[Ip-health] (no subject)

[B.Baker@neu.edu]

Roche's Secret, Sub-Licenses for Tamiflu Will Not Bring Poor People in from
the Cold
Brook K. Baker, Health GAP
October 31, 2005

After stumbling badly in its initial efforts to tightly control production
of Tamiflu, an antiviral important in containing possible human bird-flu
pandemic, Roche is now attempting to brighten its tarnished image  with
secret negotiations for sub-licenses.  These licenses, while they might
speed stockpiles for rich countries and pad profits for Roche, will do
little to ensure access for poor people in developing countries.

At first Roche insisted on using its patent-based rights to limit
production to its manufacturing facilities and three favored, but secret,
out-source manufacturers (sub-licensees).  When public outcry revealed that
it would take Roche ten years, even with expanded capacity, to satisfy
minimal requests for international stockpiles, Roche made widely publicized
offers to "enter into discussion with any party who is able to fully or
partially produce substantial quantities of Tamiflu, for emergency pandemic
use, which [sic] a specialized timeline and in accordance with appropriate
quality specifications, safety and regulatory guidelines."  So far, Roche
has revealed discussions with Teva, Barr, Mylan, and Ranbaxy, all major
generic producers, and it reports that it is "in discussions" with many
anxious countries, including China, Taiwan, and Thailand.  At the same time
that Roche opened its doors to discussions, it made threats against use of
compulsory licenses, arguing that the 10-step manufacturing process is
time-consuming, difficult, and dangerous - indeed "potentially explosive."

Few, if any details, have emerged about the proposed terms of Roche's
secret licensing agreements.  However, public statements from Roche
indicate that it is offering time-limited sub-licenses for public-sector,
emergency stockpiling only.  By entering into sub-licensees, whereby it
strictly controls and has rights to the pills produced, Roche will retain
its exclusive access to all lucrative markets.  Athough government
purchasers may well get a volume discount, Roche will continue to control
pricing and profits.

At present, the price of a 10-pill course of Tamiflu treatment in the U.S.
is $60 ($6 pill).  Roche expects to make as much as $925 million from
Tamiflu sales in 2005, up dramatically from $266 million in 2004.  Future
profits look even brighter based on Roche's eight-fold expansion of
production capacity.  An interesting aspect of Roche's proposal to add more
sub-licenses is that it may reap even larger profit margins.  These new
sub-licenses are likely to reduce costs in two ways:  (1) the price of
active pharmaceutical ingredients may well fall as additional manufacturers
of key ingredients (like shikimic acid) enter the market and reach
economies of scale and (2) lower-cost producers, particularly generic
producers in India that have 1/7 the overhead, will pass their costs
savings on to Roche.

If Roche succeeds in controlling large segments of the market by
sub-licensing, not only will its profits improve, but it will also deter
generic entry even if compulsory licenses are issued.    By capturing all
of the government-stockpile and private-sector markets in rich countries,
Roche will succeed in leaving the poorer and smaller developing country
markets to generic producers.  These markets will be less attractive for
several reasons:  (1) they have less purchasing power; (2) their medicine
transportation and distribution systems are weaker; (3) the costs of
obtaining marketing approval are more onerous in proportion to market size;
and (4) in many of the smaller countries, Roche has not even registered
Tamiflu, making registration of a generic equivalent even more costly and
time-consuming.

A Roche-controlled alternative to sub-licenses, sought by some countries,
would be voluntary licenses, whereby the licensee would have a right to
sell the pills it produced, but Roche could nonetheless tightly control
sales with marketing and pricing restrictions.  For example, Roche could
preclude sales to the private sector and/or it could exclude certain
markets altogether, e.g. the U.S., Europe, and Japan.  These voluntary
licenses might increase the quantity of generic oseltamivir being produced,
but they might not create global access or increased affordability.

A much better alternative, from a public health perspective, is a
government issued compulsory license or government use order (assuming that
licensees can reverse-engineer quickly or that Roche can be compelled to
disclose technical know-how).  If such a license were granted to respond to
a public health emergency,  to allow government, non-commercial use, or to
remedy an anti-competitive practice, there would be no obligation to enter
into preliminary negotiations with the patent-right-holder.  Instead, Roche
would be entitled to a reasonable royalty only. The licenses, in turn,
would be permitted to engage in large-scale production for all internal
markets (except government use order would be for government,
non-commercial use only) and for export (non-predominant quantities for
ordinary licenses and unlimited quantities for competitive-based licenses).
This option works well for countries that have local pharmaceutical
capacity to make Tamiflu, assuming they can produce at efficient economies
of scale.

Countries with insufficient manufacturing capacity, however, would need to
rely on imports either from countries where Tamiflu was not patented or
from countries granting export licenses.  Because Tamiflu is a post-1995
discovery, it is entitled to patent protection in most countries where the
patent holder had filed a patent application.  In some countries, like
India, 1995-2005 patent applications were placed in a "mailbox" awaiting
patent consideration under new WTO-mandated patent rules effective January
1, 2005.  Thus, countries with Tamiflu patents and Tamiflu patents pending
might need to rely on the 30 August 2003 Paragraph 6 Implementation
Decision in order to grant import and export licenses.

The 30 August Decision system, however, is terribly flawed because it
requires new national laws and a complex array of notices and licenses on a
product-by-product, country-by-country, and quantity-by-quantity basis.
WTO Member States are currently negotiating a permanent solution to the
import/export problem and the bird-flu scenario provides a perfect example
of how poorly the proposed solution works.  Instead of relying on complex,
duplicative procedures that add expense and delay, countries should simply
be able to access generic medicines via a single compulsory license that
would authorize either domestic production or importation.  If such a
license were granted, the exporter should simply be able to supply the
importer's need and pay a modest royalty to the patent holder.

Governments should not get tricked into thinking that Roche's sub-licenses
and voluntary licenses will solve global need.  The production of
antivirals like Tamiflu has to increase dramatically and the price has to
fall precipitously so that the international community can prepare itself
for the threat of a global bird-flu pandemic.  Unless governments and
multilateral organizations act to increase quantity and reduce cost, poor
people, once again, will be left out in the cold.