Global Policy Forum

Pharma's Relentless Drive For Profits


By Brook K. Baker

Health GAP
December 10, 2002

Sometimes it pays to be painfully explicit in defense of treatment activists' claims that the U.S. government in general and the U.S. Trade Representative in particular act as proxies for the U.S. pharmaceutical industry - the largest lobby group, the most profitable industry, and the most generous campaign contributor in the world. At a time when U.S. trade officials admit that "U.S. officials seem to have the whole American pharmaceutical industry on their back" and as U.S. Congressmen cut and paste Pharma demands into pro-IP protection correspondence with Robert Zoellick, it is time to demonstrate concretely how the U.S. negotiating position at the TRIPS Council on Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health directly serves the profit interests of the patent drug industry. It is also time to show how Pharma is hedging its bets by urging the USTR to impose TRIPS-plus intellectual property provisions in its regional and bilateral trade agreements and in its technical assistance to developing countries amending their intellectual property regimes.

Paragraph 6 of the Doha Declaration identifies the problem of countries that cannot efficiently produce or market crucial medicines within their own national borders and thus who need to import generic medicines produced by others. Current and pending WTO patent rules will dramatically reduce the number of countries that can lawfully produce new medicines generically without the permission of the patent holder. Even where a government decides that it is important to issue an involuntary or compulsory license on a patented product, the quantities produced must be predominantly for domestic consumption under paragraph 31(f) of the TRIPS Agreement. Thus, there is a marked imbalance between the capacity of rich countries like the U.S. to access generic medicines when emergencies or other public health needs arise and the rights of a country like Malawi which has no pharmaceutical manufacturing capacity whatsoever. Since the most developing countries lack any meaningful drug manufacturing capacity and/or have such small markets that efficient production is impossible, it is essential that these countries have a mechanism which permits lawful and cost-efficient manufacture and export/import from a producer country, like India, Thailand, Korea, or China.

Even though the U.S. joined 140 other countries in signing the Doha Declaration, which explicitly states that "the TRIPS Agreement does not and should not prevent Members from taking measure to protect public health" and that it should be interpreted and implemented "to protect public health and, in particular, to access to medicines for all," the U.S. has insisted on a stringent set of limiting conditions and on a number of procedural loops which will, if adopted, effectively preserve Pharma's market share and bloated profits for the foreseeable future. Instead of finding an "expeditious solution" to the export/import problem, as it promised, the U.S. has tried to hobble the ability of poor countries to access generic drugs, ultimately at the cost of millions of lives.


At negotiations in Australia and Geneva this November, the U.S. has insisted on an increasingly rigid requirement that developing countries access medicines only for HIV/AIDS, tuberculosis, malaria, and other similar epidemics. Although Pharma has been forced to concede that it may lose its exclusive market rights to extract monopoly profits for the Big-Three diseases that kill over 13,000 people a day, it wants to continue to profit from sales of patented medicines for all other diseases in poor and middle income developing countries. Admittedly, Pharma makes the vast majority of its profits on sales in rich countries where 80% of its sales occur. However, Pharma also makes high profits on the 20% of its global sales executed in Africa, Asia, Latin America, and the Middle East, where 80% of the world's population resides. Pharma would like to continue to sell medicines for heart disease, diabetes, asthma, hypertension, and yes, Viagra, at monopoly prices to local elites and emerging middle classes, even though that decision will prevent access to medicines for the vast majority of poor people in developing countries living with these treatable conditions. Since the patent industry has overplayed its hand in the U.S. and is for the first time facing real political pressure to reduce its prices, it looks to middle income countries as its growth markets. To put it most starkly, Pharma would rather make high profits on sales to 5% of the population in developing countries even if that means that the other 95% of the population will have virtually no meaningful access to new pharmaceutical discoveries.


The U.S., along with Switzerland, the E.U., and Japan, has also tried to limit the import/export solution to medicines only. However, the costs of AIDS treatment are only partially dependent on drug costs; they are also highly dependent on the high cost of patent protected diagnostic tests and medical equipment. It makes no sense from a public health perspective not to try to reduce other prices in the cost equation, but Pharma resists doing so because it is often the patent holder on diagnostic tests and testing equipment. Japan, with the connivance of the U.S., has also argued that paragraph 6 solutions should not extend to vaccines. It's long been true that Pharma would rather invest in antiretroviral drugs which people have to take day-after-day thereby generating daily mega profits rather than invest in research and development of vaccines and microbicides which might forestall the transmission of HIV. As a result, it is primarily governments and charities that are funding basic research into AIDS vaccines. Nonetheless, Pharma expects that it will be the eventual recipient of rights to market vaccines, and it would like to do so at respectable profits. Therefore, it has insisted, behind the scenes, that its future profits in successful vaccines be protected.


In order to undertake the risk to invest in large-scale manufacture of generic medicines, generic producers need increased certainty not only that they won't be sued for patent infringement by Big Pharma, but also that they will have access to sufficiently profitable markets to justify investment in productive capacity, product development, and regulatory approval in multiple countries. Generic producers are unlikely to expand production based solely on the prospect of illusory sales in Ghana, Zambia, or other small and poor countries. Instead, they would like to be able to sell in large-population and middle-income countries like Brazil, Argentina, South Africa, and the like. The U.S. and the E.U. are both proposing that importing be limited almost exclusively to the poorest countries in the world, least developed countries, and that other countries have access to a limited array of drugs only if they prove a total lack of productive capacity in their pharmaceutical sector. This limitation is really the high stakes feature of the U.S./Pharma agenda. By excluding middle income countries from eligibility, Pharma and the USTR are essentially betting that a robust generic industry cannot and will not develop. Keep the overall market small; don't allow pooled regional procurement by groups of countries; don't permit an alliance of interest between all developing countries who might otherwise jointly seek other trade concessions in upcoming WTO negotiations. Although the analysis here has focused primarily on middle income countries, the Pharma/U.S. position also has protectionist elements as well. The U.S. and E.U. want to insist either on an all-out exclusion of rich countries from paragraph 6 or an upfront opt out of the U.S., Europe, Australia, and Japan. Should those countries ever have public health needs requiring prompt access to generic medicines, as occurred during the cipra/anthrax scare last year, the U.S. does not want generic producer from India to export drugs to the U.S. Instead the U.S. will have to turn to the proprietary firms or to the tightly controlled U.S. and E.U. generic industries.


If these conditionalities do not succeed in killing generic competition and preserving Pharma profits, the U.S./Pharma team has two other strategies up its sleeve. First, it wants any solution to be temporary, in the form of a waiver or moratorium, that is subject to future renegotiation. This requirement creates uncertainty for generic producers, and uncertainty retards market entry. Second, the U.S./Pharma team wants onerous procedural requirements that exporting countries grant compulsory licenses, product-by-product, importing country-by-importing country. Thus, for example, even assuming that India would be willing (and had national legislation permitting production for export under a compulsory license) to issue a compulsory license to export a newly patented AIDS medicine to Zimbabwe, it would have to issue a companion license to each and every other African country trying to import that particular medicine. Since one medicine would not be enough for the AIDS cocktail, other antiretrovirals would have to be licensed, product-by-product country-by-country. Each license application would be predicated on prior negotiations with the patent holder, preparation of expensive legal documents, and prosecution by legal experts. In other words, each license would be costly and time-consuming. Pharma's smart dollar is bet on the probability that no country and/or generic producer will be willing to engage in the thankless task of seeking hundreds of compulsory licenses. The proposed procedural thicket will in fact generate a procedural death queue for people needing access to imported generic medicines.


The U.S. and Pharma are not content to rest on the outcome of post-Doha TRIPS negotiations, especially since developing countries have mounted a credible attack against the non-solution proposed by the U.S. So, as an alternative strategy, the USTR is seeking TRIPS-plus provisions in regional negotiations like the Free Trade Area of the Americas, like the Central America Free Trade Area, and like the Southern Africa Trade Union Agreement. Similarly, the USTR is doing so in bilateral negotiations with countries like with Chile. The stated objective in these negotiations is to harmonize foreign IP schemes with the U.S. standard which generally means: (1) preventing parallel importation; (2) limiting the grounds for issuance of compulsory licenses (for emergencies and non-commercial public use only); (3) prohibiting export of medicines produced under compulsory license; (4) tying drug registration to patent status; (5) extending patent terms on account of regulatory delay; (6) providing blanket 5-10 year protection for trade secret data submitted to public authorities for regulatory approval of the safety and efficacy of medicines (thereby requiring generic producers to duplicate costly clinical trials even when compulsory licenses have been issued); and (7) enhancing criminal and punitive civil remedies against any purposeful or inadvertent violation of patent rights and eventually providing for drug company lawsuits directly against trading partners.


What the U.S. cannot accomplish through trade policy and behind the scenes trade threats, it tries to accomplish through so-called technical assistance provided by USAID and by WIPO, the World Intellectual Property Organization. Because most developing countries lack the legal expertise to revise their intellectual property schemes to meet TRIPS requirements, the U.S. provides Trojan-horse technical assistance. Under the guise of providing "neutral" advice through government agencies or paid consultants, the U.S. instead advises countries to adopt TRIPS-plus measures such as those discussed above. The most recent example occurred in Nigeria, where last minute exposure and involvement of treatment-access NGOs derailed a USAID initiative that would have denied Nigeria some of the access-to-medicines loopholes permitted by TRIPS.

The largest U.S. drug companies made $37 billion in profit last year, a rate of return for shareholders of 39%, the highest of any industry group. Roughly $7 billion in profit was presumably earned on sales of drugs in developing countries. The industry's unquenchable thirst for profit, more than anything else, explains the U.S. trade policy being pursed at the TRIPS Council and elsewhere.

Unfortunately, there is little "legal leverage" per se to challenge the efforts of the U.S. to expand patent protection at the behest of Big Pharma. However, four sources of law do provide ammunition for legal argumentation. First, human rights treaties and norms have established a right of access to health care; the argument is that human rights should trump intellectual property rights. Second, there is an argument that the harmonization of intellectual property rights via TRIPS should create a ceiling, not a floor for intellectual property rights - in other words, the U.S. should be stopped from seeking/imposing TRIPS plus protections on other sovereign nations, though it is free to provide as much protection as it wants in its own national legislation. Third, there is an Executive Order left over from the Clinton Administration prohibiting the USTR and the US government from seeking trade sanctions against sub-Saharan African governments if they utilize TRIPS-compliant provisions to access more affordable medicines. And finally, there is a clause in the recent Trade Act of 2002 which requires the USTR to comply with the spirit and letter of the Doha Declaration as part of its "free trade" objectives.

Legal strategies alone can never succeed in the stopping the loss of life caused by the U.S.-based system of pharmaceutical apartheid. Developing countries must mount their own political attack on an intellectual property regime that structures pharmaceutical hegemony and monopoly pricing. Even more to the point, poor people bearing the burden of disease, and their political allies, must mount continuous pressure that exposes and opposes the U.S./Pharma system of death by patent.

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.