Paying the price for protection

Pharma companies rely heavily on patents to protect their income and to prolong profitability. Dr Sarah Houlton looks at the winners and losers in the intellectual property stakes

The pharma industry has been relying on patents for profitability for decades. Companies are protected from competitors exploiting their inventions for a set period of time, after which it's a free for all and anyone can use their ideas to make money for themselves. Unsurprisingly, the pharma companies guard these rights extremely jealously. There is a continual dancing around patents by generic companies, with patents nearing expiry being challenged by the generics, and the IP holder defending its patents to the end. After all, the sales of a highly successful blockbuster drug like AstraZeneca's antiulcer medicine omeprazole (Losec/Prilosec) or Pfizer's cholesterol lowering agent atorvastatin (Lipitor) can run into seven figures a day - so every extra day without generic competition goes straight onto the bottom line.

benefiting countries

However, the system is coming under increasing pressure from outside the industry, with numerous international organisations criticising the effect the IP system has on less well off countries. One area of particular concern is the question of AIDS medicines in the developing world, where some aid agencies and other NGOs appear to be of the opinion that the wholesale disregard of patent protection would instantly mean that huge swathes of people would suddenly be able to afford antiretroviral medicines.

Back in May, the UK's international development secretary Clare Short set up a Commission on Intellectual Property Rights, with the aim of establishing how IP regimes could be designed to benefit developing countries in the context of international trade agreements such as TRIPS.

It also looked at how the international framework of rules and agreements might be improved and developed, for instance in the area of traditional knowledge such as medicines extracted from plants, and the relationship between IP rules and regimes covering access to genetic resources.

It also considered the broader policy framework needed to complement IP regimes, such as controlling anti-competitive practices through competition policy and law.

The commission's report has now been published, and concludes that the current IP system makes medicines more expensive in the developing world, without bringing the people there any benefits. It suggests that one answer would be for the countries to limit the extent to which they recognise patent protection, and encourage local production of generic copies of essential medicines. An alternative would be to over-rule the pharma companies' market exclusivity for these medicines and hence allow the compulsory licensing of essential drugs, or even to encourage parallel trade in drugs if they are available at lower prices elsewhere.

The report does admit that 'without the incentive of patents, it is doubtful [whether] the private sector would have invested so much in the discovery or development of medicines, many of which are currently in use in both developed and developing countries. The pharmaceutical industry in developed countries is more strongly dependent on the patent system than most other industrial sectors to recoup its past r&d costs, to generate profits, and to fund r&d for future profits.'

Much of the debate in this area in recent times has been provoked by the growing problem of HIV infection in the developing world, but other diseases such as tuberculosis and malaria also present a huge public health problem. Currently, the average annual per capita health expenditure in low-income developing countries is just US$23, while even the most inexpensive antiretroviral triple therapies are more than US$200 a year - and even these prices are insufficient to cover the r&d costs involved in creating them. WHO estimates suggest that less than 5% of those who could benefit from anti-HIV drugs are receiving them, and nearly half of those in the developing world are in Brazil, which runs a programme that ensures AIDS medicines are available free of charge to all citizens who need them through the national public healthcare system.

However, the report also argues that less than 5% of the money spent worldwide on pharma r&d is for diseases that predominantly affect developing countries, as commercial considerations dictate that they would be unlikely to recoup their expenditure.

Neither is the public sector keen to spend heavily in this area, as its research priorities are principally determined by domestic considerations.

publicly funded research

The report concludes that IP plays hardly any role in stimulating r&d on diseases prevalent in developing countries, other than for those diseases where there is also a large market in the developed world, such as heart disease or diabetes. HIV/AIDS receives much attention but not so the likes of tuberculosis and malaria, which receive little attention, and diseases such as sleeping sickness which are almost ignored. Hence, the report recommends that public funding for research on health problems affecting developing countries should be increased, and encourage both the public and private sectors within those countries, wherever possible, to develop their research capacities.

Yet the fundamental problem of access to medicines remains. Multinational companies do not patent their products in all countries, especially the smaller developing ones, so the IP problem does not exist there. For example, a recent study published in JAMA found that 15 important antiretroviral medicines were patented in only just over 20% of 53 African countries, and in 13 countries, there were no patents at all. Thirteen are patented in South Africa. Less than 5% of medicines on the WHO's Essential Drugs list are subject to patent protection, yet the drugs are still not available.

While conceding that this is so, the report claims that it does not mean the patent system has no adverse effects. 'Most low-income developing countries have to rely on imports for their supplies,' it says. 'The existence of patents in potential supplier countries may allow the patentee to prevent supplies being exported to another country, particularly through controls on distribution channels. This is another reason why companies may selectively patent in countries such as South Africa because it is a potential supplier to its poorer neighbours in the rest of Southern Africa.' Currently, countries where there is no patent protection may import supplies from generic companies elsewhere, largely in India where the full force of TRIPS does not come into effect until 2005.

One of the commission's favoured strategies would be to support compulsory licensing. Although this is already allowed under TRIPS, subject to certain conditions, developing countries have yet to use it, for several reasons.

This is partly because it requires an administrative and legal infrastructure that simply does not exist in many developing countries, and the developing countries have feared that the result of such a strategy would be the threat of sanctions. And the compulsory licensing has to be 'predominantly for the domestic market'.

Probably the most important reason why compulsory licensing has not happened is the practicality of making the medicines. Essentially, the licensee must have the know-how to reverse engineer and manufacture the drug without the cooperation of the patent holder, and must also foresee a sufficiently large market to justify the costs of investment and manufacture, and adequate remuneration to the patentee. 'If these conditions are not fulfilled,' the report says, 'the threat of a compulsory licence will not be credible.' It states that developing countries should establish workable laws and procedures to give effect to compulsory licensing, and provide appropriate provisions for government use.

Unsurprisingly, the pharmaceutical industry is alarmed at the prospect of compulsory licensing being seen as a solution; and NGOs believe the report does not go far enough.

developing solutions

While welcoming the report's recognition of the importance of IP protection for the promotion of pharma r&d, the industry is concerned about some of its solutions. 'The problem with the report is that it does not set the role of IP into context,' says a spokesman for the ABPI. 'The idea that Africa should ignore IP is crazy. What incentive would there be to do more research to make new and better drugs? Ignoring IP is what has happened in India and it has not solved its growing AIDS problem, despite the drugs being available.'

Extending parallel trade is another potential solution flagged up by the report that was received with alarm by the ABPI. The pharma industry already uses differential pricing, with developed countries paying more for their medicines than developing ones. And this is not without problems, as shown by the recent reappearance on the European market of large consignments of AIDS medicines that had been sold at very low prices to sub-Saharan Africa.

NGOs such as Oxfam believe that a renegotiation of TRIPS is needed, in addition to current WTO talks. The report stops short of recommending this, but it does say that developing countries should be exempt from the strengthened global patent rules until at least 2016.

Perhaps the ultimate solution lies in pharma companies and the developing world working in partnership. There has already been a degree of success in a number of projects, where the industry works with national governments and the WHO within the context of existing intellectual property regimes to deliver healthcare to the developing world.

Maybe such projects, with the developed and developing world working together, could provide a workable solution.