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[B.Baker@neu.edu]

Health GAP, Essential Action NGO Analysis

The efficacy of compulsory licenses and international cooperation:
Thailand and Brazil, the Clinton Foundation on HIV/AIDS and generic
companies, and UNITAID and WHO all combine forces to lower AIDS drug prices

Bold moves on several fronts are helping to lower the price of key
second-line and improved first-line therapies for HIV/AIDS helping to pave
the way to Universal Access by 2010.

May 8, 2007

Access to medicines has undertaken a great leap forward following the
decisions of Thailand and Brazil to issue TRIPS-compliant compulsory
licenses on important AIDS medicines, following the Clinton Foundation
HIV/AIDS Initiative's work with generic companies to lower costs and to
provide co-formulations of essential second-generation medicines, and
following the new procurement money and expertise put together in UNITAID
and prequalification services provided by the WHO.  These combined forces
will result in quality assured, heat-stable form of lopinavir/ritonavir (a
Kaletra equivalent) being available soon at $695/pppy even in middle income
countries, undercutting Abbott's last offer by over 30%.  There is also a
once-a-day, fixed-dose combination of tenofovir/lamivudine/efavirenz, a WHO
recommended therapy equivalent to Gilead and Merck's Atripla, now available
for $339/pppy, making it 45% cheaper than the current rate available for
low-income countries and 67% cheaper than the current rate for
middle-income countries.  Purchases of these medicines and their rational
procurement for 27 countries will be supported by UNITAID through 2008 to
the tune of $100 million, funded with a recent air travel tax.  The quality
of these medicines will be assured through prequalification at the WHO
which should provoke fast-track registration of medicines by national drug
regulatory authorities.

History of this breakthrough

At the Toronto International AIDS Conference last August, MSF and AIDS
activists alerted the world to the impending crash between anemic funding
for universal-access-by-2010 and the looming costs of more expensive first-
and second-line therapies, frequently 10 to 36 time more expensive than
older first-line therapies in low- and middle-income countries
respectively.  Although the cost of older, first-line therapies had
continued to plummet, and are now as low as $90/pppy in some instances, the
costs of improved and more highly recommended first-line therapies were
much higher because of patent protections.  The costs of second-line
therapies, especially those involving Tenofovir or Kaletra were even higher
because of the absence of any generic competition whatsoever, meaning that
the future costs of universal access (9.8 million on treatment by 2010 and
as many as 3-4 million new patients per year thereafter, many of whom would
need second-line therapies after 5 or 6 years) were set to explode.

The difference between the affordability of older first-line therapies and
the unaffordability of newer therapies had two explanations.  First, the
older therapies were unpatented in India, where equivalent generic
medicines could be produced cheaply, and also unpatented in most Africa
countries, where the bulk of latent demand existed.  In contrast, newer
medicines were much more widely patented, with patent applications pending
in India's 1995-2005 transitional patent mailbox and already granted
throughout Latin America, Africa, and Asia.  Second, the market dynamics
were different.  Whereas, millions of people immediately needed access to
more affordable first-line therapies and no-patent markets could be
aggregated to encourage generic entry by multiple producers, the market for
cheaper second-line therapies was much smaller because few developing
countries had started wide-scale treatment programs before the creation of
the Global Fund.  Because of this slow start for treatment, the numbers of
patients needing second-line therapies, either because of adverse
side-effects or because of the inevitable development of drug resistance
over time, was relatively small, producing fewer market incentives for
generic entry and reduced prospect to quick economies of scale.

Brazil was the main exception to paralysis in treatment rollout as it
committed to universal free access to care almost immediately after highly
active antiretroviral therapy was discovered.  Accordingly, patient that
began treatment in 1997-98 began to need alternative therapies by 2003.
Unfortunately, however, instead of helping to create a generic market by
actually issuing compulsory licenses for second-line medicines, Brazil
threatened compulsory licenses but ultimately settled on temporary price
discounts.

As the growing demand for HAART threatened AIDS budget in several
developing countries, a few countries boldly granted compulsory licenses on
AIDS medicines, including Malaysia, Indonesia, Ghana, Eritrea, Zambia,
Zimbabwe, and Mozambique (the threat of compulsory licenses in a South
African competition case prompted multiple voluntary licenses).  These
licenses were relatively uncontroversial because they primarily affected
first-generation medicines.  However, this past November and January,
Thailand took the lead and issued government-use licenses for Merck's
efavirenz and Abbott's Kaletra, immediately creating market pull for
generic entry.  Two months later, on May 4, Brazil followed suit and issued
a compulsory license on efavirenz, thereby adding market demand for nearly
75,000 patients who will be on efavirenz by the end of 2007.

How compulsory license have led to price reduction both from Pharma and
from generic producers

The efavirenz story is especially instructive.  Until Thailand issued its
compulsory license, Merck priced efavirenz at $276/pppy in first-tier
countries and $697/pppy in second-tier countries, including Thailand and
Brazil.  (Generic prices ranged from $217-$299 from various producers to
various countries.)  When Thailand issued its compulsory license on
efavirenz, Merck responded in February by reducing its price in Thailand to
$237, a price it later extended to least-developed and higher prevalence
countries (above 1%) in February.  Because Thailand could still purchase
17% more cheaply from India at approximately $197/pppy, it has already
ordered 66,000 bottles from Ranbaxy in India.  Also, in February, Abbott
proportionately reduced its price in medium human development index
countries $657/pppy, a price that Brazil found inadequate.  When Merck
refused to budge, Brazil notified Merck of its intent to issue a compulsory
license at which time Merck offered a further 30% reduction to $401.50
/pppy.  Because Brazil can procure from India for $170, it has rejected
Merck's last ditch offer and issued a compulsory license.

The history of Kaletra prices is similarly dramatic.  Historically, Abbott
charged highly variable prices in low- and lower-middle-income countries
ranging from $3000-$6000/pppy.  In August 2006, in response to activist
pressure, Abbott announced a uniform mid-tier price of $2200/pppy, still
far to high for cash strapped developing countries and their resident.
Although negotiations with Thailand continued and Abbott's president claims
to have offered a $1700/pppy price, Thailand issued a compulsory license on
January 24, 2007.  Abbott retaliated by withdrawing seven medicines from
Thai's regulatory approval process, including the heat-stable form of
Kaletra.  In response to public outcry, however, Abbott offered a further
mid-tier price reduction to $1000, but refused to resume registration
proceedings in Thailand until the license was withdrawn.  In the meantime,
Brazil, which had entered into a six-year price-discount agreement with
Abbott, was stuck with an annual price tag per patient per year of
approximately $1500 for Kaletra.  Fortunately, for it, Abbott's mid-tier
price discount extended to Brazil, but Brazil is still bound to purchase
from Abbott.  However, Thailand and other countries without patents on
Kaletra or that issue compulsory licenses can not purchase a heat-stable
version of lopinavir/ritonavir for only $695/pppy, a 30% saving.  These
prices will fall even further as more generic producers enter the market,
gain WHO prequalification, and compete for a growing population of PWAs
needing second-line therapies.

The role of the Clinton Foundation, generic companies, UNITAID, and WHO

At the same time that developing countries were escalating their
prosecuting compulsory licenses, the Clinton Foundation HIV/AIDS Initiative
was working behind the scene with generic companies Cipla and Matrix to
source cheaper active pharmaceutical ingredients, to identify production
economies, to identify needed second-line and fixed-dose combination
medicines, and to help expedite the filing of data dossiers to the WHO
Prequalification Project.  Although the pharmacists and technical experts
played a critical role in these negotiations, they were greatly added by
the presence of new purchasing power for second-line medicines organized by
UNITAID, the beneficiary of a new airline travel tax.  UNITAID had
identified additional purchasing power and simplified procurement of
second-line medicines as key step in the road to universal access, so it
harnessed its energy and technical expertise to the new second-line
initiative.  Finally, WHO is playing a critical as it expedites review of
product dossiers already filed.  It is hoped that prequalification will be
announced in the next few months.

Threats on the horizon

Although great progress has been made, there are threats on the horizon
from drug companies, from the U.S. government, and from the rigidity of the
post-TRIPS intellectual property regime.  The drug companies have responded
with monopoly-profit-related anxiety to the announcement of compulsory
licenses in Thailand and Brazil and have gone on public relations
disinformation campaigns directly and through their proxies such as USA for
Innovation.  Even though the TRIPS Agreement and the Doha Declaration make
it exquisitely clear that countries are free to issue compulsory licenses
on any grounds they choose and to forego negotiations when the licenses are
for government, non-commercial use, Big Pharma has cried "foul," claiming
erroneously that Thailand and Brazil are too rich to issue compulsory
licenses, or that protracted prior negotiations other than what already
occurred was required, or that licenses cannot be granted to
government-owned pharmaceutical companies.  Even more egregiously,
companies like Abbott are threatening to withhold life-saving medicines
from developing countries that issue compulsory licenses.  Though we can
hope that these threats will not cause Thailand and Brazil to back down,
there is a risk that they will deter smaller, poorer, and weaker developing
countries.

Fortunately, the price reductions, threats, and distortions from Pharma are
becoming less and less significant as licenses are issued and generic
producers offer substantial price discounts.  However, there is another
threat on the horizon in the form of trade threats from the United States
Trade Representative, which has just put Thailand on the Special 301
Priority Watch-List because it dared to issue three TRIPS-compliant
government-use licenses.  The U.S.T.R. used the same kind of watch-list
pressure when negotiating the original TRIPS Agreement and again when South
Africa passed a law that would have allowed parallel importation of branded
medicines sold more cheaply in another country.  Unfortunately, the U.S. is
not content with trade threats, it has also been on an intensive campaign
to impose TRIPS-plus and U.S.-law-plus intellectual property protections on
developing countries in regional and bilateral free trade agreements.  Even
though Trade Promotion Authority is set to expire at the end of June, a
dozen negative FTAs are already signed or in the pipeline, and it is not
obvious that the new Democrats majority in Congress is fully committed to
curtailing Pharma hegemony.

Finally, the international architecture of the TRIPS regime has only just
been implemented in the most important producer countries like India.
Although sources for older pre-1995 generic medicines are secure, options
for sourcing newer, post-1995 medicines will get increasingly harder as
patents are granted in India and elsewhere.  The cumbersome Paragraph 6
Implementation Decision of August 30, 2003, creates a procedural labyrinth
which must soon be navigated with multiple quantity specific licenses is
drug-by-drug and country-by-country in both importing and exporting
countries.  Although these obstacles are not insurmountable, they will
complicate efforts to find good quality generic producers who can continue
to act as pharmacies for the poor.

Conclusion

Developing countries, activists, and international organizations must stand
united in condemning drug company retaliation, U.S. threats against use of
lawful flexibilities for accessing more affordable medicines, and the
inefficiencies of the new import/export regime. In the meantime, other
developing countries should take heart from the example of Thailand and
Brazil.  After making sure to amend their laws to avail themselves of all
needed flexibilities for accessing medicines more cheaply, they should
negotiate for voluntary licenses or grant compulsory licenses on essential,
life-saving medicines, not just for AIDS but for other conditions as well.
Their efforts will be simplified if they cooperate with UNITAID and with
proposals for patent pools for essential medicines that will allow for
collective management of intellectual property rights, including patents
and registration data rights.  Through increased cooperation, coordination,
and determination, developing countries can expedite the emergence of a
dynamic generic market that will inevitably lead to even lower drug prices.
If those efforts are combined with efforts to expand funding for Universal
Access and to even greater efforts to increase human resources for health
and to rehabilitate tattered health systems, universal access might pass
from a hope to a reality.

Professor Brook K. Baker, Health GAP
Northeastern U. School of Law
Program on Human Rights and the Global Economy
400 Huntington Ave.
Boston, MA 02115
617-373-3217 (office)
617-259-0760 (cell)