Sex and Drugs and.....International Patent Law

Great Debates
1

It seems that today 39 of the world’s pharmaceutical companies will bite the bullet and withdraw their legal action against the South African Government in which they fought proposed legislation that would allow South Africato import generic drugs at a fraction of First World prices. This is a very important decision by the Pharmaceutical Industry but they haven’t given away the farm. Next up is the fight between the Brazilian Government and the US Pharmaceutical Industry – not, this time, First World vs. Third World and all-together more difficult moral, legal and free market judgements have to be to made, IMHO. The implications of any decision in Brazil stretch far and wide and across industries – for example, Monsanto will be keenly observing developments (is that Coll I can sense twitching over his keyboard ?).

While the legal merits of what would have unfolded in South Africa are complex – legal argument would have taken months – it does seem clear that the overriding consideration was as follows:

The proposed South African (SA) legislation did not breach international patent protection law because it fell within the exemption in TRIPS (Trade Related Aspects Of Intellectual Property) covering national emergencies (in this case the emergencyis that one in nine South Africans have AIDS or AIDS related conditions). This legal position (put forward by SA) was supported by the WTO, the organisation which framed the TRIPS agreement. It looked a winner, especially as the case was to be heard in SA.

SA appears to have made concessions on the vague wording of some of the legislation but the principle of exemption remains unaffected.

The moral arguments surrounding the SA case are equally complex and made even more so by the obtusenessof the Industry and its reluctance to clarify its position: For example: They have agreed to offer Third World countries drugs they can’t afford (will never be able to afford at First World prices) at cost price but what is ‘cost price’ , by whom and how would that be determined and how great would the supply be ? Answer: By the industry according to its own internal and private criteria. There is much else to the morality of this debate.

However the crux of the issue will be raised again in Brazil where cheap copies of patented AIDS drugs are already legally manufactured and have led to a halving of AIDS related deaths since production began. The issue is that Brazil is not a Third World country and, therefore, a potential market for the Pharmaceutical industry.

I think what I’m about to pose are difficult questions for a number of free market, moral and political reasons but they are made much harder by the almost total lack of financial transparency within the Pharmaceutical Industry. Anyways:

At what point to patent law concessions - made for valid legal and, especially, moral reasons to Third World (and, potentially, not Third World countries) - impinge on the ability of the worlds leading pharmaceutical industries to spend as much as possible on researching and developing new drugs ?

Also, should* all* moral arguments be ignored in favour of maximising profit because it is pure profit that funds more R&D that leads to more new drugs or alternatively, if there is a line, to which developing country do we say “No, this far but no farther. Buy the damn drugs on our conditions” ?

2

I’m sitting here trying to think of something else in the category of “patented lifesaving things” besides medicine. Those heart paddle things they use on heart attack victims? Those Arctic waters survival suits for when you fall overboard off the coast of Greenland? See, if I could think of another thing besides medicine, then I could say, “Well, if we’re going to require pharm companies to give away their product at below cost solely to save human lives, then we ought to require such-and-such companies to give away their product, too.” But I can’t think of any, offhand. All that springs to mind is stuff like bicycles and Coca-Cola, neither of which could be reasonably put forward as “life-saving”.

Big Macs may be patented (aren’t they?) but they’re just “food”. If a country needed “food”, it wouldn’t be fair to force McDs to ship Big Macs overseas. Ditto Burger King and Whoppers.

So I guess we’re in the Gray Zone here, uncharted ethical territory.

3

Well DDG, the other key industry affected by this would be agriculture and in particular the efficient (greater yields, less prone to disease, etc) genetically modified crop technology. Same arguments apply…

4

I’d like to see where this debate heads a little more before I jump into it, but I would like to mention that cost price of a drug is most likely to be obtained using the stardard(?) model of cost: what it costs us to make it, package it, and ship it right now.

AFAIK, most of the big pharmaceutical companies do not count on recuperating research costs in their model for pricing drugs, but rather a combination of what it costs to make the drug and what sort of profit they need to continue operation at the current, or an accelerated, pace. R&D is money already spent; it isn’t coming back.

Due to the large number of drugs that never make it to market companies cannot reasonably expect to outlay what a specific drug cost to develop(sinec a large portion of development of one drug occurs at the same time as a million others) and so cannot account for that in sale price. They just want to keep the business going.

So, again, cost price is [most likely] only production, packaging, and shipment costs. And I think even this consists of a huge amount of goodwill. I don’t think that a medical crisis in one area necessitates undermining the incentive to develop medicines; Africa is out of line, but the pharmaceutical companies are left between a rock and a hard place (or as they say in Spain [sub]iirc[/sub], between a sword and a wall, which is much more fitting in this instance, albeit metaphorically speaking).

5

A really terribly complicated debate.

A comment

ARL, as far as I know we price in a profit which is at least partially intended to recupe research and development costs. Apportioning those costs is a bit fuzzy since much research is multi-use but nonetheless our cost structures, be they in biotech or in straight pharms do incorporate recuperation of research costs. Dat’s why we are hot to trot about IP since w/o patents its hard to price these things in.

True.

Probably but on the other hand (and I don’t want to bash me own folks here) one can play accounting games. But we’re not Hollywood.

Yes and no. The morality of this is complex. On one hand one wants to maintain incentives to develop new medicines. On the other hand there are, in this area, clear non-economic moral imperatives. Further, the nature of the problem is not soley confined to “one area” – Asia is a ticking timebomb.

There are a lot of problems we face, ones which disturb me on a more or less constant basis given me work. Piracy is a major concern. Another concern is the example set, and the danger that “tropical” issues will simply be avoided for more high gain issues like fat control for the self-indulgent westerners…

A note, I am note sure that we can exclude Brazil from the ranks of the 3rd World, but this really depends on how we define this very slippery concept. Certainly its on the upper tranche of the 3rd world, but it still is difficult to place it in a Korean category as of yet.

6

Excellent. When I first read this question I thought it was a textbook definition of an impossible dilemna. Judging by the responses to date, no-one has a sheer black and white view of this contradictory issue - should we deny expensive drugs to those in need, or should we deny pharmaceutical companies the funds to develop further cures.

The most effective argument I’ve read so far was

If we build on this point, would that not suggest that there is no point whatsoever in allowing South Africa, or even the most impoverished of countries to use generic drugs. Surely it’s just a short term gain set up against a greater long term loss?

7

Since it was my comments which are noted, let me take a moment to expand on them.

First, the problem in re non-development of tropical medicines is already there without the patent rights issue. “Tropical” medicines are not really funded or researched at any substantive level regardless of patents. Frankly the markets can’t fully bear the costs, without regard to building in research costs. Given the situation we have a case of ** market failure **, and a need for public intervention — subsidized research is what I am thinking of. For much of the developing tropical world, health issues are a serious obstacle to development, sapping productivity and undermining education. Not just AIDS, also resistant malaria strains etc. ad nauseum.

Frankly, one can not expect countries whose populations are prostrate before endemic and epidemic diseases to take advantage, effectively, of global opportunities. Ergo, to reduce poverty and to produce gains for all of us, me, you and the folks in say Mozambique, subsidizing research costs for the private sector for tropical diseases (which may eventually penetrate our sub-tropical areas) is a good deal. I say subsidize the private sector, but public sector science also, IMHO, should receive increased funding. In the medium and long run I think we see positive economic gains for us all. Even in the short run I see gains.

Now, in re the patent argument. I’ve made this case before in re biotech specifically but I think it applies broadly to intellectual property with health/medical/moral dimensions —unlike music or software, for example— that a purely legalistic strategy is wrong-headed from the get go. On one hand we do need to protect basic patent rights. That does contribute to long term development. On the other hand we, and I refer to my industry broadly, also have to recognize that patent rights are something granted by society for specific reasons and their legitimacy has to be supported not solely through legal means but ** more importantly ** through social support. If the community begins to regard your patent enforcement as contrary to basic morality and not contributing to its greater good, you have a real problem. Enforcement will ebb away, legitimacy will ebb away and to an extent you will lose your market. We can see something similar happening in my industry where poorly thought out, overly-legalistic strategies in bio-engineered crops (as well as to engage in self-criticism sometimes premature coming to market) by certain companies have substantially — although I hope not irretrievably — undermined our market by damaging our industry’s rep, our good will.

As such, compromises such as in re AIDS drugs in the face of real, clear medical emergencies are not only good moral sense, they are good long run business sense. Of course in a legal perspective, compromises may do you harm in re precedents, but often this is short run and not truly a problem. One can craft legal strategies which limit the problem while at the same time responding to the problem in a way which both creates good-will for the corporate citizen and helps your long term market position. Creative solutions, IMHO, are fully capable of resolving the tensions, with the sole exception of the following problem, where we face more serious issues:

In re AIDS drugs, I don’t think this is of necessity a long-run problem. Of necessity. The real issue is not the price differentiation for the poor markets — and even at-or-below cost sales, trust me this can be handled in all kinds of ways to actually create advantage— the real problem is leakage and drug tourism. Somewhat similar to the problem of subsidies and getting them to the right people. I don’t work with the Pharm people directly, but I think I can say one of the greatest fears was not lost profits from the poorer tropical nations, in fact any sales there are largely gravy. No, its black market or grey market re-export to the primary markets in the rich, developed world. Or the rich “drug” tourist who travels to country X solely to take advantage of the subsidized (either explicitly or implicitly in the price structure) AIDS drug. Here we have two problems: one in a sense the drug tourist is robbing the impoverished by pushing up demand, absorbing limited medical services and probably price, as well externalizing his or her own costs onto either the country or onto the pharm. absorbing those costs. Second, the drug tourist will have a price effect back home, putting pressure on developed world prices which are necessary to recoup costs. Of course this is also true of the black market re-export/export to the developed world.

Both these problems will occur. Fighting them effectively is something of a challenge.

As free trade pushes towards price equalization, there is of course a natural tendency for the phenomena to undercut market differentiation, which adds to our problem.

Clearly one has to fight for and to an extent undertake oneself anti-piracy measures. Some drug tourists are going to exist, a few pirates. If it can be contained, no problems. If not, then you will see more research dollars, all things being equal, going to fat drugs for self- indulgent westerners with poor diets and less self-control and less to basic medicine.

Well, that’s my general view. This is a terribly complicated problem fraught with a minefield of unintended consequences.

8

C, I don’t want to give the impression that pharmaceutical companies don’t want to make a profit and recuperate money spent on research (and I know they make a profit; my company sells instrumentation to them!), I wanted to make the point that they have no way of accurately recuperating that money. Better to target enough profits to keep current production or to make increased production, a much more realizable and easier-to-calculate goal which, indeed, would have the same effect as recuperating costs.

I agree that there is a crisis; that this crisis demands some action is also not in doubt; that this action should entail usurping intellectual rights makes me very shakey. Will this be a temporary thing, or a blank check on drugs? Can they sign an agreement to work out a short term plan for aiding these countries which would involve a strict cut-off date for renegotiation?

Health is a tricky issue, to be sure. But if only one group of people in the world could be rich, I’d give my dollar to medicine. Perhaps they have been on a high horse for too long because of the great need they fulfill in civilization. But I feel it, in myt bones, that this could set a dangerous trend. After all, why should we pay top dollar when they get it for free?

As far as pushing subsidized research, I think these countries need to get their act together politically in other areas as well. Business are more than happy to move to where the labor is cheap. We hear that cry in America all the time. Pray-tell, why aren’t the business moving there?

9

Well, I don’t know about no way but I see what you are arguing.

Usurping? I think that’s a bit strong. Patent rights are something of social compact. Emergencies often require compromises on property rights. We have one here. And in order to insure wider respect of those same rights, one has to be reasonable about the occasional compromise on one’s legal rights. Else you blow your legimitacy.

Not sure, however even within the TRIPS framework, medical emergencies are a legit reason for enforced licensing. Given the pharms seem to have shot themselves in the foot in a major way, I don’t think the bargaining position is too strong right now.

Well, in re subsidized research, I was thinking of in the G7/11 countries not here. That’s just not realistic. The second part of your statement requires a whole nother thread really.