Patenting of drugs and drug prices

Several factors determine drug prices paid by the end consumer, including manufacturer’s prices, transport, and storage costs, import tariffs and taxes, procurement practices (Levison and Liang, Reference Levison and Laing2003), and dispensing fees (Henry and Lexchin, Reference Henry and Lexchin2002). However, a significant determinant of a manufacturer’s price for a given drug lies in whether or not it is patented. To be sure, many of the drugs defined by WHO as essential medicines are off-patent and more affordable. It is also worth noting that significant health needs in developing countries require costly off-patent medicines, such as artemisinin-based antimalarial drugs (MSF, 2005), tuberculosis treatment, and reserve antibiotics (Loewenson, Reference Loewenson2000). HIV/AIDS drugs were prohibitively expensive until public pressure forced price reductions, although prices remain wildly variable between countries and second line drugs prices remain high. The scope of this paper is confined to patented drugs to combat infectious diseases in the developing world; in many cases, however, the public pressure solution is appropriate where it is ethically driven or grounded in human rights, albeit that this does not provide a structural solution to the problems posed by TRIPS.

Patent protection may drive up drug prices for those in developing and least developed countries, and particularly impact access for the poorest of the poor. Certainly, the impact of patents on medicine prices has been considerably contested by the pharmaceutical industry and its supporters (International Federation of Pharmaceutical Manufacturer’s Association [IFPMA], 2000; Rozek and Berkowitz, Reference Rozek and Berkowitz1998). For example, a 2001 study argued that patents and patent law are not a major barrier to AIDS treatment access in and of themselves since only 21.6% of the possible total patents were taken out on 15 antiretrovirals (ARV) in 53 African countries (Attaran and Gillespie-White, Reference Attaran and Gillespie-White2001). This reasoning is however erroneous, since two of the most commonly used ARV were in fact patented in over two thirds (37 of 53) of the countries surveyed, representing 81% of Africa’s AIDS burden (Goemaere et al., Reference Goemaere, Kaninda, Ciaffi, Mulemba, Hoen and Pecould2002). Moreover, the study fails to account for the disproportionate patenting of medicines in South Africa, where 13 of 15 ARV had been patented (Attaran and Gillespie-White, Reference Attaran and Gillespie-White2001). Certainly in South Africa, patents are a barrier to ARV access. This anomaly is not insignificant, since South Africa is a relatively wealthy middle-income developing country with a developed generic industry, capable of supplying many African countries where patents have not been taken out.

As the UK government's Commission on Intellectual Property Rights (Reference Abbott2002) notes, patents in potential supplier countries can allow the patentee to prevent supplies from being exported to poorer neighbours (i.e., those without domestic manufacturing capacity), particularly through controls on distribution channels. In contrast, a 2002 study estimated that the effect of eliminating ARV patents in a cross-section of developing countries would increase access to ARV by 30% (Borrell and Watal, Reference Borrell and Watal2002). This projection is somewhat borne out by the considerable increases in access to AIDS drugs derived primarily from reduced drug prices. This experience illustrates that drug pricing (sustained by patents in key producing and exporting countries) can be a considerable constraint on access in poor countries. Moreover, as AIDS drug prices have dropped through a combination of social pressure and advocacy, international financing has increased concomitantly. This increase illustrates that the availability of sustainable financing can be intimately related to medicine prices, irrespective of the extent of public health needs. For example, in 1998, both WHO and UNAIDS felt that high antiretroviral prices suggested that international resources would be better allocated to prevention than treatment (WHO and UNAIDS, 1998). Later when drug prices reduced, both agencies adopted the goal of placing three million people in developing countries on ARV by 2005, a goal subsequently revised up to achieving universal access by 2010. Reduced drug prices (and activist pressures) not only unleashed the political will of international organizations regarding treatment, the phenomenon also persuaded national and international funders of the feasibility of allocating resources to AIDS treatment in poor countries, and this period saw the creation of several new funding sources such as the Global Fund Against HIV/AIDS, Tuberculosis and Malaria and the US President’s Emergency Fund For AIDS Relief (PEPFAR). With reduced drug prices and international financing, access to AIDS medicines has shot up from under 1% to over 28% in only six years (WHO, UNAIDS, and UNICEF, 2007). This increase underscores that, while access to medicines is multi-causal, reducing drug prices may catalyze action to address other variables, producing considerable gains in access. We suggest that these gains provide important information for policy-makers and researchers seeking legal and political solutions to the global drug gap.

The agreement on trade-related aspects of intellectual property rights (TRIPS)

The TRIPS agreement provides for global minimum standards for the protection of patents, trademarks, copyrights and other intellectual property rights, and for remedies for the effective enforcement of rights. TRIPS requires patents to be available for any invention, whether product or process, in all fields of technology without discrimination. Under TRIPS, patents confer exclusive rights to prevent third parties from non-consensually using patented processes, and from ‘making, using, offering for sale, selling, or importing for these purposes’ patented products and the products of patented processes. Inventions covered under the patent law have to meet the criteria of novelty, inventive step, and industrial applicability.

The minimum obligations for pharmaceuticals are first, that pharmaceutical products and micro-organisms are patentable for up until 20 years from the date the inventor files for the patent application. Second, there is no discrimination permitted against patent rights for imported products. Third, exclusive marketing rights are granted until patent expiry. TRIPS also provides for transitional periods for developing countries without pharmaceutical product patents.

Although TRIPS provides for delayed implementation for developing countries, most new members of the World Trade Organization (WTO) agreed to apply TRIPS as soon as they joined, including many least developing countries (LDC). For example, in exchange for accession to the WTO, Cambodia agreed to speed up its pharmaceutical protection schedule from 2016 to 2007, despite Gross National Income per capita of only $260 per year. Other developing countries, including many LDC, have agreed to earlier implementation dates as members of regional intellectual property organisations.Footnote 1 Moreover, as is discussed below, these transition periods are being reduced in regional and bilateral free trade agreements.

The TRIPS agreement effectively creates extended barriers to market entry for generics, both through the requirement of 20-year patents, as well as its provisions on exclusive marketing rights and data protection. This has negative consequences for drug costs, given the proven impact of generic competition on price. Pharmaceutical product prices fall sharply when generic entry occurs following the expiration of patents (Scherer, Reference Scherer, Culyer and Newhouse2000). A study indicates that ‘[o]ver time patents are a major factor in sustaining high drug prices; the appearance of generic competition results in prices of these drugs being much closer to the marginal production costs than to the prices chosen by brand name companies’ (Caves et al., Reference Caves, Whinston and Hurwitz1991). This impact is illustrated by another study, which estimated that in the US, the average generic substitute’s wholesale price was 60% of the branded drug’s prices with just one generic entrant, 29% with 10 entrants, and 17% with 20 entrants (Caves et al., Reference Chaudhuri, Goldberg and Jia1991). It is also reflected in MSF’s experiences in antiretroviral procurement for its pilot projects in ten countries for the past two years. They indicate that the ability to use generics has been a critical factor in allowing competition and guaranteeing a continuous supply of medicines (MSF, 2003).

Prior to TRIPS, intellectual property protections were highly variable from country to country. Over 40 countries provided no patent protection for pharmaceuticals, many provided only process and not product patents, and in many others the duration of patents was much less than 20 years (WHO, 2001). In addition, many provided limited enforcement of existing intellectual property rights standards. The TRIPS Agreement therefore serves to harmonize pharmaceutical patent protection. This harmonization stands to benefit the developed world’s mature pharmaceutical industry, which stands ready to colonize a struggling developing world eager to foster trade relations with richer countries. The regime will have the most significant negative impact on those countries with strong domestic generic producing industries, and those without domestic production who actively encouraged import and use of generic substitutes from countries with export-oriented generic suppliers (Scherer and Watal, Reference Scherer and Watal2001).

A case in point is India. Until March 2005, the Indian Patents Act, 1970 conferred pharmaceutical patent protection for processes but not for products, meaning that as long as generic manufacturers found new ways to make existing products, patent law would not provide a remedy for the patentee. This legislative framework saw the emergence of a generic drug industry responsible for manufacturing approximately half of the ARVs used to treat the estimated 700,000 patients on treatment in the developing world (World Generic Markets, 2005). Like all other developing countries that had not previously provided product patents, India was required to comply with TRIPS in 2005. Accordingly, it implemented amendments to the Patents Act on 6 April 2005 to do so, as well as providing for retroactive recognition of products for which patents were filed between 1995 and 2005 (Engdahl, Reference Engdahl2005).

Now, instead of merely working around process patents, generic manufacturers seeking to export to developing countries will have to follow the highly prohibitive 30 August 2003 Doha Paragraph 6 solution (discussed below), whereby countries that have not been able to get voluntary licenses must seek highly limited compulsory licenses from both the generic manufacturer and developing country government. This agreement has become a formalized amendment to the TRIPS article on compulsory licensing. Added to that, the US is now attempting to negotiate TRIPS-plus data exclusivity protection with India, which will make generic entry even more precarious (Narrain, Reference Narrain2005).Footnote 2 TRIPS will considerably increase the domestic cost to Indian consumers – a recent study estimates that introducing drug patents will increase the cost to households by some $670 million, almost double current spending on all antibacterial medicines (Chaudhuri et al., Reference Chaudhuri, Goldberg and Jia2003).

The introduction of product patents has, however, motivated three new emerging trends relevant to the present discussion. First, Indian generic companies are increasing their investment in research and development rather than simply relying on generic copying, with some of the largest generic companies such as Ranbaxy and Dr Reddy’s spending up to 10% of revenues on research and development (Mandavilli, Reference Mandavilli2007). While genuine innovation is rare, these new capabilities do offer improved innovation on drugs for developing country diseases. For example, in 2006, Ranbaxy collaborated with the Geneva-based Medicines for Malaria Venture to develop a synthetic form of an anti-malarial drug artemisinin (Mandavilli, Reference Mandavilli2007).

A second trend is evident in the return of many multinational research-based companies to India, and an increase in clinical trials being conducted in the country. These combined changes are seeing the Indian pharma industry grow at 10% annually (in contrast to the global growth rate of 7%) (Singh, Reference Singh2007).

A third trend, offering a counterpoint to the previous two, is the insidious emergence of India as a harbinger of counterfeit drugs on a global scale. A November 2007 study found that 75% of counterfeit drugs seized in Europe originated in India, suggesting that only some of the existing manufacturing industry is committed to respecting and leveraging India’s new rules (Organization of Economic Cooperation and Development [OECD], 2007). The remainder appear to shun the new policy, instead participating in a burgeoning black market.

Therefore, though the new playing field presents incentives to innovative in India for domestic and foreign pharmaceutical investors, the developed world may have inherited a much larger problem by its swift move to more expansive IP protection – an underground industry that threatens the integrity of pharmaceutical supply chains around the developed world, increasing costs of enforcement for all. Given India’s role as primary supplier of generic drugs for the developing world, the impact of these changes will provide an interesting test case of the impact of TRIPS compliance on technological transfer, innovation, and public health needs writ large.

The flexibilities in TRIPS

While TRIPS ensures strong and universal patent protections, the Agreement also provides for mechanisms to limit the harsher impacts of patent rights on public health and social welfare and on a competitive environment. Albeit, these inclusions may not be used liberally by countries as there is always the risk of retaliatory political and economic punishment. For instance, India’s efforts to include flexibilities in its TRIPS compliant patent legislation were challenged by Novartis, and after an Indian court dismissed Novartis’s suit, Novartis threatened disinvestment from the country. Even so, we outline what the potential policy levers are. Article 8 of TRIPS authorizes members to ‘adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development’ (TRIPS, 1994), provided that such measures are consistent with TRIPS. While article 8 does not specify these measures, several provisions in the Agreement could be so employed, including ‘limited exceptions’ to patent rights, compulsory licensing, and parallel importing. In addition, countries can exclude from patentability inventions necessary to protect ‘Ordre Public’, including human life or health, as well as diagnostic and therapeutic methods for treatment.Footnote 3 Moreover, in defining its criteria for patentability, member countries can develop more stringent approaches to what constitutes novel, non-obvious, or useful subject matter. For example, India's 2005 Patent Act explicitly declares so-called ‘evergreen’ drug patents (new forms of a known substance that do not enhance efficacy) to not contain the requisite degree of inventiveness, or novelty, to qualify for patentability. Notably, this provision was at the heart of the Novartis suit discussed above, underscoring the legal difficulties inherent in efforts to utilize TRIPS flexibilities. In theory at least, therefore, these mechanisms present partial solutions for developing countries seeking to address essential drug gaps, which are primarily attributable to price and a lack of competition.

Post-TRIPS developments: the Doha Declaration and the TRIPS amendment

In view of the real and perceived imbalances expressed in the TRIPS Agreement, in November 2001, a Ministerial Declaration on TRIPS and Public Health was adopted at the Doha round of WTO negotiations. This was ‘a result of the obstacles that the authorities in [developing countries] had experienced when trying to make effective use of such flexibility at the national level’ (WHO, 2002) The Declaration states:

Health has thus emerged as a value in international trade law despite its absence from preambles in major WTO agreements (Bloche, Reference Bloche2002). As Bloche (Reference Bloche2002) notes the main WTO agreements are vague with regards to balancing public health against other trade related concerns – in this context the Doha declaration is a valuable iteration of the importance and legitimacy of the use of TRIPS flexibilities.

Notably, Doha identified the problem posed by the TRIPS requirement that compulsory licensing shall be ‘predominantly for the supply of the domestic market’. As such, in paragraph 6, the Doha Declaration called for an expeditious solution to the problem faced particularly by least developed countries without local manufacturing capacity. In August 2003, after protracted negotiations, the WTO General Council released its decision on this problem. It restricts eligible importers to any LDC member, and any other Members that notify the TRIPS Council of its intention to use the system as an importer and has established insufficient or no manufacturing capacities in the pharmaceutical sector for the products in question. Medicine production is limited to the amount necessary to meet the needs of the importing country, which must be imported in their entirety to the member. They must also be clearly identified as produced under this system through labelling, distinguished by packaging and shaping/colouring. Importing countries must also take reasonable measures to prevent re-exportation of products, including ensuring the availability of effective legal means to prevent importation inconsistent with the decision.

This permits those countries that do not have the capacity to manufacture medicines to still use compulsory licensing by contracting out agreements with firms in other countries. This unleashes the potential for more competition in the pharmaceutical market and, consequently, more drug supply for those in need if developing countries can overcome certain barriers. The Accord sets an important precedent of ensuring that international trade law does not ignore the importance of public health necessities by, at the very least, improving the negotiating position of technologically indigent countries even if no compulsory license per se is issued. Moreover growing numbers of developing countries have begun to issue compulsory licenses in this fashion, including Malaysia, Indonesia, Zambia, Zimbabwe, Mozambique, Brazil, and most recently Thailand (Cptech, 2006; Love, Reference Love2007) suggesting an increasing practical utility to these provisions. However, it is significant that to date not a single country (including Canada) has managed to export medicines produced under compulsory license. The reasons for this are diverse, but certainly include the time limited nature and complexity of the rules themselves, the limited incentives for usage these provide to generic manufacturers, and the persistence of coercive pressures against countries seeking their use (MSF, 2006). Thus, despite the TRIPS legality of both compulsory licensing and generic export, TRIPS and its associated political economy are significantly curtailing generic manufacture and export and hence the availability of more affordable medicines, and this strongly influences drug prices and ergo access.

Impact

The narrowed scope and increased formalities of compulsory licensing and parallel imports pursued under TRIPS-plus measures, antithetical to the Doha Declaration, may inhibit the use of these practices by governments concerned about domestic lawsuits from industry if they attempt compulsory licensing (Weissman, Reference Weissman1996). Moreover restricting the use of compulsory licensing to the enumerated grounds effectively prevents countries from issuing compulsory licenses to manufacture essential medicines for public health purposes that do not constitute national emergencies.

These effects in the bona fide market context exacerbate the regulatory barriers already existing in the donative context. For example, under PEPFAR (US President’s Emergency Plan for AIDS Relief), any generic drug purchased with PEPFAR donations must obtain costly approval from a ‘stringent regulatory authority’, meaning either the US, EU, or Japan. The US FDA approval requirement far exceeds – both in cost and bureaucratic rigour – the standard of approval mandated by the WHO in its Prequalification Project,Footnote 5 used by the Global Fund, WHO, UNICEF, and UNAIDS to ensure efficient use of donated funds (Morgan, Reference Morgan2006). Priority of legal compliance over price/quality concerns in PEPFAR leads to three detrimental effects: (i) barriers to generic participation, leading to unnecessarily high costs; (ii) duplicative supply systems (since the Global Fund already coordinates donative drug delivery); and (iii) barriers to best treatment practices for various diseases (Outterson, Reference Outterson2005).

Lax IP protection in countries without a comparative advantage in innovation has the compound salutary effects of both ensuring greater access to innovative products in the short run and stimulating industrial development in the form of imitator industries, which historically are reliable precursors to innovative industrial expansion in the long run (Trebilcock and Howse, Reference Trebilcock and Howse1999). Distressingly, the broader impact of restrictions on TRIPS flexibilities under appropriate circumstances is to delay the introduction of generic medicines (produced either domestically or abroad) on to the market, and to deter generic producers from entering the market at all.

The costs and benefits of intellectual property protection

The foregoing discussion must, however, be placed in broader perspective, and certainly the deadweight loss of price increases must be assessed against the broader benefits that TRIPS and intellectual property protection is argued to provide for both rich and poor countries. For example, supporters of TRIPS argue that a uniform set of relatively high standards of IP protection fuels creativity and innovation, attracts foreign investment, and encourages a more rapid transfer of technology. In this view, strong domestic IP rules are viewed as essential to economic growth and development (Helfer, Reference Helfer2004; Maskus, Reference Maskus2000). Moreover, TRIPS is defended as part of a WTO package deal in which developing country governments receive freer access to the markets of industrialized nations in exchange for their agreement to protect the IP rights of foreign nationals. IP importing governments therefore agree to suffer the short-term welfare losses that strong IP rules can engender in exchange for the immediate benefits and concessions they receive from other WTO agreements (Helfer, Reference Helfer2004).

But these claims are disputed. The Commission on Intellectual Property Rights (CIPR) 2002 report questioned the benefits of introducing global minimum standards for intellectual property rights, holding that:

CIPR’s proposition accords with the prevailing instrumentalist justification for patent protection – that extending patent protection in any market is only sensible where the dynamic welfare increase within the market (represented by innovation yielding better products in the future) outweighs the static welfare decrease associated with monopoly pricing in the short run (Trebilcock and Howse, Reference Trebilcock and Howse1999). As noted earlier, since the private sector is eminently unconcerned with developing country diseases in allocating its R&D, the costs of extending patent protection in developing countries far overshadow any palpable benefit. There is broad consensus that the principal beneficiaries of present TRIPS standards will be commercial pharmaceutical enterprises located in OECD countries, especially in the United States, Switzerland, Germany, and the United Kingdom (Abbott, Reference Abbott2002; Gambardella et al., Reference Gambardella, Orsenigo and Pammoli2000; Maskus, Reference Maskus2000; OECD, 2000; World Bank, 2002). Indeed an empirical study of the impact of TRIPS suggests that while the agreement may generate large transfers of income between countries, these transfers are primarily to developed countries, particularly the US. The most significant losers are Brazil, India, and Mexico who stand to lose almost 2 billion dollars combined, while the US stands to gain 4.5 billion (McCalman, Reference McCalman1999). McCalman suggests that these transfers ‘significantly alter the perceived distribution of benefits from the Uruguay Round, with the US benefits substantially enhanced, while those of developing countries and Canada are considerably diminished’ (McCalman, Reference McCalman1999). The study further suggests that the ‘overall benefit of the Uruguay Round package is also diminished once the increase in deadweight loss is included’ (McCalman, Reference McCalman1999).

While studies posit large substantial benefits from effective IP rules for the world trading system as a whole and for developing countries, it is difficult to isolate the impact of IPR protection from other economic variables, such as deregulation, macro-economic stability, and trade protection (Groombridge, Reference Groombridge1999). Moreover, there is little evidence from developing countries that the TRIPS Agreement is contributing to the transfer and dissemination of technology ‘in a manner that is conducive to their social and economic welfare, particularly in the field of public health’ (World Bank, 2002). In fact, of the seven developing countriesFootnote 6 identified as successfully transferring technology, weak intellectual property regimes, which facilitated technological learning, was a common trait (Thorsteinsdottir et al., Reference Thorsteinsdottir, Quach, Daar and Singer2004). More important than IP protection were: (i) political will; (ii) leadership of a few pioneer individuals; (iii) areas of specialization; (iv) close linkages between developing country players; and (v) incentives for enterprise creation (Thorsteinsdottir et al., Reference Thorsteinsdottir, Quach, Daar and Singer2004). Revisiting the case of India presented earlier in this paper, the Indian Patents Act allowed only process patenting and not product patenting. Companies were then able to reverse engineer products, leading to the development of process innovations and a specialization in generic manufacturing. In addition, the Indian government identified the need to invest in biotechnology as early as 1980. Venture capital has also been used to encourage foreign investment and enterprise creation (Thorsteinsdottir et al., Reference Thorsteinsdottir, Quach, Daar and Singer2004).

In 2003, the United Nations Development Programme (UNDP) released a report on global trade highly critical of TRIPS, questioning its relevance for large parts of the developing world, and urging the initiation of dialogues to replace TRIPS with alternate intellectual property paradigms (UNDP, 2003). For the moment, however, there is little opportunity for WTO members to selectively engage with the agreement, other than through the use of its limited exceptions and flexibilities, including compulsory licensing and parallel importing.

As the CIPR Report concludes, intellectual property rights are instruments of public policy and ‘there are no circumstances in which the most fundamental human rights should be subordinated to the requirements of [intellectual property] protection’ (CIPR, 2002). The use of the flexibilities in TRIPS offers a better (albeit still insufficient) balancing of these interests, since IP rights holders continue to receive royalties for generic medicines produced under license, while enabling developing countries to better fulfill human rights obligations to progressively realize access to essential medicines. Indeed, human rights bodies have promoted the use of compulsory licensing and parallel importation in particular as means of ensuring that states can comply with their obligations under the right to health.

The policy issue that the imposition of global standards of IP protection presents, primarily at the international level, is how research and development (R&D) costs of pharmaceutical firms can be rewarded and pharmaceutical costs reduced (CIPR, 2002). Pharmaceutical firms emphasize that they are heavily dependent on robust patent regimes in order to recoup their ‘sunk’ R&D costs and generate profits, which can fund future R&D and provide returns to their shareholders. Given that only 1% of new drugs in the last 25 years have been aimed at tropical diseases, the prospect of feedback R&D in developing countries appears limited. The prospect of future rewards in the form of innovation is an empty one for countries with little or no current innovative or manufacturing capacity and a history of being all but ignored by innovative industry.

In response to the inequities of market driven global research and development on drugs, the World Health Organization appointed CIPIH in 2003 to look at a number of associated issues, including the question of appropriate funding and incentive mechanisms for the creation of new medicines and other products against diseases that disproportionately affect developing countries. The Commission identifies an innovation cycle, wherein drug discovery, development, and delivery feed into each other. However, unsurprisingly, the report indicates that only developed countries have the underlying educational, basic research, and political institutions in place to realize the cycle’s benefits. Indeed the Report emphasized that ‘where the market has very limited purchasing power, as is the case for diseases affecting millions of poor people in developing countries, patents are not a relevant factor or effective in stimulating R&D and bringing new products to market’ (CIPIH, 2006). Moreover, the Commission emphasizes that donors have a moral obligation backed by a legal imperative of governments to realize the right to health for all, to ensure the continued delivery of medicines for people who have already commenced treatment (CIPIH, 2006).

The CIPIH Report makes around 60 recommendations for advancing innovation regarding medicines and access in developing countries. These include recommendations that countries use TRIPS flexibilities like compulsory licensing and parallel imports, that the TRIPS rules on exporting under licence be reviewed and amended if necessary, and that companies avoid filing patents in low-income developing countries and grant voluntary licenses. In response to this report, the World Health Assembly (2006) passed a resolution urging the development of a global strategy and plan of action to advance its recommendations. An Intergovernmental Working Group has been constituted at the WHO to ambitiously carry out this agenda (WHO Intergovernmental Working Group on Public Health, Innovation and Intellectual Property, 2006).

Eliminate unnecessary barriers to use of TRIPS flexibilities such as compulsory licensing

Compulsory licensing has long been recognized as the most important tool for addressing the adverse effects of the patent grant on public welfare (Penrose, Reference Penrose1951). As Canadian experience demonstrates, compulsory licensing can reduce drug costs, both as a mechanism to legitimate generic manufacture and as a credible threat with which to negotiate with drug manufacturers (Hollis, Reference Hollis2002). In Brazil, the government successfully used a combination of generic manufacture of unpatented ARV and negotiations with drug companies to achieve dramatic reductions in drug costs. This has enabled the government to license generic local production of eight of the 12 current AIDS medications used (Lazzarini, Reference Lazzarini2003). The result is that the price of these drugs has reduced by almost 80%. Compulsory licensing for domestic generic manufacture is particularly feasible for middle-income developing countries with manufacturing capabilities, and the capacity to export medicines under the TRIPS amendment could greatly increase economies of scale.

The TRIPS amendment can also be used to authorize the export of medicines by developed countries to developing countries (as the recent initiative in Canada shows) and this is also potentially authorized under the limited exceptions in terms of article 30. Canada’s implementation of this flexibility, without any compulsory licenses to show for it, offers a cautionary tale. Policy implementations by both the exporting and the importing country must account for the business realities faced by generic manufacturers, in order to make participation in end-to-end compulsory license regimes attractive for prospective participants. For example, if bureaucratic red tape on either end is prohibitive, the high costs of participation may thwart the common objective of all stakeholders. Also, if compulsory license terms are artificially short, such that generics cannot factor long-term revenues into their decision calculi, even where essential medicines will undoubtedly be necessary in the long run, generics may decide not to participate to the detriment of all.

The TRIPS amendment also allows developing or least developed WTO members, who are party to regional trade agreements, to export medicines produced under compulsory license to other countries, who are party to the regional agreement that share the health problem in question.Footnote 7 If compulsory licenses could be leveraged regionally rather than on a per-country basis, i.e. through less restrictive granting of license renewals for demonstration of need within the region, developing country generic participants would stand to gain to the extent of regional demand, with the only major business risk for participants being the successful resolution of the access problem, i.e. eradication or control of the disease. All the while, the regional manufacturing ‘saviour’ – while not bound to meet all regional demand – would be uniquely positioned to improve its technological capacity in respect of the relevant science, with the possibility of leveraging its expertise into more profitable markets from a low-cost manufacturing base.

Broaden the scope of voluntary licensing

Another option for helping to improve access to medicines is the use of voluntary licensing agreements. Companies with patented medicines may offer licenses to other manufacturers based in developing countries if they are able to provide the same quality medicines at lower cost.

Of course, apart from the supply barriers to the voluntary license solution (i.e. brands refusing to license), the primary barrier to a voluntary license is a lack of technological capacity for drug production in the licensing country. Therefore, this solution is best suited to the most advanced developing countries having some nascent drug manufacturing capacity. Under the voluntary license solution, countries can negotiate with patent holders to manufacture their branded and patented products locally. Prices of pharmaceuticals produced through voluntary licensing agreements depend on the size of the royalty that the generic producer agrees to pay and vary from case to case. In August 2003, as an example, South Africa’s largest generic drug manufacturer, Aspen Pharmacare, announced a plan to produce a generic combination of three HIV drugs that will sell under a dollar a day. Aspen launched the first generic antiretroviral drug in Africa, Aspen-Stavudine, in early August 2003. The drug is produced under exclusive license from Bristol-Myers Squibb, which markets Stavudine (Cohen et al., Reference Cohen, Gyansa-Ludderodt and Torpey2003). This voluntary license permitted Aspen to grow to where it has now vertically integrated with Fine Chemicals, a medicine raw materials firm (The Economist, 2004). By exploiting economies of scale for voluntary license tenders in its region, Aspen now furnishes South Africa with greater control over its AIDS problem. This demonstrates how voluntary licenses may be used to support local production agendas (which may then be used for issuance of domestic or regional compulsory licenses under the appropriate circumstances).

Patent holders may be willing to issue voluntary licenses for commercial or philanthropic reasons, or some combination of the two. The prospect for philanthropically driven licenses is bound only by the philanthropic appetite of patent holders. Commercially driven voluntary licenses present a more unorthodox but potentially profitable means of satisfying developing country demand for essential medicines. First, where a compulsory license may be issued as the alternative to a voluntary license, the patent holder may choose to grant a voluntary license so that it may dictate the license terms. More interestingly, where production costs are low but distribution costs are high, a high-volume voluntary license would allow the patent holder to realize low-margin high-volume revenue gains without incurring the commensurate investment risk. This sort of high-penetration business strategy has been shown to be effective in poor developing world markets, where demand at low prices is insatiable (Prahalad and Hammond, Reference Prahalad and Hammond2002).

Promote access to medicines as a fundamental human right

Viewing policy options on medicines within the context of human rights obligations, rather than simply trade obligations alone, represents a crucial framing mechanism for ensuring that domestic and international policy-making on medicines takes greater account of public health and social welfare implications. International human rights contained in international and regional treaties are legally binding and often enforceable standards and norms for state action in relation to essential medicines. Access to essential medicines is interpreted as a core obligation under the right to health in authoritative interpretations of international law (Committee on Economic, Social, and Cultural Rights, 2000; Commission on Human Rights, 2001, 2002, 2003). This interpretation denotes the priority of this duty, and that access to medicines cannot be unreasonably restricted in service of competing commercial interests. These defined obligations offer guidance to governments on appropriate actions to increase access to medicines. While we acknowledge that many international human rights treaties remain unenforceable at the international level, we note that health rights in domestic, regional, and international laws are increasingly being enforced in a growing number of developing countries to ensure that governments fulfill their obligations to ensure access to essential medicines (Hogerzeil et al., Reference Hogerzeil, Samson, Casanovas and Rahmani-Ocora2006; Forman, Reference Forman2007). For example, in South Africa, social actors used a constitutional entitlement to access healthcare services to challenge the government’s denial of access to medicines and associated services necessary to prevent mother-to-child transmission of AIDS (Minster of Health v. Treatment Action Campaign, 2002). In compliance with the South African Constitutional Court’s decision in this case, the South African government implemented a national program in over 80% of government clinics.

In any event, human rights protections are not reliant on technical legal enforceability for their influence. This is illustrated by the efficacy of human rights-oriented advocacy for AIDS medicines. International human rights law therefore offers a powerful language for framing advocacy by civil society advocates and international agencies on health. This rights-based advocacy may ensure that countries take appropriate domestic action and also may counter the restrictions to appropriate action occurring outside of the multilateral context. Given that a majority of countries globally have ratified international human rights treaties containing protections of health rights,Footnote 8 this body of rights and obligations may hold significant promise to guide both voluntary state compliance and to provide enforceable norms and obligations to ensure that states, both within and outside their borders, act appropriately to increase access to essential medicines.

Debate the legitimacy of TRIPS

We argue that the legitimacy of applying TRIPS standards in poor countries should be increasingly questioned in light of growing evidence about the low benefits and high costs of implementing the TRIPS Agreement for least developing and developing countries. This is in accordance with international policy as the CIPIH report intimates. We argue that research and advocacy should increasingly focus on proposing amendments to this agreement, such as applying the TRIPS Agreement only in countries at an economic level (e.g. only developed economies) deemed appropriate and waiving the requirement that the TRIPS Agreement be applied in least developing and developing countries. This tiered approach to the TRIPS Agreement could be supported with ease. Here, we could substantiate this approach by using both a human rights and health perspective, underscoring the moral and legal imperatives to balance access to medicines with commercial interests in intellectual property (Forman, Reference Forman2007). As Mannan and Story have noted, ‘TRIPS makes no provision for moral value attribution to human life’ (Mannan and Story, Reference Mannan, Story, Cohen, Illingworth and Schuklenk2006). Human rights protections on health offer to remediate this imbalance, and to mitigate the current injustices of a trade regime that regulates access to medicines according to commercial rather than public health considerations.