Implications of the Doha Declaration on the Trips Agreement and Public Health - Health Economics and Drugs Series No. 012
(2002; 56 pages) [French] [Spanish] View the PDF document
Table of Contents
View the documentForeword
View the documentAcknowledgements
View the documentAbbreviations and acronyms
View the documentExecutive summary
View the documentIntroduction
View the documentScope
View the documentThe role of TRIPS and IPRs
Open this folder and view contentsPublic health measures
Open this folder and view contentsFlexibility in TRIPS
Close this folderMembers with insufficient or no manufacturing capacities
View the documentAddressed problem
Open this folder and view contentsPossible approaches
View the documentSafeguards
View the documentCompulsory licence in the importing country
View the documentEconomic feasibility
View the documentLegal implementation
View the documentTransfer of technology to LDCs
View the documentExtension of transitional period for LDCs
View the documentSpecial treatment under TRIPS
View the documentLegal status of the Doha Declaration
View the documentIssues not covered in the Declaration
View the documentConclusions
View the documentAnnex 1 - Doha Declaration on the TRIPS Agreement and Public Health
View the documentAnnex 2 - Levels of development of pharmaceutical industry, by country
View the documentReferences
 

Economic feasibility

For any possible solution under paragraph 6 to work, it is crucial that the designed legal framework provide the adequate incentives for the production and export of the medicines in need. Overcoming the normative obstacles to exports would not mean much if no firms were interested in supplying the required pharmaceuticals at a low cost.

Generic companies operate today as suppliers of off-patent medicines, and have not generally used the compulsory licence system to get access to patented products. Their main interest lies in the rapid introduction of products after patent expiry, relying - where available - on “Bolar” type exceptions. In case a need emerges in a country under paragraph 6, a generic company would need to develop and implement a method for the production, on viable economic terms, of the active ingredient. In addition, a suitable formulation would need to be developed and approval obtained in the importing country. Offering the required drug would require considerable investment and time. A premise of paragraph 6 is that the drugs would have to be supplied at low cost, making the realization of economies of scale an essential condition for the implementation of any acceptable solution.

In the already mentioned EC-Canada case, Canada argued that

“Both the brand name and generic pharmaceutical industries were global in nature. Very few countries had fully integrated brand name or generic drug industries within their borders. Even in large countries, generic producers frequently had to obtain ingredients such as fine chemicals from producers in other countries. Many countries had no generic industries at all and had to obtain generic (as well as brand name) products from other countries. Smaller countries that did have generic industries did not have domestic markets sufficiently large to enable those industries to operate on an economic scale. Those industries had to export in order to be able to manufacture in sufficient quantities to achieve economies of scale, so that domestic consumers could receive the benefits of cost-effective generic products” (para. 4.38 (a)).

If individual countries with small markets look for supplies under a solution (whatever it is) under paragraph 6, generic companies may lack sufficient incentives to incur the necessary costs of development and marketing of a low cost version of the patented drug. A good diplomatic solution to the problem posed by paragraph 6, therefore, may not necessarily provide effective relief to the countries in need. An option to address this problem would be for several countries to pool their buying power of certain drugs, in order to allow potential suppliers to realize economies of scale (Engelberg, 2002). The time at which a request under paragraph 6 is made may also make a difference. Generic companies may be more inclined to satisfy requests when the relevant patent is about to expire (and therefore investments made may be soon recovered in other markets) than in cases where the patent will still be valid for a long period.

The economic feasibility of supply may be also depend on the importing country’s regime for protection of data submitted for marketing approval. If the local regulation strictly follows Article 39.3102 of the TRIPS Agreement and provides protection against unfair commercial use of such data, but not an exclusivity period, the registration of the generic product may be relatively simple and straightforward103. However, if a TRIPS-plus approach is adopted, and the registration of subsequent products is banned until a period of exclusivity expires - as is the case in the USA and Europe - the entry of the generic product may be delayed or frustrated. Generic companies may not be willing to make the substantial investment needed to duplicate the tests necessary to prove efficacy and safety.

102 See on this issue, Correa, 2002.

103 Depending also on the kind of studies required to prove the “similarity” of the product with the original one, such as bioequivalence and bioavailability tests.

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