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Is Compulsory Licensing Bad for Public Health? Some Critical Comments on Drug Accessibility in Developing Countries

Applied Health Economics and Health Policy volume 15, pages 557–565 (2017)Cite this article

Abstract

As one of the flexibilities provided by the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) establishing minimum standards for the protection of property rights, compulsory license (CL) represents a means towards the protection of public health issues within a context of stringent protection of intellectual property rights (IPRs), most notably in poor-resource settings. However, recent literature asserts that CL constitutes a serious limitation to the full enjoyment of property rights by innovators and may therefore threaten drug accessibility in developing countries. This paper outlines the impact of CL on drug accessibility in developing countries by addressing the three main dimensions of accessibility (availability, affordability and quality) and proceeding to a literature survey of key arguments for and against CL. It concludes that CL inhibits neither the availability of essential drugs nor the affordability of life-saving treatments or the supply of high-quality drugs in developing countries, in particular antiretroviral drugs.

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Notes

  1. There are few studies relating to the impact of CL on innovation in the pharmaceutical sector, and they concern only developed countries [26]. In addition, there are no studies on the impact of CL on the decision-making process of firms in the pharmaceutical sector.

  2. Chien studied six CLs ordered by the US Free Trade Commission between 1980 and 1997, under antitrust consent decrees for treatments against communicable and non-communicable diseases such as diabetes, herpes or HIV/AIDS.

  3. The example of Canada is enlightening in terms of how CL can be deployed as a means towards the capacity building of the local pharmaceutical sector. Accordingly, a proper IPR regime and large provisions for CL were designed to promote industrial capabilities in the sector and increased the competitiveness of domestic firms compared with foreign companies. As for today, developing countries such as Brazil and India are concerned both by the promotion of a competitive pharmaceutical industry and the protection of public health.

  4. More accurately, firms prefer to develop and market drugs in countries where they can set a high price, presumably to recover their high R&D expenditures (see further).

  5. For a discussion on price differentiation for essential drugs and the implementation of this mechanism in developing countries see Tetteh [38].

  6. Particularly for vaccines, firms practice tiered pricing where the price in higher-income countries allows to support the supply of vaccines in lower-income countries, as well as to continue efforts to develop new vaccines.

  7. The announcement of a CL may lead to price negotiation for a patented drug and brings about substantial reduction without a CL even being issued [32, 40].

  8. This is all the more likely regarding the high costs of R&D claimed by the pharmaceutical industry. While it cost US$500 million to develop a new drug in the 1990s, today it costs US$2.6 billion [41]. However, the debate is vivid about the calculation and the real costs of R&D in the sector. Among others, inflated trial costs and capital costs are largely integrated in the calculation, whereas tax savings are omitted [42, 43]. Thus, the median costs of R&D may be less than US$45 million for a pharmaceutical firm in 2011 [42]. Besides, for neglected diseases, R&D costs yield between US$100 and 150 million according to the DNDi [36].

  9. All the more so as firms seek to prevent the parallel imports of drugs (the importation of drugs marketed at lower prices in other countries) and to minimize the adverse impact of ‘international price benchmark’ (a cost-containment tool largely adopted in the world to reduce prices for drugs, especially for patented drugs).

  10. In the 1970s, India noticed that the prices of medicines were among the highest in the world, higher than those set by multinational firms in developed countries. Accordingly, one of the poorest countries in the world at that time amended its patent law and introduced price control mechanism to ensure the development of a domestic industry producing generic drugs at lower prices [44].

  11. For example, when Uganda launched a national program to fight HIV/AIDS and progressively started to treat people in the 1990s, it had to spend US$12,000 per year and per patient for a therapy, the price charged by patent holders in developed countries [46]. Because of high prices, providing ARVs was not considered by international agencies (first of all by the World Bank) as a cost-effective measure. At that time, the prevailing consensus within international agencies was that developing countries should allocate their limited resources to prevention in order to curb the epidemic.

  12. Firms set differential pricing according to the HIV/AIDS prevalence and per capita income observed in the developing countries. This helped to lower ARV prices and to increase the number of patients treated—less than 50,000 in 2000 and nearly 828,000 in 2006 [47].

  13. These studies establish that the drug candidate is strictly equivalent to the original one already marketed. In the absence of such studies, the drug cannot be defined as a generic, but otherwise as a similar.

  14. The submission of this file sets up the traceability of an active substance incorporated into the manufacturing of a drug, and ensures its quality.

  15. According to a recent study about the generic medication regulatory features in 21 developing countries [54], only two-thirds of the countries had specific requirements for generics.

  16. In 2001, the WHO launched its prequalification program. For HIV/AIDS, it periodically publishes a list of prequalified medicines; the organization certifies the high quality of these drugs through audits conducted in the manufacturing units of firms. These prequalified drugs can then be supplied in AIDS programs implemented in developing countries with the support of international donors: the World Bank, the Global Fund to Fight against HIV/AIDS, Tuberculosis and Malaria, The US President's Emergency Plan for AIDS relief, the Clinton Foundation, UNITAID, etc.

  17. An AIDS cocktail therapy is composed of several ARVs produced in the form of one tablet taken several times a day. This presentation reduces the number of drugs taken daily, increases patient compliance and reduces the risk of resistance. The cocktail produced by the GPO, the GPO-VIR, consisting of three ARVs, comes in the form of a tablet taken twice daily. In 2002, it was celebrated as the cheapest triple therapy in the world. This tablet cost US$1.1 per day against US$6.9 a day for the version marketed by multinationals [59, 61].

  18. Numerous Indian producers of ARVs are prequalified today by the WHO, providing 246 treatments, approximately 69 % of all prequalified products [66]. As a result, reputed as producers of affordable high-quality ARVs, Indian firms accounted for over 80 % of the drug purchases funded by international donors in developing countries between 2005 and 2010 [67].

  19. A ‘TRIPS plus’ provision settles higher obligations on developing countries compared with those defined in the TRIPS agreement. For instance, such a provision may consist of listing the diseases eligible for CL, while the TRIPS agreement does not restrict the use of CL to specific diseases [68].

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    Samira Guennif

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Guennif, S. Is Compulsory Licensing Bad for Public Health? Some Critical Comments on Drug Accessibility in Developing Countries. Appl Health Econ Health Policy 15, 557–565 (2017). https://doi.org/10.1007/s40258-017-0306-1

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Keywords

  • Multinational Firm
  • Drug Accessibility
  • Compulsory License
  • Trip Agreement
  • Patent Holder