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Access to Patented Medicines: Issues Faced by the Pharmaceutical Industry
Mohit Rohatgi and Ritwik Bhattacharya explore the tension between granting patent protection under the TRIPS Agreement and the availability of medicines at affordable prices to -
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| developing nations. They also discuss the nexus between diminished access and pharmaceutical patents, which facilitate high prices and examine the justifications for patents in terms of the arguments held by the pharmaceutical industry, particularly their utility in promoting R&D, along with salient counter-arguments. |
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Introduction
Infectious diseases kill over 10 million people each year, more than 90 percent of whom are in the developing world. The leading causes of illness and death in Africa, Asia, and South America-regions that account for four-fifths of the world's population-are HIV/AIDS, respiratory infections, malaria, and tuberculosis. Each day, close to eight thousand people die of AIDS in the developing world. It is estimated by UNAIDS that 70 million patients will die from AIDS by 2022 unless something dramatic and positive developments take place on the prophylactic and therapeutic fronts.
This is the current stance of the world as it stands today in its "highly developed and advanced era" where the right to essential medicines is recognized as an innate part of the human right of right to health. Since time immemorial, millions of people have lost their lives to life threatening diseases. Earlier society did not have the capabilities or the technology to produce the necessary medicines to protect itself. Today, the only difference is that, though we have all the resources and medicines necessary to cure most diseases, majority of the population does not have access to such essential medicines.
"Essential medicines", according to the World Health Organization (WHO), are those that "satisfy the priority health care needs of the population" and "are intended to be available within the context of functioning health systems at all times in adequate amounts, in the appropriate dosage forms, with assured quality, and at a price the individual and the community can afford." Now it can be said that such essential medicines are present and manufactured today. However this seems to be a futile exercise if such essential medicines are not within the access of the people.
The United Nations Development Group defines "access" in this context as "having medicines continuously available and affordable at public or private health facilities or medicine outlets that are within one hour’s walk from the homes of the population." Still today, millions in the world do not have this access to these medicines. The access to essential medicines which is a human right, is currently compromised by the high prices charged by pharmaceutical corporations, which are facilitated by the global protection afforded to pharmaceutical patents by Trade Related Intellectual Property Rights (TRIPS). The TRIPS which sets out the minimum standards for the protection of intellectual property, including patents for pharmaceuticals, has come under fierce criticism because of the effects that increased levels of patent protection will have on drug prices. For example, Anti-Retroviral (ARV) therapies have had considerable success in curtailing the death rate from HIV/AIDS, have been available in the West and cost about $10,000-15,000 per person per year. This number is far beyond the means of sufferers in the developing world.
Right to Health: A Human Right and a Constitutional Right
"...the national constitutions define the fundamental political principles of a country and usually guarantee certain rights to their people. Health is a fundamental human right recognized in at least 135 national constitutions. Access to health care, including access to essential medicines, is a prerequisite for realizing that right. However, only five countries specifically recognize access to essential medicines and technologies as part of the fulfilment of the right to health."
- Right to Health: The International Position
There are several provisions in International documents regarding health issues. The common intent behind the plethora of these legislations is to facilitate the easy access of essential drugs in a two-pronged manner that is on an individual scale by States separately, and on a global level, collectively, through international assistance and co-operation. The Universal Declaration of Human Rights, 1948 provides that, "Everyone has the right to a standard of living adequate for the health and well being of himself and his family... " The International covenant on Economic, Social and Cultural Rights also deals with right to physical and mental health by recognizing "the right of everyone to the enjoyment of highest attainable standard of physical and mental health’. Moreover, it imposes an obligation towards the State Parties to facilitate access to essential health facilities, goods and services in other countries and provide the necessary aid when required.
- Right to Health: The Indian Position
In India, international treaties like the Universal Declaration of Human Rights are not directly enforceable at the domestic level. Enabling legislations like the Patents (Amendment) Act, 2005, are necessary in order to fulfill international obligations. It can be argued that the treaties are not binding on Indian courts. However, the Constitution of India permits the parliament to make any law for the implementation of an international treaty, to be enforced at the domestic level, as a result of which the Patents Act was amended so as to meet the requirements laid down in the TRIPS Agreement. Further, the Directive Principles of State Policy (DPSP), enshrined under Part IV of the Constitution of India, contains provisions regarding the right to health under Articles 39 (e) , (f) , 42 and 47.
The Apex Court of the country, through judicial precedents has laid down that right to health is inherently a fundamental right. The Hon’ble Supreme Court, in the case of Consumer Education & Research Centre Vs Union of India held that right to health and medical aid to protect the health is a fundamental right under Art. 21. The Supreme Court again in Parmanand Katara Vs Union of India held that right to health and medical assistance is a fundamental right under Art.21. The same ratio was laid down in a number of other cases. Therefore, in India, the Constitution elevates the 'right to health of the highest attainable standards' to a guaranteed fundamental right, which is enforceable by virtue of constitutional remedy mentioned under Article 32 of the Constitution. The Court has held that the right to live with human dignity enshrined in Article 21 derives its life and breath from the DPSP, particularly Articles 39 (e) and (f), 41 and 42 and would, therefore, include protection of health as envisaged in the directives.
Thus it can be said that the right to access of essential medicines is a human right, and patenting them would lead to restricting their production and access, violating this human right. However the pharmaceutical industry has a conflicting ideology and believes that patenting of essential medicines is a necessary step. This has been subsequently discussed.
The Pharmaceutical Industry: A Conflicting Ideology to the Right to Health
- Introduction to the Pharmaceutical Industry
Pharmaceutical research and development is a lengthy, risky, and expensive enterprise. The industry depends uniquely on patent and trade secret protections to support its investments in innovative activities. It typically takes from ten to fifteen years from drug discovery to approval by the Food and Drug Administration (FDA). Of every five thousand medicines tested, only one ultimately receives FDA approval. The average cost of developing a new drug has been estimated at $802 million. Only three out of every ten marketed drugs generate revenues that match or exceed average research and development costs. Thus the pharmaceutical industry is an uncertain industry and it could be said that such risks should be followed by rewards too. Patents operate on the assumption that people are not inherently altruistic, and expect rewards for their endeavors, especially when those endeavors are risky as they may, and often do, result in costly failures. Thus a strong presumption may arise as to the favoring of patenting of essential medicines and thus restricting their access. However the authors will go about proving, point by point that this is indeed a flawed ideology and will show how all the arguments in favor of patenting are in fact defective.
- Pharmaceutical Industry on Patenting of Essential Medicines: The Flawed Ideology
As stated above, a large number of arguments may arise in favor of the pharmaceutical industry and the patenting of essential medicines. However, each of these arguments contains an inherent flaw in them which are explained and negated below:
- The incorrect belief that non-patenting of essential medicines would lead to compromising of R&D Costs:
It can be said that non-granting of patents would cause unfair competition due to the negating of R&D costs of the generic manufacturers. The end product of the investment in most cases consists overwhelmingly in the information that is generated about the drug's safety and effectiveness, rather than in the physical properties of the compound. It is a research and development cored industry. For the generic manufacturers it may be a comparatively straightforward exercise to reverse engineer a drug product, using the existent product to find its components and thus he need not invest in any core research and development costs. Then, he would have the liberty of selling his product at a much lower cost while maintaining a similar; if not more profit margin leading to a substantial loss of market share for the patented manufacturers who cannot afford to cut their product prices without it having an adverse effect on their R&D Activities.
However this is not the real case. Available data suggests that pharmaceutical companies spend more on marketing and administration than on research and development. As percentages of sales, research and development expenses account for 10-20%, while marketing and administration range from 30-40%. For example, Big Pharma tends to spend two to three times more on marketing than it does on R&D. These large marketing budgets indicate that Big Pharma can afford to trim its prices without cutting R&D budgets. Research indicates that industry estimates for R&D on each new drug ranges from US$350-500 million, while independent estimates range from US$30-160 million. Using either estimate, revenues from many life-saving drugs very easily exceed their R&D costs. For example, in 1999, the sales of Bayer's ciproflaxin totaled US$1.63 billion and Pfizer's sale of fluconazale totaled US$1 billion.
- The misconception of local innovation being promoted as a result of patenting and global IP regimes:
Now global intellectual property regimes should encourage greater technology transfer between countries, greater foreign direct investment, and greater local innovation within compliant states. It is believed that all of these outcomes would accelerate the economic development of poor countries, which should result in the alleviation of poverty in such countries. Thus, it is arguable that pharmaceutical patents are justifiable within international human rights law, as they facilitate enhancement of rights to life and health among developing communities which would benefit from the actions of the developed nations. However the actual position is different. When a drug company sells the same product in different countries, it adopts a policy of price differentiation, setting price levels "according to what the market can bear". In a country where alternative or generic medicines are available, a company's branded product is usually priced lower due to the competition it faces from lower-priced alternatives. The same brand may be sold at higher prices in other countries where there is no competition from generic producers. A Health Action International survey on Zantac, an anti-ulcer drug manufactured by Glaxo, indicated that 100 tablets (150mg) of Zantac were sold for only US$2 in India, whereas in places where there was no competition, the prices went up to as high as $183 in Mongolia., $77 in Canada, $196 in Chile, $132 in El Salvador, $150 in South Africa and $97 in Tanzania. Thus, there is no real local market development.
- The flawed notion of no research and development or innovation possible without the patenting of medicines:
The fundamental reason why pharmaceutical progress is dependent on IPR protection is the staggering cost of a New Chemical Entity (NCE) development as a potential drug molecule and high attrition rate in the development cycle. Studies indicate that 1 out of 5000 molecules synthesized during applied research, eventually reaches the market. Out of 100 drugs that enter the clinical phase 1, about 70 complete phase I, 33 complete phase II, and 25-30 clear phase III. Only two-thirds of the drugs that enter phase III is ultimately marketed. Without strong patent protection, pharmaceutical companies cannot attract the investment needed to conduct their expensive, high-risk research. In the absence of strong IP rights at each stage of innovation cycle, promise of pharmaceutical innovation could be lost. However, this link, at its very outset seems to be flawed.
Stuart Macdonald argues that ‘the patent system is essentially anti-innovative.’ According to him, it benefits the large pharmaceutical corporations most and is designed to meet their requirements. Economists also find difficulty finding adequate justification for exclusive monopoly rights granted to inventors. Historical evidence supports this view to a great extent. Zorina Khan has successfully demonstrated how early American growth was fuelled by simply ignoring European intellectual property law. There is also empirical evidence to show that the patent system in fact stifles innovations because it provides incentive to patent holders to extend the life of their patents and to prevent others from developing new innovations. As rightly noted by Dutfield, it is far from certain that decisions to commit to expensive research and development programmes in (Germany) were made as a consequence of there being a patent system. For Britain and France, the product patent system regime was actually quite unhelpful, while in Switzerland, the chemical industry could not take out patents even if it wanted to which it apparently did not), yet it progressed nonetheless. Patents are not necessary to create research incentives to invent treatments for global as well as neglected disease. There is also evidence to suggest that global patents have impeded innovation in the HIV/ AIDS treatment regimen.
- The Conflict Dialogue between the Human Right of Access to Patented Medicines and Intellectual Property Rights
"In contrast with human rights, intellectual property rights are generally of a temporary nature, and can be revoked, licensed or assigned to someone else. While under most intellectual property systems, intellectual property rights, with the exception of moral rights, may be allocated, limited in time and scope, traded, amended and even forfeited, human rights are timeless expressions of fundamental entitlements of the human person..."
Looking at patents from a human rights perspective, it seems obvious that patents facilitate artificially high prices due to their conferral of long term monopoly rights. The consequent denial of access to essential drugs threatens the enjoyment of the right to life, protected in Article 6 of the International Covenant on Civil and Political Rights (ICCPR) and the right to "the highest attainable standard of physical and mental health" in Article 12 of the International Covenant on Economic Social and Cultural Rights . On the other hand, Article 15(1 )(c) of the ICESCR guarantees authors rights to commercially exploit, among other things, their scientific inventions. Thus the concept of ownership and usage over one’s scientific inventions, or the concept of proprietarianism arises. Peter Drahos describes "proprietarianism" as "a creed which says that the possessor should take all, that ownership privileges should triumph community interests and that the world and its contents are open to ownership." Thus one should have the benefit of what one has created.
However, it is doubtful that this protection extends beyond the initial "human creator" to his or her corporate employer or assignee. In any case, Article 15(1)(c) does not guarantee twenty years of exclusive control, and is undoubtedly balanced by other rights, including Article 15(1))(b), which guarantees the right "to enjoy the benefits of scientific progress and its applications." If one accepts that the right to property is a human right (even though it is the only substantive right in the Universal Declaration of Human Rights not to make it into either International Covenant), it is surely doubtful that the right to property can routinely outweigh rights to life and health.
ACCESS TO PATENTED MEDICINES UNDER TRIPS
In April 1994, with the conclusion of the seven-year long Uruguay Round of multilateral trade negotiations, a wide-ranging international agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was finalized. The agreement entered into force with the formation of the World Trade Organization (WTO) in January 1951. India became a party to the TRIPS Agreement in April 1994. At that time, India’s current enactment of the Patent Act of 1970 directly contravened Article 27 of the TRIPS Agreement. Upon coming into effect on January 1, 1995, TRIPS set out transitional periods for WTO members to introduce legislation complying with the obligations under TRIPS. After a three-stage amendment process since entry to WTO in 1995, India entered into TRIPS compliant new patents regime with effect from 1 January 2005. As the Patents Act, 1970 underwent these amendments and product patent regime re-emerged, a discontent Indian pharmaceutical industry faced the impact.
- Measures available to the Developing Nations under TRIPS:
The content that the authors will discuss here would be what measures may be resorted to by less-developed nations in the new TRIPS environment to enhance low-cost access to the newest drugs. Several policy options -- notably, compulsory licensing, utilizing parallel trade, data exclusivity and ‘bolar’ exception might be adopted without running afoul of the obligations imposed by TRIPS. The same have been analyzed below (laying special emphasis on the Indian perspective):
- Compulsory Licensing (CL):
To achieve economical access to patented drugs once TRIPS has been fully implemented, one option available to developing nations is the issuance of compulsory licenses under article 31, which are authorizations permitting a third party to make, use, or sell a patented invention without the patent owner's consent. An important condition listed under Article 31 of TRIPS is that a prospective licensee should have been unsuccessful within a reasonable period of time in negotiating to obtain from the patent holder authorization to use the patented invention "on reasonable commercial terms and conditions." The failed negotiations clause can, however, be waived in the case of national emergency or extreme urgency or for non-commercial public use.
The Indian government in its second amendment to the patent law has provided for adopting CL and Sections 82 to 94 in Chapter XVI deal with the CL in the amended Patent Act of India. These sections provide details of: general principals applicable to working of patented inventions; ground for compulsory licenses, matters to be taken into account by the controller of patents while considering applications for compulsory licenses; procedures for dealing with such applications, general purpose of granting of these licenses and their terms and conditions.
- Parallel Trade:
Developing countries may make parallel imports of protected products for the purposes of encouraging price competition and access to such products. Parallel trade occurs when a product covered by intellectual property rights sold by or with the right holder's consent in Nation A is re-sold in another nation B without the rights holder's authorization. The concept of parallel trade is covered on the principal of ‘exhaustion of rights’. According to this principal, the intellectual property holder of goods has no right to control the use or sale of those goods once they have been lawfully put on the market by the title holder or the licensee. Developed nations and the international pharmaceutical industry perceive the TRIPS provision on parallel trade as a major threat, fearing that cheaper drugs could flood the market and undermine their profits.
In India, under the Patent Act, 1970, Section 107A(b) contains a provision regarding parallel imports. This has since been streamlined further to avoid unnecessary delays. Section 107A(b) of the amended Act now reads as follows:
"Importation of patented products by any person from a person who is duly authorised under the law to produce and sell or distribute the product, shall not be considered as an infringement of patent rights."
- Data Exclusivity (Protection of Data submitted for Registration):
Article 39.3 of the TRIPS Agreement leaves considerable room for Member countries to implement the obligation to protect test data against unfair competition practices. The Agreement provides that “undisclosed information” is regulated under the discipline of unfair competition, as contained in Article 10bis. of the Paris Convention. With this provision, the Agreement clearly avoids the treatment of undisclosed information as a "property" and does not require granting “exclusive” rights to the owner of the data. Pharmaceutical companies have to submit test and clinical data to the national health authorities to obtain marketing approval for a new drug. The national health authorities keep the innovator data confidential against “unfair commercial use” for a certain time period, thus barring generic manufacturers from using the submitted innovator data for the stipulated period.
The US and EU grant "data exclusivity" for five years and eleven years, respectively. Most often, companies use data exclusivity provisions to seek a period of monopoly in a country even if it does not have any patents on the product in the country. As such, data exclusivity provisions have considerable implications for developing countries like India.
So far, India has not introduced provisions pertaining to data exclusivity in the three amendments to the Patents Act, 1970. India is now considering amendments to the Drugs & Cosmetics Act, 1940 and the Indian Insecticides Act, 1968 incorporating provisions for data protection. Once data exclusivity is introduced, generic companies would have to do their own safety and efficacy tests. The huge cost involved in this exercise could result in generic companies being barred from producing a generic version of a product for a period extending effectively beyond 20 years. It may also result in the ineffective use of a compulsory license due to data exclusivity provisions, were such a license issued to a generic manufacturer.
Apart from the aforementioned, there are other important exceptions to patent rights provided for in the TRIPS Agreement, including exceptions for experimental use and the 'Bolar' exception , which are relevant in the discussion on pharmaceutical products.
- The Post Doha Issue: Paragraph 6 of the Doha Declaration
Although existing provisions of the TRIPS Agreement permit the grant of compulsory licenses to enable generic production of medicines, countries without domestic manufacturing capacity cannot avail themselves of this flexibility. The option of importing generic medicines is hampered by the restriction in the TRIPS Agreement that requires production under compulsory license to be predominantly for the supply of the domestic market. This has raised concern that exporting countries may have difficulties exporting sufficient quantities to meet the needs of those countries with insufficient or no manufacturing capacity. The WTO solution is essentially a waiver of the export restriction, thereby allowing the total amount of production under a compulsory license to be exported. Whether countries may export and import generic versions of patented medicines under the system adopted in the WTO Decision will depend on the extent to which national laws allow for it. A number of potential exporting countries have amended national laws to enable the production and export of generic medicines under compulsory license. Canada was the first country, followed subsequently by Norway. The European Union is currently considering its draft regulation.
India has also included a provision on compulsory licenses for production and export in the amendment of the patent law. However, there has not been any notification by countries to the WTO in respect of their intention to use the system as an importer. There may be a number of possible reasons for this. First, the threat of compulsory licensing for production of competing generics has led pharmaceutical companies to offer larger discounts. Secondly, the granting of compulsory licenses under the system may appear to be too complex and burdensome for developing countries. In addition, there may not have been a need. Where there is no patent in force in the exporting country, production and export may take place without a compulsory license. This has been the case with exports from India, where until recently, the absence of product patent protection enabled the production of generic versions of medicines. In the post-2005 environment, when almost all countries are obliged to provide product patent protection, the effectiveness of the WTO decision may well be put to the test.
Conclusion
Access to essential medicines can be affirmed as a human right on the basis, not only of the right to health under Article 12 of the ICESCR, but also on two other rights set out in the ICESCR, namely, the rights "to the protection of the moral and material interests resulting from any scientific, literary or artistic production" (as enshrined under Article 15(1)(c)) and "to share in scientific advancement and its benefits” (as per Article 15(1)(b)). The former is the human rights basis for intellectual property protection, according to which creative ideas and expressions of the human mind that possess commercial value receive the legal protection of property rights called "intellectual property rights". There is an apparent contradiction between these two rights when applied to access to medicines: Article 15(1)(c) seems to protect the "right" of pharmaceutical companies to earn a profit from the drugs they develop, by setting prices that render medicines inaccessible to the destitute sick, while Article 15(1)(b) seems to protect the "right" of those destitute sick to benefit from the development of new drugs. The authors suggest that the way out of this dilemma is to distinguish intellectual property rights from human rights and consider them a temporary monopoly established for the valid social purpose of encouraging scientific invention and artistic creation. In other words, an IPR is a legally protected interest of a lower order than a human right, which implies a superior moral and legal claim. This distinction should not be interpreted to imply that IPRs do not have social value for, indeed, they have a very high value, justifying limiting Article 15 rights reasonably to promote innovation and creativity.
It also needs to be emphasized that there is a looming need to make the system more responsive to the needs of developing countries and the least-developed countries (LDCs) so that they may take steps for the realization of human rights, including the rights to health and food, without any threat of economic sanction and litigation before the WTO dispute settlement mechanisms. At the WIPO Conference on ‘Intellectual Property and Public Policy’ in July 2009, the Director General of WTO, Pascal Lamy, while re-affirming the objective of Doha Declaration to be the accessibility to ‘cheaper drugs for the poor’, said that ‘the international IP system cannot operate in isolation from broader public policy questions such as how to meet basic human needs for health, food and a clean environment.’ However, attaining such standards can be possible only and only if the developed countries are willing to cut down the profit margins of their pharmaceutical industry and ensure that proper measures are being taken in order to fight fatal global diseases such as AIDS, TB, etc.
Analyzing this subject from the Indian point of view; the changes to the Patents Act, 1970 could enable it to continue playing the pioneer role that it played in the pre-TRIPS period, making drugs available at cheap prices to consumers both domestically, and around the world. The Act has some clear provisions to protect the interests of the domestic generic manufacturers. The amended Patents Act has an effective opposition system for challenging frivolous patents, limited patentability exceptions, elaborate provisions pertaining to compulsory licensing, and parallel importation. In addition, the National Pharmaceutical Pricing Authority (NPPA) and India’s price regulatory policy, the Drug Price Control Order (DPCO), could play a key role in keeping a check on prices.
While addressing the issue of access to medicines, and the right to health, this new global patent regime could herald the beginning of a new chapter, provided the provisions in the new laws are utilized effectively and with global harmony.
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MOHIT ROHATGI & RITWIK BHATTACHARYA are fourth year students pursuing B.Com LL.B (Hons.) from Gujarat National Law University, Gandhinagar.
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