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Bradly Condon, ITAM and Bond University and Tapen Sinha, ITAM and University of Nottingham

Bargaining for Lives at the World Trade Organization: The Law and Economics of Patents and Affordable AIDS Treatment. Bradly Condon, ITAM and Bond University and Tapen Sinha, ITAM and University of Nottingham. Worldwide numbers. The Global AIDS Crisis at a glance:

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Bradly Condon, ITAM and Bond University and Tapen Sinha, ITAM and University of Nottingham

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  1. Bargaining for Lives at theWorld Trade Organization:The Law and Economics of Patents and Affordable AIDS Treatment Bradly Condon, ITAM and Bond University and Tapen Sinha, ITAM and University of Nottingham

  2. Worldwide numbers • The Global AIDS Crisis at a glance: • World-wide: over 40 million cases • Sub-Saharan Africa: over 28 million cases • Spreading most rapidly • in Eastern Europe and Russia • and sheer numbers are scary in India and China • prevalence rate in India is estimated at 0.8%, with some 8,000,000 • if more than 1%, numbers tend to rise steeply

  3. The Global AIDS Crisis • UN considers AIDS a global security issue. • Hits South harder than North. • Sub-Saharan Africa and S. & S.E. Asia: • 85% of total worldwide cases • 84% of new infections (2001) • 90% of deaths (2001) • Prevalence rate versus incidence rate • Prevalence might fall with rising incidence: the case of Uganda

  4. Dimension of the problem in South Africa

  5. Economics of drug pricing • If it is a developing country only disease (like tropical diseases) • There is no high-income markets to pay for R&D • Supply-side or demand-side subsidies are essential to encourage R&D • There is no alternative

  6. Differential (Ramsay) Pricing • Demand for drugs is less price elastic in the North than in the South • Ramsay rule says that for profit maximizing price discriminating monopolist should charge higher price in the North and charge lower price in the South • What is the empirical evidence?

  7. Are Drug Companies Evil?

  8. Antics of PhARMA • (1) The pharmaceutical giant Glaxo representatives sent a letter to an Indian generic-drug maker, Cipla Ltd., accusing it of violating Glaxo's patent by seeking to sell low-priced versions of Glaxo's drugs in Ghana. Glaxo later conceded it had no valid patent in Ghana. • (2) Later, they repeated the warning to Cipla for allowing generic import of AIDS drugs in Uganda, only to back down once more. • (3) In a meeting with United States Trade Representative Charlene Barshefsky, industry executives insisted that the problem with AIDS in Africa was not high-priced drugs, but a lack of computers and other components of health-care infrastructure

  9. Cost and pricing of drugs • Patents encourage R&D, innovation. • Pharma says average cost of developing successful drug is $500,000,000. • This overstates true R&D costs and ignores public investment in research. • Cost of AIDS cocktail in US: $10-15,000/yr • African health-care budgets: $6/yr/person

  10. Generic Manufacturers • Cipla, Ltd. of Bombay, India has offered cocktail for $350/yr. in Africa to DWB. • Thus, to supply in Africa, the drugs need huge subsidy or donation from somewhere • WTO: India has until 2005 to recognize 20 year patents on products that had no patent protection in India before 1995. • WTO allows countries to issue license to manufacture generic drugs, but not for export.

  11. Global prices for active ingredients for HIV/AIDS drugs Price of AZT D4T 3TC Nevirapine 1998 800 10,000 10,000 10,000 1999 750 2,500 5,000 7,000 2001 650 1,000 750 1,500 Note: Prices are expressed in dollars per kilo. These are the ingredients for the triple therapy cocktail

  12. Relevance of drug cocktail

  13. Survival rate Relevance of drug cocktail 80% 2000 cohort 1985 cohort 10% 12 months 36 months

  14. WTO TRIPS Agreement • Exhaustion of patent rights cannot be subject of a dispute • Exhaustion means once the product is sold, the patent holder cannot prevent resale. • WTO members are thus free to permit parallel imports of patented drugs. • Parallel imports of generic copies of patented drugs prohibited in countries that implement TRIPS.

  15. WTO TRIPS Agreement: Exceptions • Necessary to protect public health and nutrition, provided consistent w TRIPS. • Necessary for protection of essential security interests. • Compulsory license after negotiations; can be waived in emergency, extreme urgency or non-commercial public use. • License must predominantly supply domestic market; this prohibits large-scale exports

  16. AIDS, Anthrax and Patents • Brazil threatened to issue compulsory license in negotiations with Merck (US) and Roche (Swiss). • US filed WTO complaint against Brazil (withdrawn). • US and Canada used similar strategy with Bayer (German) during Anthrax scare. • In the case of Anthrax, there were exactly five deaths in the US and none in Canada • US/Canada actions against Bayer weakened their negotiating position at Doha.

  17. WTO TRIPS Agreement: Doha Declaration • Brazil, India and 38 African countries joined together to fight US, Canada and Switzerland position at Doha, resulting in Doha Declaration on TRIPS. • Members have right to grant compulsory licenses and determine grounds for granting • “Public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency…”

  18. TRIPS and Bargaining Power • TRIPS exceptions enhance bargaining power of governments in price negotiations. • Brazil used threat of compulsory license to reduce Roche price to 30% of U.S. price. • U.S. used same threat to reduce Bayer price to 25% of normal retail price. • Note that the threat is only credible if country has generic manufacturing capability.

  19. Parallel Imports of Patented Drugs • WTO rules permit members to allow parallel imports of patented drugs. • If allowed, price discrimination strategy not sustainable -- if drug is cheaper in Brazil, U.S. consumers would import from Brazil. • Developed country markets not threatened by price cuts in developing country markets if former prohibit parallel imports.

  20. Imports of Generics • WTO rules prohibit imports and exports of generic copies of patented drugs: 1995, 2005, 2016. • Developing countries should be allowed to import generics if they have no manufacturing capability. • To give them same bargaining power as those who can issue compulsory license. • Can prohibit resale in developed countries to preserve research incentives.

  21. Doha Declaration, Paragraph 6 • Para 6. “We recognize that WTO members with insufficient or no manufacturing capacities in the pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPS Agreement. We instruct the Council for TRIPS to find an expeditious solution to this problem and to report to the General Council before the end of 2002.”

  22. Paragraph 6 Negotiations • Dec 2002: 143/144 WTO members agree on solution • United States disagrees because Pharma disagrees • Pharma donated $60m to Republicans • Problem of regulatory capture • Decision finally reached just before Cancun meeting on Aug 30, 2003

  23. Paragraph 6 Decision • WTO members can issue compulsory license for export to countries that lack generic manufacturing capacity. • Exporter pays compensates patent owner (litigation risk). • Importer must also issue license (paperwork). • All except least-developed must notify WTO, specify names and quantities of drugs (limits competition), and duration of license (hard to determine). • Must prevent parallel imports and diversion (extra cost). • Manufacturer must use special labels and post info on website re quantities and destination (extra cost).

  24. Paragraph 6 Decision: 4 categories of country • Least-developed (UN index) • Countries that (voluntarily) agree not to use system to import: EU, US, Canada, Japan, Oz, NZ, Switzerland, and E. Europe after accession • Countries that agree to use system only in emergency or extreme urgency (ie not for non-commercial public use): Hong Kong, Israel, Korea, Kuwait, Macao China, Mexico, Qatar, Singapore, Taiwan, Turkey, United Arab Emirates • Remaining members (developed and developing) • Problem: UN index not appropriate

  25. Implications for Global Pharmaceutical Industry • Profits come mainly from rich markets. • 1975-1999: 16/1393 of new chemical entities marketed were for tropical diseases and tuberculosis. • 0.2% of annual health-related R & D worldwide iss for pneumonia, diarrhoeal diseases and tuberculosis ­ yet these account for 18% of the global disease burden. • Price reductions or compulsory licenses forAIDS drugs in developing countries do not remove research incentives. • Differential pricing strategy not affected as long as resale in rich countries prohibited.

  26. Brazil’s move in Sept 2003 • Threatened to import generics from India, China or Thailand in further price negotiations. • Brazil wants 40% price reduction; companies offered 6.7%. • Brazil can do this until 2005 without using Para. 6 system; plans to manufacture in Brazil later. • After 2005, India, China, Thailand must implement TRIPS • After 2005, only least-developed can produce for export without using Para. 6 system.

  27. Stephen Lewis, UN Special Envoy for AIDS, Sept 25, 2003 • “the rich world, annually, spends 600 times as much on defense as Africa has for AIDS, and 350 times as much on subsidies as Africa has for AIDS. My use of the phrase ‘grotesque obscenity’ ...may sound strong, but it wilts in the face of those numbers.” • “It’s time for one of the major industrial countries, in particular, one of the G7 countries, to announce the manufacture and export of generic drugs to Africa. I would wish it to be my country, Canada...”

  28. Canada’s move • Canadian generic industry asked govt to change law to permit exports at cost. • Can. govt expressed concern over possible US reaction • After Lewis statement, Can. govt announced plans to change Canadian patent law to permit generic exports under the Paragraph 6 system. • Representatives of the multinational pharmaceutical companies first criticized Canada, then decided to participate in negotiations with the government regarding the content of the proposedlegislation.

  29. Nelson Mandela • “The world must do more, much more on every front in the fight against AIDS. Of course, it means dramatically expanding our prevention efforts, but the most striking inequity is our failure to provide the lifesaving treatment to the millions of people who need it most. The single most important step we must now take is to provide access to treatment throughout the developing world. There is no excuse for delay. We must start now. If we discard the people who are dying from AIDS, then we can no longer call ourselves decent people.”

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