[Ip-health] Thai saga
James Love
james.love@keionline.org
Fri Apr 4 23:05:03 2008
On Fri, 2008-04-04 at 19:05 -0300, Ken Shadlen wrote:
> But if the difference between the amount per unit that goes to the
> originator firm whether the royalty rate is .5% or 5% is so tiny as to be
> nearly insignificant from the government's perspective, which is what I'm
> reading here in Jamie's post, then wouldn't it also be insignificant to
> PhRMA? I see the point about not wasting energy wrangling about 6 cents v=
s.
> 58 cents, but I can't see how this would reduce the backlash. To the
> contrary, I think Jamie has presented a pretty good argument as to why a =
CL
> with 5% -- even higher -- would still leave PhRMA far from satisfied in t=
he
> context of a reduction of ~$775/unit.
The reduction is per unit of sales. But note also that sales were
approximately zero for the bottom 80 percent of the population.
> I write this without being in Washington or having close daily contact wi=
th
> Washington. Are there people in Congress (or USTR) that would be more
> sympathetic to the Thai government were they paying .58/unit rather than
> .06/unit?
First off, PhRMA is focused on maintaining the monopoly. In Malaysia,
where the "government use" CL proposed a 4 percent royalty, GSk didn't
even want to take the money. They thought it would signal an acceptance
of and legitimacy for the CL. In some cases, when a country was serious
about a CL, the patent owner announced they would give away the drug, to
undermine efforts to issue a CL. This was the outcome of the
fluconazole case in South Africa, for example. PhRMA is entirely
devoted to opposing the use of CLs, because they want to a monopoly, and
they believe a monopoly will lead to higher profits than government set
royalty payments, and they see each of the CL cases as setting
precedents for the future.
Thailand and other countries feel some pressure from PhRMA members, but
the biggest pressures come from governments in the North, particularly
from the US and the EC and the EU member states. While it may seem so
at times, governments in the North do not take their instructions
verbatim from the patent owners. The US and the EC have much broader
interests and concerns, and the demands of the PhRMA companies are part
of a larger calculus that also includes non-PhRMA trade with Thailand
and other countries, and genuine concern about the poor in developing
countries. If the USTR or DG-Trade goes ballistic in demanding high
prices for life saving drugs in Thailand, it can't exactly expect to
achieve all of the other demands it might want to make, to address the
concerns of other US or EU companies. USTR and DG-Trade spend a fair
amount of time fighting off PhRMA lobbying, so they can address the
broader trade agenda (which is why we have the 2001 Doha Declaration).
In this respect, something like the royalty rate becomes relevant,
because it is used in the EU and the US Congress as evidence one way or
another that Thailand is acting reasonably.
The Average US royalty rates are probably close to 5 percent, and in
fact, that is the number used in some PhRMA submissions to USTR. And
profit rates in competitive sectors of the economy probably run around 3
to 5 percent. In this respect, royalties of 3 to 5 percent seem, on
their face, pretty reasonable, to a lot of people. Royalties of .5
percent seem pretty low, particularly to hill staffers and others who
have little time for detailed economic analysis of the Thai
pharmaceutical market.
Our own work on royalties has been more nuanced and sophisticated than
this, and in the 2005/WHO/UNDP Tiered Royalty Method (TRM), I
recommended a system of royalty setting that is based upon a percentage
of the putative value of the medicine in high income countries, adjusted
for the relative income of the countries where it is consumed. This is
conceptually an appealing way for setting royalties in developing
countries, but because it is novel and more complicated than simply
using a percent of the generic price, it has not been used.
In general, however, it may be easier just to simplify everything even
more, and link the de-monopolization of the drug sector (for marginal
cost pricing of products), with a system of rewards for drug developers
that is pegged to some fraction of the drug purchase budget or health
care budget. The political demand from developing country governments
and consumer groups would be to ensure access through marginal cost
pricing of products, while conceding the legitimacy of a separate
argument over the amount that a country gives to innovators. I think
this is an argument that can be won, and it can be the basis for a
sustainable long term change in the business model for paying for
innovation. The rewards to innovators could be rationally linked to the
impact of products on improvements in health outcomes. The more the
"ask" makes sense (and is perceived to make sense) in terms of the
legitimate interests of both consumers and drug developers, the higher
are the odds of really changing things.
Jamie
> Ken
>
>
>
> On 3/4/08 11:37, "James Love" <james.love@keionline.org> wrote:
>
> > There is no doubt that there is plenty of bullying, lying, angling for
> > industry jobs after leaving the government, and other mean spirited
> > stuff going on here.
> >
> > Even so, Thailand has benefited at least somewhat from interventions
> > from some sympathetic members of the US Congress and government (and th=
e
> > European Parliament and EC), and this has and I hope will continue to
> > moderate somewhat the full brunt of the fury that PhRMA would like to
> > see unleashed. To this end, the .5 percent royalty rate was unhelpful=
,
> > bad PR, and almost completely unnecessary in terms of the policy.
> >
> > To make things more concrete, the price of Plavix dropped from 77 to 1
> > baht once competition was introduced. A royalty of .5 percent of 1 bah=
t
> > was .005 baht per pill, or 1.825 baht per year, equal to about 6 US
> > cents at current exchange rates. A 5 percent royalty, 10 times as
> > high, would have been a royalty of 18.25 baht per year or 58 US cents,
> > per year.
> >
> > The price of Plavix before the CL was $888 per year. After the CL, it
> > was $11.53 per year. Arguing about 6 cents versus 58 cents is losing
> > sight of the big picture, I think.
> >
> > Jamie
> >
> > On Thu, 2008-04-03 at 11:10 +1100, Peter Drahos wrote:
> >> I do not believe that upping the royalty rate
> >> will reduce the pressure on countries like
> >> Thailand. During the Uruguay Trade Round, the US
> >> made a lot of promises about backing off on its
> >> trade unilateralism if developing countries
> >> signed up to the WTO, TRIPS and its jolly nice
> >> dispute resolution mechanism. The FTA IP jihad
> >> followed soon after. I also think there may be
> >> cases where .5% will be appropriate. Hard to see
> >> how a country like Laos can afford much more.
> >> Of course, this Thai saga has in part been about
> >> sending a message to other countries in the
> >> region about what to expect if they exercise
> >> their lawful rights =C2=AD Al Capone and the boys are
> >> gonna pay you a visit and now there=E2=80=99s a minimum rate you can=
=E2=80=99t go below.
> >> Chomsky somewhere has a nice line about
> >> domination in the world today =C2=AD =E2=80=9Cthe rule of law
> >> for the weak, the rule of force for the strong=E2=80=9D
> >>
> >> Peter Drahos
> >>
> >> _______________________________________________
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> >> http://lists.essential.org/mailman/listinfo/ip-health
> >>
> > --
> > _____________________________
> > James Love, Knowledge Ecology International (KEI)
> > http://www.keionline.org, mailto:james.love@keionline.org
> > voice +1.202.332.2670, fax +1.202.332.2673, US mobile +1.202.361.3040, =
Geneva
> > mobile +41.76.413.6584
> >
> > When everyone thinks the same, no one thinks. Bill Walton remix of Wal=
ter
> > Lippmann
> >
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>
>
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--
_____________________________
James Love, Knowledge Ecology International (KEI)
http://www.keionline.org, mailto:james.love@keionline.org
voice +1.202.332.2670, fax +1.202.332.2673, US mobile +1.202.361.3040, Gene=
va mobile +41.76.413.6584
When everyone thinks the same, no one thinks. Bill Walton remix of Walter =
Lippmann