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					IPRs, Public Health and the Pharmaceutical
                  Industry

  Issues in the Post-2005 TRIPS agenda



 Benjamin Coriat * and Luigi Orsenigo**

     Universitè Paris XIII, Villetaneuse
 **University of Brescia and KITeS, Bocconi
             University, Milan Italy
               IPD, Manchester June 2009
         Bio-pharmaceuticals
• this sector brings the trade-offs and issues
  involved in patent theory to their extreme
  consequences
• an industry where patents are actually very
  important mechanisms of private appropriability
• a science-based, innovation-intensive industry
• A “strategic” industry:
        – High growth
        – Skill-intensive
        – Health as an important factor of growth
• a socially sensitive industry: health as a human
  right
• undergoing deep and unforeseeable
  transformations
                       IPD, Manchester June 2009
• controversies about the welfare
  implications of patents have characterized
  this industry ever since its inception.
• But in the last thirty years or so, the
  establishment of strong tendency towards
  an extremely tight IP regime has made this
  debate even more heated.
• Pandemics make the problem even more
  “visible” and compelling.
                IPD, Manchester June 2009
 Pushing the controversy to the
           extreme
• 1) Advent of biotech:
  – progresses in molecular biology and their increasing relevance
    for industrial innovative activities have strained to the limit a
    patent system which was essentially conceived for technologies
    like mechanical engineering and chemistry.
  – Stretching the notions of novelty and usefulness
  – The development of the biotechnology industry itself is strictly
    dependent on a highly favourable IPR regime
  – the transformations of the latter have been significantly
    influenced by the growth of the biopharmaceutical sector.




                        IPD, Manchester June 2009
 Pushing the controversy to the
          extreme (2)
• 2) The spread of policy doctrines aiming at
  facilitating the commercial exploitation of
  publicly funded (basic) research – the
  Bayh-Dole Act in the USA in 1981 and the
  subsequent attempts to import at least part
  of its principles in other countries - has
  also been crucial in such a strongly
  science-based industry as
  pharmaceuticals.
                IPD, Manchester June 2009
 Pushing the controversy to the
          extreme (3)
• (3) TRIPS Agreements — of which the
  pharmaceuticals industry is one the main
  supporters — has ignited raging controversies
  which go beyond domestic boundaries and
  reach the global level.
• Now the debate regarding the desirability of
  property rights in drugs takes place not only
  within (rich) countries but also between
  developed and developing countries.

                  IPD, Manchester June 2009
        The revival of the debate

• most of the new contributions have an empirical nature.
• the economic theory of patents was often deemed to be inconclusive
  given that radically different results could be obtained by slight
  changes in even ancillary assumptions.
• But still, despite the progress empirical evidence remains flimsy:
  problems of measurement and sheer lack of adequate data
   – Data are extremely hard to get access to and when they do exist
      they are often available at prices and terms which are
      unaccessible to anybody except few specialized research
      groups.
• Not only patents: regulations restricting access to clinical trials data
  for generic producers
• In search for alternatives: prizes?

                          IPD, Manchester June 2009
        The Broad Questions
• Can a tight IPR regime foster innovative
  capabilities and growth in developing countries?
• What are the costs of a tight IPR regime on drug
  prices and access to healthcare?
• What is the structure of an IPR system that
  could best promote innovation, access to new
  (and older) technologies and growth?
• Should we forsake the patent system?
• What are the alternatives?
                  IPD, Manchester June 2009
               Main propositions
• There are, indeed, profound trade-offs between the
  incentives to innovate and ensuring public access to
  medicines for which no obvious and simple solutions
  exist.
• The effects of strengthening the patent regime depend
  (non linearly) on a wide variety of conditions in any given
  country:
   – institutions (price controls; health systems, in general; basic
     research..);
   – Capabilities and opportunities for innovation;
   – size of markets;
   – modes of competition; the specific nature of patent laws
     themselves and court interpretations
                          IPD, Manchester June 2009
            Main propositions (2)
• The IPR system governing pharmaceuticals has become
  increasingly dysfunctional — even in countries like the U.S. The
  efficacy and desirability of extending strong IPR protection in the
  rest of the world raises very legitimate doubts.

• Excessively tight IPRs can have negative effects not only on prices,
  but also on the rates and directions of innovation

• Both economic theory and the evidence increasingly suggest that
  the strengthening of IPR regimes in developing countries is likely to
  impose upon them a series of negative consequences that most
  likely outweigh any potential benefits gained from the tighter regime.


                          IPD, Manchester June 2009
                  Market structure
• Pharmaceuticals has been traditionally dominated by a stable core
  of large, globalised innovative firms (USA, UK, Switzerland,
  Germany, Japan), but also:
    – Small domestic firms involved in adaptation, manufacturing, marketing
    – Biotech firms
    – Generics producers

• Small entry and turbulence (until biotech)

• Low demand price elasticity, high income elasticity

• Strong information asymmetries

• The third payer problem


                           IPD, Manchester June 2009
   The dynamics of competition
• Schumpeterian competition:
   –   High profits after introduction of new drug
   –   Imitation and me-too-drugs before patent expiration
   –   Entry of generics after patent expiration
   –   Branded “generics”


• Low concentration (despite high R&D and marketing intensity,
  M&As):
   – little cumulativeness in innovation (random screening)
   – independent sub-markets




                              IPD, Manchester June 2009
                     The Golden Age
•   The system seems to have been working reasonably well for many years
     – Innovative opportunities
     – Welfare systems
     – Moderate IPR regimes:
         • The interpretation of novelty
         • The interpretation of usefulness
         • Scope and breadth

High rates of innovation

The scope and efficacy of patent protection has varied significantly across
   countries. Many countries allowed only process patents did not offer
   protection for pharmaceutical products:

Product patents: France in 1960; Germany 1968; Japan 1976; Switzerland
   1977;, Italy and Sweden in 1978. In some cases, as in Japan and Italy (and
   possibly France) the absence of product patent protection induced firms to
   avoid product R&D and to concentrate instead on finding novel processes
   for making existing molecules. In other cases, primarily Germany and
   Switzerland, this negative effect didn’t happen
                            IPD, Manchester June 2009
The transformation of the industry:
  Technology and Organization
  • Increasing role of fundamental science (“biotech”)
  • From random screening to rational drug design to molecular
    biology
  • The biotech industry: networks and vertical specialization
  • Markets for technology
  • Venture capital
  • IPRs
  • A new, finance-led, model of innovation?

  • Diffusion of knowledge and capabilities worldwide, but strong
    concentration in the USA
  • But: soaring costs of discovery and development
  • declining research productivity

                   IPD, Manchester June 2009
      The Productivity Paradox
    • Between 1978 and 2003, research “productivity, has been
      falling:
        – R&D expenditures increased tenfold while patenting output increased
          only sevenfold (Nightingale and Martin 2004).
        – New Chemical Entities approved by the FDA in the U.S. between 1983
          and 2003. Some increase was displayed until the mid 1990s, followed
          by a sharp decline in the years since. In 2002, U.S. R&D expenditures
          in pharmaceuticals were 30 times greater than in the early 1980s, while
          roughly the same number of drugs were approved annually.


• High rates of attrition, longer times in Phase I, the Phase II
  bottleneck
• Depletion of opportunities,more difficult pathologies
• Increasing complexity, explosion of the research space
• Increasing costs of regulation (?)
• IPRs (?)
                         IPD, Manchester June 2009
• Mee-too drugs?
• Evergreening of patents and patentability for
  second use
• Are Big Pharma simply becoming manufacturing
  and marketing organizations, using knowledge
  created elsewhere (universities, biotech,..)?




                 IPD, Manchester June 2009
         Biotech is no better
• Although around 1/3 of new drugs
  originates from basic research conducted
  at universities, hospitals and biotech
  companies, the performance of the biotech
  segment is disappointing (Pisano 2006):
  – Operating profits
  – New drugs
  – transaction costs and market failures

                 IPD, Manchester June 2009
Further changes in the industry
 – Regulation, product approval: (evidence-based medicine, multi-
   country trials…) before and after product approval;
 – But also significant rationalization and time/cost cutting,
   especially for some categories of drugs (e.g. orphan drugs)
 – Markets: diffusion of generics
 – Appearance of new firms and countries as producers of
   generics
 – Increasing marketing expenditures (prices of branded drugs
   increase after patent expiry, market segmentation); Direct to
   Consumer Advertising
 – Cost containment policies
 – Raising perceptions of health as a human right plus
   humanitarian catastrophes (HIV/AIDS)
 – Substantial and controversial changes in the IPR regimes in the
   North

                      IPD, Manchester June 2009
• Is the Big Pharma, blockbuster model still
  viable?
• Is the current biotech/Big Pharma model
  efficient?
• A real issue: how to sustain R&D and
  innovation?




                IPD, Manchester June 2009
        The debate on IPRs
• Neverending debate on the effects of
  patents in pharma well before Trips
• The Kefauver Commission (1962)
• “Excessive” prices and profits ?
• The fundamental trade off: monopoly
  power is needed to sustain the private
  funding and the incentive to innovation

                IPD, Manchester June 2009
                   Back to the basics
•   The early literature (Nordhaus 1969, etc..) predicts that stronger IPRs
    increase the incentive to invest in R&D and hence the rate of innovation.
•   Increasing the number of potential inventors: individuals, small firms,
    outside inventors lacking complementary assets
•   Raising propensity to invest in R&D
•   But the theoretical let alone the empirical implications are weak. In
    particular, they rest on a vast range of ancillary but critical assumptions
    related e.g. to:
     – curvature of the innovation function and/or probability distribution of innovating
       (the space of innovative opportunities)
     – Definition of the population of potential and actual innovators (Baumol (1990)
       Murphy, Shleifer,and Vishny (1991)): incentives and competences
     – elasticity of R&D expenditures to profits
     – cost structure of R&D
     – Specifics of R&D decision making process
     – Costs of imitation wrt costs of innovation
     – actual patterns of imitation (how much does imitation bite)?



                                 IPD, Manchester June 2009
               Costs of IPRs
• monopoly power, higher prices, lower
  production, net changes in social welfare
• These effects are magnified by low price
  elasticity of demand and by the third payer
  problem
• Patents as a benefit taxes (Stiglitz, 2004):
  – only those who benefit from the innovation pay for
  – But it is a regressive tax




                    IPD, Manchester June 2009
             Additional costs
• Persistence of monopoly
• Stronger IPRs can slow down the pace of
  innovation: market structure and innovation
• Cumulative innovation
• Patent conflict can impede innovation
• Distortions in the direction of research: much of
  R&D activity directed at circumventing or
  strengthening monopoly, me-too products, etc..


                   IPD, Manchester June 2009
      Recent Changes in the IPR
              regimes
• Substantial and controversial changes in the IPR
  regimes:
  –   Diamond vs. Chakrabarty
  –   Bayh-Dole
  –   The Federal Circuit
  –   Patents scope
  –   Stretching the notions of novelty and usefulness: genes, ….
  • Most of these changes are based on the
    argument that IPRs favour commercialisation
    of inventions, not because they stimulate
    innovation
                         IPD, Manchester June 2009
    Further justifications for strong
                  IPRs
• patents disclose information (vs. secrecy)
   – But information different from knowledge
• patents induce commercialization of innovation (e.g.
  biotech): markets for technology (Arora et al, 2004)
   – But implies that no further mechanisms of protection are
     available in the development process
   – It might hinder further innovation if the invention is “basic”
   – The anticommons problems (Eisenberg)
• prospect theory
   – but ignores advantages of experimentation in conditions of
     uncertainty


                          IPD, Manchester June 2009
The empirical evidence and the
       new research
• These developments trigger further theoretical and
  empirical research
• effects of strengthening IPR regimes
• Increasing skepticism
• Less skepticism when patents are conceived not so
  much as an incentive to innovation but a mechanism for
  creating market for technologies (Sokoloff and
  Lamoraux, Sokoloff and Kahn, Arora et al., ..)




                    IPD, Manchester June 2009
          What do we know?
• patents are important in bio-pharmaceuticals
• But there are also other methods of protection
  (marketing, organizational capabilities,…)
• Scherer: co-movements of profitability and R&D
  investment
• But, how much does increasing patent protection
  actually stimulate innovation?
• Patents -> profits -> R&D -> innovation
• especially in a period of diminishing productivity
  of research
                   IPD, Manchester June 2009
                  Empirical results

• Studies on effects of lower prices on R&D (in the USA)
   • Most of them suggest drastic reductions in R&D (e.g. Vernon)
• - estimations of elasticity of innovation (as measured by
  patents) to IPR regime:
   – Arora, Cohen and Walsh:
      • patent premium ranging from .50 to .90, but 1.75 to 2.25 for pharma:
      • %change in R&D wrt to 10% change in patent premium: 6% but
        7.5% to 8.9 pharma;
      • Equivalent subsidy rate: 17% (22% pharma)
   – Linn and Acemoglu (2004): in pharmaceuticals a 1% increase in
     the size of the market for pharmaceutical products raises the
     number of new drugs by 4% to 6%, implying an elasticity of
     innovations to R&D ranging from .8 to . 85


                         IPD, Manchester June 2009
• Should we increase the incentives to tap
  (depleting) opportunities?
• Or more should be done to raise research
  productivity?
• And to increase the capabilities to access
  and tap opportunities?



                IPD, Manchester June 2009
              Costs of patents
• the average increase in price for pharmaceuticals due to
  patent protection is probably close to 400 percent, with
  the gap in many cases exceeding 1000 percent of the
  marginal cost (Baker and Chatani, 2002)
• Huge welfare losses: The size of the deadweight losses
  range between 0.1 and 0.5 percent of GDP,
  approximately equal to the amount that the industry
  currently claims that it is spending on pharmaceutical
  research in the United States.
• The deadweight loss may increase even more as costs
  of research increase (Baker, 2004)

                     IPD, Manchester June 2009
                     Further costs
• 1) Higher profits, higher marketing expenditures, the efficiency of
  which is dubious, given information asymmetries and the third party
  payer
• 2) Distortions in the directions of research:
   – useful research: discovery of patentable products.
   – less productive lines of research, duplicative drugs
• 3) incentives are created through political interference to pursue
  less productive lines of research;
• 4) incentives are created to obstruct the free flow of research
  findings
• Controversial evidence on the role and effects of “me too drugs”



                          IPD, Manchester June 2009
   Patents as a in incentive to
    commercialize inventions
• Bayh – Dole
• Patents on basic, embryonic inventions
  and research tools
• Broad patents
• Exclusive licenses
• Impediments to scientific research
• Research tools and cumulative innovation
• the anticommons issue
               IPD, Manchester June 2009
               The evidence
• Mixed
• Explosion of university patents and spin-offs: the
  biotechnology industry
• Numbers up, quality down
• Advantages of division of innovative labour
  (Arora et al); Gambardella et al. show that
  licensed compounds fare better than in-house
  developed molecules
• But research productivity is still falling (Pisano)

                   IPD, Manchester June 2009
• Mixed evidence on impediments to
  knowledge circulation and trade-offs
  between publishing and patenting
• But at the very least a general case for the
  efficiency of such arrangements is vastly
  overstated



                IPD, Manchester June 2009
Analyses of tighter IPRs regimes
• We have seen the effects of patents in general; what about further
  strengthening?

• Recent evidence shows almost unanimously that strengthening
  IPRs regimes does not lead to higher rates of innovation:
    – studies of the broadening of Japanese patent scope (Sakakibara and
      Branstetter [2001]),
    – the establishment of the Court of Appeals for the Federal Circuit in the
      United States (Kortum and Lerner [1998], Hall and Ziedonis [2001]),
    – the strengthening of patent protection of pharmaceuticals in India
      (Lanjouw [1998]) and Italy (Scherer and Weisburst [1995]).

• But under what conditions might stronger patent protection have a
  powerful effect on innovation?



                            IPD, Manchester June 2009
     Non linear, non monotonic
            relationships
– when patents are already strong, increasing patent protection
  further may actually depress the level of innovation (Gallini
  [1992], Cadot and Lippman [1995] and Horwitz and Lai)
– The effects depend critically on existing technological
  capabilities, innovative opportunities and the stage of
  development of a country (incentives and competences)
– These models similarly suggest that the relationship between
  patent length and innovation will display an “inverted U” shape.
– Confirmed by studies by Lerner (2000) and Qian (2007)
– Introduction of patent protection does not increase levels of
  innovative activity but may have stronger effects on changing the
  direction of innovative activity (Moser, 2005)




                     IPD, Manchester June 2009
• The landscape


                               •                   •
                                                               •
        •                  •
                •                   •                  •
                                          •
            •                                              •


                TA 1               TA 2                    TA 3




                       IPD, Manchester June 2009
                                  Search
  •   Firms randomly screen the molecules, spending a given amount of money (a
      fixed share of their initial budget is used for the search activity,
  •   The firm draws from the environment n molecules and adds them to the
      array of (potential) projects.




                                  Firm
                                          3
                              1
                                    2




NB = Imitative firm doesn’t draw and doesn’t pay the cost of draw          38
                Some results. Benchmark
         number of firms                                      HtotP/HtotQ                                  HTAP/HTAQ                              Innovative/imitative products
60                                          1                                                 1                                        1000
                 Imitative firms                                                                                                                        imitative
                                          0.8                        HtotQ                  0.8                          HtotQ          800
                 innovative firms                                                                                                                       innovative
                                                                     HtotP                                               HtotP
50                                        0.6                                               0.6                                         600

                                          0.4                                               0.4                                         400

40                                        0.2                                               0.2                                         200

                                            0                                                 0                                           0
                                                0                    50              100          0             50               100          0                50                    100
30                                                                 time                                       time                                           time
                                                        alive firms with products                      Number of TA viewed                                 Avg prices
                                           60                                               200                                           3
                                                                   alive with products                                                                                  Price Inno
20                                                                 alive                                                                                                Price Imi
                                                                                            150
                                           40                                                                                             2                             Price patent

                                                                                            100
10
                                           20                                                                                             1
                                                                                             50


 0                                          0                                                 0                                           0
     0           50                 100         0                   50               100          0             50               100          0                50                    100
               time                                               time                                        time                                           time
         Avg develop time                           Avg earnigs from signle products                  number of products out                              Avg TA size
 8                                        500                                              1000                                         500
                                                                           Inno                                                                                     Ta Size
                                          400                                               800                                         400                         Patiets reached
 6                                                                         Imi
                                          300                              patent           600                                         300
 4
                                          200                                               400                                         200
 2                          Inno
                            Imi           100                                               200                                         100

 0                                          0                                                 0                                           0
     0          50                 100          0                   50               100          0              50              100          0                 50                   100
              time                                                time                                         time                                           time


                                                                                                                                                                               39
Patent duration,opportunities and
           innovation

  400


  350


  300


  250


  200


  150


  100


  50


   0
 50%


                                                                50
        25%
                                                           40
                                                      30
                              5%
                                                 20

                                            10
                                   1%   1
              Opportunities
                                                 PD
Patent duration, size of the market
         and innovation

  300




  250




  200




  150




  100




    50
  high

                                                 50
          std                               40
                                       30
                                  20
                             10
                   low   1


         TA size
                                  PD
Tightness of product approval
procedures, opportunities and
         innovation

 70



 60



 50



 40



 30



 20



 10



  0
high


                                                             50%


             std                                       25%


                                  5%


                       low   1%
       Quality check
                                       Opportunities
Tightness of product approval
procedures, market size and
         innovation

55


50


45


40


35


30


25


20


15
low



                                                    low

      std

                                             std



                      high   high

                                    Quality check
            TA size
        Developing countries
•   Effects of IPRs on innovation in the South
•   Effects of IPRs in the South on innovation in
    the North
•   Multinational Corporations: FDI and local R&D
•   Prices and access to drugs
•   Price discrimination and parallel trade
•   Price controls and health systems
•   Alternative proposals

                  IPD, Manchester June 2009
Effects of IPRs on innovation in the
               South
•       Background:
    –     growth of India, Brazil, Thailand without IPRs
    –     role of public research centres and organisations
    –     entry in generics
•       What happens after TRIPs?
•       In general, what are the opportunities for
        entry and growth in pharmaceuticals for
        developing countries?
    –     Typically, entry in lower segments of the industries
          and/or specific niches:
               »   generics
               »   orphan drugs


                        IPD, Manchester June 2009
    Conditions for and obstacles to
              transition
• Presumes sufficient scientific and technological capabilities
  (incentives and competences);
• Always requires accumulation of local scientific and technological
  capabilities: access to knowledge and active participation in
  research networks are crucial
• Presumes large domestic markets and/or ability to export
• Current IPRs regime:
    – may hinder development of domestic scientific capabilities (royalties on
      basic research tools);
    – but there is evidence of the contrary too: weak property rights make
      licensing critical research tools difficult
    – the anticommons problem
    – Restrictions to generics development: data exclusivity agreements
    – Patentability for second use
    – access to exports and limitations to exports through royalties, litigation,
      etc..(S. Ramani)

                             IPD, Manchester June 2009
       Evidence (so far): India
• Segmentation of the local industry
• Some firms attempt at establishing
  themselves as (global) generics producers
• Attempts at making the transition to R&D-
  intensive companies, competing with Big
  Pharma: little success so far
      • Differential attitudes towards IPRs among
        domestic firms according to their strategies
• Little evidence of effects on directions of
                   diseases and
  research: localIPD, Manchester June 2009 orphan drugs
     Evidence (so far): Brazil
• Sharp increase in domestic patents
• But: mainly by non residents (the usual
  suspects)




                IPD, Manchester June 2009
                             Brazilian Vs Total pharma patents 1981-2005 Brazilian Patent Office

2500




2000




                                         Total pharma patents
1500
                                         pharma brazilian patents




1000




500




  0
       1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005



                                                  IPD, Manchester June 2009
        Foreign Direct Investment
•       Possible increasing investment by MNCs, depending
        on:
    –     local skill endowments,
    –     Infrastructure,
    –     demand characteristics
•       Possible stronger effects as it concerns clinical trials
        and market development activities
•        Stronger patents (and trade secrets and brand
        protection) could have the effect of lowering
        transaction costs and facilitating know-how transfers
        (Arora, 1996)
•       But possible “crowding out” effects on local
        researchers
•       Evidence?
                         IPD, Manchester June 2009
   Effects on prices and access to
          drugs in the South
• IPRs as a regressive tax
• Increase in prices is function of:
   –    market structure before and after the new patent regime matters
   –   Brand loyalty and marketing
   –   demand elasticity (income levels..)
   –   pricing regulations
   –   competition policies (parallel imports, sole distributorship laws)
• Lack of data prevent firm conclusions
• But most are pessimistic (Lanjouw (1998), Watal
  (2000),Maskus (2001))
• Evidence of higher prices and lower access to HIV/AIDS
  drugs in Brasil (Coriat and Orsi, 2005)
• Faster introduction of new drugs?
                          IPD, Manchester June 2009
Effects on innovation in the North
–       direct erosion of profits through imitation in local
        markets: how big is the market?
–       Indirect erosion of profits through export
–       How much does actually imitation bite? Main effect
        on other generics producers, rather than on
        innovation as such
–       How much does the erosion of profits translate into
        less R&D?
–       How much less R&D translates into less
        innovation?
    •     the topography of the innovation opportunity set
    •     me-too-drugs and therapeutic value

                      IPD, Manchester June 2009
                             Issues
•   The Bolar exemption
•   Patentability for second use
•   Data exclusivity agreements
•   Compulsory licencing
•   Price discrimination
•   Parallel imports
•   Price regulations:
    – cost-plus” formula encourage firms to set high transfer prices on
      imported ingredients
    – reference prices: firms have an incentive to bargain for the
      highest possible prices in the low-price economies in order to
      gain a higher set of global reference prices.

                          IPD, Manchester June 2009
                Alternatives
• Price discrimination
  – but prices are often higher than in developing
    nations than would be expected under a
    simple price discrimination equilibrium and,
    indeed, are at times higher than in the rich
    nations.
• Prizes
• Socialization of clinical trials

                  IPD, Manchester June 2009
           PART II.
TRIPS and Acces to Care in DC’s
     The post 2005 Issues
  TRIPS as an Answer of the Big Pharmas to
               the new threats
Type of “economics answers” to the threats
   – M&A, between equals (and rivals) to re-establish « dominant
     positions » on key sub-sgements : « bigger is better policy» (Pfister)
   – Develop (or acquire through Mergers) generic divisions (Novartis),
   – Co-marketing and co-promotion agreements …
           – … With generic producers to prevent the entry of rivals : “policy of market pre-
             emption”


But the key answer is : Strengthening and extending patent
  rights (through the enforcement of a tighter IPR regime)
   – Extending the Length of Patent duration (20 years)
   – Establishing new rights (data exclusivity,…)
   – Enforcing worldwide a « strong » patent protection
      (TRIPS, FTAs)
  The New Constraints Generated by the TRIPS

The signing of the TRIPS (1994) meant
   – The extension at the world Level of patent protection
     provisions designed for the firms of the most developed
     countries (patenting of therapeutic molecules, 20 years
     length protection …)
This “upward harmonization” of IP protection
   – Negated the differences in national capabilities to provide
     access to medicines, a provision that was at the basis of the
     former Treatise (WIPO, Paris Convention…)

Key consequence
   – The TRIPS have put an end to the right of developing
     countries to produce and/or import generics drugs, at low
     costs to satisfy the needs of the poor
Pharmaceutical Patents Regime under the TRIPS

 2005 implies an entry in a comptely new world

     - End of the transitionnal period for DC’s to comply with the TRIPS constraints
     - Key event : the 2005 Amended Indian Patent Law

 However : existence of some “flexibilities” in the TRIPS treaty


     – Some Articles (Art 28 to 31) states the right to use « compulsory licenses »,
       especially in case of « health emergency »

     – Art 31f seems to prohibit the « imports » of generic drugs, even for the countries
       lacking of the technical capabilities required to produce the drugs localy
            … but : the working of these clauses were never clarified in a satisfactory manner…

     – 2001 and the “Doha Declaration” opens some room for DC’s and LDC’s but the
       Declaration has never been enforced as an international law (see Genova 2002)
     Key features of the post 2005 period

• As regards IP issues, the Post 2005 period is
  marked by a strong contradiction between
  – WHO´s High Level Decision and Gleneagles’ statements
    recommending “universal access by 2010”
  – … At a time when a series of changes make this goal
    especially difficult to reach
     • End of the transitional period of the TRIPS agreement
       (signed in 1994)
     • Spread of TRIPS + agreements …
• Hence … the question addressed in this part of the
  presentation : are the TRIPS flexibilities “flexible
  enough” to secure access to care in DCs ?
     Issues to be discussed
• Looking to the past : the Pre-2005 period
• The post 2005 scene and the emergence
  of new IP issues
• Using TRIPS flexibilities : lessons from
  case studies
• Provisional conclusions
Looking to the Past : Procurement Policies
            in the Pre-2005 Period
• 1994-2005 : Transitional period allowing local
  production in developing countries
• Doha 2001, WTO August 2003 Decision…
   – India and Thailand as the “Pharmacies of the south”
• AAI policy of « preferential prices » for DC’s and
  LDC’s
• … In a context where very powerful financing
  mechanisms were installed
   – GFATM, Pepfar, World Bank PAM,

    The combination of generic supply + AAI + branded
     ARVs at negotiated prices resulted in … massive
     decreases in ARV prices (1st line)
Pre-2005 : A Spectacular decreases of prices
    The case of first Line Regimen (1/2)
      Evolution of prices of ARV drugs in Africa

                                                                    Lamivudine (3TC)
                                                   6
           Weighted index price (in current USD)



 Benin                                             5
 (GSK)                                                                                        Senegal
3.98 US$                                           4
                                                                                            (GSK - AAI)
                                                   3
                                                                                             3.13 US$

                                                   2


                                                   1

Cameroon                                           0
 (CIPLA)                                               1999       2000        2001   2002       2003         2004
 1.36 US$                                              Benin (Branded)                Benin (Generic)
                                                       Burkina Faso (Branded)         Burkina Faso (Generic)
                                                       Cameroon (Branded)             Cameroon (Generic)
                                                       Congo-Brazzaville (Branded)    Congo-Brazzaville (Generic)
                                                       Gabon (Branded)                Gabon (Generic)
                                                       Mali (Branded)                 Mali (Generic)
                                                       Senegal (Branded)              Senegal (Generic)                  Source: ETAPSUD
                                                                                                               ANRS / ORS-PACA / UMR-912
ARV procurement strategies in Sub-
    Saharan African countries

                                    100%
                                    90%
  In % of total purchased volumes




                                    80%
                                    70%

                                    60%

                                    50%
                                    40%

                                    30%
                                    20%

                                    10%

                                     0%
                                           1999     2000       2001       2002       2003       2004

                                              Branded ARV negociated through the AAI
                                              Branded ARV directly negociated (Not through the AAI)
                                              Generic ARV
                                                                                                          Source: ETAPSUD
                                                                                                ANRS / ORS-PACA / UMR-912
     Innovative treatments :
 The case of the FDC “Triomune”

 Today : (estimated) half of all patients on ARVs in
    developing countries depend on Indian generic ARVs
• A major innovation : the
fisrt FDC
                                      d4T/3TC/NVP
• More generally : a large
spectrum of generic ARV
available before 2005,
•Most of them being now pre-       ADULT   JUNIOR    BABY
qualified by WHO
                                    Cipla’s Fixed-Dose
• India and Thailand as                Combination
« pharmacies of the South”
                The post 2005 scene
 Changes in the legal context …
     End of the transitional period (Amended Indian Patent Act)
     Spread of “TRIPS plus” Agreements

 Changes in the scale of population under ART…
     Relevant increase in the number of patients under ART (3 millions in 2008)
 Along with changes in the therapeutic recommendations (WHO)
   with inclusion of new much more costly ARVs, most often protected by patents
   (TDF, LPV/r…)

 Rapid acceleration of people in need of 2nd and 3rd line
  treatments within the national therapeutic programs
        • yearly, 10 % of each cohort has to pass to 2sd line regimen

 New hindrances to the Sustainability of HIV/AIDS Programs in Southern
  Countries
Impacts of the new legal framework on access to HAART
      (1/2) The case of 1st line regimen’s prices
Impacts of the new legal framework on access to HAART
          (2/2) The budget surge for 2sd line treatment


                                         Median treatment cost paid by low-income and middle-
                                                  income countries (Jan - July 2007)
     Median treatment cost per patient




                                         $4.000
                                                                                                   $3.337
                                         $3.500
                                                         x43
              per year (USD)




                                         $3.000
                                         $2.500
                                         $2.000
                                                                             $1.291
                                         $1.500
                                                         x17
                                         $1.000
                                           $500          $77
                                             $0
                                                  1st line (low income 2nd line (low income    2nd line (middle
                                                        countries)           countries)       income countries)

      Median price paid in 2007 by developing countries for the most commonly used second-
     line antiretroviral treatment (abacavir + didanosine + lopinavir/r), compared with first-line
                            regimen (lamivudine + statuvidine + nevirapine)

                                                                              Source: WHO´s Global Price Reporting Mechanism (2007)
 Using TRIPS flexibilities : lessons from case
                   studies
Understanding TRIPS Flexibilities
• “Bolar Exception” for scientific use
• Parallel Imports
• Pre-Grant Oppositions
• Compulsory Licenses  different alternatives
  provided by article 31 of the TRIPS agreement,
  including : Governmental Use, National
  Emergency, Public Interest …
    Pre-grant opposition and Compulsory License
                  what is it about ?


 Pre-grant opposition
“documents and information intended to assist the examination may be
filed by (any) interested persons between publication of the application
and completion of the examination” Brazil’s legislation, article 30 of Law
9279/96

 Issuing of Compulsory License
“ limited exceptions to the exclusive rights conferred by a patent, provided
that such exceptions do not unreasonably conflict with a normal
exploitation of the patent and do not unreasonably prejudice the legitimate
interests of the patent owner” (article 30).
       The case studies in a nutschel (1/2)

• 3 key drugs : EFV, TDF, LPV/r
• 3 major countries
  – India : 1st world provider of generics
  – Brazil : largest HIV programme in the South
  – Thailand : major producer of generics with large
    national programme of access to care
• 2 types of flexibilities
  – Pre-grant opposition (TNF)
  – Compulsory licenses (EFV, LPV/r)
          The case studies in a nutschel
   (2/2) Post-2005 uses of TRIPS Flexibilities

• Pre Grant opposition          • Compulsory License
  – Thai´s Pre-Grant
    opposition to AZT+3TC         – Thailand issues a CL on
    patent application (2006)       Efavirenz (2006)
  – India’s Pre-Grant
    opposition to Tenofovir’s     – Thailand issues a CL on
    patent application (2006)       Lopinavir/r (2007)
  – Brazil’s Pre-Grant            – Brazil’s Compulsory
    opposition to Tenofovir’s       License of Efavirenz
    (2007)                          (2007)
           Positive Outcomes
• Pre-grant on TDF (India, 2006, Brazil 2007)
   – Offers at lower prices from patent owners (the quality of the
     patent was known as poor)
   – … Surprisingly : US PTO in a recent move has negated some of
     the claims first granted
   – India (and Brazil) have refused to grant a patent to the drug

• Compulsory licences
   – EFV
      • Many successive offers at lower prices by patent owners in
        different countries
      • Since feb 2007, already (in generic form) available in
        Thailand
      • Since March 2009, ditributed in Brazil
   – LPV/r still in process in Thailand
  Positive Outcomes of the use
of IP flexibilities : the case of EFV




                                    Source: MSF (2007)
      But serious limits too ….
• Complex mechanisms…
• Implemented always under high political pressure…
   – The case of Brazil 2006 (LPV/r)
   – India 2006 and 2007
   – Thailand
• Subject to oppositions and litigations by patent owners

• Mechanisms not available for countries lacking of technological
  capabilities…
• Few uses, to date :
   – 3 countries, 3 drugs only ! …
   – (even if used successfully in some “minor” countries)
• Total impact on costs remains very modest
  Questions arising from the case study on the
           use fo TRIPS flexibilities

• Should the future of 3 millions people under ART (to
  morrow much more !...) be dependant of battle fought
  on judicial grounds ?
• Need of innovative mechanisms guaranteeing the
  procurement of drugs, especially the new most
  innovative and efficient ones (2sd line, and switch to
  new 1st ones…)
• More then ever creativity is required to put in practice
  the Doha Statement
   “the TRIPS Agreement does not and should
     not prevent Members from taking measures
     to protect public health”
           General Conclusion
• Preserve open science
• Excessive tightness of the IPR regime even in the North
• A real issue for global R&D and –perhaps - and its
  productivity
• Opportunities in the light of the restructuring of the
  pharma industry
• There are methods for softening the problem
• expanding local markets through the construction of
  better health systems
• Are size of the market and patent protection
  substitutable? Incentives and volumes of R&D
  expenditure
                     IPD, Manchester June 2009

				
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