The new drug wars

Print edition : March 03, 2001

Brazil and India find themselves at the forefront of a battle against patent laws that deny essential medicines to the poor.

EVER since the patent laws regime enshrined in the Charter of the World Trade Organisation (WTO) came into effect, multinational drug companies have been engaged in a low-level war of attrition against manufacturers of essential medicines in the developi ng countries. Their narrowly focussed, commercially driven strategy of maximising profits even at the expense of public welfare was not designed to make them popular, especially when concerns were growing over the global pandemic of AIDS, or Acquired Imm une Deficiency Syndrome.

HIV positive children at a hospice in Rio de Janeiro.-RENZO GOSTOI/AP

Seemingly, though, multinational companies have little use for public goodwill. Early in January, the United States government, responding to the scarcely concealed lobbying efforts of the powerful pharmaceutical industry, served notice that it intended to drag Brazil before the WTO dispute settlement mechanism for infringement of drug patents. At the centre of the dispute is the Brazilian drug industry, which manufactures a range of generic products to sustain a government-run therapeutic system for AI DS patients.

The foundation of Brazil's AIDS care system is the manufacture of reasonably priced generic drugs within the country. Ever since the efficacy of a cocktail of anti-retroviral drugs was proven in slowing and even halting the multiplication of the AIDS vir us, the Brazilian pharmaceutical industry has taken energetic measures to develop the requisite manufacturing capabilities. Today Brazil manufactures eight of the 12 drugs used in AIDS therapy. Public subsidies ensure that the treatment reaches the poor and the indigent free of cost. And an ethically oriented domestic pharmaceutical industry ensures that manufacturing costs, and with it public subsidies, stay within reasonable limits.

The latest U.S. move followed the failure of direct consultations launched last June, in which the European Union was also represented as an interested party. The WTO has since constituted a panel to examine the U.S. complaint. India and the Dominican Re public are among four WTO member-states that have chosen to be impleaded as countries that have "third party" rights in the dispute.

INDIA'S interests in this issue have been highlighted by a recent aggressive move into the global marketplace by one of its largest domestically owned pharmaceutical companies, Cipla Ltd of Mumbai. After prolonged negotiations with the international volu ntary organisation of doctors - the Nobel Peace prize winning Medecins Sans Frontieres (Doctors Without Borders) - Cipla announced that it would offer a combination of three anti-AIDS drugs for an annual price per patient of $350.

Cipla chairman Dr. Yusuf Hamied insists that he is capable of supplying ample volumes of three generic drugs used in AIDS therapy: stavudine, lamivudine and nevirapine. But the special offer made to MSF would not recover costs for his company. To compens ate for this loss, Cipla has worked out a three-tier pricing mechanism, offering the same combination of drugs at $600 to governments and $1,200 to wholesale distributors.

MSF lost little time in seeking to turn on the moral pressure, challenging the multinational drug majors to match the Cipla offer. All three drugs on offer have been patented by big global players. Bristol-Myers Squibb (Bristol) of the U.S. holds the pat ent on stavudine and sells it under the brand name Zerit. GlaxoSmithKline (Glaxo) of the U.K. has patented lamivudine under the brand name Heptovir and Boehringer-Ingelheim (Boehringer) of Germany retains the rights to nevirapine, which it markets under the name Viramune. Cipla's offer is in this sense guaranteed to raise hackles across continents.

The prices at which triple drug therapies are today offered in the industrialised countries range from $10,000 to $15,000. Assuming that Cipla's price for the wholesale trade would enable it to more than recover costs and meet the subsidies inherent in s upplies to MSF and the government sector, the drug multinationals are today under pressure to cut their prices by a factor of ten.

The firms that directly stand to suffer the impact of Cipla's proposals reacted with caution. Glaxo said that it had not been consulted prior to the Cipla announcement and would wait for details. "It would appear that the offer is partially one of drug d onations," said a company spokesman. "As a consequence of that, questions have to be raised about the sustainability of the offer." Boehringer refused to react to the Cipla offer, though it has in the past insisted that intellectual property rights must be respected.

Late last year Cipla suffered a bruising encounter with drug multinationals when it was compelled to pull out of a contract to supply a generic version of Glaxo's patented drug Combivir to Ghana. Cipla offered the combination of lamivudine and zidovudine at $1.74 a day, against the price of $16 that Glaxo charged till recently. And even though the African Regional Industrial Patents Authority (ARIPA) rejected the validity of Glaxo's patent in Ghana, Cipla proved unequal to the challenge of taking on one of the world's biggest drug companies.

It has since shored up its legal defences through intensive consultations with MSF and Ralph Nader's Washington-based advocacy group, the Consumer Project on Technology (CPT). James Love of the CPT, an expert on intellectual property law, was recently in Mumbai for discussions with Hamied. The outcome was a set of near-identical communications that Cipla addressed to four drug multinationals late in December. Apart from the drugs that had been patented by Glaxo, Bristol and Boehringer, Cipla expressed a n interest to manufacture Pfizer's patented anti-fungal agent fluconazole, which is of proven efficacy in treating opportunistic infections of meningitis in AIDS patients.

Citing the urgency of dealing with the AIDS pandemic, Cipla sought early clarifications on two questions: which were the countries in which the four companies sought to assert their patent rights on the drugs concerned? And what would be their terms to g rant Cipla a non-exclusive right to supply the same drugs in these countries? Partly pre-empting the response to the latter question, Cipla director Amar Lulla offered unilaterally to pay royalties on the company's sales in these countries, up to a maxim um of 5 per cent of revenues.

The February 6 announcement that Cipla would supply a triple therapy of AIDS drugs at a vastly knocked down price was an effort to take the discussion beyond these rather unproductive avenues. If the past is any guide, then the multinationals are unlikel y to let this challenge to their market dominance stand. The consequence, as the British charity organisation Oxfam recently warned, could be a massive erosion of their rapidly diminishing fund of public goodwill.

Oxfam estimates that since introducing Combivir into the market in October 1997, Glaxo has earned sales revenues of $1.5 billion on the product. Operating profits on this product alone could be conservatively estimated in excess of $450 million. Even if the multinationals' claim were to be accepted - that it takes on average $500 million to bring a new drug to the market - Glaxo would seem to have been amply rewarded for its entrepreneurship.

Pertinent here is a telling statistic brought to notice by Oxfam: that in the period concerned, the total health budget of all member-states of ARIPA was less than two-thirds of the profits earned by Glaxo on Combivir. It is yet another matter altogether , as CPT points out, that the main components of Glaxo's patented anti-AIDS drugs were evolved through publicly funded research in the university system. And still another matter that Glaxo had secretly decided as far back as January 1997 that a floor pr ice of $2 a day on Combivir - against the $16 it was charging - would still be a viable proposition.

FOR reasons connected to India's capability to manufacture a broad range of generic drugs, the powerful industry lobby in the U.S. - the Pharmaceutical Research and Manufacture, America (PhRMA) - has always targeted this country for priority attention. P eriodic submissions made by PhRMA to the U.S. government have ensured that India along with Brazil and, in recent times, Thailand, has remained on the "watch-list" of countries that provide insufficient standards of protection for intellectual property. Since 1997, South Africa and even the tiny Dominican Republic have had to abandon ambitious programmes for domestic drug manufacture under the threat of U.S. trade sanctions. If Cipla's plans make any further progress, then India could also soon attract this dubious honour.

It is in Brazil, though, that the WTO patents regime constitutes a clear and present danger. The Brazilian government has licensed massive domestic capacity in anti-AIDS drugs using the exemption granted under Article 31 of the agreement on trade related aspects of intellectual property rights (TRIPS). By any criterion, the AIDS crisis in Brazil met the description of a "national emergency or other circumstance of extreme urgency". And the delivery system that has been devised of anti-retroviral drugs i n that country is nothing if not a "public non-commercial use". In both these eventualities national governments are authorised under the TRIPS agreement to override the rights of a patent holder and either commence production on its own or license a thi rd party to do so.

All assessments of Brazil's AIDS control programme have agreed on its dramatic efficacy. Mortality rates have fallen and the number of fresh cases has declined as transmission rates have been curbed. In the mid-1990s, conservative forecasts held that Bra zil would have at least one million AIDS-afflicted persons by 2000. The actual figure was less than half that.

The U.S. complaint makes out a case that Brazil is not sufficiently mindful of its obligations under Articles 27 and 28 of the TRIPS agreement. In the context of the agreement on patents, these two Articles, though, constitute no more than the preamble. The later Articles in the TRIPS agreement provide all the qualifications, which a member-country of the WTO is entitled to utilise in the public interest.

THE complaint against Brazil marks a new low in the credibility of the multinational drug industry. Since the 1997 crackdown on South Africa's effort to build an AIDS therapeutic system on the lines of Brazil, the drug companies had endured scathing publ ic censure and been virtually declared international outlaws at all global health conclaves. In May 2000, in an effort to turn the tide of public opinion, a cartel of five companies announced a programme of subsidised drug supply to the countries worst a ffected by AIDS. This so-called Accelerated Access Initiative was launched in May 2000 with fanfare and the blessings of the United Nations.

Progress since then has been negligible, since the drug companies have insisted on separate - and secret - negotiations with all the countries that would like to avail of their initiative. The intent was clear: to maintain inflated prices in most markets while handing out selective discounts. Of the 26 million people in sub-Saharan Africa in imminent risk of AIDS or already afflicted by the disease, the number who stood to benefit from the initiative was no more than 900.

The Accelerated Access Initiative was designed to head off a challenge to the WTO patents regime, which the pharmaceutical giants had managed to tailor almost exactly to their specifications. With the U.S. now choosing to arraign Brazil before the WTO f or the alleged offence of maintaining an AIDS therapeutic system that is a model for the developing world, the tension has reached breaking point.

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