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Thailand's IP Gamble: Just Say 'No' To Big Pharma

By Elizabeth H. Williams

Far Eastern Economic Review
July/August 2007

The international drug-patent system, backed by trade policies that stand tough on intellectual-property rights, isn't working. It pits the interests of patent holders against those of millions of people in developing countries in need of life-saving medicines and creates incentives for pharmaceutical companies to spend billions of dollars developing drugs that are then priced out of reach. The result: access to medicine is skewed toward the elite few.

The world's developing countries are fighting back. In January, Thailand issued a compulsory license to allow generic manufacture of expensive antiretroviral HIV/AIDS drugs patented by U.S.-based Abbott Laboratories Inc. In May, Brazil followed Thailand's lead, and issued a compulsory license for a lower-cost version of Merck's antiretroviral HIV/AIDS drug. In 2006, Pfizer sued the government of the Philippines for importing its patented hypertension drug Norvasc from Pakistan at a price almost 90% lower than Pfizer's market price for the Philippines. Novartis has also sued to overturn public-health protections in India 's patent law.

In each case, the developing countries took action following failure to negotiate price reductions with the patent holders. So while companies turn to the courts, governments are turning to the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to abridge patent rights and license cheaper versions in order to get life-saving drugs to more of the millions who need them. The WTO's Doha Declaration explicitly says, "Each Member has the right to grant compulsory licenses and the freedom to determine the grounds upon which such licenses are granted."

Yet when price negotiations between Bangkok and Abbott failed, Thailand resorted to the compulsory licensing of a generic version of Abbott's antiretroviral medication. Abbott retaliated. It withdrew seven new drugs from Thailand, penalizing 65 million people for the failure to bridge a price gap of $300. Flexible WTO rules on compulsory licensing are supposed to provide a buffer against price disputes, but that purpose gets defeated if countries get penalized for using them.

Thailand's drug-patent controversy highlights a greater systemic problem with global drug access whose implications go well beyond a single region or a single disease such as HIV. How China, India and other emerging economies adjudicate the question of access to medicines that treat a wide range of diseases affecting millions will be an important test of their domestic policies, and possibly a bellwether of their international leadership.

So far, Thailand, Malaysia, the Philippines, India and Brazil have opted to impose some limits on current patent holders' rights. China has hedged. Its statement at the recent G-8 summit was oblique, advocating for "a balance between IPR protection and innovation, between obligations and interests, and between public interests and those of right-holders" and suggesting "practices like placing too much emphasis on protection or abusing IPR rules and agreements for technological monopoly must be avoided."

The reality is that the market for generics and the market for patented drugs are often separate universes. According to Thailand's health minister, Dr. Mongkol Na Songkhla, pharmaceutical companies will never lose market share to generics because the vast majority of Thais cannot afford any of the patented drugs for which Thailand has sought compulsory licenses. Given their income level, they are not candidates for purchasing these medications under any circumstances.

"We know that the patent holder invests a lot for each medicine but actually the percentage who can access patented drugs is only 20% or 25%," Dr. Mongkol said. "These are the groups of people who are paying for the research and development costs." The rest of the people who have no access do not contribute at all to R&D costs, as they cannot pay for patented drugs...."

By the same token, the few foreign patients and wealthy Thais who can afford the expensive drugs are unlikely to switch to cheaper versions made under compulsory license. In fact, because these individuals opt out of Thailand's national health system, which distributes the generic drugs, the Thai elite wouldn't have access to the off-brand generics. Protecting patents by restricting generics means that the poor continue to go untreated, which does nothing for a drug company's bottom line. Although some studies indicate that generics may result in lower prices of patented medicines in the same market, that profit difference might be matched by increased access and market share.

Time For Change

Since generics don't adversely affect the patented drug market, they also don't act as a negative incentive for R&D. Neither does the current practice of defending IPR by fighting generics encourage innovation. Since the market for diagnostics and treatments for illnesses that primarily affect developing countries is small and uncertain, a 2006 WHO study found that IP protection has a "limited to nonexistent" effect on innovation in these areas.

It is time to frame a new system of incentives that will balance IP concerns and patients' rights. This new system should allow wider access to medicine through the use of generic production and differential pricing. Broader cooperation between nations, such as seen recently with Brazil and Thailand, could help developing countries negotiate cheaper prices for a larger market. A new system should also encourage broader approaches to innovation, more investment in the treatment of neglected diseases, and a tiered IPR system that would extend patent protection in exchange for making a proportion of the products available at a lower cost to some. Those measures must be coupled with others to improve infrastructure, distribution networks and patient education.

The exact details of such a system are complex and must be worked out—with all the stakeholders at the table. What should be clear is that the current system is unsustainable, and a new, viable one will not emerge if the pharmaceutical companies and the industrial economies set policy on their own.

The WHO Commission on Intellectual Property Rights, Innovation, and Public Health is working to develop a global plan of action that will meet the needs of developing countries by collaborating with a more inclusive set of stakeholders, including member states, regional bodies and government agencies, who will receive input from civil society and the pharmaceutical industry. This is welcome progress. But declarations released from the recent G-8 summit indicate a solution is still far.

During their recent meeting in Germany, G-8 leaders ignored both the WHO study and the WHO Commission process. Instead they promoted stricter IPR as the only way to foster innovation, and proposed their own program for strengthening it in all countries. They bracketed the issue of access to medicine and dealt with it separately, proposing a patchwork of initiatives that would boost access to affordable ARVs in Africa without compulsory licensing.

But one can't legitimately separate drug access from IPR, or pretend it's an "Africa issue" or an "HIV/AIDS issue." Access to necessary medications is a global concern affecting nations from Asia to Latin America, and that extends to treatments for cancer, hypertension and other modern diseases. The importance of generic manufacturing cannot be ignored. Its impact is far greater than the G-8 currently concedes.

The G-8 declaration still calls for a new process to strengthen the global standard of IPR at the WTO, who and WIPO (World Intellectual Property Organization). Yet unlike the who commission on, the G-8 process would restrict input to just 13 countries—the so-called "G-8 plus five" which includes China, India, Brazil, South Africa and Mexico. This excludes Indonesia, Vietnam, the Philippines and other Asian countries from having a say in policies that would determine their citizens' access to medicine.

In this respect, the new G-8 process resembles recent U.S. bilateral and regional free trade agreements: both seem designed to restrict input from affected countries and bypass TRIPS, the WHO process and other ways of putting appropriate limits on drug-patent rights. The gambit seems to be to shift the venue of the debate away from more inclusive forums that have traditionally dealt with IPR, toward more tightly controlled ones that reflect more closely the perspectives of patent holders. Such tactics are unlikely to work for long, since they encourage a vacuum in drug access as well as in leadership on a vital global issue.

The long-term momentum seems to involve diverse stakeholders working to fill this vacuum in innovative, cooperative ways. WTO member states are increasingly invoking their compulsory licensing rights under TRIPS. In August, Brazil and Thailand will sign their own bilateral agreement to cooperate on health issues, including generic licensing, which may be a harbinger of more such bilateral and regional health agreements. New and renewed FTAS with the U.S. could allow developing countries more discretion over patented medicines.

The trend towards more assertiveness and activity in favor of wider drug access by nontraditional players need not be seen as a threat to the profitability of the pharmaceutical industry or the integrity of IPR. Rather, it may be a welcome sign of fresh thinking by a wider community of interests, and a legitimate push-back against a patent-dominated system whose imbalances a globalized world can't afford.

Ms. Williams is the acting director of the Asia Society's Initiative on HIV/AIDS and Global Health. The views expressed are her own.