to harmonize drug regulation at
various regional levels155, and to the extent that such initiatives would improve access to
medicines they ought to be supported. At the least, NDRAs can make generic entry more
attractive by offering fast track registration to suppliers qualified under the WHO Prequalification Project.156 Currently, this project only covers generic suppliers of
medications for HIV/AIDS, tuberculosis and malaria, but ought to be expanding to
support greater access to other essential medicines in poor countries.
One potential roadblock to using WHO Pre-qualification in this manner comes
from donors who require more onerous regulatory oversight before their funds can be
used to purchase generic drugs. As an example, the US President’s Emergency Plan for
AIDS Relief (PEPFAR) requires that any generic drug purchased with its funds be
granted US Food and Drug Agency (FDA) approval. By contrast, the World Bank and
Global Fund to Fight AIDS Tuberculosis and Malaria (Global Fund) strongly recommend
the use of the WHO Pre-qualification Project.157 PEPFAR ought to rethink this
unnecessarily onerous approach as it will unnecessarily create inefficiencies and deter
market entrants because of duplicative and costly regulatory approval requirements.
154
Medicines Sans Frontieres, Surmounting Challenges: Procurement of Antiretroviral Medicines in Lowand Middle-Income Countries, available at www.accessmed-msf.org. [hereinafter MSF Procurement]
155
Trouiller, supra note 12 at 2192.
156
WHO, Prequalifying Priority Medicines: Ensuring the Quality, Safety and Efficacy of HIV/AIDS,
Tuberculosis and Malaria Medicines and Diagnostics, WHO/EDM/QSM/2004.2, available at
www.who.org.
157
World Bank Procurement Guide, supra note 62, at 73.
Financing
Inadequate financing is at present an enormous barrier to accessing medicines in
the developing world. Addressing this will require greater resource allocation from
developing countries themselves, but it is clear that they cannot bear the costs associating
with scaling up access alone. In Africa, average annual drug spending per person is less
than $2 per person.158 Thus, even if all drugs could be delivered at marginal variable
production costs, they would be out of the price range of most developing world
consumers. Significantly greater resources must be brought to bear through donor
funding sources such as bilateral aid, multilateral organizations, development banks and
private donors. Though funding from Global Fund, the World Bank, PEPFAR and other
sources has increased recently, there is still an enormous gap to be filled.159 Further,
international funding must be deployed through free public sector treatment roll-out
programs.160 Currently, 80-90% of drugs in Africa and South Asia are paid for out-ofpocket161, whereas 60% of total pharmaceutical expenditure in wealthy countries comes
from public sources162, running as high as 80-100% in European countries.163
Prices
Access to low priced drugs is essential to scaling up access in developing
countries. Price can range anywhere from being the most significant factor restricting
access164, to being irrelevant. As an example, Boehringer Ingelheim (BI) has offered to
supply nevirapine (NVP) for free for use in the prevention of mother-to-child
transmission (MTCT) of HIV, yet has been largely unable to give it away because of the
lack of public MTCT programs in developing countries.165 Where price is a substantial
barrier, it is sometimes self-imposed by developing countries. For example, many poor
countries still apply duties and tariffs to imported pharmaceutical products. These can be
as high as 10 to 30% in countries such as Kenya, Nigeria, Ghana, India and Burkina
Faso.166 Such hurdles ought to be removed swiftly. Further, final end prices paid by
consumers are often elevated due to domestic distributor mark-ups167, a practice which
ought to be prevented in developing countries through regulation and in practice might be
adequately controlled through greater public sector involvement in treatment scale up.
Finally, it is clear that an absence of competition can be a key barrier to accessing
cheap drugs, particularly where patents block generic entry. The World Bank describes
158
Attaran 2004, supra note 9, at 159.
Cheri Grace, “Equitable Pricing of Newer Essential Medicines for Developing Countries: Evidence for
the Potential of Different Mechanisms”, WHO, available at www.who.org, at 11. [hereinafter Grace].
160
Report of the Workshop on Differential Pricing and Financing of Essential Drugs, WTO/WHO, 8-11
April 2001, Hobsjor, Norway, available at www.wto.org, at 8. [hereinafter Hobsjor Report]
161
Milne, supra note 17, at 22.
162
Sherer and Watal, supra note 83, at 1.
163
Trouiller, supra note 12, at 2191.
164
Grace, supra note 159, at 57.
165
Bale, supra note 34, at 10.
166
Ibid.
167
Grace, supra note 5.
159
three pharmaceutical product categories: single-source, limited-source and multisource.168 Multi-source products are often off-patent and cheap because vigorous generic
competition tends to force prices down to close to the marginal variable cost of
production.169 Products may be single-source or limited-source for a number of reasons
including patents, but also due to technical production difficulties, problems with NDRA
registration, and a lack of economic incentives to induce production by generic
manufacturers.170 Where this latter problem is determinative, the only means by which to
induce generic substitution is to increase purchase funding and improve drug delivery
infrastructure. For example, eflornithine, a drug for the treatment of African sleeping
sickness, was discovered in 1990 by Aventis, who then granted an open license to the
WHO. The WHO sought to license generic manufacturers worldwide but could not find
a single supplier because of the lack of potential sales. Today, Aventis has also
discontinued production meaning that there is not a single current source of the drug.171
In cases like these, creating markets through donor funding is the appropriate policy
solution to inducing generic entry. However, where a particular limited-source drug is
patented, additional measures need to be taken to achieve low prices in developing
countries. The following section takes a closer look at pharmaceutical patent protection
and its impact on current and future prices.
V. Pharmaceutical Patents and Access
It is clear that vigorous generic competition leads to substantially lower
pharmaceutical prices. For example, MSF reported that generic entry for first-line ARV
triple combination d4T, 3TC and NVP led to a reduction from $10,000-15,000 per patient
per year in May 2000 to a best price offer of $201 per patient per year in April 2003.172
Prices continue to fall, with a current low price offer of $140 per patient per year
brokered by the Clinton Foundation from four Indian and one South African generic
supplier.173 As predicted by economic theory, this phenomenon of sharply falling prices
is generally observed in all pharmaceutical product categories with generic entry
following patent expiration.174 The extent to which pharmaceutical patenting blocks or
will block generic substitution of medicines for use in the developing world in the future
remains unclear. This question has been the subject of recent vigorous debate due to the
implementation of TRIPS pharmaceutical patent protection, with R&D-based
pharmaceutical companies and several scholars arguing that impact will be minimal,
while many treatment advocates claim the contrary.
168
World Bank Procurement Guide, supra note 62, at xvii.
Ibid.
170
Ibid.
171
Milne, supra note 17, at 44.
172
Medicines Sans Frontieres, Trading Away Health: Intellectual Property and Access to Medicines in the
Free Trade Area of the Americas (FTAA) Agreement, (MSF August 2003), available at www.accessmedmsf.org, at 2. [hereinafter MSF FTAA]
173
See Global Fund Observer Newsletter, Issue 22, 6 April 2004, available at
www.aidspan.org/gfo/archives/newsletter. [hereinafter GFO Newsletter].
174
Sherer and Watal, supra note 83, at 5.
169
What is not debatable is that access to off-patent drugs is not hindered by the
patent regime. This category included 302 of 319 medicines on the WHO Model List of
Essential Medicines, or Essential Drug List (EDL), as of the date of a study conducted by
Dr. Amir Attaran in 2004.175 Bale points out that access to these off-patent essential
drugs remains poor, attributable to inadequate financing and infrastructure.176 Where
these medicines are effective, appropriate measures need to be adopted to foster access.
However, the EDL is replete with antiquated, increasingly ineffective drugs. Despite the
fact that all 16 drugs indicated for neglected diseases registered between 1975 and 1999
are currently on the EDL, less than 2% (21) of the 1,377 drugs indicated for global
diseases during that same period have been included.177 This exclusion is suspect given
that global diseases are a significant source of morbidity and mortality in poor countries
and that developing country patients are equally deserving of the most current and
effective therapies available in rich markets. It is likely that a large number of these
drugs (any patented after 1984) are on-patent in many countries, and strategies need to be
implemented to prevent their patent status from curtailing access in poor countries.
With respect to currently existing, on-patent medicines, the patent situation can be
quite complicated. Medicines can be patented in some countries and not others due to a
host of factors including originator company decisions not to seek patents in nonlucrative markets, differing standards of patentability across jurisdictions, and whether or
not pharmaceutical products were actually patentable in particular countries at the time of
filing. Attaran conducted a study in 2004 of the patent status (including pending TRIPS
mailbox applications) of the 17 on-patent medicines included on the WHO EDL (of
which 12 are ARVs, including 10 of the 11 drugs recommended by the WHO as first- and
second-line regimens appropriate for resource-poor settings) in all of Africa and in
various other developing countries.178 Finding that these 17 drugs are infrequently
patented in developing countries, Attaran concluded that patents are an insignificant
limitation on access to currently existing medicines.
His conclusions are suspect for several reasons. First, his analysis fails to take
into account the lack of local manufacturing capacity that exists in most developing
countries and LDCs. The domestic consumption of pharmaceuticals in such countries is
entirely dominated by imports179, and thus the most that can be said is that there is no
patent barrier in many poor countries to importing many of these 17 drugs. However,
these countries, if desiring to make use of generic substitution, must seek a potential
generic exporter. Very few developing countries have the requisite domestic
manufacturing capacity, and this is likely limited in practice to Argentina, Brazil, China,
India, Thailand and South Africa, with the possibility of a few others being included as
well.180
175
Attaran 2004, supra note 9, at 155.
Bale, supra note 34, at 3.
177
Trouiller, supra note 12, at 2189.
178
Attaran, supra note 9.
179
Sherer and Watal, supra note 83, at 8.
180
Ibid.
176
I used Dr. Attaran’s data to directly assess the patent situation of the 12 ARVs on
the WHO EDL in key potential developing world exporters (China, Thailand, Brazil,
Argentina and India), and where possible compared his data to that reported by MSF in
“Drug patents under the spotlight: sharing practical knowledge about pharmaceutical
patents”181, a study conducted in May 2003. The patent data from the two studies are
generally in accord and paint a very different story from that portrayed by Dr. Attaran.
Of the 12 ARVs currently on the EDL, 10 are patented or have patents pending in China,
10 in Thailand, 8 in Brazil, 9 in Argentina, and all 12 in South Africa. In India, which
has to date been the primary exporter of affordable generic ARVs to developing
countries, the data is slightly more promising. As noted above in Part III, India took
advantage of the TRIPS flexibility to delay pharmaceutical patent protection until 2005,
but was required to grant mailbox applications for the filing of patents between 1995 and
2005. Of the 12 ARVs on the EDL, Attaran reported that only 5 have pending mailbox
applications. These, however, do include 2 of 5 important first-line ARVs (3TC and
NVP) and 3 of 6 important second-line ARVs (ABC, SQV/r, and LPV/r). The relatively
new compound TDF, a WHO-recommended second-line ARV, was excluded from the
data in both the Attaran and MSF studies. Assuming it is the subject of a pending
mailbox application, 4 of 6 WHO-recommended second-line ARVs could become
patented in India this year when it reviews mailbox applications. As of January 2005, 6
Indian generic companies are producing 3TC, 6 are producing NVP, 3 are producing
ABC, 1 is producing SQV/r, 1 is producing LPV/r, and none are producing TDF.182 All
of these companies could potentially be enjoined from producing these generics after full
TRIPS implementation.
Further, important first-line FDCs such as 3TC/EFV/ddI, 3TC/d4T/NVP, and
3TC/AZT/NVP are only produced by Indian generic companies183 as originator firms
have not developed them due to blocking patents and inability to cross-license.184 All 3
of these FDCs contain at least one ARV that may become patented in India once mailbox
applications are reviewed. This threatens to dry up their supply should pharmaceutical
patent holders decide to enjoin them by suing for patent infringement, unless India
implements legislation consistent with the August 30th Agreement and quickly issues
compulsory licenses for export.
Indian TRIPS compliance may also poses a serious threat to continued scale up of
cheap and effective generic ART in developing countries when these countries need to
begin importing generic versions of second-line ARVs. As of January 2005, even the
cheapest second-line ARVs are 2 to 12 times more expensive than first-line drugs.185
MSF data shows that the substantial price differences can at least partially be attributed to
the number of generic manufacturers that have entered the market for these drugs
worldwide. Vigorous competition is observed for first-line ARVs (EFV: 6 producers,
181
MSF Patents, supra note 146.
Medicins Sans Frontieres, Untangling the web of price reductions: a pricing guide for the purchase of
ARVs for developing countries 7th edition, (MSF January 2005), available at www.accessmed-msf.org, at
10-12. [hereinafter MSF Prices]
183
Ibid, 10-12.
184
MSF Patents, supra note 146, at 7.
185
MSF Prices, supra note 182, at 4.
182
AZT: 10, NVP: 11, 3TC: 14, d4T: 16), whereas few entrants exist for second-line ARVs
(TDF: 0, LPV/r: 2, SQV/r: 2, ABC: 4, ddI: 9).186 This further highlights the need for
India to fully take advantage of the flexibilities in TRIPS and the August 30th Agreement
as it implements pharmaceutical patenting, so as to permit future vigorous generic
competition for second-line ARVs.
One potentially positive factor is that of the 12 ARVs on the EDL, all have basic
patent priority dates from before 1994 (the year in which priority patent applications were
eligible for mailbox applications in India) except LPV/r187 and EFV188 (the priority date
for TDF is not known but may also be post-1994), suggesting that the pending mailbox
applications may be for newer drug formulations rather than chemical compounds.
Attaran’s data confirms that even the LPV/r mailbox application is a formulation
application. Such patents, if granted, may not act as absolute blocks to generic
production in the same way that the patent on the original molecule would because
generic companies can attempt to work around potentially infringing formulations.
Dr. Attaran’s conclusion that patenting is not a significant barrier to accessing
ARVs in developing countries is also called into question by the fact that 3 important
first-line ARVs are widely patented throughout Africa. 3TC is patented in 33/53 African
countries, NVP in 25/33, and AZT in 17/53. The 3TC/AZT combo is blocked by a patent
on one of the two compounds in 37/53 Africa countries.189 Thus, patents could at least in
theory pose a significant barrier even for countries seeking to import generic ARVs from
abroad. For example, MSF has documented how Kenyan implementation of TRIPS
through the Kenyan Industrial Property Act 2001 could prevent it from importing generic
drugs from India for use in its local ARV treatment programs.190 Further, the fact that 12
of 12 ARVs on the EDL are patented in South Africa is particularly troublesome given
that it has the world’s highest burden of HIV/AIDS.191 MSF reports that access to low
cost generic ARVs is still severely lacking in South Africa due to this widespread
patenting.192
I also analyzed Attaran’s data for the 5 other currently on-patent medicines on the
WHO EDL, which include the anti-malarial drugs Coartem and Mefloquine,
Flucoanazole for the treatment of opportunistic fungal infections associated with
HIV/AIDS, and the antibiotics Ciprofloxacin and Azithromycin. His conclusions are
likely more accurate for these drugs. None of these drugs are widely patented in potential
developing world exporters or developing countries generally. Coartem is perhaps an
exception, enjoying patent protection in the following potential exporters: China,
186
Ibid, at 8.
MSF Patents, supra note 146, at 30.
188
Joan-Ramon Borrell and Jayashree Watal, “Impact of Patents on Access to HIV/AIDS Drugs in
Developing Countries”, Harvard Center for International Development Working Paper No. 92, May 2002,
available at www.cid.harvard.edu, at 15. [hereinafter Borrell]
189
“Do Patents Prevent Access to Drugs for HIV in Developing Countries?”, J.A.M.A., February 20, 2002,
Vol. 287, No. 7, at 840-843.
190
MSF Patents, supra note 146, at 8.
191
UNAIDS Report 2004, supra note 46.
192
MSF Procurement, supra note 154, at 39.
187
Thailand, Argentina and South Africa. Ciprofloxacin and Azithromycin have priority
dates of 1980 and 1981 suggesting they may have since gone off-patent.
Despite the current complexity and debate surrounding the patent status of
currently existing medicines, it seems rather clear that, for new medicines developed
from 2005 onward when pharmaceutical product protection is offered in virtually all
Member states of the WTO, widespread patenting will threaten to prevent the supply of
low-cost generic versions of such new products in developing countries by virtually
eliminating any possibility of generic substitution during the life of the patent.193 This
will pose difficulties for countries wishing to promote generic production domestically,
but particularly for countries seeking to import generics as well as countries willing to
export them. Thus, for the plethora of new medicines to treat global diseases (most of
which are not included on the WHO EDL), for the ARVs that are currently blocked by
patents in many potential exporters and will potentially be blocked by patents after
mailbox applications are reviewed in India, and for medicines that are developed from
now on once TRIPS is fully implemented worldwide, strategies must be put in place to
ensure affordable prices are accessible to developing countries. Further, even where
patenting is not a barrier, such as for the majority of drugs on the EDL, strategies need to
be developed to overcome the access gap. The following section will describe and
evaluate some proposed strategies for achieving these goals.
VI. Mechanisms to Increase Access
Because it is extremely unlikely that sufficient finances will be deployed to
purchase drugs for developing countries at developed world prices, the central goal of
any strategy to promote widespread access to new, on-patent medicines must be to
achieve differential pricing between rich and poor markets. As argued in Part III,
differential pricing is economically efficient because the collection of developed world
monopoly prices in poor markets contributes negligibly to incentives to innovate new
drugs while entailing significant deadweight consumer loss. This section highlights the
potential of 4 strategies to achieve differential pricing: 1) voluntary price discounts by
originator pharmaceutical companies, 2) generic substitution in developing world
markets, 3) bulk procurement, and 4) pharmaceutical price controls. Though all aim at
achieving differential prices for patented medicines, it is recognized that access to older,
off-patent medicines must also be fostered. This is best achieved by attracting the
interest of generic producers through greater financial commitment, but can also be
partially addressed with bulk purchasing strategies, discussed further below. Notably, the
South African government has announced plans to launch an initiative to promote the
production of off-patent pharmaceuticals domestically by local generic companies.194
For on-patent drugs, it is imperative under any system of differential pricing that
monopoly rents continue to be collected by patent holders in rich countries so that
incentives to innovate are protected. The goal is then to provide on-patent medicines in
poor countries at close to the marginal variable cost of production, while effectively
193
194
Grace, supra note 159, at 12.
Underserved Markets, supra note 147, at 25.
segmenting the rich markets. Differential pricing is otherwise not possible because
arbitrage will undercut monopoly prices in developed countries. Thus, appropriate legal
means ought to be adopted in order to promote effective segmentation. One particularly
important tool is for rich countries to exercise their discretion under Article 6 of TRIPS to
disallow parallel importation of medicines from abroad. The world’s two most important
pharmaceutical markets, the US and the EU, have both adopted such a policy. 195 Other
means of promoting segmentation of developed and developing world markets are
addressed below. By contrast, parallel imports between poor countries would cause
negligible if any harm to incentives to innovate while potentially reducing prices in some
cases. Thus, segmentation of poor markets from each other is undesirable. Notably,
Argentina, Thailand and South Africa have each adopted laws permitting parallel imports
of pharmaceuticals196, but most developing countries have not.197
Voluntary Price Discounts
Two forms of voluntary price discounts by originator firms are examined here: 1)
Ramsey pricing, and 2) drug donations. Neither form requires any circumvention of
patent rights, which is a positive attribute under worldwide TRIPS implementation.
Ramsey Pricing: Ramsey pricing theory predicts that, if appropriate conditions are
created, pharmaceutical companies will spontaneously adopt a differential pricing
strategy. In industries where fixed costs are high relative to variable costs, it is rational
for a monopolist to sell its product at different prices across markets with different
demand elasticities, so long as arbitrage of the low price product can be effectively
prevented. In the pharmaceutical industry, R&D and other fixed costs can account for up
to 85% of the total costs of producing a drug.198 These fixed costs can be allocated
arbitrarily, allowing pharmaceutical companies a large degree of flexibility in deciding
where to recover up-front R&D investments.199 Further, national income differences
translate into national drug markets in poorer countries having higher demand elasticities
than in rich countries.200 Thus, in theory, it is rationale for a pharmaceutical company
owning a patent monopoly to sell at high prices in rich markets and at low prices in poor
markets.201 So long as the pharmaceutical company can earn a small profit by charging
slightly above the marginal variable cost of production in poor countries and can recoup
its high fixed R&D costs by selling at prices well above marginal costs in rich countries,
such a strategy can actually be Pareto-optimal by maximizing the firm’s global profits,
ensuring greater access for the poor, and at the same time having no impact on prices
paid by consumers in rich markets.202 By contrast, where firms are confronted with the
potential for international arbitrage, it is rationale to protect monopoly prices in
developed countries by charging a uniform global price close to that which developed
195
Lanjouw, supra note 1, at7; Sherer and Watal, supra note 83, at 33.
Sherer and Watal, supra note 83, at 33.
197
Underserved Markets, supra note 147, at 15.
198
Grace, supra note 159, at 1.
199
Ibid, at 7.
200
Sherer and Watal, supra note 83, at 34.
201
Hobsjor Report, supra note 160, at 10.
202
Sherer and Watal, supra note 83, at 35.
196
world markets can bear.203 Additionally, increasing volume by selling at close to
marginal cost is likely to be adopted only where a substantial portion of consumers who
could not afford the drugs at developed world prices would be able to afford them at the
discounted rate204, which is unlikely to be the case in low-income countries and LDCs.
This highlights the necessity of rolling out public treatment programs in poor countries
using donor-financed drug purchases.
In practice, a strong pattern of voluntary Ramsey pricing based on national
income differences has only been observed in rare cases.205 Sherer and Watal conducted
a study of ARV pricing in the developing world between 1995 and 1999, when few or no
generic substitutes were available.206 They found only a faint indication of any sort of
systematic income-correlated pricing207, with prices habitually the same as those found in
the US domestic market. In fact, in 20% of cases examined, the ARVs were priced above
US levels.208 This is likely related to the high number of consumers in developing
countries that pay for drugs out-of-pocket. Whereas developed world public and private
medical insurance schemes have relatively strong bargaining power and can negotiate
reduced prices from originator pharmaceutical companies, these consumers cannot.
Recent originator firm first-line ARV price concessions are best viewed not as
voluntary, but rather as a product of successful international advocacy, vigorous generic
competition from imitator firms in India, and threatened use of compulsory licensing in
countries such as Brazil.209 In this environment, five major pharmaceutical firms
(Boehringer Ingelheim, Bristol-Myers Squibb, GlaxoSmithKline, Merck and HoffmanLaRoche) partnered with UNAIDS in 2001 to form the Accelerated Access Initiative
(AAI), which offers differentially priced first-line ARVs to developing countries.210
Prices under this program have generally lagged behind those offered by generic
manufacturers but, as of January 2005, some of the firms were making better offers than
their Indian generic counterparts.211 However, where generic competition is not a threat,
even the firms participating in this initiative seem unwilling to reduce prices.212 Further
problems include AAI price discounts being restricted to particular countries (often
excluding all middle-income countries), to public programs, to specific drug
formulations, and/or being tied to commitments from recipient countries to adhere to
TRIPS-plus intellectual property protection.213
203
Lanjouw, supra note 1, at 7.
Kremer, supra note 14, at 20.
205
Grace, supra note 159, at 28.
206
Sherer and Watal, supra note 83.
207
Ibid, at 39.
208
Ibid.
209
T. Sandler, D. Arse, “A Conceptual Framework for Understanding Global and Transnational Goods for
Health”, Commission on Macroeconomics and Health Working Paper Series, Paper No. WG2:1, available
at www.cmhealth.org, at 33. [hereinafter Sandler]
210
Grace, supra note 159, at 21-22.
211
MSF Prices, supra note 182, at 10-12.
212
Grace, supra note 159, at 28.
213
Ibid, at 26.
204
Despite the experience with ARVs, voluntary Ramsey pricing (without the threat
of generic competition) has been observed in some circumstances. For example, Sherer
and Watal report substantial voluntary price differentials across vaccine sales in rich and
poor countries.214 Another interesting example is Novartis’ marketing strategy for its
anti-malarial Coartem. Using differential branding and packaging, it sells Coartem
(registered as Riamet in developed markets) for 25% of the US market price in
developing countries, and to WHO treatment programs for 5% of the US price.215
Though these two examples set positive precedents, it is far from clear that voluntary
Ramsey pricing is likely to become widespread in the near future. Two factors in
particular act as roadblocks: international arbitrage and the existence of wealthy
consumers in poor countries.
International arbitrage is broadly defined as the migration of differential prices
into developed world pharmaceutical markets. This can happen in at least two ways.
First, differentially priced products can be physically diverted from their intended
beneficiaries and resold in developed markets at substantially higher prices. Second, low
prices in developing countries can influence wealthy market prices without physical
diversion through external reference pricing systems and through political processes.
External reference pricing refers to the phenomenon of regulators in rich countries setting
price ceilings on the basis of prices observed in other countries.216 It also occurs when
drug purchasers with market power, such as public or private insurance schemes, refer to
prices in other countries in their negotiations with pharmaceutical manufacturers.
Brand name pharmaceutical companies often cite physical arbitrage as a central
concern, but this is likely overblown given its low potential to undercut prices in rich
markets. Several mechanisms can be used to effectively segment product markets,
including different branding and packaging (such as with Coartem), strict supply chain
management, customs controls in both developing and developed countries, strong
contractual arrangements with procurement entities, and the use of intellectual property
laws in developed countries to prevent parallel importation.217 Most, if not all, major
developed country markets already prohibit parallel imports.218 Moreover, national
pharmaceutical markets are quite stringently regulated by National Drug Regulatory
Authorities (NDRAs), whose refusal to register a particular product serves as an effective
barrier to market access.219 Finally, physical arbitrage of differentially priced products is
not generally observed220, except for cross-border sales from Canada to the United States.
It is worth noting that Congress has not made importing drugs from Canada illegal, which
at least partially explains the phenomenon. Outside of the Canada-US context, enormous
price differentials exist between ARVs sold by originator firms in rich markets and those
214
Sherer and Watal, supra note 83, at 38.
Grace, supra note 159, at 23.
216
Sherer and Watal, supra note 83, at 48.
217
Hobsjor Report, supra note 160, at 4.
218
World Bank Procurement Guide, supra note 62, at 119.
219
Correa, supra note 3, at 26.
220
Keith E. Maskus, “Ensuring Access to Essential Medicines: Some Economic Considerations”, 20 Wis.
Int’l L.J. 563-579, at 567. [hereinafter Maskus]
215
sold to a host of developing country treatment programs by Indian generic manufacturers,
no reports exist of cheap generic versions ending up in Western markets.
The potential for price arbitrage through external reference pricing and political
pressure has more explanatory power with respect to the general absence of Ramsey
pricing strategies across. External referencing is used frequently by price regulators and
drug purchasers221, leading a rational originator firm to fear that differential prices will
negatively impact its prospects for charging high prices in rich countries. Further,
differential prices can and have lead to the exertion of significant political pressure on
brand name firms to lower prices. For example, after a Congressional hearing in which a
US Senator asked a major vaccine manufacturer how it could justify charging nearly
three times as much to the US government for vaccines as to foreign developing
countries, it stopped submitting bids to supply vaccines to UNICEF.222 Moreover, the
issue of parallel importation of lower priced drugs from abroad is constant element of US
health policy debates.223
Unlike physical arbitrage, it is not immediately obvious how to prevent general
price arbitrage. Some have argued that an international agreement is needed to ban the
practice of external reference pricing, or at least to limit its scope to other countries of
comparable wealth.224 Certainly important is strong political leadership and advocacy in
rich countries to inform both politicians and the general public about the urgent need for
differential pricing and to dispel the misconception that firms have to elevate prices in
rich countries in order to sell cheaply in poor countries.225
Another significant roadblock to the voluntary adoption of Ramsey pricing
strategies is the existence of small minorities in developing countries that enjoy
developed world income levels and that tend to have comprehensive private health
insurance. It is often more profitable for a monopolist to restrict volumes and sell at
developed world prices to these consumers than to offer prices slightly above marginal
production costs and seek to profit from increased sales volumes.226 The potential for
physical arbitrage within a national pharmaceutical market poses difficulties that are not
as easily addressed as in the cross-border context, and thus without the ability to segment
rich and poor consumers within developing countries, firms will often not have the
incentive to sell at close to marginal cost. This phenomenon is more likely to be
pronounced in developing countries with large concentrations of wealth such as South
Africa than in other developing countries with less substantial income inequalities. In
principle, the widespread adoption of parallel importation between developing countries
(but not between rich and poor countries) could help to alleviate this problem because
monopoly prices would be undercut by cheaper parallel imports from other poor
countries.227 Further, widespread public roll out of treatment programs could go a long
221
Hobsjor Report, supra note 160, at 20.
Kremer, supra note 14, at 25.
223
Sherer and Watal, supra note 83, at 33.
224
Hobsjor Report, supra note 160, at 20; Sherer and Watal, supra note 83, at 49.
225
Hobsjor Report, supra note 160, at 4.
226
Sherer and Watal, supra note 83, at 31.
227
Ibid, at 49.
222
way to creating a credible prospect for pharmaceutical companies to earn profits through
volume sales rather than by restricting access.
Creating an environment conducive to voluntary Ramsey pricing by
pharmaceutical companies is laudable and ought to be pursued. However, it is unclear to
what extent the appropriate conditions can be achieved, and given the impressive track
record of generic competition in inducing price discounts by originator firms, credible
threats for compulsory licensing in the post-TRIPS world will likely continue to be
necessary to generate appropriate price concessions.
Drug Donation Programs: In some circumstances, originator pharmaceutical companies
have taken the approach of donating drugs to certain countries rather than selling them
for profit. A tremendous success story is the Merck Invermectin donation program,
initiated in 1988. Merck agreed to give away its drug Invermectin to provide mass
treatment for river blindness (onchocerciasis) in developing countries to whomever asked
for it for as long as they needed it.228 Since 1988, nearly 25 million individuals have
been treated under this program.229 Other recent drug donation programs include
Malarone for the treatment of drug-resistant malaria (GlaxoSmithKline), albendazole for
lymphatic filariasis (GlaxoSmithKline), and Zithromax for trachoma (Pfizer).230 Sherer
and Watal report that in the US, potential tax savings afforded to drug donation programs
are so large as to entail little or no out-of-pocket cost to pharmaceutical firms.231 Other
developed countries should consider adopted such tax policies.
However, the key disadvantage to this approach is that the tax subsidy for drug
donation programs comes directly out of the pocket of developed world taxpayers,
whereas voluntary Ramsey pricing and generic substitution in poor countries improve
access at no direct cost (though presumably drug purchases would still have to be in part
funded from donor government budgets). Other disadvantages to relying on drug
donation strategies are that they are likely unsustainable as a long term solution, and
seem to have been limited to programs for tropic diseases where pharmaceutical firms
have little sales to lose. By contrast, firms are unlikely to donate drugs that are indicated
for global diseases because substantial sales to wealthy consumers in poor countries
would be lost.
Generic Substitution
A key strategy to foster differential pricing of current on-patent medicines
between rich and poor countries, which has strong theoretical and empirical backing, is to
use vigorous generic substitution to supply poor markets while maintaining patent
exclusivity and thus monopoly pricing in rich markets. This is particularly important
where originator companies are unwilling to offer marginal prices voluntarily. As
previously discussed, so long as markets can be segmented, generic supply of on-patent
228
Sandler, supra note 209, at 31.
Sherer and Watal, supra note 83, at 54.
230
Stansfield, supra note 7, at 21.
231
Sherer and Watal, supra note 83, at 54.
229
medicines in low income and LDC markets would entail almost no impact on global
incentives to innovate. Recent experience with first-line ARVs, where the lowest
available generic price for triple-combination therapy in developing countries is currently
$140 per person per year and where monopoly prices continue to be successfully
extracted in rich markets, provides a compelling example that this strategy can and does
work and ought to be adopted on a more widespread basis. The absence of any
systematically observed diversion helps to demonstrate that arbitrage concerns are
overblown. To ensure prices are reduced to close to marginal production costs, it is
important to encourage multiple generic entrants for any given product, as several studies
have demonstrated that lowest prices are only achieved with a relatively high number of
competitors.232 This is confirmed by the Indian generic ARV experience. A substantial
number of generic entrants in India have ensured that first-line treatments are available at
dramatically reduced prices. By contrast, second-line ARVs, produced by far fewer
firms, remain 2 to 12 times more expensive.233
In any strategy to promote generic production, it is crucial to understand that
generic companies, like other business entities, make investment decisions based on
future market prospects. Even though front-end investments are much lower for a
generic company than those associated with researching and developing new drugs, there
are still substantial up-front transaction and capitals costs234, including new plant and
manufacturing capacity, drug bio-equivalence testing, regulatory approval procedures,
and marketing costs. Vigorous generic entry is far more likely where prospective
markets are large and where sufficient sales can be anticipated to defray up-front
investments. Thus, there are two possible approaches to increasing incentives for generic
entry: creating certainty of long-term potential market prospects and reducing front-end
expenses.235
Important means to reduce front-end costs, mentioned in Part IV, include
minimizing regulatory approval hurdles by allowing the use of originator clinical test data
to grant NDRA approval on the sole basis generic bio-equivalence236, by offering fasttrack registration of WHO pre-qualified generics, and by eventually streamlining or
regionalizing drug regulatory capacity to reduce transaction costs. With respect to
improving market prospects, absolutely essential is increased donor financing and public
treatment roll out in developing countries. The Clinton Foundation was only able to
negotiate the current international best price of $140 per person per year for first-line
triple combination therapy by promising 4 Indian generic companies and 1 South African
generic company large, predictable and long term volumes and by demonstrating that
governments were implementing public treatment plans.237
232
Borrell, supra note 188, at 3.
MSF Prices, supra note 182, at 8.
234
Sherer and Watal, supra note 83, at 6.
235
Ibid, at 6.
236
Ibid.
237
Mark Schoofs, Wall Street Journal: “Clinton Program Would Help Poor Nations Get AIDS Drugs, 23
October 2003”.
233
With the implementation of universal pharmaceutical patenting under TRIPS, a
final hurdle to generic substitution in poor countries will increasingly be that medicines
patented in rich markets will also be widely patented in the developing world. Where
patents are blocking access, additional strategies beyond efficient regulatory procedures
and increased financing are needed to foster cheap generic supply. Three such strategies
are reviewed here: 1) compulsory licensing, 2) voluntary licensing, and 3) patent waiver
systems.
Compulsory licensing: The TRIPS regime for compulsory licensing was reviewed in
detail in Part III. Originator companies and countries with large innovation-oriented
pharmaceutical industries have argued strongly against widespread use of compulsory
licensing to increase access to medicines. This is particularly hypocritical given its
successful use in the United States to remedy anti-competitive practices238, and to induce
price concessions on Ciprofloxacin by Bayer in the context of the post-September 11th
anthrax scare.239 A compulsory licensing regime was also widely used in Canada for
both local manufacture and importation of generic versions of patented medicines up
until 1991240, when it was foregone in favour of government-regulated price controls.
This system was extremely successful at reducing domestic prices.241 In the future,
compulsory licensing will increasingly be the only viable option for fostering vigorous
generic competition in developing countries as patenting of new medicines will become
uniform in the post-TRIPS world.
Particularly important going forward will be the existence of a functioning system
of import and export compulsory licensing so that developing countries that lack
pharmaceutical manufacturing capacity have access to generic substitutes. Only a
handful of developing countries at present possess the economic and technical capacity
necessary to produce drugs domestically242, while the rest rely entirely on imports. This
is desirable from a global efficiency standpoint, as requiring poor countries lacking
comparative advantage in pharmaceutical manufacturing to invest scarce resources in
producing generic drugs is economically wasteful and inhibits the realization of
economies of scale through trade.
Outlined in Part III, the August 30th Agreement adopted by the Council for TRIPS
in 2003 is designed to implement such a system of imports and exports. However, due to
the onerous procedural obligations under this Agreement, it is far from clear that
sufficient economies of scale are possible to interest generic companies in entering the
market.243 The August 30th Agreement is at root an ad hoc, case-by-case, country-bycountry system, which unnecessarily segments small markets. Demand from any one
particular developing country that lacks manufacturing capacity will often be insufficient
to induce a generic company to invest in production. Negotiation of multiple licenses
238
Sherer and Watal, supra note 83, at 16.
See www.forbes.com/2001/10/17/1017cipro.html.
240
Sherer and Watal, supra note 83, at 20.
241
Ibid.
242
Correa, supra note 3, at 23.
243
Medicins Sans Frontieres, Doha Derailed: A Progress Report on TRIPS and Access to Medicines, (MSF
2003), available at www.accessmed-msf.org, at 2. [hereinafter MSF Doha Derailed]
239
and contracts on a country-by-country entails high transaction costs and thus substantial
inefficiencies. Uncertainties over potential revocation of licenses and the prospect of
litigation from originator firms are further disincentives to entry.244
Despite these limitations, certain steps can be taken within the current framework
to make compulsory licensing more workable. First, all developing countries and
potential developed world exporters need to fully implement into law the flexibilities
contained in TRIPS, the Doha Declaration and the August 30th Agreement, and must
make compulsory licensing procedures as simple and expeditious as possible. It is
absolutely critical that India’s new patent law contains these flexibilities so that it can
continue to act as a major source of cheap generic alternatives. It is equally important
that other potential developing world suppliers such as Brazil and China recognize their
comparative advantage as loci of generic production and thus implement compulsory
licensing regimes that allow for export to other developing countries.245
Another important step is for countries to set uniform and consistent royalty rates
as “adequate remuneration” under TRIPS Article 31(b) in their implementing legislation.
This creates certainty for potential generic licensees by preventing potential brand name
patent holder lawsuits over royalty determinations. Setting a standard uniform rate of 4%
proved extremely successful under the previous Canadian compulsory licensing regime,
facilitating generic entry on average only 10 months after brand name regulatory
approval.246
Developing countries should also use the national emergency and public noncommercial use exceptions in the context of public health to take advantage of the
simplified licensing procedures contemplated under TRIPS Article 31. This is fully
consistent with the Doha Declaration, which recognized that countries retain the right to
determine what constitutes a national emergency, and to make such declarations to
remedy public health concerns.
Another potentially important flexibility is that broader compulsory licenses that
are not restricted to domestic market supply are permissible under TRIPS if they are
granted to remedy anticompetitive practices.247 The practical value is that the procedural
nightmare under the August 30th agreement can be avoided if a potential exporter finds
through judicial or administrative processes that an originator firm is abusing market
dominance domestically. A recent complaint before the South African Competition
Commission against GlaxoSmithKline and Boehringer Ingelheim was successfully
launched and resulted in a settlement whereby both companies issued voluntary licenses
to the South African generic manufacturer Aspen Pharmacare to produce generic versions
of various ARVs, and which permitted export to other Sub-Saharan African countries.248
244
Correa, supra note 3, at 24.
Sherer and Watal, supra note 83, at 29.
246
Lanjouw, supra note 1, at 25.
247
TRIPS, supra note 92, article 31(k).
248
Jonathan Berger and Fatima Hassan “The Price of Life: Hazel Tau and Others v. GlaxoSmithKline and
Boehringer Ingelheim” (2003) (available at www.alp.org.za) [hereinafter Price of Life] at 18.
245
Though no judicial resolution was reached, the complaint, which the Commission
accepted as alleging valid prima facie violations of the South African Competition Act,
advanced compelling arguments under doctrines of excessive pricing, failing to supply,
and denying a competitor access to an essential facility. These arguments serve as strong
precedents for future competition policy-oriented action to remedy access to drugs
problems. Unfortunately, most developing countries do not have robust competition
policies249, but it would be sufficient if a small group of potential exporters implemented
remedies for anti-competitive pricing and issued broad compulsory licenses in response
to violations. A limitation to this approach is that any potential exporter would also have
to experience a substantial domestic competition problem before it could participate as an
exporter.
A final important step that can be taken to make the current regime of compulsory
licensing workable is to aggregate demand from various countries by coordinating the
timing of compulsory licensing, and by approaching potential generic exporters with
large enough and reliable enough potential market volume to incentivize the up-front
costs associated the onerous August 30th procedure. A reasonable interpretation of the
August 30th Agreement would allow a generic company to apply for a single compulsory
export license to supply an aggregated list of contracts from various developing
countries.250 However, there is concern that the only permissible interpretation under the
Canadian implementing legislation is that individual export licenses must be granted on a
country-by-country basis.251 This would be a substantial and unnecessary barrier to
stimulating generic interest, and similar limitations must be avoided as other potential
exporting countries implement August 30th. Strategies to aggregate demand are
discussed further in the section on bulk purchasing.
In practice, though compulsory licensing has been successfully used in the US
and Canada as noted above, it has rarely been used in the developing world. No
developing country has yet invoked a compulsory license to import a pharmaceutical
product.252 The low income countries Zimbabwe, Mozambique and Zambia, and the
middle income countries Malaysia and Indonesia have recently issued compulsory
licenses for local production of ARVs, while Cameroon has authorized its central
procurement agency to import generic versions of ARVs for supply of the non-profit
sector (though this authorization was not in the form of a compulsory license).253 More
widespread and credible compulsory licensing regimes will have to be adopted in the
249
Underserved Markets, supra note 147, at 16.
August 30th Agreement, supra note 130, paragraph 2(b): “the compulsory license issued by the exporting
Member under this Decision shall contain the following conditions: (i) only the amount necessary to meet
the needs of the eligible importing Member(s)”
251
Bill C-9: An Act to amend the Patent Act and the Food and Drugs Act (The Jean Chretien Pledge to
Africa), Third Session, Thirty-seventh Parliament, 52-53 Elizabeth II, 2004, Statutes of Canada 2004,
s.21.04(1): “the Commissioner shall … authorize the person … to sell [the product] for export to a country
… listed in any of Schedules 2 to 4”.
252
Grace, supra note 159, at 4.
253
Medicins Sans Frontieres, Will the Lifeline of Affordable Medicines to Poor Countries Be Cut?,
available at www.accessmed-msf.org; See also http://www.cptech.org/ip/health/cl/recentexamples.html#South
250
post-TRIPS world as more and more of new medicines will be subject to patents in
developing countries.
It may be that compulsory licensing will rarely need to be employed to obtain
access to low price medicines. The most practical value of compulsory licensing may lie
in its use as a negotiating tool to acquire price concessions or voluntary licenses from
originator pharmaceutical firms.254 Brazil has used this tactic with great success to
achieve low price ARVs for its national treatment program.255 However, this success
derives from the fact that Brazil’s threats were credible because of its domestic capacity.
As noted above, only a handful of other developing countries have similar capacity,
which underscores the need for a workable system of import/export compulsory licensing
in order to confer similar bargaining power on developing countries that lack domestic
manufacturing capacity.256 Experience may prove over time that the August 30th
framework for import/export licensing is insufficient and/or unworkable, in which case
the WTO must implement a regime that is more simplified and efficient. To date, no
notifications have been made under the current system257, suggesting that reform is
indeed needed.
Voluntarily licensing: Theoretically, generic substitution of patented medicines could be
achieved if originator firms would agree to grant voluntary licenses to developing world
generic companies for local production and export.258 Such licenses would have to be
granted to firms in potential exporters such as India, China, Brazil, Thailand and South
Africa and would have to be non-exclusive so as to promote the lowest possible prices
through vigorous competition.
Clearly defined voluntary licenses negotiated directly with originator firms that
delimit the scope of permissible importing countries would offer a degree of certainty to
potential generic entrants likely not possible under the current TRIPS and August 30th
compulsory licensing regime. Further, voluntary licensing has the added advantage that
originator firm trade secrets with respect to production processes would presumably be
transferred to the licensee.
However, the problem with relying solely on this mechanism is that firms are
often unwilling to grant licenses, and where they do, their goals are often unrelated to
increasing access. For example, an originator firm may wish to confer an exclusive
license to one local developing country generic manufacturer (instead of multiple firms)
to obtain labour cost savings, but then maintain elevated prices instead of passing savings
on to consumers.259 In essence, the incentive problems are similar to those observed for
254
Correa, supra note 3, at 22.
Grace, supra note 159, at 3.
256
Ibid, at 56.
257
See www.wto.org/english/tratop_e/trips_e/public_health_e.htm
258
Grace, supra note 159, at 33.
259
Ibid, at 34.
255
Ramsey pricing and thus firms are unlikely to voluntarily adopt this strategy on a regular
basis.260
In practice, widespread voluntary licensing has not been observed. Before
starting to produce generic ARVs in 2001, the Indian generic manufacturer Cipla sought
voluntary licenses from all 5 originator firms participating in the UNAIDS Accelerated
Access Initiative, but all requests were promptly refused.261 As noted above,
GlaxoSmithKline and Boehringer Ingelheim have reached voluntarily licensing
agreements with South African generic manufacturer Aspen Pharmacare to produce
various ARVs for local consumption and regional export, but only after the initiation of
competition policy proceedings by various South African treatment advocates. The
remedy for a finding of anticompetitive practices would have included damages and
various administrative penalties, but also the issuance of compulsory licenses, which
again underscores the absolute centrality of credible compulsory licensing threats to
induce concessions from originator firms.
Another originator firm, Pharmacia, has now taken a more cooperative approach
by offering to grant non-exclusive licenses for its ARV delavirdine to generic
manufacturers who agree to produce and supply the medicine to countries with a per
capita GNP of less than $1,200 or an HIV infection rate of higher than 1%.262 Again, this
offer comes in the particular context of strong international HIV/AIDS treatment
advocacy and threats of non-consensual generic substitution. In the absence of credible
threats, it is far from clear that such a cooperative approach is likely to be forthcoming
from patent holders for new medicines generally.
Patent Waivers: Patent waivers, strongly advocated by Jean Lanjouw, are another
potential mechanism to facilitate access to generic versions of patented medicines in
developing countries.263 Using the US as an example, a patent waiver would work as
follows. When a US pharmaceutical firm files a patent for a new drug, it must acquire a
foreign filing license from the US Patent and Trademark Office (PTO) in order to file for
patents on the same invention in other jurisdictions. Where the new drug is indicated for
the treatment of a global disease, Lanjouw argues that the PTO should require the
applicant to promise that permission to file abroad will not be used to restrict the sale or
manufacture of the new drug in a set list of developing countries.264 This would allow for
generic companies in those countries to produce the new drug for domestic consumption
and/or for export to any of the other listed countries. If sued by the patent holder, the
generic company could complain to the US PTO. Committing fraud or failure to deal in
good faith with the PTO is clear grounds for rendering a US patent unenforceable.265
260
Ibid, at 35.
Ibid.
262
Ibid, at 36.
263
Lanjouw, supra note 1.
264
Ibid, at 10.
265
Ibid, at 11.
261
Thus, the patent holder would rationally choose not to sue in the listed countries to avoid
losing patent protection in the US, where far higher profit margins are available.266
This approach offers some advantages. First, because of its transparency and
predictability, it would provide a level of certainty to potential developing world generic
producers that does not exist under the current compulsory licensing regime.267 Second,
it is entirely consistent with TRIPS, and if implemented unilaterally by only the US, EU
and Japan, it would make TRIPS implementation in developing countries almost
irrelevant with respect to pharmaceuticals.268 Of course, as with other differential pricing
strategies, physical and price arbitrage would have to be prevented to maintain incentives
to innovate.
However, important limitations also exist. A patent waiver system could only
work for drugs developed after its implementation and thus would fail to address the
access gap for already-existing on-patent medicines. More importantly, though in theory
very effective, patent waivers have never been used and implementing them is unlikely to
be politically feasible.269 The US, EU, Japan and other Western countries, the very actors
who would be central to a patent waiver system, are unlikely to participate given their
strong stance in favour of universal patent protection during TRIPS negotiation and
subsequent international debate. The relative advantage of compulsory licensing regimes
is that they are administered locally by developing countries without requiring the
consent or participation of countries biased in favour of brand name pharmaceutical
interests.
Bulk Purchasing
The use of bulk pharmaceutical purchasing has great potential for increasing
access to medicines in developing countries, particularly in combination with other
differential pricing mechanisms and reliable funding of public treatment programs.270
The basic structure of a bulk procurement strategy involves pooling demand for drugs
from multiple developing world sources and then using the resultant negotiating power to
induce lower price offers from suppliers. Bulk purchasing benefits consumers in the
developing world by giving them access to lower priced pharmaceuticals. It can also be
beneficial to suppliers.271 Long-term market certainty reduces capital investment risks,
increases economies of scale, and reduces demand-forecasting costs.272 It further reduces
transaction costs associated with individual country-level operations273, including costs of
negotiating, monitoring and enforcing of contracts.274 Where drugs are centrally
266
Ibid, at 6.
Grace, supra note 159, at 60.
268
Lanjouw, supra note 1, at 12-13.
269
Grace, supra note 159, at 3.
270
Ibid, at 3.
271
Ibid, at 17.
272
Ibid, at 20.
273
Ibid, at 26.
274
Ibid, at 30.
267
procured to supply the pooled demand, bulk purchasing also reduces distribution costs275
and can increase supply chain security, an important element in preventing product
arbitrage. Finally, bulk sales can be more profitable for a supplier than under a
decentralized procurement system when total revenues from increased volume offset lost
profits per unit.276
Bulk purchasing strategies can be used to attain low prices for developing
countries for both on-patent, limited supply drugs and off-patent, multi-source drugs. For
medicines currently under patent, pooled demand can act as a strong negotiating tool in
dealing with originator pharmaceutical firms, and when combined with credible threats of
compulsory licensing, can induce price concessions near marginal production costs.
Where appropriate price concessions are not offered by an originator firm, guaranteed
long-term, large volume contracts available under bulk procurement strategies can induce
potential generic suppliers to undertake the inherently risky process of applying for
compulsory export licenses under the August 30th Agreement and investing in up-front
plant, regulatory and marketing costs. Finally, where medicines are off-patent, open
tendering processes for large-volume contracts can promote vigorous price competition
between potential generic suppliers.277
Several examples highlight the power of bulk procurement in inducing price
concessions. Since the early 1990s, increasing use of bulk purchasing and monopsony
negotiating power by American health maintenance organizations (HMOs) and
government Medicaid programs has resulted in substantially lower prices for both onpatent and generically supplied medicines.278 At the international level, several programs
have pooled pharmaceutical product demand on behalf of developing countries, including
the UN Population Fund (UNFPA) for contraceptives, the Global Drug Facility for firstline tuberculosis drugs, and the Green Light Committee for drugs to treat multi-drug
resistant tuberculosis (MDR-TB). Other international drug procurement initiatives
include the Global Alliance for Vaccines and Immunization (GAVI), the International
Drug Association Foundation (IDA), and the UNDP Inter-Agency Procurement Services
Office. These international bulk procurement strategies regularly achieve large price
reductions for both generic and single-source medicines compared to international
prices.279
The Global Drug Facility was established in 2001 and procures seven first-line
tuberculosis drugs, all off-patent, to supply WHO DOTS programs in various developing
countries. This program has acquired a 50% price reduction on the previous differential
price being offered to the WHO, which was already 1/3 of the current price generally
275
Ibid, at 20.
Kremer, supra note 14, at 20.
277
MSF Procurement, supra note 154, at 12.
278
Sherer and Watal, supra note 83, at 38.
279
Grace, supra note 159, at 17.
276
observed for the same drugs in developing country markets.280 The goal of this program
is to reach 80% of people requiring DOTS therapy globally by the end of 2005.
The Green Light Committee now purchases drugs to treat MDR-TB, some of
which are on-patent, for use in WHO DOTS-plus projects. By pooling demand, this
organization has been able to receive price reductions in the range of 85-99% below US
levels.281 UNFPA purchases contraceptives for use in its developing world reproductive
health and family planning initiatives. When products are available generically from
multiple sources, UNFPA takes a competitive, open tender approach. Where products
are on-patent, it seeks to foster long-term partnerships with originator firms. Both
approaches have proven very successful, and in particular UNFPA receives on-patent oral
contraceptives for $0.36 compared to $34 on the US market.282
The Global Alliance for Vaccines and Immunization (GAVI) was established in
1999 with major funding from the Gates Foundation in order to improve access to
currently-existing vaccines in developing countries.283 Its central strategy is to create a
purchase fund that bundles together the vaccine requirements of 70 nations with per
capita incomes below $1,000, and to use the resultant large, reliable demand to stimulate
more companies to get involved in manufacturing existing vaccines, and to use its
monopsony purchasing power to push down prices from current manufacturers.284
International bulk purchasing was not employed as a strategy to increase access to
ARVs in the developing world until quite recently. Drug purchasing through the
Accelerating Access Initiative (AAI) and with funds from sources such as the Global
Fund and World Bank was contemplated primarily at the country level, with funds being
dispersed to National AIDS Programs, who were then responsible for ARV purchases.285
A similar country-level approach was adopted by the WHO “3-by-5” Initiative, whose
goal is to have 3 million people on ART in developing countries by the end of 2005,
though it did establish an AIDS Medicines and Diagnostics Service (AMDS) to assist
countries in accessing good quality ARVs at the best available international prices. 286
Though at present AMDS does not directly pool demand or purchase drugs on behalf of
developing countries implementing ART programs, it does facilitate market efficiency by
providing up-to-date information on forecasted demand, drug prices, patent status, and
customs and regulatory information, while also linking with the WHO Pre-qualification
project to ensure product quality.287 Moreover, the original 3-by-5 strategy document
does envisage a future possibility of facilitating procurement of medicines and
280
Ibid, at 18.
Ibid, at 19.
282
Ibid.
283
Kremer, supra note 14, at 12.
284
“The world’s richest charity confronts the health of the world’s poorest people”, The Economist,
January 29th 2005, at 77.
285
Grace, supra note 11159, at 21, 28; World Bank Procurement Guide, supra note 62, at 72.
286
Treating 3 Million by 2005: Making it happen, the WHO Strategy, (WHO, Geneva 2003), available at
www.who.org, at 2. [hereinafter 3-by-5 Strategy]
287
Ibid, at 20.
281
diagnostics by aggregating demand and supporting competitive and open negotiations.288
Despite this, the general absence of pooled demand strategies in the context of ARV
treatment roll out lacked adherence to sound economic theory and can only be described
as a foregone opportunity to foster greater access.
In recognition of the potential for bulk purchasing, the Clinton Foundation used
pooled demand and long-term purchase commitments from the 16 African and Caribbean
countries in which it operated in 2003 to negotiate a price of $140 per person per year for
first-line triple ARV therapy from 1 South African and 4 Indian generic manufacturers,
which was 50% lower than previous lowest price offers.289 By offering credible longterm volumes, this agreement allowed the companies to efficiently plan production and
reduce costs. This was the first real attempt to directly remedy failures in developing
world markets for ARVs, where demand tends to be low volume and uncertain, leading to
inefficient production runs and high transaction costs.290
In response to the tremendous success of this Clinton Foundation initiative and to
calls by various civil society organizations such as MSF for regional procurement
initiatives291, the Global Fund, World Bank, UNICEF and the Clinton Foundation
announced in April of 2004 that all Global Fund and World Bank funding recipients
(potentially 120 countries) can now aggregate their procurement budgets and have access
to the low priced ARVs and diagnostics originally negotiated by Clinton a year earlier.292
This new initiative works as follows. The Global Fund and World Bank provide funding
for purchases and alter any previous ARV procurement conditionalities that would hinder
bulk purchasing, UNICEF offers a central bulk procurement facility, and the Clinton
Foundation negotiates prices directly with manufacturers.293 Initially, the same Indian
and South African generic companies will be used as suppliers, though Clinton will in the
future open tenders to other companies producing WHO Pre-qualified products, including
originator pharmaceutical firms, in order to continue to acquire reduced prices through
competitive bidding.294
One limitation of this initiative is that, though demand is effectively pooled, direct
procurement by governments and NGOs is still envisaged, with UNICEF as a parallel
bulk procurer for countries unable or unwilling to purchase drugs on their own.295 This is
a minor point, but additional efficiencies may be gained with a greater emphasis on
centralized procurement through UNICEF by reducing distribution and contract
monitoring and enforcement costs for both suppliers and developing world treatment
programs.
288
Ibid, at 21.
GFO Newsletter, supra note 173.
290
Ibid.
291
MSF Procurment, supra note 154, at 3.
292
“New Agreement Aim to Make Lowest-Priced AIDS Drugs and Diagnostics Available to Hundreds of
Thousands of Patients Throughout the Developing World”, available at
www.theglobalfund.org/en/media_center/press/pr_040406.asp
293
GFO Newsletter, supra note 173.
294
Ibid.
295
Ibid.
289
The past success of international bulk purchasing initiatives strongly suggests that
this approach ought to be adopted on a more widespread basis to foster access to a greater
array of currently existing medications to treat both global and neglected diseases in
developing countries. In particular, bulk procurement and distribution of newer malaria
medications and second-line ARVs should be employed in the near future, with projects
for other medicines to follow in the longer term. Currently existing international bulk
purchasing initiatives, such as the Clinton program for ARVs, benefit from an
environment in which the drugs they purchase are not under patent in many developing
countries. As newer medications are increasingly patented because of TRIPS
implementation, a credible import/export compulsory licensing regime will be absolutely
essential in negotiating best prices with patent holders.
Though economic logic dictates that bulk purchasing obtains the greatest
negotiating power and economies of scale when conducted on a regional scale, it is worth
noting that progress can be achieved with strong national public procurement agencies.
MSF’s experience with CENAME, established in 2000 as Cameroon’s national public
procurement entity, confirms this.296 CENAME is able to access the lowest international
price offers for ARVs by purchasing large volumes and creating competition between
suppliers in its tendering process. MSF reports that it and other local distributors are able
to simply, efficiently and reliably secure ARVs from CENAME.297 An additional
advantage is that local distributors need not get involved with patenting and compulsory
licensing issues, which are dealt with directly by the agency.298 Outside of Cameroon
and a few other countries, this strategy is not widely practiced in developing and thus
ought to be encouraged in the future.
A couple of problems with relying solely on bulk purchasing mechanisms to
foster access to differentially priced on-patent medicines in developing countries are
worth mentioning here. First when purchasing in bulk from single-source suppliers, it can
be practically impossible to know marginal production costs in negotiating reduced
prices, which highlights the importance of working in partnership with originator firms
and creating bilateral dependence299, a strategy employed successfully by both UNFPA
and the Green Light Committee. The availability of credible compulsory licensing
opportunities is also important as generic price offers can help to reveal true marginal
production costs.
Another problem is that originator companies could refuse to deal with regional
initiatives and demand direct dealings with distributors at the national and sub-national
levels. This was observed when 10 Latin American countries attempted to jointly
negotiate ARV prices with the 5 originator companies participating in the UNAIDS
Accelerated Access Initiative.300 The companies refused to deal and insisted on
negotiating with each individual country, and prices were only forced down when these
296
MSF Procurement, supra note 154, at 12.
Ibid, at 16.
298
Ibid, at 22.
299
Grace, supra note 159, at 30-31.
300
MSF Doha Derailed, supra note 243, at 3.
297
countries turned to various generic offers.301 Again, this highlights the centrality of
credible sources of generic supply under compulsory licensing regimes.
Price Controls
Domestic regulatory price control schemes can make drugs more affordable for
consumers and public purchasers302, and can be implemented in a number of ways.303
Under cost-plus pricing schemes, governments fix prices on a product-by-product basis
based on production and distribution costs and a reasonable profit margin. Under
external reference pricing, discussed above, price ceilings are set by reference to
comparable products in other jurisdictions. Finally, profit-based price controls set
ceilings on the profits that pharmaceutical companies can earn, taking into account R&D
expenditures.
Price controls are used extensively in western countries, with prices controlled at
approximately one half of US levels in the EU, and at one quarter of US levels in
Japan.304 By contrast, price controls are infrequently used by developing world
governments, likely attributable to a couple of factors. First, effective price regulation
entails substantial monitoring and enforcement costs305, which may beyond the capacity
of many poor countries. Second, widespread public insurances schemes that cover drug
costs in developed countries make it far easier to impose price controls than would be
possible under private market conditions. Such programs are often lacking in developing
countries, though price control schemes may become more feasible with continued scale
up of public treatment programs.
Price controls have the advantage of being entirely compliant with TRIPS and
pharmaceutical patenting306, and of being able to induce lower prices for both on-patent
and off-patent medicines.307 However, in the absence of other differential pricing
strategies for newer medicines, an originator pharmaceutical company can opt to pull its
product from a local market if it is unsatisfied with a particular price ceiling or as a tactic
to strong-arm the local price regulators.308 Thus, increased use of developing world price
controls would have to be backed by credible threats of compulsory licensing.309
The use of a form of cost-plus price regulation in developing countries, which
seeks to control domestic distribution and profit mark-ups over prices of imported
pharmaceuticals, may be particularly useful in future strategies to implement differential
pricing on a broader basis.310 None of the other differential pricing mechanisms
301
Ibid.
Sherer and Watal, supra note 83, at 49.
303
Ibid, at 50.
304
Kremer, supra note 14, at 17.
305
Grace, supra note 159, at 49.
306
Lanjouw, supra note 1, at 21.
307
Grace, supra note 159, at 55.
308
Lanjouw, supra note 1, at 24.
309
Grace, supra note 159, at 4.
310
Sherer and Watal, supra note 83, at 53.
302
discussed above has similar potential to ensure that reduced prices on imported medicines
are not negated by in-country distributor mark-ups311, though roll out of public treatment
programs will also go some way towards preventing this practice.
Conclusion
In summary, differential pricing of medicines across developed and developing
markets is economically and morally rational, as well as technically feasible. Product
arbitrage is not generally observed and can be effectively prevented. General price
arbitrage is best addressed by limiting external price referencing to jurisdictions with
comparable wealth and by educating both politicians and the general populace in
developed countries about the need for differential pricing, rather than by failing to take
action. Spontaneous Ramsey pricing and drug donation programs have been observed in
some circumstances, but are unlikely to provide a sustainable long-term solution to drug
access problems on their own. Promoting vigorous generic competition in developing
countries while maintaining patent monopolies in rich markets has proven extremely
successful in generating differential pricing, particularly in the context of ARVs. As
TRIPS is fully implemented in developing countries, a credible system of import/export
compulsory licensing is absolutely essential both in its own right and as a negotiating tool
to acquire price concessions from originator firms. Voluntary licensing and patent
waivers are theoretically attractive, but unlikely to materialize on a large scale. Bulk
purchasing, both at the national and regional level, is a powerful tool to generate
differential prices for both on- and off-patent medicines in developing countries. Though
current international initiatives to procure contraceptives, vaccines, tuberculosis drugs
and first-line ARVs in bulk are laudable, a more comprehensive international bulk
purchasing program to provide a wide range of cheap medicines to developing countries
ought to be implemented. Finally, costly price control mechanisms are not generally well
suited to developing world governments’ resource constraints, but capping local
distributor mark-ups could be an important complement to other differential pricing
strategies.
VII. TRIPS-Plus IP Protection: A Future Barrier to Access
Despite hard fought battles by public health activists to secure important
flexibilities for compulsory licensing and parallel importation under the TRIPS regime,
the United States is effectively using a divide and conquer strategy to achieve what it
could not in the multilateral WTO forum: inflexible US domestic-level intellectual
property protection in developing countries. Article 1(1) of TRIPS provides that
Members “may … implement in their law more extensive [IP] protection than is required
by this Agreement.”312 TRIPS provisions were thus conceived as a floor rather than a
ceiling. In light of this, the US Trade Representative (USTR), backed by threats of
unilateral US trade sanctions under Section 301 of the US Omnibus Trade and
Competitiveness Act313, has adopted a strategy of forcing the negotiation of so-called
311
Grace, supra note 159, at 3.
TRIPS, supra note 92, article 1(1).
313
Regulation of International Trade, supra note 66, at 317-318.
312
“TRIPS-plus” intellectual property provisions in bilateral and regional free trade
agreements (FTAs). This process has often been conducted under a cloud of secrecy,
escaping the scrutiny of international treatment activists.314 Such FTAs have already
been concluded with Singapore, Chile, Morocco, the Central American countries,
Australia, and Canada and Mexico under the North American Free Trade Agreement
(NAFTA). The USTR is currently in the process of negotiating such agreements with
Thailand, the South American Andean countries, and the Southern African Customs
Union (SACU – which includes Botswana, Lesotho, Namibia, South Africa, and
Swaziland). Eventually, it is seeking to conclude an FTA with all countries in the
Western hemisphere: the Free Trade Agreement of the Americas (FTAA).315
The central threat of these TRIPS-plus agreements is that they undermine the
ability of developing countries to make use of compulsory licensing as a means to obtain
differentially priced medicines. As developed in Part VI, compulsory licensing is an
essential tool in the post-TRIPS world both in its own right and to reinforce other
strategies to foster increased access.
Several provisions common to the previously negotiated FTAs, and likely to
reappear in future agreements, may prove particularly troublesome. First, one type of
provision prevents NDRAs from registering any generic version of a patented medicine
without the patent holder’s consent. This converts NDRAs, which are designed to assess
pharmaceutical quality, safety and efficacy, into enforcers of intellectual property rights,
a task to which they are not accustomed and for which they lack relevant expertise.316
Responsibility for enforcing patents typically rests with the patent holder, who must sue
in order to enjoin allegedly infringing use. NDRA enforcement of patents vitiates this
responsibility, and deprives domestic consumers of potentially beneficial patent
litigation, which can serve to either invalidate or narrow the scope of overly broad or
otherwise faulty pharmaceutical patents. It may further act as a substantial roadblock to
compulsory licensing. A generic drug produced under a compulsory license must still
pass national regulatory approval before being put on the market. If an NDRA cannot
approve any generic version of a patented medicine during the patent term, compulsory
licenses issued in countries subject to TRIPS-plus FTAs would be rendered nugatory.317
It is unclear whether these provisions are amenable to an interpretation that would permit
compulsory licensing exceptions to NDRA patent enforcement requirements.
“Data exclusivity” provisions are a second type of FTA restriction which may
unduly delay the introduction of differentially priced generic medicines in developing
countries. Such provisions prevent NDRAs from using originator clinical test data to
register generic drugs on the basis of bio-equivalence, typically for a period of 5 years
from initial regulatory approval.318 This is a far more explicit and stringent protection of
314
Medicins Sans Frontieres, Access to Medicines at Risk Across the Globe: What to Watch Out For in
Free Trade Agreements with the United States, (MSF May 2004), available at www.accessmed-msf.org, at
1. [hereinafter MSF US FTAs]
315
Ibid, at 10-11.
316
Ibid, at 2.
317
Ibid, at 3.
318
Ibid, at 4-5.
test data than contained in the TRIPS Agreement. As noted in Part III, negotiators from
the US and other Western governments were unable to secure data exclusivity provisions
in TRIPS, instead having to settle for the flexible “unfair commercial use” language
contained in Article 39. Where compulsory licensing is an appropriate strategy to foster
access to differentially priced medicines, data exclusivity can effectively block generic
market access. Data exclusivity can be more restrictive than NRDA patent enforcement
requirements in that it can prevent a developing country from approving potential generic
competitors when the drug is not even protected by a local patent.
US-negotiated FTAs also include explicit restrictions on compulsory licensing,
including by limiting their use to national emergencies and to remedy anti-competitive
practices319 (TRIPS, though it has less onerous procedural obligations in these contexts,
does not limit the purposes for which compulsory licensing can be employed), and by
prohibiting the issuance of compulsory export licenses320 (which could undermine the
August 30th framework for supplying generic medicines to developing countries lacking
domestic manufacturing capacity). These FTAs further contain provisions prohibiting
parallel imports, which, as noted in Part VI, can be an important tool for developing
countries (though such prohibitions are desirable in developed countries to prevent
international arbitrage). Finally, other overly restrictive intellectual property provisions
in FTAs include patent extensions for delays in NDRA approval321 and obligations to
grant patents for new use inventions.322
The possibility that these sorts of provisions will appear in the FTA currently
being negotiated with SACU is particularly troubling, considering the magnitude of the
HIV/AIDS epidemic in that region.323 These countries will need to make increasing use
of compulsory licensing as a tool to gain access to lowest priced second-line ARVs, but
may be prevented from doing so depending on the scope of restrictions contained in the
final agreement. Further troubling is that potential developing world loci of generic
exports such as Brazil, Thailand and South Africa will be included in future FTAs and
thus may be prevented from using compulsory licensing to supply other developing
countries lacking manufacturing capacity (though, importantly, India and China are not
currently in FTA negotiations with the US).
On a positive note, the USTR has in the past indicated that it will not seek to
enforce intellectual property rules in regional and bilateral agreements in a manner that
undermines the effective utilization of TRIPS flexibilities.324 However, a more explicit
guarantee is likely required before developing countries subject to FTAs would be willing
319
Ibid, at 8-9.
Medicines Sans Frontieres, Trading Away health: Intellectual Property and Access to Medicines in the
Free Trade Area of the Americas (FTAA) Agreement, (MSF 2003), available at www.accessmed-msf.org,
at 3. [hereinafter MSF Trading Away Health]
321
MSF US FTAs, supra note 314, at 6.
322
Ibid, at 7.
323
South Africa has highest number of absolute HIV cases, while Botswana and Lesotho are the two
countries with the highest adult prevalence rates. See UNAIDS Report 2004, supra note 46.
324
Underserved Markets, supra note 11147, at 18.
320
to risk retaliatory US trade action325, particularly in light of its past injudicious use of
such measures in the context of intellectual property disputes.326 Even outside the
context of bilateral and regional FTA negotiations, the US has been able to use threats of
retaliatory trade sanctions to unilaterally extract overly restrictive intellectual property
policy changes in developing countries.327
An additional problem is that many developing countries and LDCs have fully
implemented pharmaceutical product patenting though not yet required to do so under
TRIPS.328 These laws often do not fully incorporate the increasingly important
compulsory licensing and parallel import flexibilities. For example, the Bangui
Agreement of the Organisation Africaine de la Proprieté Intellectuelle (OAPI), binding
on 16 West African Member states, only permits parallel imports from other Member
states and does not permit compulsory licensing for imports (which is particularly
restrictive given the lack of regional manufacturing capacity).329 12 of the 16 Members
are considered LDCs but cannot take advantage of the additional 10-year exemption from
pharmaceutical product patenting contained in the Doha Declaration.330
In light of the threat posed by TRIPS-plus intellectual property protection to
future prospects for widespread differential pricing of patented medicines, treatment
activists and the international community more generally must mobilize against the
continued imposition of inappropriately restrictive policies. In particular, in the postTRIPS environment, it is essential for SACU Member states to retain a full range of
compulsory licensing and parallel-importation options after the conclusion of the USSACU FTA, and for potential developing world exporters to retain the flexibility to
supply cheap generic medicines to other poor countries under compulsory licenses.
VIII. Mechanisms to Stimulate Innovation
Though differential pricing strategies to increase access to currently-existing and
future medicines in developing countries are urgently needed, so too are strategies to
promote research and development of new drugs and vaccines for neglected diseases.
The lack of appropriately tailored treatments for conditions predominantly affecting the
world’s poor, and the failure of private sector incentives to remedy this problem was
addressed in Part II. This Part describes and analyzes various strategies aimed at solving
the current global gap in pharmaceutical innovation. Proposed initiatives can generally
be divided into two broad categories: push mechanisms, which subsidize research inputs,
and pull programs, which reward developers for generating a desired product.331
325
Ibid.
See www.cptech.org/ip/health/country/
327
Sherer and Watal, supra note 83, at 2.
328
MSF Doha Derailed, supra note 243, at 2.
329
Grace, supra note 159, 42-43.
330
Ibid, at 43.
331
Kremer, supra note 14, at iv.
326
Push Mechanisms
Push mechanisms include: public research programmes, public or private grants
to researchers, research institutions, and/or private companies, and tax credits for R&D
expenditures.332 A variety of push strategies currently exist at the global level for
neglected disease research. For example, the joint UNDP/World Bank/WHO Special
Program for Training and Research in Tropical Diseases (TDR) was established in 1975
to address 10 tropical diseases. The Program has been involved in the development of a
few new treatments for tropical diseases by partnering with private companies; however,
its output has been far from sufficient to meet clinical needs.333 This is particularly true
for so-called ‘most-neglected’ diseases where the complete lack of private incentives has
made it difficult to develop research partnerships with private entities.
More recently, a variety of international public-private partnerships have been
developed to foster innovation into HIV/AIDS, malaria and tuberculosis. The basic
structure of these newer public-private partnerships comprises the use of public and
private charitable funding sources as ‘social venture capital’, which is invested through
subsidies and grants into projects that make use of existing research capacity in both the
private and public sector.334 Examples of these partnerships include: the International
AIDS Vaccine Initiative (IAVI), the Medicines for Malaria Venture (MMV), and the
Global Alliance for Tuberculosis Drug Development. These are laudable initiatives and
have been successful in increasing the level of R&D focused on each of these diseases.335
However, they are at least partially dependent on the existence of appreciable market
prospects in developed countries to garner private interest.336
In light of this, MSF and 6 other organizations have recently launched the Drugs
for Neglected Diseases Initiative (DNDi), whose primary focus is on the development of
new drugs and new drug formulations for the treatment of ‘most-neglected’ diseases,
particularly African sleeping sickness, leishmaniasis, and Chagas’ disease.337 DNDi
initiates and coordinates R&D projects in public research institutes, primarily located in
developing countries, using public and private donations as sources of capital. In the
short and medium-term, DNDi is seeking to adapt existing drugs for use in treating
neglected diseases, and is developing fixed-dose combinations (FDCs) to improve
treatment uptake and adherence in resource poor settings.338 For example, DNDi is
attempted to gain regulatory approval of the drug paromomycin for use against
leishmaniasis, and is developing two artemisinin-based FDCs for the treatment of
chloroquine-resistant malaria. In the long-term, DNDi will attempt to move into full
332
Ibid.
DNDi Brochure, supra note 10, at 8.
334
Ibid.
335
Milne, supra note 17, at 34.
336
DNDi Brochure, supra note 10, at 8.
337
Ibid, at 5.
338
Ibid, at 9.
333
scale drug development projects by identifying drug targets and researching lead
compounds.339
Each of these international push mechanisms offers improved drug development
prospects over what was previously attainable by relying on private market incentives
alone. However, these programs are patchy and currently woefully under-funded in
terms of the investment levels typically required to foster optimal levels of dynamic
pharmaceutical innovation. This highlights the need for greater international political and
financial support of these and similar drug development initiatives.
However, it will also be important to complement public research initiatives with
other strategies. Public push strategies have proven very well suited to financing basic
research, but have a much more mixed record at the later, applied stages of product
development.340 A division of labour has evolved in developed markets with respect to
pharmaceutical innovation. Basic R&D, which uncovers disease pathology and identifies
potential drug targets, is very often conducted in publicly funded laboratories and
universities341, with promising leads being licensed out to private pharmaceutical firms
for product development, clinical testing and marketing.342 This division of labour is
economically rational. Early stages in the R&D process are inherently high risk as very
few projects result in promising drug leads. Private actors are less likely to invest in high
risk, long shot research projects, so public funding serves an essential function by
spreading early stage research risks across society as a whole. On the other hand, later
stage applied product development is less risky, but highly cost intensive. Private firms
have the appropriate incentives to assume later stage high costs as large financial reward
is a more appreciable eventuality.
By contrast, purely public attempts to develop pharmaceutical products have
generally proven inefficient343, with so far no examples of the public sector as an
applicant for a drug indicated for the treatment of a neglected disease.344 As an example,
USAID created an entirely public push program to develop a malaria vaccine in the
1980s, which ended up spending over $60 million but achieving almost no progress.345
Kremer argues that a central problem with public attempts at product development is that
decision-making is not appropriately disciplined by market considerations.346 Thus,
though it is absolutely essential to continue to scale up public subsidization of research
for neglected diseases, it will also be very important to complement these initiatives with
down-stream pull mechanisms that appropriately incentivize later stage pharmaceutical
R&D.
339
Ibid.
Kremer, supra note 14, at 2.
341
Correa, supra note 3, at 17.
342
Ibid.
343
Kremer, supra note 14, at 33.
344
Trouiller, supra note 12, at 2190.
345
Kremer, supra note 14, at 30.
346
Ibid, at 32.
340
Another important consideration is that generally push mechanisms do little on
their own to guarantee access to newly developed products347, though theoretically by
subsidizing up-front R&D costs, they enable drugs to be sold at lower prices. An
interesting approach used by IAVI is to enter agreements with its private partners to share
intellectual property and marketing rights over any potentially viable AIDS vaccine, with
rights in developing countries being retained by IAVI while rights in developed countries
remain in private hands.348 This approach is promising, but will still require the
mobilization of substantial additional funds to produce, distribute and administer the
vaccine widely in developing countries.
Pull Mechanisms
Pull mechanisms, which reward research outcomes, offer much potential in
addressing the above-noted shortcomings of push programs. This section will primarily
focus on advance purchase commitments (APCs), though other pull systems will be
briefly discussed. Prior to examining APCs, two issues ought to be addressed.
First, a pet argument of brand name pharmaceutical companies is that extension
of pharmaceutical patenting to developing countries will on its own act as a sufficient
pull mechanism by creating the appropriate incentives for R&D on neglected diseases.349
This paper grants in principle that, in contrast to global disease research, patents in poor
countries may actually be an appropriate element in creating incentives to innovate new
treatments for neglected diseases, so long as access to resultant products is not restricted.
However, pharmaceutical patenting certainly cannot alone be a sufficient strategy as it
does nothing to address the absence of purchasing power of those who suffer from
neglected diseases.350 This is confirmed by the observation that the lack of R&D for
diseases such as malaria, schistosomiasis, trachoma, Chagas disease, leprosy and
leishmaniasis continues to despite an environment in which most developing countries
already grant pharmaceutical product patents.351 In fact, what is more likely to be
observed in developing countries that grant strong pharmaceutical patents is the targeting
of domestic innovative capacity towards more profitable global diseases.352 For example,
several generic manufacturers in India are scaling up R&D capacity in anticipation of full
TRIPS implementation. However, their R&D efforts are focusing on conditions such as
diabetes and cancer where large profits can be expected through sales in developed
countries.353 In principle, global disease R&D in developing countries is not undesirable,
but it does nothing to address the issue of neglected diseases.
Significantly, although mechanisms to increase access to currently existing
medicines in the developing world do very little to address the lack of treatments for
neglected diseases; they may in practice induce a minor pull phenomenon. Scaling up
347
Ibid, at 35.
See www.iavi.org
349
Sherer and Watal, supra note 83, at 11.
350
Maskus, supra note 220, at 568.
351
Correa, supra note 3, at 20; Sherer and Watal, supra note 83, at 11.
352
Underserved Markets, supra note 147, at 10.
353
Sherer and Watal, supra note 83, at 11.
348
distribution and treatment infrastructure and demonstrating an international commitment
to purchasing and delivering drugs to the world’s poor can act as a signal to potential
drug developers that a future market will exist for products that treat diseases in
developing countries. However, as with the extension of pharmaceutical patenting to
developing countries, this is likely insufficient in most cases as firms will rationally
choose to invest their capital resources in R&D projects with larger potential pay-offs.
Advance Purchase Commitments: From a theoretical perspective, a very attractive
form of pull mechanism would be donor-financed international advance commitments to
purchase and distribute drugs and vaccines for neglected diseases.354 The APC strategy
at base is an attempt to replicate developed world profit signals, which have been very
successful at inducing private innovation in the context of global diseases. APCs have
important advantages over push programs in that the public only pays if successful
products are actually developed, and that by their very nature they promote access to
newly innovated products.355
In order to induce firms to invest in neglected disease research, a purchase
commitment would need to be credible. If potential developers are to invest in R&D,
they must believe that once they incur costs that the sponsors will not renege on their
promise.356 Credibility-enhancing measures by the international community could
include establishing a strong track-record in delivering drugs for neglected diseases to
developing countries and investing in infrastructure for drug procurement and
distribution. Given the international community’s at best mixed record in purchasing and
delivering existing drugs to developing countries357, to further optimize credibility, an
international APC ought to be framed in clear, legally binding language.358
An APC should also clearly specify eligibility requirements for drug purchases
including the level of efficacy in treating a particular neglected disease, as well as levels
of safety, quality, cost-effectiveness and suitability for use in resource poor settings.359
Kremer suggests that a drug candidate be required to gain clearance by a regulatory
agency such as the US Food and Drug Administration (FDA) before being eligible for
purchasing. More controversially, he suggests that drugs ought to pass a market test to be
eligible, whereby countries wishing to use the product would be required to provide a
modest co-payment tied to per capita GDP levels. He argues that co-payments would
give developing countries the incentive to carefully investigate whether candidate
products are appropriate for local conditions.360 Another possible feature is to grant
additional bonus payments for products that are superior in certain regards to the
354
Kremer, supra note 14, at iv.
Ibid.
356
Ibid, at 4.
357
Adrian Towse, Hannah Kettler, “Advance price or purchase commitments to create markets for
treatments for diseases of poverty: lessons from three policies”, Bulletin of the World Health Organization,
April 2005, 83(4), 301-307, at 303. [hereinafter Towse]
358
Kremer, supra note 14, at 4.
359
Ibid, at 57.
360
Ibid, at 4.
355
minimum APC eligibility requirements.361 This would incentivize R&D into products
that have superior efficacy or cost-effectiveness. The inherent limitation of APCs
generally is that specifying desired output ahead of time is a difficult task362, though the
clinical requirements of most neglected diseases are well understood and should not pose
a barrier to reliably predict needs.
Another problem is that estimating the size of the total market promised under an
APC that would efficiently induce R&D efforts is difficult. A commitment must be
sufficient to provide an expectation of revenues that cover expected fixed costs, including
research failures, and also a return on investment to a potential developer.363 Based on
observation of pharmaceutical research decision-making processes in developed
countries, Kremer sets a rough rule of thumb that $250-300 million per annum over 10
years would be likely to garner results, though he argues that a purchase program would
be highly cost effective even at a substantially higher value.364 One strategy to overcome
this information problem would be for a program to begin with a commitment in this
range, and then increase the value of the program if it proves insufficient to stimulate
research.365
Absolutely central to an effective purchase commitment, tied to the issue of
credibility, is that potential developers must be guaranteed market exclusivity. Thus,
unlike strategies to increase access to currently existing medicines in developing
countries, enforcement of intellectual property rights in developing countries would
theoretically be required. If imitator products were allowed to compete, this would
undermine the credibility of any subsequent APC initiatives.366 Another problem is how
to deal with a situation where competing products are developed for the same disease in
response to an APC. Clearly defined market exclusivity rules should seek an appropriate
balance between encouraging R&D competition, rewarding subsequent superior products,
and maintaining strong incentives through strong first-mover advantages.367 In order to
reduce that risk that developers would be dissuaded from investing in R&D because of
fears that “me-too” products developed by other firms would reduce sales, an
appropriately balanced strategy would be for an APC to commit to only purchasing the
first eligible product developed unless a newer, clinically superior alternative is
developed.368 However, in order to reduce the risks to firms engaged in a tight race to
develop the first product, the APC could allow a small window of 1 or 2 years following
licensing of the first successful product in which other therapeutically equivalent
products may also be eligible for purchasing.369
361
Ibid, at 57.
Ibid, at 40.
363
Towse, supra note 357, at 304.
364
Kremer, supra note 14, at 76.
365
Ibid.
366
Kremer, supra note 14, at 72.
367
Towse, supra note 357, at 304.
368
Kremer, supra note 14, at 73.
369
Ibid, at 74.
362
Other potential international pull programs have been proposed, and all in on
form of another operate in a similar manner to advance purchase commitments.
Examples include extending patent rights on other drugs to compensate pharmaceutical
companies who are successful in developing drugs for neglected diseases, committing in
advance to purchasing patent rights from potential developers and then putting the patent
in the public domain, and conducting prize-oriented research tournaments.370 APCs offer
advantages over each of these. First, APCs most closely link payment to actual delivery
of new drugs for neglected diseases to patients in developing countries.371 Extending
patent protection on other products in exchange for developing targeted therapies
inefficiently and inequitably places the entire burden of subsidizing neglected disease
R&D on consumers of those products instead of on governments. Patent buy-out offers
may be attractive, but run the risk that the original inventor may retain an effective
monopoly due to trade secrets over the production process. Moreover, products have
been known to have unforeseen side-effects that render them useless even after regulatory
approval. If this occurs, APCs can discontinue purchasing them whereas a patent buy-out
system is less adaptable. Finally, research tournaments are susceptible to the same
problems as patent-buyouts.
Despite the attractiveness of pull mechanisms and particularly advance purchase
commitments, international initiatives to foster R&D for neglected diseases to date have
been push-oriented. In light of this, IAVI has recently called on G8 governments to
establish a multi-billion dollar APC for AIDS vaccines.372 Currently, $600 million is
spent annually on AIDS vaccine research, much of it on basic pre-clinical research. IAVI
points to the need for goal-oriented, industrial-style applied vaccine research and product
development, which focuses on design issues, clinical testing and steps to bring products
to market in developing countries. Though it recognizes the need to continue to use push
strategies to promote basic science research and product, IAVI strongly supports a
concurrent APC to induce greater use of private sector expertise and capacity in vaccine
development and manufacturing. In principle, it also supports the use of APCs to spur
innovation for HIV/AIDS microbicides, as well as drugs and vaccines for other neglected
diseases.
Indeed, it is difficult to argue that APCs should not be used. Failed projects
would entail few if any public costs, while successful ones could potentially save millions
of lives. Though APCs are greatly underused, one example at the domestic level serves
to demonstrate their potential. In the early 1990s, in response to an outbreak of
meningitis B, the UK government approached five originator pharmaceutical companies
with a guarantee to purchase meningitis B vaccines. Three of the five companies
370
Ibid, at 43.
Ibid.
372
Strengthening the G8 Commitment to AIDS Vaccines: Concrete Steps to Accelerate AIDS Vaccine
Research and Delivery, Proposals from the International AIDS Vaccine Initiative, available at
www.g8.utoronto.ca/speakers/g8outreach2005/iavi_g8_long.doc.
371
responded with R&D initiatives and all three were successful at developing vaccines,
which now all share the domestic market.373
Ideally, the international community will heed the call of IAVI and others and
establish a sufficiently financed APC program which makes credible commitments to
purchase new drugs and vaccines for a variety of neglected diseases. It could build up a
reputation for making due on commitments over time, thus further increasing incentives
to invest in R&D.374 In the immediate future, APCs should at least be launched for the
development of more fixed-dose combinations and pediatric formulations of ARVs and
other currently-existing drugs. Since the active pharmaceutical ingredients already exist,
R&D to develop these products is relatively inexpensive and thus likely incentivized with
only marginally improved market prospects. In additional, given the magnitude of the
HIV/AIDS epidemic, a multi-billion dollar APC for AIDS vaccines should be
immediately implemented.
Orphan Drug Laws
The US Orphan Drug Act (ODA) provides an important example of the possible
synergies between push and pull mechanisms. The ODA was designed to stimulate R&D
for drugs with high therapeutic but low economic value375 to treat so-called orphan
diseases of national public health importance (orphan diseases are defined as rare
diseases affecting less than 200,000 Americans).376 The ODA has generally been
regarded as an unqualified success, with drugs being developed for more than 200 orphan
disease indications since its enactment in 1983, compared to only 10 in the previous 10
years.377
The ODA offers four push incentives and one pull incentive to pharmaceutical
companies undertaking orphan disease R&D. The 4 push incentives include: technical
and administrative assistance provided directly by the US FDA; FDA grants to cover
clinical trial expenses; FDA registration fee waivers; and tax credits for clinical
development costs. The pull mechanism is a guaranteed 7-year period of FDA marketing
exclusivity against all subsequent therapeutically equivalent drugs.378 Pharmaceutical
companies and industry analysts consistently cite the pull mechanism as by far the most
important factor379, demonstrating the importance of implementing pull mechanisms in
the international sphere to stimulate neglected disease research.
As to whether the ODA itself can be used to address the lack of innovation for
neglected diseases, in principle the answer is yes. Diseases of poverty technically qualify
for ODA assistance380, which has been confirmed by Congress and the FDA.381 In this
373
Towse, supra note 357.
Kremer, supra note 14, at 57.
375
Milne, supra note 17, at 10.
376
Trouiller, supra note 12, at 2191.
377
Towse, supra note 357, at 302.
378
Milne, supra note 17, at 5-7.
379
Ibid.
380
Ibid, at 3.
374
regard, the ODA had successfully supported 20 approvals for AIDS and AIDS-related
conditions by the end of 2000. 382 However, a substantial US population basis was likely
mostly responsible for this. For other neglected diseases, the ODA does not have as
impressive a track record.383 This could be partially remedied by prioritizing neglected
diseases under the ODA and by ensuring that R&D grants and tax credits are available
for clinical trials in developing countries. However, the central limitation is that
marketing exclusivity is likely too weak a pull incentive to garner interest from
pharmaceutical companies. As opposed to domestic orphan diseases, where drug
developers can charge high monopoly prices384, the opposite would be true for neglected
diseases where few if any patients can afford to pay at all. This again highlights the need
for internationally funded APCs to simulate potential market demand for those
contemplating neglected disease R&D.385 In the near term, the US and other countries
should take steps to make ODA-style legislation more attractive for research on neglected
diseases. Ideally, a transnational orphan drug program386 for neglected diseases would be
created to complement an international advance purchasing scheme. This would
minimize wasteful overlap and duplication among national orphan drug programs.
Conclusion
In sum, international push mechanisms for neglected diseases, such as IAVI,
MMV, the Global Alliance for Tuberculosis Drug Development and DNDi, are laudable
and ought to be further supported, but must be complemented by international pull
strategies. Advance purchase commitments in particular offer great potential in
stimulating neglected disease R&D by closely mimicking market conditions that have
proven efficient for global disease drug development. To be maximally effective, APCs
must be credible, sufficiently financed, and must stipulate clear eligibility requirements
and marketing exclusivity arrangements. Ideally, an international APC would be
established to offer purchase commitments for drugs and vaccines to treat a variety of
neglected diseases, but in the immediate term smaller scale APCs for FDCs and pediatric
formulations, as well as an APC for AIDS vaccines ought to be implemented. Finally,
orphan drug programs, if appropriately adapted, could be a powerful complement to
international APCs.
IX. Conclusion
The world’s system of pharmaceutical research and development continues to
create a range of new treatments for diseases prevalent in rich markets (‘global diseases’)
such as heart disease, cancer, diabetes and other metabolic and congenital disorders, as
well as HIV/AIDS and other important infectious diseases. However, a majority of the
world’s population living in developing countries and LDCs does not have regular access
381
Ibid, at 11.
Ibid, at 12.
383
Trouiller, supra note 12, at 2192; Milne, supra note 17, at 16.
384
Ibid, at 2192.
385
Towse, supra note 357, at 301.
386
Sandler, supra note 209, at 33.
382
to these medicines. By contrast, pharmaceutical R&D into diseases localized to poor
countries (‘neglected diseases’) such as malaria, tuberculosis, African sleeping sickness,
leishmaniasis and others is paltry. Where drugs do exist to treat these diseases, they are
often old, ineffective due to resistance, unsuited to resource-poor settings, and can cause
serious side-effects. HIV/AIDS exhibits characteristics of both global and neglected
diseases. Whereas as plethora of ARVs and drugs to treat opportunistic infections have
been developed in response to developed world demand, important needs in developing
countries have not been met, including fixed-dose combinations, pediatric formulations,
and AIDS vaccines. Sustained international action to address these crises in
pharmaceutical access and innovation is imperative from economic, human rights and
moral perspectives.
Though theoretically difficult to justify, with the exception of least-developed
countries (LDCs), the TRIPS Agreement mandates universal pharmaceutical patenting in
all WTO Members, whether developed or developing. This threatens to impose an
additional significant barrier to efforts to scale up access to new medicines for the poor.
To address this problem, TRIPS, reinforced by the Doha Declaration on TRIPS and
Public Health and the subsequent August 30th Agreement on the Implementation of
Paragraph 6, purports to provide a number of flexibilities that countries can use to protect
public health. Most importantly, Members have the discretion to issue compulsory
licenses, which are authorizations to 3rd parties to produce and sell a patented invention
without the patent holder’s consent, so long as certain procedures are followed. One
explicit limitation in the TRIPS Agreement itself is that use authorized under a
compulsory licensing must be “predominantly for the supply of the domestic market.” In
light of its potential to block access to medicines in developing countries lacking
domestic manufacturing capacity, the August 30th Agreement waives the domestic supply
requirement under certain conditions in order to facilitate a regime of import/export
compulsory licensing. It is absolutely crucial that India and other potential exporters
fully incorporate the flexibilities in this Agreement so that developing countries have
future access to generic versions of patented medicines. However, numerous
commentators have pointed out that the procedural complexity of this Agreement makes
it unlikely to succeed. Observation to date confirms these concerns, as after almost 2
years the system has never been used. If it continues to be ineffective, a new and more
workable solution must be sought.
Aside from pharmaceutical patenting, several factors constrain access to
medicines in the developing world, including inadequate infrastructure, drug regulatory
hurdles, insufficient financing and high drug prices. Though scaling up infrastructure is
critical, it is often not as large a barrier as those wishing to defer attention from
pharmaceutical patenting issues would suggest. With respect to regulatory approval,
national drug regulatory authorities (NDRAs) in developing countries should use
originator clinical test data to register generic drugs on the basis of bio-equivalence. A
reasonable interpretation of TRIPS Article 39 allows this, particularly where countries are
facing public health crises. Moreover, NDRAs should facilitate fast-track registration of
WHO pre-qualified products, and donors such as PEPFAR should not inappropriately
require additional regulatory hurdles such as FDA approval. In any strategy to increase
access to medicines, substantially increased financing from both donors and developing
countries must be deployed through public treatment programs. Finally, restrictively
high prices can pose a substantial barrier to access and can be caused by several factors.
Inappropriate tariffs and domestic distributor mark-ups need to be abolished. The
absence of competition is also strongly correlated with drug prices. Where patents are
not a factor, generic entry can be facilitated by easing registration hurdles and by creating
economic incentives through increased financing of drug purchases.
However, where patents are a barrier, additional solutions are required. The vast
majority of drugs on the WHO Essential Drugs List (EDL) are off-patent, but this list
includes only a very small portion of new drugs to treat global diseases, most of which
are still on-patent and important for developing countries. With respect to ARVs, most
are widely patented in developed countries and potential developing world exporters.
India has been the exception because it took full advantage of the permissible delay in
implementing pharmaceutical product patenting under TRIPS. When India becomes
TRIPS-compliant in 2005, several ARVs, particularly important second-line drugs, may
become patented after mailbox applications are reviewed. If the Indian supply of cheap
generic ARVs dries up, this will pose a substantial barrier to continued ART scale up in
developing countries. Finally, with respect to drugs developed in the future, most will
likely be widely patented in the developing world due to uniform TRIPS implementation.
Where patent monopolies block access to medicines, the appropriate policy
response is to induce differential pricing across developed and developing markets. The
central objective is to attain drugs prices close to marginal variable cost in developing
countries, while maintaining patent monopoly pricing in rich countries so that incentives
to innovate are maintained. Differential pricing is economically and morally rational, as
well as technically feasible. Though arbitrage concerns are warranted, the phenomenon
is not generally observed and can be effectively prevented. Several mechanisms to
induce differential pricing have been advanced by treatment advocates. Voluntary price
discounts and drug donations by originator firms are one possibility, but for a variety of
reasons, are unlikely to provide a sustainable long-term solution to drug access problems.
Promoting vigorous generic competition in developing countries while insulating rich
markets has proven extremely successful, particularly in the context of ARVs. After full
TRIPS implementation, a credible system of import/export compulsory licensing is
absolutely essential, both as a means to foster generic competition in developing
countries, and as a negotiating tool to acquire price concessions from originator firms.
As noted above, it is unclear that the August 30th Agreement achieves this objective, and
thus likely ought to be amended or replaced in the future.
Bulk purchasing can be a powerful tool at both the national and regional level,
and can be used to garner substantially reduced prices for both on- and off-patent
medicines. By promising large volume contracts, it also has the potential to make
compulsory licensing under the August 30th Agreement a more attractive prospect for
potential generic exporters. Though current international purchasing initiatives for
contraceptives, vaccines, tuberculosis drugs and first-line ARVs are laudable, a more
comprehensive international bulk procurement program to provide a wide range of cheap
medicines to developing countries ought to be implemented. Finally, price control
mechanisms work well in developed countries but are not generally well suited to the
developing world because of high monitoring and enforcement costs. However, using
price controls to cap local distributor mark-ups could be an important complement to
other differential pricing strategies.
TRIPS-plus intellectual property provisions in bilateral and regional free trade
agreements (FTAs) threaten to undermine compulsory licensing as a strategy for
differential pricing. Overly restrictive provisions include those requiring NDRAs to
enforce patents, and prohibiting important flexibilities such using originator clinical test
data to approve generics (so-called ‘data-exclusivity’ provisions), compulsory licensing
for export, and parallel importation. The US is currently in the process of negotiating an
FTA with the Southern African Customs Union, which includes South Africa, Botswana,
Swaziland, Lesotho, and Namibia. It is absolutely critical that these countries retain the
flexibility in their IP laws to use compulsory licensing where needed to gain access to
low price medicines, particularly second-line ARVs. Thus, treatment activists must
mobilize against the inclusion of restrictive IP provisions in this and other future FTAs.
Where treatments for neglected diseases are insufficient or lacking, strategies to
stimulate pharmaceutical R&D are needed. Two broad approaches exist. The first set of
strategies, deemed ‘push’ mechanisms, subsidize research inputs, whereas the other set,
‘pull’ mechanisms’, reward innovators for research outputs. International push
mechanisms for neglected diseases, such as IAVI, MMV, the Global Alliance for
Tuberculosis Drug Development and DNDi, are laudable and ought to be further
supported, but must be complemented by international pull strategies. Advance purchase
commitments (APCs) in particular offer great potential in stimulating neglected disease
R&D by closely mimicking market conditions that have proven efficient for global
disease drug development. To be maximally effective, APCs must be credible,
sufficiently financed, and must stipulate clear eligibility requirements and marketing
exclusivity arrangements. Ideally, an international APC would be established to offer
purchase commitments for drugs and vaccines to treat a variety of neglected diseases, but
in the immediate term smaller scale APCs for FDCs and pediatric formulations, as well
as an APC for AIDS vaccines ought to be implemented. Finally, national orphan drug
programs, originally designed to foster R&D for rare diseases through a variety of push
and pull mechanisms, can be adapted to promote neglected disease research as a powerful
complement to international APCs.
In time, the international community should consider establishing a donorfinanced global pharmaceutical purchase fund, which would purchase and distribute
currently-existing medicines in developing countries and which would offer purchase
commitments where developing world therapeutic needs are unmet. By combining the
power of bulk purchasing to create differential pricing through strengthened negotiating
power and guaranteed market volume with the promise of APCs in stimulating R&D for
neglected diseases, a global purchase fund would prove an effective mechanism to solve
the twin crises of pharmaceutical access and innovation. This idea has had support from
the United Kingdom. Gordon Brown, in a speech to the International Conference
Against Child Poverty in London, framed it as such: “a purchase fund – providing a
credible commitment to create a market for current and future treatments in developing
countries – would surely serve as a strong incentive to develop and deliver affordable
treatments. That is why … the UK proposes that a new global purchase fund for drugs
and vaccines be created. Both for treatments that do not yet exist but could be developed
in time – for AIDS and malaria, for example – as well as for those that already exist and
need to be purchased now.”387 The logic of his words is evident, but political
commitment is not. 4 years after this speech, the international community has made only
piecemeal progress towards addressing the problems of pharmaceutical access and
innovation.
387
Brown, Gordon. Speech given by Gordon Brown, Chancellor of the Exchequer, at the International
Conference Against Child Poverty, London, February 26, 2001. Available: http://www.hmtreasury.gov.uk/docs/2001/child_poverty/chxspeech.htm. See in Kremer, supra note 14, at 7;
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