The TRIPs Agreement and Pharmaceuticals
(2000; 91 pages) View the PDF document
Table of Contents
View the documentACKNOWLEDGEMENTS
View the documentLIST OF ABBREVIATIONS AND ACRONYMS
View the documentEXECUTIVE SUMMARY
View the documentI. INTRODUCTION
Close this folderII. GENERAL ISSUES
Open this folder and view contents2.1 Background
View the document2.2 WHO’s perspective on globalization and access to drugs
View the document2.3 The history of the TRIPs negotiations
Close this folder2.4 Stakeholders’ views
View the document2.4.1 The international innovative pharmaceutical industry’s perspective (IFPMA)
View the document2.4.2 A national pharmaceutical industry perspective (GP Farmasi, Indonesia)
View the document2.4.3 A consumer’s perspective (Consumers International)
Open this folder and view contents2.5 Country experiences
Open this folder and view contentsIII. TECHNICAL ISSUES
Open this folder and view contentsIV. SPECIAL ISSUES
View the documentV. ISSUES DISCUSSED IN WORKING GROUPS
View the documentVI. RECOMMENDATIONS
Open this folder and view contentsANNEXES
 

2.4.1 The international innovative pharmaceutical industry’s perspective (IFPMA)

The importance of intellectual property rights for pharmaceutical R&D

New medicines and access to these new medicines, which will be vital in the fight against communicable and non-communicable diseases, are dependent on strong patent and other intellectual property protection.

“The patent system.... secured to the inventor, for a limited time, the exclusive use of his invention; and thereby added the fuel of interest to the fire of genius in the discovery and production of new and useful things.”

Abraham Lincoln, 1859

The patent system represents a compromise between competing short-term and long-term economic and social interests. Along with a well-functioning regulatory structure and marketing system, it allows the private pharmaceutical industry to operate and contribute to a socially driven public health sector by providing it with cost-effective new technologies.

The commercial sector discovers and develops nearly all new drugs and vaccines, but this is expensive and risky; the patent system provides the incentive necessary to investigate thousands of new compounds and to invest an average of several hundred million dollars in R&D. The dependence of pharmaceutical and vaccine discovery and development on adequate and enforceable intellectual property rights is the highest among various sectors (see table 3). Table 3 shows that the first rank is held by the pharmaceutical industry. The same author has also published studies showing that developing countries benefit from strong patent protection, especially in terms of attracting investment. In some developing countries, which have adopted stronger patent protection in recent years, such as Korea, drug R&D has been rising. This is a fundamental change, which promises to improve the supply of effective new drugs and vaccines and to improve access to medicines for patients worldwide.

Table 3 Importance of patent protection for development of innovative products in various industries:

Industry

% of products which, without patent protection, would not have been

 

introduced

developed

Pharmaceuticals

65

60

Chemicals

30

38

Petroleum

18

25

Machinery

15

17

Fabricated Metal Products

12

12

Primary Metals

8

1

Electric Equipment

4

11

Instruments

1

1

Office Equipment

0

0

Motor Vehicles

0

0

Rubber

0

0

Textiles

0

0

Source: Patents and inovation: an empirical study by Mansfield, Management Science, 1986

However, recently, “compulsory licensing” has been touted as a magic policy to improve access to medicines in developing countries. Compulsory licensing of a patent to a competitor, provided for in some way in most countries, is normally limited in application to extraordinary circumstances, often related to technology issues in industry mergers. Proponents of an activist compulsory licensing (CL) system see the issue in terms of consumer price benefits arising from effectively abrogating the patent’s marketing exclusivity. They ignore many of the problems with this approach:

• it assumes that there is a licensee that can duplicate the originator’s skills in manufacturing an equally safe and effective product;

• it assumes that governments will use this “tool’ as a pro-consumer tool, leading to cheaper drugs. However, governments tend to use CL measures for industrial policy;

• most damaging, if a country adopts CL measures or if a disease area (e.g. HIV/AIDS) is subject to CL policies, fewer research funds will be allocated to that country or disease.

Finally, the protection of trademarks, also under TRIPs, helps to clean up counterfeit products from the marketplace. The effect on public health is that through the reduction of trade in unregulated counterfeit products, the quality of the drug supply is improved.

Problems of access to drugs

With regard to inadequate access to drugs, two major gaps can be identified: 1) a “discovery/development” gap between the morbidity/mortality and available remedies; and 2) an “access imbalance” between consumption of medicines in the developing and the developed world. The exposure of poorer countries to the discovery/development gap is particularly acute because of mitigating circumstances of poverty, poor infrastructure and urbanization.

In addition, there are other pharmaceuticals-related gaps that contrast the health situation in the “North-South” context:

The Quality/Counterfeit Medicines Gap: Patients in developing countries are more frequently exposed to substandard products and counterfeits, due to the relatively large gap in regulatory capability and training between developed and developing countries as well as the differences in enforceability and penalties for counterfeiting activities;

The R&D Imbalance: While the relative incidence of infectious diseases is higher in developing countries, until now little pharmaceutical research and development has taken place in these countries;

The Urban/Rural Gap: The minority of the population living in towns receives three-quarters or more of medical services and products; this is a global phenomenon, but it bears most heavily on poorer populations in developing countries; and,

The Drug Production Imbalance: With over 3/4 of the world’s population, developing countries produce less than 1/10 of drug output; further, 2/3 of the latter production is concentrated in a few developing countries, such as India, China, Egypt, Republic of Korea, Brazil. Thus, many developing countries have choices of products from just a few sources.

Improving access conditions means focusing on a wide number of factors restricting access to health care and medicines. For instance, in developing countries, funding is often insufficient to provide even the most basic healthcare services and products. Usually, people working in the informal sector cannot enter the social security health care system. These are just a few examples to illustrate existing barriers.

Cost and Price Issues

There is no price at which a ‘non-invented’ drug can be purchased. In the absence of a new drug, the ‘price’ of a treatment or cure is infinite. Innovation makes a therapeutic option available. Further, therapeutic competition among alternative drugs drives market prices lower, with post-patent conditions making the product a generic ‘commodity’ subject to even greater competitive pricing pressures (see figure 4).

Moreover, according to the innovative pharmaceutical industry, the following issues should be considered:

• Regarding the impact of patents on price, the linkage is weak or non-existent since price levels are determined by many factors: distribution conditions and markups, price controls, inflation, taxes, measurement techniques etc. A 1995 study showed that countries with intellectual property protection did not have higher prices than countries without such protection. The Children’s Vaccine Initiative noted that while patents and royalties do not raise the price of vaccines ‘dramatically’, “... countries which do not recognize IP.... may actually inadvertently hinder access to vaccines... by discouraging legal vaccine technology transfer and by failing to encourage domestic vaccine research and development”.6

6 CVI, Intellectual Property Protection: it’s role and benefits, 1999.

• Patents do not, in fact, have an influence on access to those drugs which most of the population in developing countries actually consumes, which are primarily off-patent drugs.

• Countries without effective patent protection could produce their own versions of patented products. In fact, India already produces generic copies of patented AIDS drugs. If patents were indeed the problem, large populations within India should have easy access to these generic versions of AZT and other medications; but this is demonstrably not the case. Access is poor in some countries regardless of the status of patents.

• Patented products also face competition from off-patent products for the same conditions as well as from other therapeutic alternatives. Indeed, the time between the introduction of an innovative drug and of therapeutically similar products has lessened dramatically over time.

• Generic production is not an automatic answer to access; generic producers in developing countries may charge lower prices than the original innovator, but prices are still above levels which most people in developing countries can pay.


Figure 4 Estimated Drug Life Cycle

Note: The effective patent life (the time between the moment a drug receives marketing authorization and the expiry of its patent) is estimated to be 8 to 10 years.

Source: Dr H. E. Bale

IFPMA’s recommendations

The following global actions are suggested to improve access and innovation in the areas of medicines and vaccines for the benefit of developing countries:

1) Encourage public-private partnerships for the development and distribution of medicines and vaccines where existing therapies are lacking or not getting adequately distributed.

• Develop a global “orphan-type” incentive plan, using market exclusivity and tax incentives to encourage companies both in the North and South to perform research and develop drugs for currently neglected diseases.

• Foster public-private vaccine partnerships to stimulate the development of new drugs and vaccines and/or to increase international financing for their distribution, such as the Medicines for Malaria Venture or the Global Alliance for Vaccines and Immunization.

2) Foster local industry investment in R&D and transfer of know-how into developing countries by accelerating the adoption of TRIPs standards for intellectual property rights; local companies must shift their activities from copying drugs to developing new drugs, which are important in the fight against priority diseases.

3) Encourage local innovation by avoiding price controls, either directly or indirectly. Price controls tend to reduce the supply of newer innovative therapies and can have a distinctly dampening effect on innovation in pharmaceuticals, a trend which has been observed in Europe as well as in Japan. Price controls are a very short-sighted policy: while they may make current medicines cheaper, in the long run they will make developing new drugs more difficult. Furthermore, as price controls often go from being “price ceilings” to “price floors”, they can lead to higher prices in the medium- to long run, compared to permitting competitive pricing in the post patent period.

4) Stimulate the supply of affordable quality generics in developing countries by working to inculcate the importance of quality manufacturing procedures locally. Negative approaches, such as attempting to withdraw trademarks for medicines, should be avoided. Trademarks are a sign of the origin of a medicine, and trademark owners must therefore stand behind the quality of the product. If consumers avoid unbranded generics it is not because of trademarks, but rather because consumers lack confidence in their quality. Thus the answer is to focus on quality. To deny trademarks rights would be to soften the pressure on generic drag producers to produce high standard medicines.

5) Ensure the supply of needed drugs by working to prevent parallel trade. Parallel trade is product diversion, which may seem seductive if a country’s officials believe that they will be receiving relatively low-priced imports. However, parallel traders would be buying up supplies of essential drugs in a low-price country for resale in higher-priced markets, thus diverting them from the population who needs them. When parallel trade is discussed, it is always assumed by proponents that there are only parallel imports, and that there is no diversion of key products via parallel exporters. However, if it is assumed that parallel imports can make a significant difference in lowering the price domestically, then someone else abroad must be paying more through this diversion.

Furthermore, even for importing countries, the alleged benefits of parallel trade tend to be less than expected. The European Union’s experience shows that the benefits of parallel trade accrue mainly to the parallel traders, not consumers, because the former capture most of the “rents” arising from the differences in ex-manufacturer prices across countries. In addition, parallel trade increases opportunities for counterfeit and substandard products to enter the market, creating increased health and safety risks for consumers, as well as increasing the burden on inadequately resourced regulatory staff in developing countries.

6) Consider creating publicly financed research centres in the region to foster medical research, pooling the scientific expertise and resources of several countries, to increase the capacity for research in diseases of regional interest. While industry does its own drug discovery and drug development research, it also has worked with public agencies, such as the National Institute of Health (NIH), to build on basic research to bring new compounds to patients. Perhaps through such a mechanism ASEAN countries and local and international industry together could develop effective treatments for malaria, TB, HIV/AIDS, cancer and depression over the next decade or so.

7) Join with judicial authorities, the police and industry professionals to implement anti-counterfeiting legislation. Severe penalties should be imposed.

8) Adopt global drug review standards to speed up the approval of new drugs. Improved access to medications can be helped through reducing unnecessary tasks and duplication in the review of drugs internationally. One major effort, conducted in partnership between the public and private sectors, is the International Conference on Harmonization (ICH); its mission is to improve the efficiency of the registration process for new pharmaceutical products, specifically in Europe, Japan and the USA.

9) Empower consumers to choose well. Another vital aspect of effective access to medicines relates to information about these medicines and their proper use. Patients and consumers around the world are increasingly seeking more information about medicines to empower themselves in their own medical care. The Internet, as a truly global medium, has the potential to be a positive resource, but the use of the Internet to distribute medicines can also pose dangers. In the area of globalization of information and trade, governments and international institutions need to consider appropriate policies regarding this new health care medium.

IFPMA’s conclusions

The benefits of the new system of intellectual property rules far outweigh any foreseen costs. The problem of access to health care and pharmaceuticals is serious and may get worse as conditions of poverty remain and are aggravated by continuing regional warfare.

The problem of access to health care and medicines in developing countries is multifaceted. It is important that the relative significance of the various barriers is better understood, so that priority can be given to removing the most serious barriers.

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