By Kevin E. Noonan —

The crisis regarding the pricing of patented drugs in poor and developing countries continues this week, with actions by current and former U.S. chief executives contributing to the situation.

The U.S. Trade Representative issued a "Special 301 Report" on Monday, pursuant to the provisions of the Trade Act of 1974.  This report on the state of intellectual property rights worldwide identifies twelve countries on a "priority watch list" and promises consultations with Congress, affected industry groups, and foreign governments to address IP issues.  Although the majority of the report focuses on software and entertainment piracy, the portion addressing pharmaceuticals focuses particularly on Thailand.  This country has over the past six months moved aggressively with regard to anti-AIDS drugs, compulsory licensing, and parallel imports.  Most disquieting to Western drug companies is Thailand’s expansion of what it considers
"necessary" drugs outside the "traditional" boundaries of
anti-AIDS drugs to include medications like Plavix®. Even more disquieting are comments this week

from the Thai Public Health Minister, Mongkol Na Songkhla (at left), that indicate
that Thailand will further expand this category for all "essential"
drugs needed to support the government’s universal health care plan. However, the report was constrained to
specify merely perceived procedural irregularities rather than the substantive
actions of the Thai government, because these actions fall squarely within
World Trade Organization (WTO) rules (most importantly the Doha Declaration)
that permit compulsory licenses and parallel imports of generic equivalents of
patented drugs in times of national medical emergency.

Surprisingly absent from the priority watch list is Brasil, which recently granted its first compulsory license after years of threatening to do so.  The license was for efavirenz, an anti-AIDS drug that Brasil plans to import from India.  The U.S. Trade Representative’s failure to include Brasil on the priority watch list continues a trend in which the Bush administration has been reluctant to oppose Brasil’s exercise of its WTO rights to the detriment of Western, particularly American, drug companies.

The actions of the Clinton Foundation and the comments of former President Clinton yesterday exacerbate the problem with unnecessary rhetoric, while demonstrating how nongovernment organizations (NGOs) are becoming increasingly involved players in international drug pricing policy.  Mr. Clinton announced that the Clinton Foundation, acting in concert with a group of world governments headed by the French, and acting through the Global Fund to Fight AIDS, Tuberculosis and Malaria, would provide part of a $100 million dollar fund for purchasing anti-AIDS drugs from generic drug makers, including Cipra and Matrix in India, to be distributed in so-called "better-off developing countries."  (This category includes countries such as Mexico and Brasil.)  The effect of this effort is predicted to be a 50% reduction in drug costs in these countries, and a 25% reduction in poorer countries, based on their already discounted drug costs.  The combination of such international humanitarian relief efforts and the provisions of the Doha declaration leave Western drug companies completely undefended in this dispute, absent efforts by the American and other Western governments before the WTO, that they frankly have not shown the political stomach to undertake.

In view of the full-fledged retreat the developing world has imposed on Western drug companies, Mr. Clinton’s comments in support of Thailand’s compulsory license scheme, that "[n]o company will live or die because of high price premiums for AIDS drugs in middle-income countries, but patients may," is unnecessary and inflammatory.  More importantly, such comments are irresponsible insofar as they hasten the day when the economics of drug discovery and development retard or preclude Western companies from performing basic research, and incurring the exorbitant costs thereof, that produces new drugs.  It is clear that world governments need to fashion a means for distributing the costs of drugs for deadly diseases, such as AIDS, malaria, dysentery, and if we are very unlucky, avian flu, but applauding steps that increase the political and economic tensions between the West and the developing world is not a useful way forward.  It is ironic that Mr. Clinton, whose presidency was so bruised by the politics of stigmatization and character assassination, should employ those methods against the only actors on the world stage developing the drugs that save lives, both at present and in the future.

For additional information on the topic of compulsory licensing in developing countries, please see:

• "Not Getting It about Patented Drug Prices at The Wall Street Journal," May 6, 2007
• "A Modest Proposal Regarding Drug Pricing in Developing Countries," May 2, 2007
• "The Law of Unintended Consequences Arises in Applying TRIPS to Patented Drug Protection in Developing Countries," May 1, 2007
• "Abbott Agrees to Offer AIDS Drug at Reduced Price," April 12, 2007
• "No New Abbott Medicines for Thailand," March 14, 2007
• "More Compulsory Licensing in Thailand," February 1, 2007
• "Thailand Compulsory License Still in the News," December 18, 2006
• "Thailand Issues Compulsory License for AIDS Drug," December 6, 2006

    By Kevin E. Noonan —

Treaties have a funny way of not having the results expected when they are signed.  The Versailles Treaty and the Briand-Kellogg Pact did not prevent Germany from rearming prior to World War II; the United Nations Charter did not prevent the General Assembly from adopting resolutions contrary to the West’s best interests in the 1970’s; and the WTO and TRIPS have not resulted in the general reverence for intellectual property protection intended by Western countries in the developing world, particularly with regard to pharmaceuticals.  Indeed, the combination of the Doha Declaration of 2001 and compulsory licensing provisions in national TRIPS implementing laws have created a crisis in certain areas, most particularly anti-AIDS drugs, where the levels of protection may be lower in the post-TRIPS world than they were before the GATT treaty was signed.

The editorial page of The Wall Street Journal objects to these developments.  In an editorial entitled "Abbott’s Bad Precedent," the paper excoriates Abbott Laboratories for its decision to sell its anti-AIDS drug Kaletra® to Thailand at a reduced price.  This outcome, according to The Journal, was the result of "browbeating" by the Thai government, "intimidation" from non-governmental organizations (NGOs) such as Doctors without Borders and Oxfam, and political spinelessness by the World Health Organization, who "brokered" the deal between the pharmaceutical company and Thailand.

In one way, The Journal has a point – while Thailand’s actions with regard to anti-AIDS drugs are becoming commonplace (see "Abbott Agrees to Offer AIDS Drug at Reduced Price"), its inclusion of Plavix® for heart disease is harder to justify, since heart disease certainly doesn’t have the "national health emergency" status of AIDS that falls clearly within the WTO’s Doha Declaration exception.  (Indeed, according to The Journal, neither AIDS nor heart disease qualifies for the exemption, each affecting about 1% of the Thai population; however, a far lower percentage of Brasilian citizens are affected by AIDS and given drugs from the government under similar drug-pricing schemes.)  Moreover, the Thai government’s intention to transfer the three "negotiated" drugs (including Merck’s Stocrin®) to a for-profit state-owned company is unprecedented in these types of negotiated drug pricing schemes.

The Journal‘s editors are tacking against a strong headwind, however.  The poor and developing nation members of the WTO support the ability of their governments to avoid patent royalty payments in the form of higher drug prices for their citizens suffering from AIDS (and, one suspects, other pandemics such as avian flu if they arise).  International politics and permissive WTO policies make it almost a certainty not only that countries can avoid drug patent royalties domestically, but that the generic drug industry in each country can export anti-AIDS drugs to other poor or developing countries, also without liability.  This has been the pattern developed in Brasil with regard to Merck’s efavirenz (Stocrin®) and in South Africa with a number of AIDS drugs.  It is clearly the wave of the future, against which only creative solutions may prevail.

UPDATE:  Last Friday, Brasil’s president signed into law a compulsory license for Merck’s efavirenz.  This is the first time Brasil has made good on its threat to grant compulsory licenses on anti-AIDS drugs, after threatening several other Western drug companies with compulsory licenses and obtaining substantial discounts thereby.  According to The Wall Street Journal, Merck offered a 30% discount while Brasil wanted a 60% discount.

This is the third in a series of articles exploring the
issue of compulsory licensing in developing countries.  For additional
information on this topic, please see:

• "A Modest Proposal Regarding Drug Pricing in Developing Countries" – May 2, 2007

• "The Law of Unintended Consequences Arises in Applying TRIPS to Patented Drug Protection in Developing Countries" – May 1, 2007