• Summary
• The problem with drug patents
• Are generic drugs the answer?
• Evergreening: 20 years and beyond
• Dropping the price of drugs
• Is a compromise in sight?

Summary

Patents have long been a central feature of the pharmaceutical industry. The right to a monopoly control over a new drug — for a limited period — is conventionally justified by the time and money spent on the research leading to its creation, and subsequent testing for safety and effectiveness. But in recent years, the relationship between patents and availability of essential drugs has become highly controversial, especially in developing countries.

The problem with drug patents

A number of governments and health and development non-governmental organisations (NGOs) have condemned pharmaceutical companies for taking advantage of their patent monopolies in two ways. First, by charging high prices for treatments for diseases that heavily affect poor people, who are unable to afford them. Second, by putting pressure on developing country governments to prevent the local manufacture or importation of cheaper copied versions of the drugs ('generic drugs') produced in countries where either they cannot be patented or where the patents are not respected.

Many of these issues have been brought to the fore by the current HIV/AIDS pandemic. This is now one of the most serious public health crises afflicting developing countries. For example, of the estimated 36 million people currently infected with HIV worldwide, 25 million are thought to live in sub-Saharan Africa. All of these people are destined to die prematurely unless they are treated with anti-retroviral drugs. Yet very few of those affected receive such treatment.

The pharmaceutical companies argue that high prices for AIDS drugs are not the only factor limiting patients' access to them. Developing countries suffer from poor health infrastructure, both in terms of medical facilities and trained practitioners to prescribe anti-AIDS drugs in the appropriate combinations and dosages. Nonetheless, high prices obviously have a profound impact on the ability of poor people to acquire them. And, at least in principle, patent monopolies can place the companies holding them in a strong position to set prices at high levels. [1]

Are generic drugs the answer?

One widely suggested solution is for local firms to be granted 'compulsory' licenses, which would enable them to copy the patent 'recipe' in exchange for the payment of royalties to the patent holder. The World Trade Organisation's Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) allows this under certain circumstances. It may even be possible without prior negotiation "in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use" though it must be "predominantly for the supply of the domestic market". Such competition will, proponents hope, lead to price reductions.

However, compulsory licensing in general is not necessarily a panacea. In cases where prior authorisation from the patent owner is required (as is normally the case), negotiations can be drawn out and complicated. Second, the patent specification may not provide sufficient information to copy the drug. In fact, with some drugs the most efficient manufacturing process is protected as a trade secret or by a separate patent, which may even be owned by a different company. Third, many countries lack chemists who can do the copying, and licensees may not necessarily be able to profitably sell the drug at a much lower price than that of the patent-holding firm. Despite all this, the very possibility of compulsory licensing tends to strengthen the bargaining position of governments, even if it is rarely used.

Alternatively, governments could import drugs placed on the market more cheaply elsewhere. This is known as parallel importation, and is usually legal. However, importing generic versions of patented drugs is likely to be illegal. Moreover, the research-based pharmaceutical corporations oppose such behaviour, claiming that the TRIPS agreement forbids it. They consider compulsory licensing and the parallel importing of generic drugs to be unfair since they enable generic companies to free-ride on their expensive research and development. They also tend to argue that patents are absolutely essential for them to remain in the highly expensive business of discovering and developing new drugs.

Several surveys do support the view that the pharmaceuticals sector is one of the few industries in which patents are an effective way to capture returns from research and development. The corporations are concerned that if generic copying is allowed, counterfeit drugs will be exported to developed-country markets where corporations make most of their profits. They also point out that 95 per cent of drugs on the World Health Organisation's essential drugs list can be legally copied either because the patents have expired or because they had never been patented.

Critics counter that the welfare implications of having 5 percent of essential drugs on-patent is still extremely serious, and that the WHO's list omits certain drugs that could reasonably be classed as 'essential'. In fact, it is partly the relative cheapness of the drugs listed that makes them 'essential' and thus worthy of inclusion.

Evergreening: 20 years and beyond

Pharmaceutical companies are using subtleties in the intellectual property rules to extend the monopoly, or at least the market dominance of a drug, beyond the standard 20-year life of the original patent — a process known as 'evergreening' or 'line extensions'.

For example, firms might seek to obtain patents on new delivery methods for the drug, on reduced dosage regimens, on new versions of the active compound, or on combinations that are more effective or produce fewer side effects than the original substance. Another possible tactic in the case of drugs that are metabolised by the body and thereby transformed into another substance that directly causes the therapeutic effect, is to patent this latter chemical.

Doubtless, companies other than the owner of the patent protecting the original substance will also seek to acquire such patents. But in many cases these firms will prefer to license their patents to the first company since it already enjoys the monopoly position and is therefore better placed to make commercial use of them. In addition, pharmaceutical companies, like those in other industries, use patents for a range of strategic purposes such as creating broad zones of exclusion around their inventions, preventing other companies from exploiting their own patents, and enhancing bargaining positions in cross-licensing deals.

Companies also use trademark law to extend their market power beyond the patented drug's expiry date. Patented drugs are usually marketed under a brand name rather than their generic name. Since generic producers cannot use this name, it is often very difficult for them to promote their alternative products effectively. Therefore, physicians may continue to prescribe the branded product even if it is more expensive than the generic version. In fact, in many countries physicians may not even know that alternatives exist.

Evergreening does have limits as a business strategy, however. There has been a decline in the quantity of new chemical entities in recent decades. Moreover, many of the new drugs entering the market are similar to existing ones in terms of chemical structure and therapeutic effects — so-called 'me-too' drugs. This has prompted a marked trend towards consolidation in the industry, driven by the increasing costs of developing and testing entirely new compounds. But while this is happening, many corporations continue to hold on to the rights of highly profitable drugs for as long as they can — another factor that is not always compatible with making drugs available at accessible prices.

Dropping the price of drugs

As an alternative to generics, some corporations have volunteered to lower their prices in certain markets. For example, Merck has offered to sell its anti-AIDS drugs in developing countries at non-profit making prices [2], and Bristol-Myers Squibb at below cost. According to critics, though, while this 'differential pricing' is a positive development, many such revised price offers are still no lower than they would be if copying were permitted. Some corporations have gone further by donating drugs. For example, Boehringer Ingelheim has offered to donate one of its drugs free of charge for five years to developing country mother-to-child AIDS transmission prevention programmes.

The corporations have been pressuring governments not to import drugs from countries producing generic versions. Last year, a South African association of multinational pharmaceutical corporations initiated legal proceedings against the government over proposed legislation that would permit parallel importing of generic drugs. They considered this to be a breach of the TRIPS Agreement. However, the case was later dropped due to uncertainty that the association would win the case and also the negative publicity that it had attracted.

WTO Members meeting in Doha for the November 2001 Ministerial Conference adopted a declaration intended to address the public health problems faced by developing and least-developed countries. The fifth paragraph clarifies the freedoms all WTO Members have with respect to compulsory licensing, their determination of what constitutes a national emergency or other circumstances of extreme urgency, and exhaustion of rights. The declaration reaffirms the right to use to the full the provisions in TRIPS allowing each member "to grant compulsory licenses and the freedom to determine the grounds upon which such licenses are granted".

The Doha declaration explicitly mentions that public health crises "relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstances of extreme urgency". Moreover, WTO Members are free to establish their own regime for exhaustion of intellectual property rights. This means that if national laws indicate that patent rights over drugs are exhausted by their first legitimate sale, countries can then import drugs legally purchased in countries where they are sold at a lower price.

One matter that the declaration left unresolved is whether governments can only grant a compulsory license to a domestic manufacturer. Since TRIPS stipulates that unauthorised use of a patent shall be "predominantly for the supply of the domestic market" it can be argued that awarding a license to a foreign manufacturer would be illegal. This is important because many poor countries lack the capacity to manufacture the HIV/AIDS treatments and would therefore need to import generic versions.

To make the situation even more difficult, India — an important supplier of generic drugs — is required by TRIPS to introduce product patents on drugs from 2005, which prevent not just the unauthorised sale of protected products but also their manufacture. So even if a country granted a compulsory license to an Indian generic firm, the licensee would presumably need permission from the domestic patent owner in order to have the drug made.

However, paragraph six of the declaration acknowledges that countries lacking the capacity to produce drugs will find it difficult to make effective use of compulsory licensing. In response, the declaration instructs the TRIPS Council "to find an expeditious solution to this problem and to report to the General Council before the end of 2002". Unfortunately, no solution was agreed within this deadline, and the issue remains unresolved.

Is a compromise in sight?

Although patents and access to medicines is an issue that arouses strong emotions, some detect a growing spirit of compromise. Governments, corporations, UN agencies and NGOs appear — at least in their public statements — to be committed to finding mutually agreeable solutions. One possible solution is to set prices for drugs in developing countries that are more sensitive to the widely varying abilities to pay for them.

And while relaxing the international patent rules that restrict the manufacture and sale of generic versions of patented drugs is one way forward, other options exist to widen access to treatments for diseases that affect the poor. These include not only the price cuts and donations some companies are already offering, but also tax incentives to encourage research on diseases that most seriously affect poor people.

A report released by Medécins sans Frontières in October 2001 revealed that virtually no new drugs are being developed for diseases that predominantly affect the poor. ⁽³⁾ A global fund could be set up to pay for such research, or for the purchase of essential drugs, which would then be supplied free or at heavily-discounted prices to developing countries.

At the same time, however, pharmaceutical companies have made it clear that they will not be willing to give up certain privileges without a fight. They continue to warn that anything that significantly undermines the current global patent regime risks reducing commercial investment in drugs research to levels even lower than they are at present.

Admittedly, even without patents it would still be difficult for many poor people to acquire the drugs they need. According to one estimate, 80 per cent of the population of the developing world cannot afford to buy pharmaceuticals at all. Even in India, where pharmaceutical products cannot yet be patented and with a large generic drug sector, the proportion that can afford to pay for drugs is only slightly lower than this.

And only 10 per cent of global health research is devoted to conditions that account for 90 per cent of the global disease burden. (4) Most companies consider it unfeasible to spend large sums on developing treatments for poor people. As a result, many people in developing countries continue to rely mainly or exclusively on traditional remedies such as herbal formulations.

With all these hurdles to overcome, the task now facing policy-makers — and an issue that is already high on the agenda of bodies such as the World Trade Organisation — is how to re-adjust intellectual property rights to ensure that public and private interests are balanced in a socially equitable and acceptable manner.

The author is based at the Queen Mary Intellectual Property Research Institute, University of London.