Restrictions on exports of medicine: irrational public policy, backdoor efforts to marginalize compulsory licensing, or Northern protectionism? James Love The Trans Atlantic Consumer Dialogue (TACD) Committee on Intellectual Property meeting on the Impact of Intellectual Property Rules on Consumers of Health Care Services October 31 and November 1, 2002 Carnegie Institution of Washington Washington, DC.

Economies of Scale and Scope are important ● Few countries have large enough domestic markets to sustain cost effective production.

Know-How is scarce for some products ● Trade secrets and other barriers to technology transfer limit the number of sources for some products

Generic competition works best with several competitors ● The WHO used a "rule of fives" to determine the number of competitors needed to get the best price

What types of drugs should be included ● Novartis charges more than $160 per day for some Leukemia patients who need Gleevec ● Compulsory licensing was threatened in Brazil to obtain lower prices. ● Korea has CL case now.

Singulair? ● In Belo Horizonte Brazil, Asthma is the leading cause of hospitalization for children under 5.

The pharmaceutical market is projected to grow at 7.8 percent annually to $406 billion in North America, Europe, Japan and Latin America are projected to account for 85.2% of the worldwide pharmaceutical market. ● IMS estimates Africa will account for only $5.3 billion in sales, 1.3 percent of the global market, and less than Australasia market ● All of Eastern Europe is $7.4 billion, or about the same size as the Indian sub- continent. ● Few countries in Latin America or Asia have large domestic markets ● The European market is is divided among several distinct national markets, under WTO rules

Few countries have domestic drug markets large enough to justify manufacturing without exports ● In 1999, the top ten national markets represented 79 percent of global pharmaceutical sales ● Only 5 European countries, 2 Asian and 1 Latin American country had a larger domestic market than Canada. ● Population is not highly correlated with market shares

Canada ● Compulsory licensing was hampered by requirements for domestic production. When those restrictions were removed, compulsory licensing was expanded. ● From 1923 to 1969 only 49 applications for compulsory licenses were submitted and only 22 of these were granted. The main factor why compulsory licensing failed was the requirement that the drug be manufactured in Canada. The Canadian market was simply too small to support a manufacturing facility. Generic companies took much greater advantage of compulsory licensing to import than they ever did with compulsory licensing to manufacture primarily because it is considerably less expensive to import a drug than to manufacture it. Consequently, between 1970 and 1978, 142 compulsory licenses were issued on 47 prescription drugs. ● Source: Joel Lexchin, Pharmaceuticals, Patents, and Politics: Canada and Bill C-22. International Journal of Health Services, Vol. 23, No. 1, pages , 1993.

Canadian “Article 30” WTO case ● “Very few countries had fully integrated brand name or generic drug industries within their borders. Even in large countries, generic producers frequently had to obtain ingredients such as fine chemicals from producers in other countries. Many countries had no generic industries at all and had to obtain generic (as well as brand name) products from other countries. Smaller countries that did have generic industries did not have domestic markets sufficiently large to enable those industries to operate on an economic scale. Those industries had to export in order to be able to manufacture in sufficient quantities to achieve economies of scale, so that domestic consumers could receive the benefits of cost-effective generic Products. ● “... the market in the United States was large enough for generic producers to manufacture on an economic scale. Very few countries were in that position. "Pre-expiration testing" exceptions that had the effect of confining all activities to a single country were of little use to countries that, unlike the United States, depended on international trade to obtain generic products. ● WT/DS114/R 17 March 2000 ( )

No exports from rich to poor countries – Even when there is an abuse of patent rights in both countries. – If there was no alternative supplier from developing countries, a likely scenario for some products for rare illnesses, this would result in the compulsory license only benefiting the wealthy country.

No exports from poor to rich countries ● Developing country generic producers would be barred from selling products in the US, Germany or other countries with large domestic markets, making it difficult to achieve efficient economies of scale for products, thus unnecessarily driving up costs in the poor countries. ● Indeed, it is difficult to imagine how poor countries benefit from a legal barrier to selling in rich countries.

Germany Roche/Chiron case ● Roche asked in Germany for compulsory license to HIV blood screening patent

Consider extreme cases ● Spread of global infectious disease ● Nuclear accident ● Biological warfare

Two things that would help protect legitimate interests of innovative pharma companies ● Amend TRIPS to allow rational limitations on parallel trade – Restrictions on exhaustion that depend upon country income or level of development ● WHA should have agreement on limitation of reference pricing