Big Pharma - does innovation come at the price of access to life-saving drugs?

Introduction

Mark Twain’s characteristically tongue-in-cheek view on life is, “Don’t go around saying the world owes you a living. The world owes you nothing. It was here first.” In the context of Big Pharma’s attitude to providing access to life-saving drugs, Mark Twain might  equally satirically say  “don’t go around saying the world owes you life.”

This short article concerns the innovation/access dichotomy between the nature and extent of pharmaceutical protection, and broadly the relationship between Big Pharma; developing nations; and least developing countries (LDCs).

The existing Big Pharma  rationale is that the two concepts – innovation and access – relating to rigid patent protection are mutually exclusive or entirely conflict.  However it is uncertain whether innovation and access do actually conflict, or whether they can coexist.

It is conventional wisdom that for-profit trade is the buying and selling of goods or services for profit, in this case, pharmaceuticals sell goods for the treatment of deadly diseases to make a profit or to gain some kind of better position or commercial advantage.

As Sarah Joseph states:

”The present weight given to the “profit” interest under national and international patent regimes prejudices the interests of sick people in gaining access to drugs that they need…Re-evaluation of the notion of profit and ownership in crucial areas such as access to health restoring drugs is necessary”. (1)

In other words, quite unsurprisingly, there are strong indicators that policy makers in the developed world representing Big Pharma, take a profit based approach in assessing whether to improve access to life saving drugs. The logic presumably being that it is better to have expensive drugs than no drugs at all. The argument of Big Pharma is simple and compelling: weakened IPRs leads to weakened innovation because without the reward there isn’t the will to develop the drugs.

The TRIPS Agreement sets out minimum IPR standards for WTO members, and its pretext is to facilitate flexibility in the application of patent laws, so as to form the basis of some protection for pharmaceutical patent holders, while still meeting the needs of public health and still alleviating possible barriers to innovation.

A detailed examination of TRIPS is beyond the scope of this brief article. However, TRIPS is recommended further reading. TRIPS is where the buck stops in the current international law effort in balancing access to life-saving medicine with innovation.

According to the WTO (2) The jurisprudence behind TRIPS is the attempt to:

“strike a balance between the long term social objective of providing incentives for future inventions and creation, and the short term objective of allowing people to use existing inventions and reactions.”

The TRIPS provisions in the strong protection of medicine patents appear to achieve the long term objective set out above. However does the TRIPS regime achieve the above short term objective?

Intellectual Property Rights

IPRs have two things in common. They all confer monopoly rights, and they are all limited in time. The key question is this: is there a proven link between reward and innovation relating particularly to the availability of life-saving drugs in developing and LDCs?

As well as the different approaches to IPRs, there is the fact that different regions of the world appear to need life-saving medicines more than others. For example HIV/AIDS rates in the developed nations like United States and Europe largely plateaued out while they continue to increase in Sub-Saharan Africa. HIV/AIDS has now become a developing and LDCs’ problem. Therefore the humanitarian requirement for medicine in these poorest regions from the developed nations’ perspective is primarily economic.

In other words, if there is to be better access to life saving medicines, perhaps there needs to be a different perspective on the concept of IPRs. Perhaps IPRs need to be looked at not just as personal property that should be exploited for maximum reward.

Perhaps, a holistic approach to IPRs would lead to a loosening of the strong protection of IPRs as the inalienable right of an individual to the collective wisdom of society as a whole to be shared for the common good. Maybe  that hypothesis is too simplistic.

Notwithstanding, the stereotypical juxtaposition of innovation and access is not necessarily based on empirical evidence and is more of an assumption. In other words, the existing rationale in developed nations that increased access by loosening patent protection for life-saving medicines will lead to less innovation as a result of less reward, is also too simplistic.

It is possible that there is no dichotomy between innovation and access, and it is possible that there can be adequate protection of patents, whilst maintaining the economic incentives that lead to the research and development of new medicine. Since consumers in  LDCs’ are not a major market for Big Pharma anyway (the entire African Continent constitutes just 1.3% of the market for Big Pharma), their consumption of medicines are unlikely to foster innovation of new medicines. Further Big Pharma spend far more money on marketing existing drugs than selling new ones. Therefore the premise that only rigid patent protection for life-saving medicines fosters innovation is vulnerable to attack.

It is therefore submitted, that there is no real overlap between access and innovation in the LDCs. Greater access might not necessarily affect innovation, as appears to be the conventional wisdom behind the law and policy driven by developed nations, and Big Pharma.

TRIPS states that IPRs should:

“contribute to the promotion of technological innovation and the transfer and dissemination of technology.”

As all members of WTO have an obligation to comply with TRIPS, it could be argued from the above wording, that TRIPS provisions should optimise innovation and improve access to new medicine. The obvious rhetorical question therefore is: does overprotection of IPRs in short term make it harder for innovations in the long run unless there are readily available exceptions?

WTO members “may” implement measures necessary to protect public health interests. This applies to innovation, technology transfer and to access to medicine. However it would be careless just to assume that discretion in measures to protect public interests would soften IPR regimes.

Compulsory Licensing

Before delving into an examination and analysis of the main exception to the overprotection of IPRs in TRIPS, compulsory licensing, it is valuable to put the case for Big Pharma clearly.

There is an arguable logic that trade is the pursuit of profit,  and provided public health is observed, pharmaceuticals shouldn’t have to have the added burden of ensuring medicines are available to all that need them at affordable prices.

On a close analysis there is a distinction between public health and access to medicine. In other words Big Pharma have a duty to make sure their medicines cure and not harm but they arguably do not have any obligation to make sure consumers get the medicines that they need at affordable prices.

Additionally, there is some sense in the assumption that by rewarding those who invest in research and development with a monopoly for a fixed term you encourage innovation (3). Basic supply and demand states that the effect of availability of a particular commodity is that low supply and high demand will lead to high prices. In contrast, the greater the supply and the lower the demand, the lower the price will be. Demand in developing and LDCs is high for life-saving drugs, so logically the price should be high.

Further, that if life-saving medicines are supplied to certain regions at affordable prices then it would increase the availability of these medicines in the global market place. As a consequence, there is nothing to stop a reseller purchasing the commodity in that market place where the patent has been exhausted and importing it into markets where the prices are higher so as to profit between the price differentials. A concept known as parallel importing. Therefore the basic conclusion is that supplying life-saving drugs at affordable prices is uneconomic.

Additionally,  if profits were to suffer then there will be little incentive to invest in further research and development for new drugs. This could be a logical assumption. It makes little sense for a pharmaceutical company to invest huge resources in manufacturing a product if a free rider could reap the benefits of the innovation without contributing to the initial investment. Big Pharma does invest significant amounts of money into R&D, “in 1990, the United States government estimated that a single new drug took ten to twelve years to come to market at a cost of $359 million.” (4).

According to an article on Forbes.com the cost of bringing a drug to market for Big Pharma is between $350 million and $5Billion per drug (5). It is therefore arguable that weakening patent protection, which might lead to less profit for Big Pharma, which might lead to a reduction in R&D investment to maintain profits.

Against this back-drop are the many counter arguments made by proponents of increasing consumer access to life-saving medicines through affordability.

First, the precise amount of profit that is needed as an incentive for innovation is unknown.

Second,  the simple solution to parallel importing would be to make life saving drugs available with tiered pricing depending on the region with a correspondent ban on parallel importing. (6).

Third, it is important to note that differential pricing already exists in favour of developed nations. In 2005, two leading anti-retrovirals, Acyclovir and Neverapine, cost twice as much in Kenya and 35% more in Tanzania, than in Norway. A price differential that equates to 500 hours worth of work for a Tanzanian worker compared to an hour’s wages for a Norwegian worker (7). Therefore the assertion by Big Pharma, and a significant number of jurists, commentators and pundits, that lack of access to life-saving medicine in developing and LDCs is as a result of poverty alone is vulnerable to attack. It is possible that the price of life-saving drugs in this region are simply too high, and innovation is not affected.

Fourth, according to the WHO statistics there has not been any discernible benefit for LDC regions from innovation.  This is because the range of diseases suffered in the region are not catered for by Big Pharma in any event, and those that are, are too expensive. In fact, despite the vast profits of Big Pharma, the death rate for the deadliest diseases in LDCs continue to rise.

The profits of Big Pharma, even after ploughing between $350 million and $5 billion to make and market a single drug, are still very high. The 11 largest drug companies in the United Sates alone took $711.4 billion in profits over the 10 years ending in 2012, according to an analysis of corporate filings by Health Care for America Now (HCAN) (8).  This makes the argument that innovation will suffer as a result of loss of profit questionable.

The Right to Health

In order to fully understand the issue of access to medicine it is important to set out the need from the developing and LDCs. According to the WHO in 2011, 34 million people were living with HIV/AIDS. More than 95% of this HIV infected people come from developing countries and LDCs (8(a)). Sub Saharan Africa counts for more than 69% of these cases (ibid). In 2010 WHO estimated that there are more than 219 million cases of malaria affecting children in Africa (9).

Obviously there are diseases that are curable and preventable and present in both developed and developing countries but clearly the global picture shows that the highest prevalence of disease is in the LDCs. Access to essential affordable medicine is therefore getting worse and not better with TRIPS. Accordingly, in addition to a ban on parallel importing TRIPS should also ban Big Pharma from charging those with the lowest income the highest prices. If there should be tiered pricing it should favour developing and LDCs.

TRIPs does not make CL’s an inalienable right. In other words countries can sign away their rights to issue CL’s through TRIPS-plus bilateral agreements. Many would trade away their right to CL in the hope of getting a better deal from powerful developed nations on other matters of trade.

Granting access to medicine is not only something that should be on the agenda of WTO Members, but it is also a part of the individual right to health which is recognized by various international instruments (10).  In fact, Article 12 of ICESCR underlines that every State has an obligation to fulfil and protect access to medicine for citizens.

This is not merely a commercially related issue. Just because developed countries have a higher level of income, and their citizens are more likely to have sufficient funds to purchase necessary pharmaceutical products does not, by itself, imply that a state has successfully done everything to fulfil its obligations related to Article 12 of ICESCR. Poorer households also should not be under a disproportionate burden to obtain required health care (11).

Ever Greening

The concept of “ever greening” and Art 27 of TRIPS is another example of how TRIPS can be improved for greater accessibility to life saving medicines.

Art 27 does not specify particular criteria for patentability therefore Big Pharma obtain new patents on a patented medicine by making minor changes to it (Special Rapporteur on the Right to Health para 27)  severely limiting the availability of cheaper generic medicines. LDCs are most vulnerable to this phenomenon fearing reprisals from powerful nations they are reluctant to enact strict criteria to prevent the ever greening of patents. Developing countries like India (the Indian pharmaceutical industry stands as the third largest in terms of volume and 14th in terms of value in the world), and the Philippines refuse patents to new forms of known substances unless they were “significantly more efficacious and new…”. Novartis unsuccessfully challenged India in local court proceedings over the cancer drug Glivec (12).

A group of 26 South African pharmaceutical companies are currently in a public relations battle with the South African government in an attempt to prevent reform of the South African Patent laws to prevent “ever greening”.  The South African government are attempting to reform the existing Patents Act 57 of 1978 to reduce the cost of medicines in the country for antiretroviral drugs for HIV/AIDS; cancer and tuberculosis (13).

 Conclusion

In the final analysis, it is worth noting that Big Pharma are for-profit international organisations on a massive scale. Their goal is to make a profit, as opposed to non-profit organisations focused on helping the community. As a corollary, it is not necessarily surprising that Big Pharma might see innovation/access as a zero sum game. It does not have to be that way. Access and innovation are not collectively exhaustive, there are other possible outcomes to the innovation/access dichotomy.

References:

1.         Pharmaceutical Corporations and Access to drugs: the Fourth wave of Corporate Human Rights Scrutiny, 25 HUM, RTS. Q. 425, 444 (2003)

2.         WTO, Intellectual property: protection and enforcement, (17 March 2013)

3.         Theodore Bailey, “Innovation and access: The Role of Compulsory Licensing in the Development and Distribution of HIV/AIDS Drugs,” 2001 U.Ill, J,L. Tech. Pol’y 193,194 (2001)

4.         John A. Harrelson, TRIPS, Pharmaceuticals Patents, and the HIV/AIDs crises: Finding the Proper Balance between IPRs and compassion,” 7 Wid. L. Symp.J. 175, 179 (2001)

5.         http://www.forbes.com/sites/matthewherper/2013/08/11/how-the-staggering-cost-of-inventing-new-drugs-is-shaping-the-future-of-medicine/

6.         WTO Fact Sheet supra note 42, at 5. TRIPS fails to either permit or prohibit parallel importing.

7.         Gathi, Structural Power pg 307

8.         http://healthcareforamericanow.org/2013/04/08/pharma-711-billion-profits-price-gouging-seniors/

8(a).    http://www.avert.org/aids-europe.htm HIV and AIDs in Western and Central Europe (24 March 2013

9.         HIV and AIDs in Western and Central Europe (24 March 2013

10.       Universal Declaration of Human Rights, Article 25.1 and ICESCR, Article 12.1;

11.       Committee on Economic, Social and Cultural Rights, General Comment No 14, 2000, para. 12;

12.       Novartis v India  W.P. Nos 24759 of 2006 and 24760 of 2006 High Court of Madras 6 August 2007

13.       http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(14)60160-4/fulltext