Innovations in pharmaceutical industry
How to work towards a global benefit for consumers
Intellectual Property Laws across the world is intended to provide incentives to creators, authors, innovators and businesses by granting them monopoly rights usually for a limited period. Those rights would reward their efforts, help recoup their investments and profit from their contributions to society. However, due to inconsistencies and loopholes in law coupled with the ineffectiveness or challenges in enforcement, society suffers from certain monopolistic, controversial and certain unfair trade practices; a few of which are highlighted below to propose an effort to address the issues and work towards balanced solutions.
The dilemma facing patients – both in the developing and the developed world – can be linked more specifically to the patent law controversy emanating from the US and impacting societies. Many large pharmaceutical companies, including drug companies in the US, have been accused of denying generic drugs in the US and elsewhere to needy consumers, indulging in price gouging, appearing to disengage with the needs of the patients in third world countries and being overzealous in their efforts to protect their intellectual property rights by trying to extend the reach and validity of their patents globally. Incremental patenting to extend the validity of patents is a way adopted to keep some drugs away from becoming generic and more freely available.
Prices of life-saving drugs
Arbitrary and huge increase in the prices of life saving drugs – with the primary objective of short-term profit maximization – is one very controversial way consumers are denied what they should be entitled to. US Patent law in general provides creators of novel, non-obvious and useful products with a 20 year monopoly during which no one else can, except with the permission of the creator, produce and profit from such creations. WTO member states have to provide patent protection for any invention, whether a product (such as a medicine) or a process (such as producing the chemical ingredients for a medicine), while allowing certain exceptions- according to Article 27.1 of the TRIPS Agreement. Article 33 of TRIPS also provides that Patent protection has to last at least 20 years from the date the patent application was filed. On expiry of the protection the inventions become generic and go into public domain. New drugs, formulations and compounds are covered by utility patents and the period of protection starts from the date of First-to-File worldwide (earlier at the date of First-to-Invent in the US). Understandably, even if not agreeably, owners of such drug patents are driven to make the most return on investment in this first period.
Price Gouging – the Example of Daraprim
It is often claimed that pharmaceutical companies spend at least a billion dollars for any drug to make it through the long road from creation through testing, trials and to the consumers. Return on investment and the intent to maximize their profits within the protected time period is indeed the economic raison d’être. Recent news of Turing Pharmaceuticals increasing the price of Daraprim, used to treat toxoplasmosis, a life threatening condition affecting HIV patients, by 5000%, from $13.50 to $750 per pill has been controversial to say the least. Meanwhile, even when his company earlier agreed to cut prices by 50% for hospitals that handle about 80% of cases treated with Daraprim, it remains available in Europe for less than $1. Price gouging happens not just in developed countries like the US and surely with more impact would negatively affect developing and under-developed countries that do not have the means to make available such drugs for consumers in dire need.
Consequences for Developing Countries
We find a broad debates regarding price gouging and the claims about weak patent legislations and lax enforcement of patent rights in developing countries like India and China. At the same time, is the reality that many such life-saving drugs are urgently needed in these countries and other least developed countries, but unaffordable given their cost. The non-affordability of such expensive patented drugs is worsened by the acute absence of paid or free medical insurance coverage. Stands such as the one taken by Bayer’s CEO Marjin Dekkers in 2014, when he declared that the cancer drug Nexavar was made for rich westerners and not for poor Indians, suggest that corporate greed ultimately rules over consumer needs – a deplorable goal of pharmaceutical companies.
There are potentially two ways to counter unfair price gouging – by true competition, allowing the market determine true prices for the drugs, or by legislative price controls and more effective regulation that provides transparency and prevent unfair trade practices. Imprimis Pharmaceuticals’ announcement to create a Daraprim alternative that is a compound using active generic ingredients would cost patients only $1 a pill. This competitive outcome, is a potent and quick way to counter and help treat the life threatening Toxoplasma infection that severely affects pregnant women and immune-compromised AIDS patients. However if the generic drug has to be acceptable for consumers, it needs to be FDA approved.
Another strategy to deal with this issue in emerging countries keen to provide life-saving drugs for their people, is the adoption of compulsory licensing invoked by the government to control costs and counter denial to those in need. Article 31 of the TRIPS agreement provides for the mechanism of compulsory licensing of pharmaceuticals and medicine, meaning that the patented product may be produced without consent of the patent owner. The compulsory licenses may be obtained not only to supply in general the domestic market of countries that are among the least developed, but also under certain conditions for export to other countries that do not have production capacity. Normally, compulsory licenses can be granted by countries after their declaration to do so, subject to conditions listed under Article 31 of the TRIPS agreement. This includes the need for the person or company in the WTO member country to negotiate a voluntary license first with the patent holder on reasonable commercial terms. Only if such negotiations fail a compulsory license may be issued, after which the patent holder has to receive a payment of adequate remuneration. In the case of ‘national emergencies’, ‘other circumstances of extreme urgency’ or ‘public commercial use’, there is no need to try negotiating a voluntary license before seeking a compulsory license.
The market forces of demand and supply may indeed bode well when companies acknowledge the reality of the burgeoning middle income markets in countries like India, China and other developing countries, where competitive price policies would help reap returns while meeting the genuine and immediate needs of its consumers. With the growing reality of compulsory licensing that has been adopted by some WTO member states like India, it makes business sense for pharmaceutical companies to have an equitable approach to voluntarily licensing the drugs in question. Providing those consumers in need with prices lower that what they are charged for countries like the US, can still contribute to the return on investment given the larger volume of sales.
Looking at the initial investment in research and development, it is also argued that the claims of high expenditure for innovation are often grossly inflated. This if proven would undermine the argument of the threat to innovation posed to the industry. In that light, there is apparent need for transparent mechanisms to measure expenditure and ensure the reasonableness of the rewards sough in return for such innovation.
The dispute about accessibility of life-saving drugs, especially for consumers in developing countries, belongs to the most vehement and complex questions in today’s world – touching upon issues of intellectual property, reasonable demands from society towards private companies, and global justice demands. There might be no easy reconciliation between companies’ business interests and the claims of patients, but as has been shown in this contribution, international law offers some ways to mediate the two.
Most importantly, the lack of regulations to control price gouging and arbitrary extension of patents and ensure transparency of manufacturing processes, costing and market mechanisms need to be addressed. To strengthen the US Patent and Trademark Office (USPTO) and similar agencies worldwide, and to promote legislative action to tighten loopholes in the law can further balance between legitimate claims of innovators and interests of society. Individual governments also have a role to play in mediating this tension between Intellectual Property Law and Antitrust Law, each in their specific jurisdiction safeguarding that regulatory regimes are poised to protect the interests of the technology transferring licensors, while enabling the maximum accrual of the benefits of innovation to the consumers world-wide.
Beside availability of legal channels, it is fair to expect that companies will abide by an ethos of their profession. One of the Bayer company’s early presidents, George Merck, is quoted with the following: ‘We try to never forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we remember it, the larger they have been.’ In light of some of the discussion, the quote might sound ironic. It is hoped that it loses some of its irony.
Dhiraj R. Duraiswami is an international business and technology consultant, based in New York City for more than 20 years and currently pursuing an LL.M in Intellectual Property Law at the Benjamin N. Cardozo School of Law.
Cite as: Dhiraj R. Duraiswami, “Innovations in Pharmaceutical Industry: How to Work Towards a Global Benefit for Consumers”, Völkerrechtsblog, 15 September 2016, doi: 10.17176/20180522-182645.