Healthcare / Trade

Brand vs. Generic: TPP’s Looming Drug War

Earlier last week, Politico leaked a chapter from a recent draft of the Trans-Pacific Partnership (TPP) free-trade agreement granting intellectual property protection for pharmaceutical drugs. Unfortunately, for trade negotiators, the leaked information does little to quell the loud harangues and controversy surrounding international intellectual property rights (IPR). Developing countries and proponents for the global poor, labor unions, and generic drug companies have argued that strong IPR regimes would stifle R&D and create barriers for the poor from having access to life-saving drugs. Unfortunately, there has been little discussion regarding the importance of IPR and its contribution to long-term R&D and global health.

Background

Patents are laws that protect intellectual creations by granting the inventor a monopoly over his/her creation for an established amount of time. The main purpose of patents is to encourage “approrpiability;” i.e, the environmental factors that govern an innovator’s ability to capture profits generated by an innovation. A high level of appropriability encourages inventors to invest considerable capital into R&D in exchange for disclosure of information into the public domain.

Unique Challenges

Specifically for the pharmaceutical industry, IPR serves as a crucial guarantee – a safety mechanism – for innovators to retain reasonable returns on their investments. Developing new chemical entities (NCE) and designing efficient manufacturing processes require extraordinary amounts of time and capital. Out of 10,000 compounds synthesized, on average merely 25 reach animal testing phase, 10 to clinical trial, and only one receives approval for marketing. Barely 3 out of 10 approved drugs recover R&D investment cost, requiring a constant stream of potential compounds through extensive network of NCE pipelines.[1] However, replicating the process and formula for drugs costs only a fraction of the required investment. While pharmaceutical multinational corporations (MNC) are required to clinically test NCEs with thousands of patients in order to receive the regulatory green light, generic companies are not required to undergo the same tedious process.[2]

Due to cheap replication costs and less regulatory requirements, pharmaceutical MNCs are vulnerable to fierce price gauging from generic competitors. In 2011, for instance, Pfizer was projected to lose $10 billion in revenue with the expiration of its blockbuster cholesterol reducing drug, Lipitor. With giant generic corporations such as the Osaka based company Sawai Pharmaceutical and the world’s largest generic producer Teva securing significant market shares, Pfizer share prices dropped 60 percent as the Dow increased by 40 percent.

While most of the debate has been focused on patent lifespans, pharmaceutical companies are unable to market its product efficiently due to early disclosure. In the United States, the maximum lifespan of a patent is 20 years and begins as soon as information is disclosed. While sectors, such as semiconductor and electronics, are able to withhold information up until marketing, medical research stresses a strong culture of early disclosure through peer-reviewed medical journals and academic publications. Consequently, pharmaceutical MNC’s are unable to take full advantage of the 20 years due to academic pressure to disclose information years before marketing. Thus, without patent protection, generic companies would have already began to replicate research and clinical trials years before the drug would have time to be marketed.[3]

Access

One of the primary concerns developing countries face in creating a comprehensive IPR system is access to drugs. Developing countries are faced with multiple public health dilemmas such as AIDS, HIV, and tuberculosis (TB), and Antiretroviral (ARV) and other essential drugs aimed towards tropical diseases are very often the most inaccessible. Critics of strong IPR regimes in developing nations blame international IPR agreements for allowing pharmaceutical MNC’s to create spheres of monopolistic control over the prices of ARV to combat HIV and AIDS. Robust market competition, according to critics, will not only dramatically lower prices of essential drugs, but will broaden access to these critical life-saving drugs. For example, in 2001, the patent for the ARV triple drug used to combat AIDS expired. By February 2001, Cipla, an Indian based generic corporation, announced it would sell a generic version of the ARV triple drug for USD 350/year, which was previously USD 931 under patent protection. Two months after, Hetero announced it would sell the cocktail for USD 347. A month after, Ranbaxy began to market its own generic version for USD 295. In a span of merely four months, fierce generic competition forced world prices for the triple ARV drug to drop by 78 percent.

Although patents do contribute to an increase in prices, patents should not be mistaken as the main causal driver behind inaccessibility to essential drugs. Confounding variables, such as poverty, lack of infrastructure, and shortages in doctors, are important factors contributing to inaccessibility. Furthermore, there is no evidence to suggest that essential unpatented drugs are consumed at greater frequency than patented drugs. Intuitively, consumers would naturally purchase drugs that are cheaper. Yet in developing countries, annual drug spending is less than $2/person, and most people in developing countries are unable to afford both patented and generic drugs. The argument that patent prices restrict drug access has been grossly exaggerated. In developing countries, pharmaceutical companies undergo patents 69 percent of the time, while 98.6 percent of essential drugs are not qualified for patents.

Conclusion

 No doubt, IPR has traditionally been a major point of contention in free trade agreements. There have been much exaggerations, conspiracy theories, and demonization surrounding the IPR draft proposal in the TPP. Yet, the proposed 12 year IPR life-span limit is modest – 8 years less than U.S. patent laws and the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement established during the Uruguay Rounds in 1994. Given the unique challenges that pharmaceutical companies face, IPR is a sure way of encouraging continued investment in medical research and development of life-saving drugs.

References

[1] The Indian Pharmaceutical Industry, ICRA Industry watch series, ICRA Limited, 2002

[2] Guennif, Lalitha N. TRIPS Plus Agreements and Issues in Access to Medicines in Developing Countries. Gujarat Institute of Development Research, Working Paper Series, No. 174, May 2007.

[3] Ibid, 7-8

 

Medicina by Josué Goge is licensed under CC BY-NC-ND 2.0

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