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Saving Life or Saving Business (japanese)@@2001.11.16- written by ipweb analyst -


Recent World Trade Organisation (WTO)'s resolution suggest developing countries should be able to, while recognising the difficulties involved with patent rights, secure necessary medicine for deadly diseases of AIDS and other diseases. This resolution is to be welcomed by resource poor developing countries that are suffering from AIDS epidemic.

However, the resolution was received with mixed reaction from WTO member states gathered in Doha, Qatar. For countries hosting pharmaceutical companies in possession of drugs patent - AIDS and other diseases concerned - the news in theory could mean discouragement of research and development of new drug. On the other hand, for developing countries' governments trying to import or produce more affordable generic drugs for over a year now, WTO's support is much welcomed.

The mixed reaction to the WTO's resolution is not a simple matter between pharmaceutical companies and developing countries' governments. There are two questions need to be asked. One is the timing of the meeting - during the height of discussion regarding the patent of Cipro, German company Bayer AG's antibiotic for treatment of anthrax infection - enhanced attention from the world regarding generic drugs. Second is whether allowing import of generic drugs is the cure of North-South problem. There are theoretical reasons behind protection of intellectual property - creating exceptions to the rules may upset economic balance if there is any.

Why do we need intellectual property rights?

Theoretical framework for support of intellectual property rights is based on the idea of encouragement of innovation. According to Schumpeter, a German economist from early 20th century, by protecting innovators with property rights, it encourages technical innovation in economy to accelerate capital accumulation. This is taking the economic development from capital accumulation viewpoint. In other words, without reward, people will not spend their resources on new technical innovation and thus development is unlikely.

In pharmaceutical industry, protection of their innovation - or intellectual property - is more apparent compared to the other industries. According to Trade Related Aspects of Intellectual Property Rights (TRIPS), patent rights will be protected for 20 years counting from the time of innovation or discovery. In pharmaceutical industry however, the 'time of innovation' is when molecule is detected, which is often more than 15 years before the drug appear in the marketplace. This in turn will leave the pharmaceutical companies roughly 5 years to retrieve the cost of innovation and receive the reward to be re-invested in the new innovation. Theoretical reason for high price - or prohibitive price for many developing countries - for patented drugs lies here.

The question then need to be asked is whether it is 'fair' for the members of the world to keep, for much needed countries, unaffordable price. Given the income disparity between developed and developing countries, new patented drugs are affordable to some and unaffordable to the rest of many. For example in 2000, GNI (Gross National Income) per capita is US$480 for sub-Saharan African countries, which is 1/57 of high-income countries - US$27,510. At the same time, drugs in the centre of discussion - AIDS related drugs - are most needed by those developing countries. In order to save lives of people in developing countries, patented drugs' prices adjusted to high income countries' standard is obviously too much.

Issues of generic drugs comes into picture here - if the life saving drugs can be obtained at affordable price, why can developing countries not import those generic drugs? The answer goes back to innovation encouragement from pharmaceutical companies' view. By admitting import of generic drugs, pharmaceutical companies may lose incentive to develop new drugs that will save more lives in the future. Take the case to an extreme, would all the available drugs available to us if patent did not exist? It is a counterfactual question that no one can answer but is a question worth giving a thought to.

Saving Lives in Africa and Saving Fears in the U.S.

Generic drug reminds us of another timely issue - Cipro. The U.S. government, as a precaution for anthrax infection and to reassure its people of safety, announced its consideration recently to import generic version of Cipro in order to ensure supply of medicine in the country. Concept behind this consideration is exemption clauses in TRIPS (special circumstances) by claiming national emergency.
The similarities between the U.S. and Cipro case and African nations and AIDS drug are rather apparent and very often pointed out from humanitarian viewpoints. AIDS and its mother-child infection link is certainly national health issue in many African nations. The World Bank estimates that more than 8.4% of population between 15-49 years old are infected with HIV (type-I) disease in sub-Saharan Africa which is high compared to 1.2% in whole developing countries.

Despite these statistics, major pharmaceutical companies were resisting to allow African countries to import or produce generic drugs. Last year, Glaxo-Wellcome (now GlaxoSmithKline), a Europe based pharmaceutical company has blocked Ghana's import of generic AIDS drug. Also, total of 39 pharmaceutical companies filed lawsuit against South Africa for bypassing their patent rights. Given the situation in South Africa, where AIDS kills more people than any other diseases and 11% of total adult population are estimated to be infected with disease, the lawsuit seemed cruel to many eyes. Growing international pressure against these movements by pharmaceutical companies has, in part, probably led to recent WTO resolution to relax patent regulation for low-income countries, although not explicit.

Although it seem to make sense from humanitarian perspectives to allow poor nations to use generic drugs to save their lives, the difference between the U.S. generic drug case and African generic drug case is not discussed enough. The main difference from intellectual property viewpoint is that while U.S. can issue credible promise to the international community to stop generic drug import once the problems they are experiencing are solved, it is difficult to determine when and how African nations will be able to follow rules set by TRIPS again once allowed the use of generic drugs. Unless TRIPS itself is re-written to be developing country friendly, the gap will be difficult to close.

Again, looking from innovation viewpoint, it is a crucial difference. If bypassing patent is temporary, it will not interfere with incentive for innovation. On the other hand, permanent free-ride of research and development will not give incentive to pharmaceutical companies and may sacrifice future industry development.

What is the Future of Generic Drugs and Intellectual Property Rights?

By comparing the U.S. and African generic drug cases, there are some measures can be taken by international community to resolve the dilemma of innovation and humanitarian issues. If generic drug is used at all, both the seller and buyer need to set the time limit of use with credible reasoning in order to maintain health and security.

There are few benefits expected from time limit for overriding. The concerning countries will be able to prepare for when the time limit has come while dealing with immediate needs of the country. It also will provide more incentive for developing countries to advance working system for, for example, Africa's war against AIDS.

For pharmaceutical companies, it also makes sense to allow generic drug imports or production with realistic view as GlaxoSmithKline recently allowed South Africa to produce generic version of their AIDS drugs. Selling what costs so much more than generic drugs, the number of sales cannot be as high as some other higher income countries and thus profit from sales probably will be marginal.

Pharmaceutical companies' intention behind this issue is more likely not to set precedent for future drug industry development instead of immediate profit making. If this is the case, time limit solution may be worthwhile in order to keep market in order during time of dispute. Also, it could avoid worsening income distribution in those developing countries that will be enhanced if drugs are sold at the price that are only affordable for marginal population.

Another recommendation for pharmaceutical patent is either to prolong patent period to reduce market price over time or adjust the market price in accordance with income level of the states. With prolonged patent period, the pharmaceutical companies will not have to hastily retrieve their investment and be able to react more flexibly with long-term view.

In terms of price adjustment, black market is the main concern. Although legally high price is feasible in, say Africa, sales of products at prohibitive price will encourage rise of black market of generic drugs. The tendency will be more apparent in places where discrepancy between income level and legal price is big. Even if there is potential for new industry, black market can ruin the opportunities. Once black market has risen, it is difficult to control or acknowledge the reality. Pharmaceutical companies will lose out even further with existence of black market.

So, Saving Life of Saving Business?

Although it is theoretically feasible, what is optimum both for developing countries and 'western' pharmaceutical companies is difficult to achieve due to political circumstances. Political economy of North-South relations complex, as non-governmental organisations, governments, international organisations, lobbying groups and aid flow affect one another. Purely humanitarian opinions and suggestions regarding the AIDS are thus unlikely to be realistic in a long term. Instead, what we can do is to consider income distribution within a developing country to ensure people who are genuinely seeking for financial help to receive appropriate help, which is no easy task. Choosing exclusively between humanitarian cause and intellectual property view is no productive discussion.

Sources:
BBC World Services (http://www.bbc.com)
Guardian Online Service (http://www.guardian.co.uk)
IDS home page (http://www.ids.ac.uk)
allAfrica.com (http://allafrica.com)
Oxfam homepage (http://www.oxfam.org)
WTO homepage (http://www.wto.org)
Africa Japan Forum web page (http://www.ajf.gr.jp)
World Bank Homepage (http://www.worldbank.org)
(data used in text (GNI per capita, HIV prevalence) are from World Development Indicators of 2000)



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