Speaker: Greg Perry
Globalization of Pharmaceuticals - Effects of Trade Agreements on Intellectual Property and Public Health
Introduction - IGPA
On behalf of the International Generic Pharmaceutical Alliance, I would like to thank the WHO for the invitation to speak today.
As you can see from our short position paper, IGPA is a recently formed industry association. The creation of our group is one example of the changing nature of the global pharmaceutical sector.
It should be noted that in advanced countries generics can account for up to 60% of markets. For developing countries generics are critical to their Essential Drugs Policy.
“Balance” in TRIPs
Today I want to address the issue of intellectual property rights and TRIPs and the relationship to health policy. I believe that IP issues, particularly in the health sector, should be regarded on a basis of “balance” of interests. For this reason I was very happy to hear that Mr Otten stated that TRIPs incorporates “balance” and “third party interests”. This “balance” is one of two pillars of the TRIPs Agreement. Professor Correa enlarged upon this by identifying certain areas that are possible for protecting essential drug policy within TRIPs. I would like to expand on this and discuss the issue of balance in some detail.
As a starting point I want to make it clear that we do not challenge the basic equation of increased patent protection in TRIPs equals increased revenues and security for research and development which equals increased innovation which equals an improvement in health policy. This has been agreed in principle by most countries in the world through the signing of TRIPs. What we do need to discuss is how this relates to ensuring access to innovation and affordability of pharmaceutical care in general. The debate therefore needs to look at price and profit as well. Most importantly we need to look at the options of “balance” written into TRIPs.
IP and Pharmaceutical Markets
I think it is important to remind ourselves of some general principles on IP law. These are that:
i) protection is limited in time;
ii) knowledge must eventually come into the public domain;
iii) competition must not be stifled in the long term.
These principles are applicable to the pharmaceutical sector as they are to any other.
As regards the market, the pharmaceutical sector does have some important characteristics which we must also consider. These are:
• The buyer is not the one who decides - the decision is the responsibility of the doctor. This is important when you consider that patients are increasingly paying the cost of medicines. We have heard today that 90% of those in the developing world pay their own medical bills.
• Governments have a special role because they are usually responsible for people’s health and, in many situations in the western world, responsible for paying the costs. Therefore we cannot talk about the free market.
• Registration of a new product does take time. But it should be stressed that time-periods are not 10-12 years, as is often claimed, but rather 5-8 years. There has been, for example, a significant reduction in registration times in the EU.
• Investment costs of innovation are relatively high but profit margins/returns on innovation are, equally, very high.
The potential for competition and a low price for products comes mainly in the off-patent sector.
The Contribution of Generics
It is the aspect of the generics sector which I would now like to turn to. The promotion of a generics sector is, I believe, a critical part of the “balance” in this discussion. A healthy generic sector has the following contributions:
Stimulates competition - If a company had a permanent monopoly on a product it would have little incentive to look for new innovative products.
Reduces prices and makes access to medicines a reality - Despite what we may have heard today, generics are sold on average at prices of 20-80% of the original price in most advanced countries.
Provides “headroom for innovation” - Simply put, buying generics allows health budgets or personal budgets the capacity to buy more expensive drugs when actually required.
Provides wealth creating small companies which can grow and eventually invest into research and development.
Most significantly for developing countries, it provides the opportunity for the creation of a domestic pharmaceutical industry which will bring economic rewards and reduce economic dependency on advanced countries. “Making copies” is in fact much more an industrial reality for developing countries than research and development. These countries often do not have the capital or economies of scale for R&D and generic drugs relate more to health needs. So the development of local generic industry should not be ridiculed. There is however a question of quality and GMP in certain countries and this I will address later.
How to Stimulate the Generic Sector within TRIPs
The question we should now address is how is such a sector developed and what is provided for in TRIPs that enables this?
Generic prescribing, generic dispensing, proper quality control and registration are all important aspects but do not form part of the IP discussion.
In the IP discussion, what is important is providing for a balanced approach to intellectual property. I would now like to address this in relation to TRIPs, particularly as regards
• compulsory licenses;
• advanced generic registration; and
• transitional periods.
We have heard much about compulsory licenses so I will not dwell too much on the technicalities. The system does provide an important avenue for the “transfer of knowledge” from advanced countries to developing countries and could be an important avenue for ensuring greater access to products and the development of local industry. It would appear good sense to use compulsory licenses where R&D investment of multinational firms is low or non-existent, or where new patented products are not being made available or only at prices too high for the local health market to sustain and are therefore effectively not accessible for a very large part of the population.
I would now like to address the issue of advanced generic registration. This is sometimes referred to as a “Bolar” provision. In simple terms this is a provision that enables all scientific and regulatory requirements for registering a generic medicine to be made during the period of the patent. Why is this important? Because despite what we have heard, “making copies” is not so simple. Sourcing active ingredients, performing bioequivalence studies, assuring quality, putting together a dossier, establishing patient information leaflets and going through the regulatory process can average 2-3 years. Manufacturing adds on another 3 - 6 months. Consequently if no provision existed then patent protection would be extended by 2-3½ years beyond the intended period. For this reason many advanced countries with developed markets have a provision for advanced generic registrations. These include the USA, Canada, Australia, Israel and Hungary. In the EU the situation is not harmonized and is complex, with some countries allowing advanced registration under certain conditions with others allowing when there is no batch samples required. However, the European Parliament, in 1996, called for the provision of advanced generic registration to be adopted into European law, although the European Commission has failed to bring forward such legislation.
TRIPs provides for this provision in Article 30. Although not explicitly stated it is well understood that the term taking into account interests of third parties covers this.
Indeed the U.S. administration has made it clear on numerous occasions that the “Bolar” provision was part of the TRIPs negotiations. Moreover, its common practice among advanced countries underlines the importance of “balance” in health policy. In fact it is this very sort of provision that typifies the “balance” which is expressed in TRIPs and to which signatory countries were agreeing. Therefore it is very damaging to the spirit of TRIPs that certain interests seek to undermine this provision. We are disappointed that the EU has decided to raise the issue of Canada’s “Bolar” provision because it includes a right to manufacture (but not to sell) six months in advance of patent expiry at the WTO. The aim of this provision is to ensure immediate generic competition day one after patent expiry. However, we are confident that Canada will win if this goes to a TRIPs Panel.
As regards transitional arrangements, these do not affect the majority of companies presently represented by IGPA since, as I explained, we are for the moment principally made up of European and Northern American companies. But we do recognize the importance of these transitional arrangements for developing countries and believe that they should be respected by advanced countries.
Professor Correa pointed out that even in Europe many countries had only recently developed patent provisions, as are required by TRIPs today. It is therefore logical that countries with far less advanced economies have a proper time-scale for compliance. Equally these countries must put into place requirements already asked of them by TRIPs. The spirit of “balance” must be maintained by all parties.
Pricing, Substitution and Parallel Imports
I would now like to take a little time to discuss pricing, substitution, and parallel imports. Although these are not featured in TRIPs they are clearly part of the discussion of innovation and access to health.
First, I should stress that as a general principle IGPA believes that these issues should be discussed between industry (both generics and originator) and governments in a “spirit of partnership”. Secondly, as part of a generic policy for stimulating competition and access in the off-patent sector generic action has to be taken to stimulate generic prescribing and dispensing. Once prescribing and/or dispensing is generic, free pricing in the generic sector can itself lead to generic competition and affordable medicines. Consequently, price controls might not be needed to stimulate competition or low price.
However, I sense that the real problem for the originator industry is not generic competition but parallel imports. It should be recalled that generic competition comes only at the end of many years of monopoly and that the originator industry, as we have heard from the IFPMA, itself benefits from the off patent sector by developing generics. Parallel imports, on the other hand, cut into profit margins during the patent period. However, for hard pressed governments parallel imports might be the only way to access new drugs if the price of these drugs on their market is too high.
As regards TRIPs I believe that there is nothing in TRIPs that requires governments to stop parallel imports to protect the rights of the patent holder. Conversely, there appears to be nothing in TRIPs that requires governments to allow such trade on the basis that preventing it would be a barrier to trade. I would therefore like to make a suggestion that the originator industry and governments in the developing world seek a solution that is mutually beneficial. The originator industry, for its part, could agree to provide new products at a “subsidized price” for an agreed number of years and accept a series of government actions aimed at stimulating the generic sector in the off-patent area. The governments, for their part, could agree to prevent parallel importing between their countries and grant fast authorizations for new products on their markets. In this way the originator industry could generate its high income in the normal way from advanced and middle income countries but ensure access in lower income markets without the fear of parallel trade. Clearly, this is a very rough idea at present but maybe the principle could be better developed by others. It should be clear that this is not a concept that can be used within single markets such as the EU where such restrictions would be illegal. In this case industry and governments would be better placed to look at a new pricing system which would offset higher prices against a combination of profit claw-back on new products and stimulation of the off-patent sector.
I would like to suggest that if the principle of balance is re-acknowledged by all sides in this debate we may be able to take a step forward. It would require the originator industry and certain governments of developed countries to agree to uphold the measures of balance that are possible in TRIPs, i.e. compulsory licences, advanced generic registration, transitional arrangements and parallel imports. Similarly, it would require the governments of developing countries to acknowledge their obligations under TRIPs and possibly seek a solution to the threat of parallel imports that the originator industry fears so much.
Other options for helping access to innovation and medicines in general
Once we have accepted the approach of balance we could then look at a series of other issues that would help stimulate access to medicines both innovative and generic. Here I would like to make some suggestions.
First, there should be a more rapid access to the market for innovative products. This could be facilitated by giving automatic marketing authorization to any product that has been approved by the FDA, EU or Japanese authorization systems. There appears to be no sense to repeat trials or to going through lengthy regulatory processes again. It would also make unnecessary any future laws for patent restoration in other countries outside the EU, USA or Japan. All sides would seem to benefit. Clearly, from a regulatory side this relates to activities being pursued through ICH.
Second, there should be a more harmonized approach to granting patents and reducing time frames and costs for inventors. I think this is an area where WIPO and WTO are best placed to co-operate with the WHO and, as we have heard, are already very active.
Third, there should be increased assistance to improving GMP, quality standard control and registration systems of developing countries particularly in the area of off-patent and essential drug products. IGPA believes that a generic product is a quality product as well as an affordable one. Simply put, an off-patent product which does not meet the requirements of quality is not a generic medicine. Consequently, quality cannot be compromised. We accept that this may not happen overnight in developing counties but governments probably with the assistance of the WHO, the FDA and the EU should make significant efforts in this direction. In the meantime, more consideration should be given by developing countries and the generic industry in advanced countries as to how generic imports could help meet the requirements of essential drug policies.
Fourthly, there needs to be some action which will help reduce distribution and costs.
Finally, there is a need for increased efforts against counterfeit products. The selling of counterfeit products results in losses of millions of dollars of revenues for originator companies. Generic products are also counterfeited resulting in loss of revenue and confidence in our sector. A major concern is the use of the internet. Government action world-wide should be used to discourage people from buying products in this way. The WHO’s present actions in this field are clearly welcomed by all sides.
In concluding it should be stressed that IGPA had no problem with the original Resolution for the Revised Drug Strategy. In fact we wrote to the WHO expressing our support. It appears quite normal for public health rather than commercial interest to be given primacy in pharmaceutical legislation. One would expect nothing less from an international organization whose job is the promotion of public health. Moreover, it should be noted that the protection of public health is the primary objective of EU pharmaceutical legislation. So I think there has been a lot of over-reaction to this by certain groups.
Secondly, it is totally right for the WHO to assist its members in seeing what their options are within the TRIPs Agreement. The nature of our world trade agreements is that they cut into many new areas that affect many other policy issues. However, what may have been misunderstood from the wording of the draft Resolution was that the WHO would be suggesting that governments should seek options that were not compatible with TRIPs. Maybe the new Resolution should seek to align those fears and say that the governments should “review their options under TRIPs to safeguard access to essential drugs whilst ensuring that these options are compatible with provisions of the Treaty”.
Perhaps between then and now the secretariats of the WTO and the WHO can make progress in identifying what those options are as defined by the concept of “balance” described above. Finally, I would like to suggest that the WHO be consulted by the TRIPs Panel in all cases where there is an issue relating to health. However, maybe we should leave that to the two organizations to sort out.
I thank you for your attention.