Diplomarbeit / Diploma Thesis

 Eberhard – Karls – Universität Tübingen

Pharmaceutical Patents and Medical Supplies for Epidemical Diseases: 
The Struggle in Less Developed Countries (LDCs)

by

Patrick Avato

Abgabetermin: 22.3.2004

Table of Contents
Abbreviations ... 1
Figures and Tables ... 2

1. Introduction  ... 3

2. Pharmaceutical Patents and the Poor – The Point of Departure ... 5
2.1. Public Health and the Economy in LDCs ... 5
2.1.1. The Burden of Disease  ... 5
2.1.2. The Economic Consequences of Poor Health  ... 8
2.2. Intellectual Property Rights in Developing Countries ... 10
2.2.1 The TRIPS Agreement  ... 12
2.2.2. Bilateral Trade Agreements ... 14

3. Patents and the Pharmaceutical Industry  ... 15
3.1. The Economics of Pharmaceuticals ... 16
3.2. The Economics of Patents  ... 19
3.3. Diffusion vs. Creation of Knowledge ... 21

4. Pharmaceutical Patents in LDCs  ... 23
4.1. Static Effects ... 23
4.1.1. The Comparative Position of LDCs  ... 24
4.1.2. Extent of Effects  ... 25
4.2. Dynamic Effects  ... 28
4.2.1. Domestic R&D Potential  ... 28
4.2.2. Market Size ... 29
4.2.2.1. Global Diseases  ... 32
4.2.2.2. Diseases of the Poor  ... 32
4.2.2.3. Tropical Diseases ... 33
4.3. The curse of poverty  ... 34

5. The Road Ahead  ... 37
5.1. Price Discrimination  ... 39
5.1.1. The Theoretical Framework  ... 40
5.1.2. The Political Dimension of Differential Pricing ... 42
5.2. Public Intervention and the Role of Rich Countries ... 43
5.2.1. Modified Orphan Drug Acts ... 44
5.2.2. The Purchase Fund  ... 45
5.2.3. Public-Private Partnerships (PPPs)  ... 46
5.3. The Politics of Pharmaceutical Development Aid  ... 47
5.4. Compulsory Licenses: The Option of Last Resort?  ... 48

6. Conclusion  ... 51

Literature  ... 54

Abbreviations
ARIPO - African Regional Industrial Property Organization
ARVs - Antiretrovirals
CIPR - Commission on Intellectual Property Rights
DALY - Disease Adjusted Life Year
EU - European Union
FDI - Foreign Direct Investment
GDP - Gross Domestic Product
GNP - Gross National Product
IPRs - Intellectual Property Rights
IT - Information Technology
LDCs - Less Developed Countries
MNC - Multinational Corporation
NAFTA - North American Free Trade Agreement
NGO - Non Governmental Organization
OAPI - Organisation Africaine de la Propriété Intellectuelle
OECD - Organization for Economic Co-operation and Development
PCT - Patent Cooperation Treaty
PhRMA - Pharmaceutical Research and Manufacturers of America
PPP - Public Private Partnership
R&D - Research and Development
TB - Tuberculosis
TRIPS - Trade-related Aspects of Intellectual Property Rights
UN - United Nations
UNCTAD - United Nations Conference on Trade and Development
UNDP - United Nations Development Program
USA - United States of America
WHO - World Health Organization
WIPO - World Intellectual Property Organization
WTO - World Trade Organization

Figures and Tables
Figure 1 Patents as Temporary Monopolies  ... 19
Figure 2 The Welfare Effects of Intellectual Property Rights ... 22
Figure 3 Price Discrimination Between Rich and Poor Countries ... 40

Table 1 Life Expectancy and Mortality Rates for Selected Regions (2000)  ... 6
Table 2 Selected Less Developed Countries′ Membership in Multilateral, Regional and Bilateral IPR Treaties (2001)  ... 15
Table 3 R&D Expenditures as Percentage of Revenues for Selected Pharmaceutical Companies  ... 17
Table 4 Patent Applications in Selected Countries (2000)  ... 24
Table 5 The World Pharmaceutical Market  ... 31
Table 6 Diseases for which 99% or more of the Global Burden falls on Low- and Middle-Income Countries (2000)  ... 34
Table 7 Health Expenditures for Selected Regions and Prevalence of HIV/AIDS ... 35

1. Introduction

The last century has been characterized by great advancements of pharmaceuticals and a worldwide rise of life expectancy. Improvements in medical research have yielded significant progress in treating diseases that only recently were incurable. This is most obvious in the case of HIV/AIDS where considerable public and private investments have converted this killer into a manageable chronic disorder for many in the developed world. Still, the developing world has suffered an exponentially growing rate of HIV infection and treatment is out of reach for almost 90 percent of the infected population. Tragically, AIDS is not the only pandemic¹ threatening the developing world. Malaria and Tuberculosis are only the most prominent of a large number of epidemical diseases affecting the world’s poor. Overall, about ten million people die through infectious diseases each year, more than 90 percent of whom in the developing world. These people do not receive treatment for their diseases – either because they cannot afford treatment or because treatment for their diseases does not exist.

Major multilateral organizations, such as the World Health Organization (WHO), have devoted substantial expertise and financial means to the development and distribution of medicines. These medicines were targeted specifically at the needs of less developed countries (LDCs). Publicly, however, the issue only gained significant momentum with the establishment of the World Trade Organization (WTO) in 1995. Indeed, the inclusion of intellectual property rights (IPRs) in form of the Agreement on Trade Related aspects of Intellectual Property Rights (TRIPS) and the simultaneous spread of the HIV/AIDS pandemic became one of the major fields of discussion and public outrage at the WTO Ministerial Conference in Seattle in 1999. On the one side, governments and industries from developed countries, argued that the introduction of patent systems in LDCs would result in a considerable flowering of innovation and growth, with significant spillovers to poor countries. In fact, concerning pharmaceuticals, they claimed that the introduction of patents could help in accelerating the process of finding treatments for currently incurable diseases such as malaria and leprosies. On the other side,developing countries and many non governmental organizations (NGOs) feared that the introduction of IPR systems in developing countries would result in higher prices for pharmaceuticals (and other goods incorporating intellectual property). Considering the low purchasing power and the high incidence of diseases, it was feared that this would worsen the already disastrous situation of public health in LDCs. This conflict is at the center of the harsh debate about institutional reform in the WTO and is the subject to be discussed in this study. The aim of this paper is to clarify the interrelation between patents and access to pharmaceuticals in developing countries and to describe possible solutions to this public health dilemma. Actually, the improvement of health standards in developing countries cannot be achieved solely by the provision of pharmaceuticals in terms of vaccines and medical treatment. Other factors, such as prophylactic measures including hygiene, education and better medical infrastructure are all important factors and, complementary to the provision of medicines. However, these measures are not discussed in this paper as their relation with patents is rather marginal.

Regarding the provision of pharmaceuticals to people in developing countries, there are two distinct issues which need separate consideration though they are related. One is the issue of medical research, and the extent to which current mechanisms for stimulating and funding medical research are appropriate to spur the development of new medicines. The other is the issue of access to the products of medical research. As will be seen, these two crucial aspects have important implications for any policy approaches dealing with the health situation in LDCs. In order to put the discussion into perspective, the following chapter discusses the current situation of public health in LDCs and its problematic economic and social consequences. The situation is then confronted with the current state of intellectual property rights in international law. In this regard the TRIPS Agreement and its various provisions regarding developing countries are of central importance. Chapter 3 introduces the functioning and the theoretical justification of patents. For this purpose the economics of the production of pharmaceuticals are analyzed. It will be shown how certain characteristics of pharmaceuticals and their production process make a political intervention necessary. The granting of patents proves to be crucial for a sufficient provision of pharmaceuticals to society. As this policy instrument also causes social costs, the trade off between these costs and benefits is analyzed. Building on this framework, chapter 4 examines the potential effects of an international adoption of (TRIPS like) patents on the availability of drugs in LDCs. This analysis leads to certain conclusions, which form the foundation of the possible solutions to the dilemma presented in chapter 5. Chapter 6 concludes this study.

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1 Pandemics refer to diseases, mostly of infectious nature, that travel across borders.