Consumer Project on Technology Can we create a global trade framework for health care R&D that puts patients first? James Love Consumer Project on Technology http://www.cptech.org Stanford 11 February 2002

Competition is important in determining prices for medicines

Changes in Prices for Fluconazole in Thailand, following the introduction of competition in 1998

Brazil purchases of generic 3TC drove down prices for raw materials Price per kilo

Annual cost of Nevirapine/3TC/d4T Cocktail

Prices Vary a lot, for lots of reasons

HAI survey of prices for amoxicillin

Comparison of US generic wholesale, generic retail and brand prices Source: December 31, 1998, Elyse Tanouye, "Price Markups on Generics Can Top Brand-Name Drugs,“ WSJ

Do drug companies register patents in Africa?

Seven Antiretroviral Drugs widely Patented in Africa

Where have big pharma filed blocking patents on ARV cocktails in sub-Saharan Africa? Number of patents, based upon August 2001 PhRMA survey

What type of ARV cocktails are blocked the most? the least expensive to manufacture have the fewest compliance problems

What is compulsory licensing? When the government or a judge issues a non-voluntary license to use a patent.

Why is compulsory licensing important? Compulsory licensing can introduce competition and lower prices. Compulsory licensing can prevent a patent holder from blocking R&D and/or the development of new products.

Areas of confusion regarding compulsory licensing Compulsory licensing is not restricted to cases of national emergencies. Compulsory licenses are not limited to local production. Medicines can be imported. Medicines can be exported.

Recent compulsory licensing cases USA Licenses required 3D Systems (Sept 178 licenses) Anderson Gene Patent (1 percent) Miller tow truck patents Monsanto Corn germplasm (150 Licenses) Other US cases Exxon/Unocal clean fuel patent Gemstar patents on interactive television. Cipro (1498 case) Brazil licenses considered Efavirenz (Sustiva/Stocrin), Nelfinavir South Africa CIPLA request for patents on 3TC, AZT, AZT+3TC and Nevirapine

The most important multilateral agreement is the WTO TRIPS accord on protection of intellectual property

Doha Declaration We agree that the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO Members' right to protect public health and, in particular, to promote access to medicines for all. In this connection, we reaffirm the right of WTO Members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose.

Article 1 of WTO TRIPS Agreement Nature and Scope of Obligations 1. Members shall give effect to the provisions of this Agreement. Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement. Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice.

US Public Law 105-277 A bill for omnibus consolidated and emergency appropriations for the fiscal year ending September 30, 1999 none of the funds appropriated . . may be made available for assistance for the central Government of the Republic of South Africa, until the Secretary of State reports . . . on the steps being taken by the United States Government to work with the Government of the Republic of South Africa to negotiate the repeal, suspension, or termination of section 15(c) of South Africa's Medicines and Related Substances Control Amendment Act No. 90 of 1997:

February 5, 1999 US Department of State Report on South Africa The intellectual property rights protection issue surrounding Article 15(c) of the December 1997 amendments to the South African Medicines and Related Substances Act of 1965 ("Medicines Act") is a top priority for the United States Government's (USG's) economic relations with the Republic of South Africa. . . All relevant agencies of the U.S. Government -- the Department of State together with the Department of Commerce, its U.S. Patent and Trademark Office (USPTO), the Office of the United States Trade Representative (USTR), the National Security Council (NSC) and the Office of the Vice President (OVP) - have been engaged in an assiduous, concerted campaign to persuade the Government of South Africa (SAG) to withdraw or modify the provisions of Article 15(c) that we believe are inconsistent with South Africa's obligations and commitments under the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).

1999 USTR 301 report on South Africa South Africa: South Africa's Medicines Act appears to grant the Health Minister ill defined authority to issue compulsory licenses, authorize parallel imports, and potentially otherwise abrogate patent rights. Implementation of the law has been suspended pending the resolution of a constitutional challenge in the South African courts. Undisclosed test data is also not adequately protected under South African law. During the past year, South African representatives have led a faction of nations in the World Health Organization (WHO) in calling for a reduction in the level of protection provided for pharmaceuticals in TRIPS. . .We call on the Government of South Africa to . . . clarify that the powers granted in the Medicines Act are consistent with its international obligations and will not be used to weaken or abrogate pharmaceutical patent protection. We will continue to address these issues with the South African Government and will conduct an out-of-cycle review of South Africa's progress towards addressing these concerns in September 1999.

US Executive Order 13155 May 10, 2000 - ACCESS TO HIV/AIDS PHARMACEUTICALS AND MEDICAL TECHNOLOGIES By the authority vested in me as President by the Constitution and the laws of the United States of America . . . (a) In administering sections 301-310 of the Trade Act of 1974, the United States shall not seek, through negotiation or otherwise, the revocation or revision of any intellectual property law or policy of a beneficiary sub-Saharan African country, as determined by the President, that regulates HIV/AIDS pharmaceuticals or medical technologies if the law or policy of the country: (1) promotes access to HIV/AIDS pharmaceuticals or medical technologies for affected populations in that country; and (2) provides adequate and effective intellectual property protection consistent with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement)

The WTO/TRIPS permits different national approaches TRIPS is a framework, not a law. Article 1 says: "Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice.“ There is flexibility, but with few exceptions, developing countries have not embraced good models for compliance, relying too much on models taken from European and US laws.

Good state practice for compulsory licensing Avoid overly legalistic approaches Administrative procedures may be used for all decisions and appeals. Patent owners can be denied injunctive relief (TRIPS Article 44.2). Government use provision can be very liberal. In the US and other countries, licenses or negotiation is not required Publish Royalty Guidelines Reconcile with data protection

Reviews of decisions may be by Administrative process 31(i) the legal validity of any decision relating to the authorization of such use shall be subject to judicial review or other independent review by a distinct higher authority in that Member; 31(j) any decision relating to the remuneration provided in respect of such use shall be subject to judicial review or other independent review by a distinct higher authority in that Member;

Remedies for use by third parties authorized by a government may be limited to compensation Article 44.2 Notwithstanding the other provisions of this Part and provided that the provisions of Part II specifically addressing use by governments, or by third parties authorized by a government, without the authorization of the right holder are complied with, Members may limit the remedies available against such use to payment of remuneration in accordance with subparagraph (h) of Article 31. In other cases, the remedies under this Part shall apply or, where these remedies are inconsistent with a Member's law, declaratory judgments and adequate compensation shall be available.

Standards for compensation Article 31(h) the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization; Procedure can be structured to reduce uncertainly and simplify proceedings Royalty guidelines can make process more transparent, predictable and easy to administer.

Royalty Guidelines can simplify compensation proceedings 2 to 3 percent products not significantly better than existing products. 5 percent products that in offer a significant therapeutic advance. 1 percent or less patents that represent minor contributions to product Up to 3 percent premium for products that are particularly innovative or costly to develop, based upon evidence. In cases where there are multiple patents on a product set total royalty to be paid into escrow fund, and have arbitration to allocate funds among patent owners, with costs of arbitration borne by patent owners

Limits on Exports for Non-voluntary use of patent under TRIPS Article 31.f any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use

Non-voluntary use and exports The definition of “predominately” is unclear. The EU suggests that might permit exports with a regional trade union Article 31.k provides a general exception to the limitation on exports As remedy for anti-competitive practices Article 30 exception to patent rights. Public health groups support an exception to patent rights for inventions manufactured for export, when the export addresses an important regional or global public health concern, such as the spread of infectious diseases, and the legitimate rights of the patent owner are protected in the export market

Article 30 Exceptions to Rights Conferred   Members may provide 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, taking account of the legitimate interests of third parties.

Recommendations for Article 30 Exceptions Use for production registration (“Bolar” clause). Production for Export where the export addresses an important regional or global public health concern, such as the spread of infectious diseases, and the legitimate rights of the patent owner are protected in the export market Experimental use Compassionate Use Temporary, addresses urgent health need No alternative supply at affordable price Not for profit distribution

Article 39 - Protection of Undisclosed Information There is controversy over the scope of this provision. There is no requirement for exclusive rights Models of protection requiring disclosure of costs and opportunities for cost sharing address legitimate interests of investors and patients.

Non-Exclusive Rights? Do we need to protect investments? Green Tulips? Liability Model Federal Insecticide, Fungicide, and Rodenticide Act

R&D is important, and costs money

What do companies spend on R&D?

7.5 percent of sales

R&D for new products, as reported on US income tax returns

What does it cost of develop a new drug?

Lots of money

But not as much as you think

Company investments on Orphan Clinical Trials - 1998 $155 million in qualified expenditures reported on tax returns 18 Orphan approvals (20 indications) About $8.6 million per product, before the tax credit, on a risk adjusted basis Government pays for half of this.

Costs of Trials for Protease Inhibitors

Pre-clinical research can be difficult, risky and costly

How to fund R&D?

Property rights in IP Advantages Disadvantages Works without appropriations Decentralized decision making Encourages risk taking Disadvantages Excessive secrecy Ethical concerns over pricing Bargaining failures can block product development Under investment in public health priorities

Tax Incentives Advantages Disadvantages Decentralized decision making Lack of transparency Intellectual property rights not shared with public Subsidies contrary to free trade principles

Public and donor funding Advantages Research can enter public domain Donor can obtain intellectual property rights Investments reflect public priorities Greater transparency of investment flows Disadvantages Risks of bureaucratic inefficiencies Risks of centralized decision making

Research Mandates Cisplatin proposal Taxol Proposal Congressional proposals to increase health care R&D Zimbabwe proposal

Zimbabwe proposal Countries adopt systems of compulsory licensing of patents Royalties on patents paid into a health care R&D fund. Patent owners get shares in the fund. Fund invests in research projects which address local needs

Trade agreement on R&D Point of treaty should be increase innovation Property rights would be means, not an end of the treaty Countries would have obligations to share burdens of funding R&D for socially useful projects, focusing on global market failures

How would an R&D treaty differ from TRIPS? Clinton/Blair agreement on funding sequencing of the human genome. G8 on research for neglected diseases Public Access to Journals Consider a much wider range of instruments Models and standards for “technology transfer” agreements Capacity building in the South

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