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ISIS Report 15/04/13

End of Drug Monopolies and Mega-profits?

Recent rulings in India may make it harder for big pharmaceutical companies to maintain their monopolies and very high prices, especially in the Third World Prof Peter Saunders

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Introduction

To patent an invention you have to convince the patent office that it is both novel and useful and that it is not obvious. If you succeed, you will be given exclusive rights for a limited period, normally twenty years. During that time, no one can copy it without your permission, and this allows you to exploit your invention without having to keep it secret. In return for this protection, you have to make public a full description of your invention and how it is used. After the patent expires, it is freely available to anyone.

It’s not really as simple as that, of course; difficulties arise at every stage. Is a particular invention really new, not just a tweaking of something that’s already known? Is it even an invention at all, or is it a discovery? If it is the latter, it cannot be patented, however novel it may be. Whether scientists invent genes or merely discover them is currently before the US Supreme Court [1]. Does the patent application make a claim that is broader than is warranted by the actual invention? And so on. And after a patent has been awarded, the question of whether some later product infringes it may be very difficult to decide. The recent dispute between Samsung and Apple about mobile phones and tablets lasted over two years.

Evergreening

The time limit on a patent is a particular issue in the pharmaceutical industry. Once a drug has been developed and brought to market, the cost of actually producing it is typically very low. The high prices to the consumer are meant to reflect the cost of development, which was incurred long ago. They also reflect the cost of marketing and the companies’ profit margins, both of which are considerably higher than in most other industries, though the companies don’t usually mention that when they are trying to justify the prices they charge. As long as a successful drug can be kept in production and sold at the original price, it can make huge profits for the company. Once the patent runs out, however, other companies can produce their own versions of the drug and the price will fall sharply.

You can see how important this is from the financial section of your newspaper, which will often tell you when the patent on some “blockbuster” drug is to expire, with the very large loss in profits that will imply for the manufacturer. A pharmaceutical company has a very great incentive to engage in evergreening, i.e. devising ways of extending its monopoly as far as it can.

A common form of evergreening that can be very difficult to counter is to make a number of modifications to a drug and obtain patents on the new version.  The drug will then be protected until these new patents expire, which can be many years after the original ones.

The large pharmaceutical companies and their supporters deny there is a problem [2,3]. If a company has developed and patented an improved version of the drug, they argue, that doesn’t prevent anyone else from producing and selling the original one. Consumers will decide whether they want to pay extra to have the most up to date formulation.

In theory, that might be true; In practice, things are much more complicated. There are often many patents involved, both on the original drug and on the new one. The generic manufacturer must be able to show its drug relies only on what was in the original patent and does not infringe any of the new ones.

 The difficulties that can surround the patenting process mean that the company that holds the patents is very likely to find some grounds that allow it to mount a plausible challenge; indeed some of the new patents may have been filed specifically with that in mind [4]. The litigation may be very long and correspondingly expensive, and the company defending its patents will have very deep pockets. What is more, it stands to gain even if it loses its case. For as soon as it files its suit it can get an injunction preventing the generic competitor from selling its product. The injunction will of course be lifted if it loses, but the monopoly will have been maintained for an extra year or more. Because a blockbuster drug can have sales of several billion dollars a year (for example, sales of Vioxx - a drug eventually withdrawn because of serious side effects - were $2.5 billion in 2003, see Vioxx, A Mercky Story [5]); and by the time is close to running out a very large fraction of that is profit, there is a very large incentive for a company to take the generic manufacturer to court, even if it is not at all confident of winning.

In 2002 the US Federal Trade Commission found that about three quarters of new drug applications by generic manufacturers were being challenged. It recommended that no more than one 30-month stay per generic product should be permitted, but even this can be worth a huge amount of money. What is more, as part of the deal to get the change approved, the government agreed to provide a large subsidy for drugs for the over-65s, and also to prevent the Federal Medicare Agency from using its influence to negotiate prices on a national basis with the companies [4]. What the companies lost in accepting a limitation on evergreening, they got back from the public in other ways.

Patent laws vary from country to country and they change in time, usually in response to intense lobbying from corporations that are trying to advance their own interests. For example, it is not so long ago that many countries did not permit the patenting of molecules. When aspirin was first synthesised, it was patentable in the US but not in Germany or the UK. The only protection Bayer could have in Europe was for the process they had developed to make it, not the product itself. Today, aspirin would have been patentable almost everywhere in the world, certainly in any country that is a member of the WTO, and the argument has moved on to genes. This is obviously in the interests of the big pharmaceutical companies; whether it is in the interests of society as a whole, or even the small and medium size companies, is another matter.

Recent developments in India

Recent decisions in India suggest that at least in some important parts of the world, there are winds of change.

In 2006 the Indian Patent Office refused Glaxo-Smith-Kline a patent for its anti-cancer drug, Glivec. It held that Glivec was not a new product but merely an “incremental innovation” under Section 3(d) of the Indian Patents Act (see Box). GSK appealed and on 1 April this year, the Supreme Court upheld the decision of the Patent Office [6]. It used the same basic principle that applies in other countries; where it differs from courts in Europe and the US was in its opinion of how new something has to be to warrant protection.

Section 3(d) of the Indian Patents Act, 2005

“The following are not inventions within the meaning of this Act:

“The mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant. Explanation—For the purposes of this clause, salts, esters, ethers, polymorphs, metabolites, pure form, particle size, isomers, mixtures of isomers, complexes, combinations and other derivatives of known substance shall be considered to be same substance, unless they differ significantly in properties with regard to efficacy.”

This might seem a statement of the obvious. The mere fact that it has been controversial and that some have even suggested it may be contrary to the rules of the WTO indicates  the scope that exists for skillful lawyers to turn the law to their advantage.

In March 2012, India granted a compulsory licence to a local company, Natco Pharma, to produce Bayer’s cancer drug Nexavar. Bayer appealed but their petition was rejected by the Intellectual Property Appellate Board in Chennai [7]. In this matter too, the law in India is in line with the rest of the world: compulsory licensing has been permitted by the WTO under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement since it first took effect in 1995 [8]. Again the principle is clear; the issue is what counts as “reasonably priced”.

India is obviously determined to obtain the pharmaceuticals it needs at prices it can afford, which means well below what the multinationals are charging in the north. It is in a strong negotiating position because the Indian market, including exports, is currently estimated to be around $30 billion and growing rapidly [6]. The major companies can hardly turn their backs on it, and even if they did, the recent decisions have shown that India can get the drugs it needs from local generic manufacturers while still complying with the rules of the WTO.

Many people in the developed countries take it for granted that as other countries become more prosperous they will inevitably adopt the North’s economic and political systems. We have, so we are told, reached what Francis Fukuyama [9] described as the end of history. Where differences and anomalies remain we have only to wait; sooner or later they will be resolved in our direction.

We would be better advised to consider the possibility that as third world countries become more prosperous and more powerful, they will develop ways of doing things that reflect their own histories and current situations and that in the end the northern countries will adopt many of them. That may be because the new rules are seen to be better, but it might also be simply because international agreements tend to conform to the practices of the most powerful nations and the world’s economic centre of gravity is shifting.

The future of pharmaceuticals

A few years ago I attended a small seminar in London on the topic of developing drugs to combat diseases such as Leishmaniasis and sleeping sickness that are endemic in some third world countries but rare in the wealthy north.

At present, the standard model for research and development in pharmaceuticals is that a company invests a large amount of money up front, expecting to recoup its investment by charging very high prices for the drugs if and when they reach the market.

This works, up to a point, in rich countries. It can even work on a global basis, if, for example, differential pricing allows most of cost of the initial investment to be covered by sales in the rich countries, with people in the third world paying something much closer to the cost of production alone. It fails for diseases that are almost completely confined to developing countries. The drug companies can be generous about donating existing drugs to these countries, but also needed are resources for finding new ones.

Everyone at the meeting, and this included some who worked for major pharmaceutical companies, agreed there was a problem. We didn’t make any progress towards a solution, but no one doubted that the business model for pharmaceuticals is unsuited to the needs of the third world.

As I walked home from the meeting, I found myself wondering whether the current business model for pharmaceuticals is appropriate for the north, either. Do drugs really have to be as expensive as they are? Do pharmaceutical companies have to make such large profits and do their marketing budgets have to be so large? Does the system provide incentives for the industry to produce the drugs we most need or is too much research being devoted to the development of “me-too” drugs and to evergreening? Would unethical behaviour in pharmaceutical companies that we have reported on in previous issues of SiS [5,10,11, etc.] be so common if there were not the same massive pressure to seek potential blockbusters and maintain them at all costs?

There are 1 comments on this article so far. Add your comment
Todd Millions Comment left 16th April 2013 09:09:41
The 'Vpill'of WWsequel-is known today as gravol,an anphedimine.It wasn't able to meet double blind threshold 70 years ago for nausea,and when tested against powdered ginger fails miserabley-yet is given in outrageous dosages to small children.As the 'new' adf treatment-is a patentable reapplication. So if we want too make a -quick killing,I have read accounts of italian bankers,starting roumors that the new south americian wood they just happened to have a monopoly on the import of(lignia viatia),could cure syphillius-several prominent medical doctors supported this claim.Paracelceus disagreed based on small niggling details like-evidence.Which slowed sales not at all,which was as much as these preperations stopped the french pox.

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