[Ip-health] Economist Article

Fri Jun 8 09:11:36 2007

Drugs companies' patents are under attack. Will this really help the
poor?
Jun 7th 2007 | NEW YORK
>From The Economist print edition

NOBODY could fault Thailand for want of ambition. At the recent Bio
conference, the largest annual gathering of the biotechnology industry,
it pitched itself hard as an emerging pharmaceutical power, with a
dazzling pavilion, visiting luminaries and free drinks for all.
Instead, the arguments with Thailand are over means, not ends.

At the end of last year the Thai government stunned the drugs industry
when it said it would overrule international patents for Efavirenz, an
anti-retroviral drug made by Merck, an American firm, and switch to a
Thai-made generic copy at half the price. The country had signed the
Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS), which protects drugs patents. But that deal allows =E2=80=9Ccompul=
sory
licensing=E2=80=9D only under special conditions=E2=80=94conditions that so=
me
complained Thailand did not fulfil.

In the months since then, Thailand has said it would overrule the
patents on two more drugs, and it may soon add a further pair to the
list. Moreover, other countries have followed its lead. Brazil declared
last month that Merck was charging too much for Efavirenz. In recent
weeks the health ministers of India, Malaysia and Kenya have also
muttered about pursuing compulsory licensing.

All this has sparked an almighty row. Many global-health advocates=E2=80=94
including Bill Clinton, whose foundation works on HIV=E2=80=94have applaude=
d
the trend, arguing that access to cheap generic drugs will greatly help
the poor. Last month the World Health Organisation passed a resolution
supporting compulsory licensing. America objected vociferously, but
other rich countries supported the motion.

Drug executives are furious. Jon Pender of GlaxoSmithKline, a British
drugs giant, insists that compulsory licensing was meant to be used
only =E2=80=9Cas a last resort=E2=80=9D. He argues that although compulsory=
 licensing
is legal, TRIPS rules allow it only under limited circumstances, such
as national health emergencies, and only after lengthy efforts to
negotiate prices with firms.

=E2=80=9CIt is easy to see Big Pharma as a source of evil,=E2=80=9D laments=
 Daniel
Vasella, chairman of Novartis, a Swiss drugs giant. His firm is
involved in a closely watched patent case in India that involves
Gleevec, a cancer drug. Without innovation, he insists, future
generations will have fewer life-saving drugs=E2=80=94=E2=80=9Cwhich is equ=
ally
unethical as lack of access now.=E2=80=9D And as Fred Hassan, the boss of
America's Schering-Plough and head of the international pharmaceutical
lobby, warns, =E2=80=9Cwithout intellectual property there is no innovation=
.=E2=80=9D

At first sight, this row reflects an old dilemma that pits today's
patients against tomorrow's. Compulsory licensing means that more Thais
will get HIV drugs now, but it also means that drugs firms will be less
keen to invest in drugs for Thailand in the future. Yet look closer and
this is more than a fight between the poor-country sick and rich-world
drugs companies. What makes it different is the role of two new actors:
muscular middle-income countries and the rising generics industry.

This controversy has been sparked not by the poorest countries, which
already get most of their drugs at low cost, but by middle-income ones.
They have long used the threat of compulsory licensing to win
discounts, but by actually imposing such licensing they shift the
balance of power. Rudolf Van Puymbroeck, a former senior lawyer at the
World Bank, likens compulsory licensing to other sorts of compulsory
state purchases: =E2=80=9CFirms are upset not because this is illegal, but
because they are in a very weak position to negotiate compensation
after expropriation.=E2=80=9D

Follow the money
A perverse result of this trend is that middle-income countries are
getting cheaper drugs, whereas quieter and perhaps more deserving
neighbours are not. Thailand's poor no doubt need treatment, but the
military regime is wealthy enough to spend more on health care. Richard
Epstein of the University of Chicago law school has observed that there
is nothing to stop AIDS organisations or foreign governments from
buying these products at a negotiated price and then giving them away
free. =E2=80=9CCharity can come from anywhere, not just drug companies,=E2=
=80=9D he
notes.

Even experts devoted to the cause of helping the poor get access to
drugs see the trend as worrying. =E2=80=9CBrazil is not Rwanda, which canno=
t
afford to pay,=E2=80=9D says Tadataka Yamada of the Gates Foundation, a gia=
nt
charity. Victoria Hale, head of OneWorld Health, an innovative non-
profit pharmaceutical firm, reckons that compulsory licensing could
prove =E2=80=9Cthe last blow=E2=80=9D that pushes the drug industry away fr=
om looking
for cures for diseases of the poor world, which are already woefully
neglected.

Whether or not the poor end up suffering in the long run from
diminished innovation, a sure winner from the trend towards compulsory
licensing is the generic-drugs industry. Under a provision of the TRIPS
treaty, countries that invoke compulsory licensing but lack domestic
manufacturing are allowed to import generic drugs from another
country.

This promises a gold rush for generics firms. Canada encourages
domestic firms to produce copycat drugs for precisely this reason. But
their costs are so high that such exports cannot hope to compete with
the cheaper pills produced by India, argues Amir Attaran of the
University of Ottawa. Small wonder that executives at Cipla, one of the
Indian firms already making generic versions of HIV drugs, warmly
applaud the trend and welcome Brazil's support for compulsory
licensing, which they say =E2=80=9Chelps protect the rights of citizens=E2=
=80=9D.

Does the future therefore belong to compulsory licensing? If so, there
may be trouble ahead for both pillmakers and punters. Dr Yamada fears
that compulsory licensing could prove =E2=80=9Clethal=E2=80=9D for the indu=
stry. He
suggests that drugs firms and middle-income countries ought instead to
use a sliding scale, based on GDP per head, to determine prices. Bruce
Lehman, a lawyer who worked on the TRIPS accord in the Clinton
administration, thinks it is cynical for middle-income countries =E2=80=9Ct=
o
avoid paying their fair share of drug-discovery costs=E2=80=9D. In doing so=
, he
fears, they risk provoking a backlash from Americans who will, in
effect, have to pay more as a result.

But things may not get that ugly, thanks to the growing influence of
innovators in developing countries themselves. Even in India drugs
patents have their defenders. Ranbaxy is a local firm that made its
name by manufacturing knock-off drugs. But ask Ramesh Adige, a member
of its board, about the current trend and he is quick with his reply:
=E2=80=9CWe do not encourage compulsory licensing.=E2=80=9D He explains tha=
t his firm
has 1,100 researchers and invests 7% of its turnover in research and
development. It already has process patents, and within two years hopes
to have patents for novel drugs (for malaria, possibly). =E2=80=9CWe are ve=
ry
supportive of intellectual-property rights, as innovations must be
given their reward,=E2=80=9D he says.

The reason Ranbaxy has gone from ignoring patents to defending them is
that it now has inventions of its own that it wishes to protect. Even
Yongyuth Yuthavong, Thailand's science and technology minister, seems
to acknowledge the risk his country is taking. =E2=80=9CAs a scientist myse=
lf,
I know the value of intellectual property,=E2=80=9D he says. =E2=80=9CIn fu=
ture, we
should develop our own drugs industry.=E2=80=9D

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