IMRS CI 2008 Topics Course No.1

1. IMRS CI 2008Topics Course No.1 The TRIPS and Public Health Debate Do Intellectual Property Rights Facilitate Research and Development in new Pharmaceuticals or Hinder Access to Medication?

2. Issues • The Link between International IP protection, Free Trade and Public Health • TRIPS Provisions Affecting Public Health Issues – Why is the WTO Debating about HIV/AIDS, Malaria and other Epidemics? • The Doha Declaration on TRIPS and Public Health – All Issues Solved? • The ‘Paragraph 6 Solution’ – Does it Properly Address the Problem of Insufficient Domestic Manufacturing Capacity in the Pharmaceutical Sector?

3. Linking IP, Trade and Public Health Introduction • Pharmaceuticals are amongst those products which are very expensive to develop to final product stage but to (relatively) easy copy or imitate • For the R&D based pharmaceutical industry, IP is an essential tool to recoup their R&D costs, generate profits and fund R&D for future products • In order to explore global markets, Pharma aims for strong, global and harmonised IP protection

4. Linking IP, Trade and Public Health Focus on 2 separate issues: • 1) How does the IP system contribute to the development of drugs and vaccines - especially those needed by the poor? • 2) How does the IP system affect access – especially again of the poor – to drugs and their availability?

5. IP as Incentive for new Drugs In Industrialised Countries (IDs): • Pharma business models often rely on selling ‘block-buster’ drugs (sales<$1billion p.a.) to finance high percentage of failures in R&D • Since public health services usually cover treatment and (a considerable proportion of) the drug price, the is always potential buyers of effective new drugs (a market) • IP protection for pharmaceuticals has proven as incentive creation mechanism to develop drugs against the prevalent diseases as it ensures – by creating artificial monopolies - that R&D expenditures can be recouped and profits made

6. IP as Incentive for new Drugs In Developing Countries (DCs): • Does (high) IP protection equally provide a sufficient incentive for the production of new drugs? • This can be doubted because • In most cases, no effective state insurance scheme for healthcare products/services exist • Most people pay for their own health care • Per capita spending on healthcare is around $23 p.a. in low income DCs

7. IP as Incentive for new Drugs Effects of an absence of a significant market in DCs: • Market based principles (which encourage development and production of drugs wanted) will only function if ‘customers’ can pay for the respective product • (strong) IP as suchonly prevents copying by competitors but does not serve as incentive mechanism if no ‘customer’ base exists which can pay enough to recoup the investments…

8. IP as Incentive for new Drugs Results for the development / production of new drugs for DC related diseases: • Sufficient development of drugs regarding diseases found in both DCs and IDs (diabetes, heart diseases – also HIV/AIDS? HIV strains in DCs distinct to those in IDs…) • Less than 5% of Pharma R&D spend (and only 13 out of 1933 drugs approved over 20 years) on DC diseases (Malaria, TB, Sleeping Sickness, etc)

9. IP as Incentive for new Drugs Role of Public Sector Funding / Research • National Institutes of Health / Medical Research Councils in IDs concentrate on domestic diseases • Public Sector spending in DCs is often comparable little • WHO, NGOs and Public-Private Partnerships (PPPs) aim to increase spending for DC related diseases (neglected diseases, ND)

10. IP as Incentive for new Drugs From Market-driven to Health Needs-driven Approach:  How to create incentives for R&D in NDs? • Funding basic research • Prizes to reward specific innovations • Advance purchase commitments • Patent buyouts (welfare-based price) • Global R&D fund for NDs, centralised IP portfolio for ND – individual exploitation in potent markets

11. IP as Incentive for new Drugs? Conclusions: • For diseases in both IDs and DCs, sufficient incentives may exist but their effectiveness may be limited due to differences in the disease • As long as there is no sufficient market in DCs to pay for the most relevant diseases, IP protection alone is not sufficient for theprivate sector to engage in R&D for neglected diseases • Public sector spending and alternative incentives thus must be significantly increased to provide for research incentives

12. IP Limiting Access to Drugs? General Effect of IP protection: • IP on drugs (especially patents) only grant a limited monopoly preventing competitors from making, using and otherwise exploiting a protected invention • As such, this does not prevent competitors from offering a drug addressing the same disease as long as it does not involve the patented invention • However, the ability to exclude competition from copied drugs usually allows to charge high prices

13. IP Limiting Access to Drugs? • Do IPRs (especially Patents) on drugs effecti-vely diminish competition and lead to prices unaffordable for most people in DCs? 2 Main Counter Arguments: • As Patents are usually not sought in smaller DCs, they cannot represent a relevant factor for access to drugs in these countries • If they are sought, they are not a main price determinant or there are other factors limiting access to drugs

14. IP Limiting Access to Drugs? Effect of Non-Patenting in (small) DCs: • In DCs with small markets and limited technological capacity, potential earnings and infringements risks are low – so that patenting is not worth the expensive patenting fees • But significant patenting in DCs with bigger markets and tech. capacity (SA, India, Brazil) • Smaller DCs generally rely drug imports from these bigger DCs – patents (and prices) there influence also availability in smaller DCs

15. IP Limiting Access to Drugs? Effect of Non-Patenting in any DCs: • Basically no patenting regarding the main diseases relevant in most DCs (TB, Malaria) so that patent protection cannot negatively impact on access to drugs? • Probably true – but lack of patenting only results from lack of incentive to develop drugs for these DC diseases as there is no economically potent customer base…

16. IP Limiting Access to Drugs? Patents and high Prices (general): • Importance of Drug Prices: Decisive for access; and: The more (poor) people spend on healthcare, the less remains for other essentials • Drug prices affected by • purchasing power (of public health authorities, Gov‘s) • Competition and market structure • Responsiveness of demand to price • Availability of Price Controls, other regulations • Import taxes, tariffs

17. IP Limiting Access to Drugs? Patents and high Prices (IDs experience): • After patent expiry, generic competition tends to bring down prices significantly if • sufficient market demand for off-patent drug • Several (best 5 or more)generic competitors exist • Governments can encourage competition and therefore ensure low prices by facilitating early market entry of generics after patent expiry • Gov‘s can try to regulate markets by price controls if their market is potent enough

18. IP Limiting Access to Drugs? Patents and high Prices (DCs experience): • Option to bring down prices by facilitating generic competition?  Small market size and lack of manufacturing capacity limit ability to encourage production of generics • Option to adopt price controls? Only if market is potent enough for Pharma not to withdraw from it  In global markets and national market economies, (drug) low prices are dependent on effective competition and sufficient demand

19. IP Limiting Access to Drugs? Patents and high Prices – any real impact? • Patents only have an strong impact on price if sufficient potential (generic) competitors exist • Impact of patents is likely to be strongest in big DCs with strong generic industries (India, etc) • Impact in these countries will extend to all DCs which are relying on generic imports • Recent differential pricing policies of patent holders amount to price reductions in some DCs – these can be utilised by parallel importation

20. IP Limiting Access to Drugs? Other Factors affecting Access: • Absence of healthcare infrastructure, efficient drug distribution • Lack of public spending • No safeguards ensuring safe medication  While comparative relevance of patents is disputed, surely IP policy needs to be tailored towards the public health needs

21. TRIPS rules affecting Public Health • Which TRIPS provisions are relevant for national IP laws regulating IP protection of pharmaceutical products? • Which IPRs could apply to (new) drugs and which exceptions can a national legislator foresee without infringing TRIPS?

22. TRIPS rules affecting Public Health • In general, (elements of) pharmaceutical products can receive protection as • Inventions under patent provisions (Art.27-34) • brand names under trademark rules (Art.15-21) • Data submitted to obtain regulatory approval from health authorities against unfair use (by second comers), Art.39 sec.3

23. TRIPS rules affecting Public Health General distinction between patents – trademarks: • patents actually protect inventive drugs and processes used in the development of drugs • trademarks can merely prevent others from using the (same or a similar) brand name, logo, etc. with regard to the (same or similar) drug  Therefore they have a different impact on access and competition: Only patents directly affect the production, trade and conditions of availability to the public and competitors of protected drugs…

24. TRIPS rules affecting Public Health Patent protection for pharmaceuticals • Scope: Patents protect inventions(↔ disco-veries) in all fields of technology, Art.27 sec.1 TRIPS allows to excludefrom patentability: • Plants and Animals (except micro-organisms) • Essential biological processes (other than non-biological & micro-biological processes) • Diagnostic, surgical and therapeutic methods of (medical) treatment for humans and animals

25. TRIPS rules affecting Public Health • Tendency in IDs (with strong bio-tech/pharma industry):  patents granted to purified, isolated or crystallized products obtained from a natural source • Some DCs tend to use all TRIPS flexibilities to limit patents related living, pre-existing material • Free Trade Agreements (FTAs) with EU, EFTA, US, Japan often force DCs to grant „TRIPS-plus“ patents on bio-material

26. TRIPS rules affecting Public Health Tendency for a ‘liberal’ application of Art.27 • Patents apply to inventions which are new (not known anywhere world-wide), involve an inventive step (not obvious for persons skilled in the technology) & are industrial applicable (or show utility) • In IDs, pharmaceutical patents are often granted to a natural substance (often found in DCs) in respect to its new (not known) therapeutic use • Some IDs also allow pharmaceutical patents on second indications / second „new“ uses of a medication (evergreening)

27. Doha Declaration & Para.6 Solution Consider the following questions: • In your opinion, what (if any) importance did the Doha Declaration on TRIPS and Public Health have for easy access to medication in DCs? • Explain the interrelation of compulsory licensing under Art.31 TRIPS, exports of drugs produced under such a license and countries lacking domestic facilities to produce pharmaceuticals! How is this problem solved under the so called ‘paragraph 6 solution’ (Decision of 30th August 2003)?

28. Doha Declaration & Para.6 Solution Doha Declaration on TRIPS and public health, 11/2001 • Background: LDCs in Africa require fast and easy access to cheap medication to address Pandemics such as HIV/AIDS, Malaria or Tuberculosis. Strong patent protection without flexibilities prevents such access to medication. • The Doha Declaration was agreed at the Ministerial Conference in Doha addressing the problem of easy access to medication

29. Doha Declaration & Para.6 Solution The Doha Declaration addresses • The right to interpret TRIPS supportive to protect public health and in light of its objective/principles • TRIPS flexibilities (compulsory licenses, determination of national emergency, freedom to allow parallel imports (see Art.6 & fn.6 to Art.28) • A mandate to find a solution for countries with insufficient domestic production facilities cannot effectively utilise compulsory licenses (due to Art.31 f TRIPS) • Extension of product patent moratorium for LDCs

30. Doha Declaration & Para.6 Solution • Background: DCs policy option of allowing parallel imports from low price countries due to • Differential pricing structures of patent holders/licensees • Price controls for medication • No recognition of patent term extensions • Compulsory licenses? (-), Art.31 f) TRIPS ensures that main production remains in the domestic market • Patent holders’ response by tackling parallel imports through FTAs, different product packaging and varying brand names

31. Doha Declaration & Para.6 Solution Background: Compulsory licensing (CL) under Art.31 TRIPS and manufacturing capacity • The grounds on which compulsory licenses are granted are freely to be determined by national laws – TRIPs does not impose any limitations and allows also the use of CL to tackle public health crisis’ • Art.31 rather regulates a long list on the procedure to be followed and terms to be included in CL • In particular, Art.31 f) requires a production under a CL to be predominantly for the supply the domestic market  DCs which lack domestic production facilities cannot produce ‘at home’ and cannot rely on imports from countries where the drug is under patent protection

32. Doha Declaration & Para.6 Solution The Doha “paragraph six solution” (08/2003) • Art.31 f) is waived for the exporting country • coverage: esp. HIV/AIDS, Malaria, TB and the patented inventions (products, processes) needed to address public health problems • Generally, all LDCs, DCs and Countries in transition can use the system as importers • All WTO Members can be exporters • Safeguards against Trade Diversion (specific labelling, packaging; complete exportation, etc)

33. Art.31 bis TRIPS & TRIPS Annex Consider the following question: • Would you agree that the permanent version of the ‘paragraph 6 solution’, the new Art.31 bis TRIPS and the related Annex to TRIPS solves the problem of insufficient drug manufacturing capacity in most developing countries? • In your opinion, what else should be done regarding (international) IP law to facilitate access to drugs?

34. Art.31 bis TRIPS & TRIPS Annex Amendment to TRIPS (12/2005) • Amendment as permanent version of the (temporary) paragraph 6 solution - almost identical in substance • (remaining) Problems: • Merely one use so far of the para.6 solution… A sign of its failure to address public health concerns? • legal status of chair’s statement (containing further limitations on using the para.6 solution) • How to facilitate research in and products for ‘neglected diseases? • So far, only a handful of countries have ratified the amendment…

35. Case Studies Consider the 2 case studies: • Compulsory Licensing in Thailand • Bird Flu Outbreak in UK

36. Compulsory Licensing in Thailand • Assume the right holders AL and BMS object the issuance of a compulsory license and consider to lobby their respective governments to take the case to the WTO dispute resolution. They think that key provisions of TRIPS have been violated by the procedure adopted by the Thai Government. In particular they argue • that the Thai government cannot issue a compulsory license for ‘non-epidemic’ diseases as they are not covered by the Doha Declaration on TRIPS and Public Health • that the government had not sufficiently negotiated a license with them before moving to issue a compulsory license and • that any imports of generic drugs (consisting of the patented medication) from India violate their patent rights under Art.28 TRIPS and further the newly established mechanism of Art.31 bis and the Annex to TRIPS • Advise the Thai Government on their chances of winning a potential dispute in the WTO!

37. Compulsory Licensing in Thailand Compliance of the Thai CL with WTO Law • Option to issue a compulsory license for ‘non-epidemic’ diseases? • Not covered by the Doha Declaration on TRIPS and Public Health? • Para. 1 focussing on epidemics, but para.4 and esp. para.5 (b):right to grant CL and freedom to determine the grounds on which CL is granted

38. Compulsory Licensing in Thailand • Insufficient negotiations for a license with right holder before moving to issue a compulsory license? • Art.31 (b) generally requires such ‘efforts to obtain authorisation’. But this requirement is waived, among other cases, in those of ‘public non-commercial use. • Art.31 (b) does require prompt notification of the right holder

39. Compulsory Licensing in Thailand • imports of generic drugs (consisting of the patented medication) from India violating patent rights under Art.28 TRIPS? • Thailand could legalise parallel importation (first sale in India as exhausting the importation right), see Art.fn.6 to Art.28 and Art.6 – but controversial whether first sale must be one with the consent of right holder… • Thailand could also extend CL to cover distribution of Indian drugs in Thailand

40. Compulsory Licensing in Thailand • imports of generic drugs (consisting of the patented medication) from India violating the newly established mechanism of Art.31 bis and the Annex to TRIPS? • Art.31 bis TRIPS does not apply as drugs are not under patent in India!

41. Bird Flu Outbreak in UK The British Health Authorities plan • to issue a compulsory license to domestic producers in the UK to produce more vaccination as soon as possible • to request other EU member countries, the US and India (all countries where the vaccination is under patent) to authorise a compulsory license to produce large quantities to be exported to the UK The holder of the patent for the vaccination does not object to a compulsory license in principle but thinks that the procedure under Art.31 TRIPS has been violated. The company further considers any imports into the UK as violations of WTO law and points to the fact that the UK has opted out to use the ‘paragraph 6 solution’ as an importer (as it is stated in the chairman’s statement related to the recent Art.31 TRIPS amendment). • Examine the legality of the actions of the UK government under TRIPS, including the recent amendment to TRIPS!

42. Bird Flu Outbreak in UK • Violation of procedure of Art.31 because no negotiations with the right holder took place before issuance of CL? • Art.31 (b) allows CL issuance without prior negotiations in cases of ‘national emergency and other extreme urgency’ this arguably covers bird flu outbreak (see para.1 Doha Decl); further, each WTO Member has the ‘right to determine what constitutes a national emergency…’ (para.5 c) Doha Decl)

43. Bird Flu Outbreak in UK Legality of Imports produced under CL abroad: • As Art.31 f) prohibits the exportation of the predominant part of drugs prepared under CL, such actions are legal only under the rules of Art.31 bis, Annex to TRIPS • Since UK opted out to use the system, can it opt back in? See Annex para.1 b), the related chair’s statement…

44. Thank you for your attention! Questions to henning.gr-khan@ip.mpg.de