Will GSK Break the Doha Impasse in the Global Drug Pricing Crisis?

    By Kevin E. Noonan --

As we have noted in the past, the World Trade Organization (WTO) and Trade-related Aspects of Intellectual Property Rights (TRIPS) portion of the General Agreements on Tariffs and Trade (GATT) have not resulted in the general reverence for intellectual property protection intended by Western countries in the developing world, particularly with regard to pharmaceuticals (see "Not Getting It about Patented Drug Prices at The Wall Street Journal").  In particular, the combination of the Doha Declaration of 2001 and compulsory licensing provisions in national TRIPS implementing laws have created a crisis for Western pharmaceutical companies, who have seen the trend for compulsory licensing, or the threat of such licenses, expand from anti-AIDS drugs to other drugs less relevant to "national medical emergencies," to where the levels of protection may be lower in the post-TRIPS world than they were before the GATT treaty was signed.

Western drug companies bear part of the responsibility for this state of affairs, being (up until now) unwilling to address this real threat to their continued viability (and capacity to develop new drugs) in any coordinated way.  This paralysis may be changing, however, in view of remarks by Andrew Witty (at right), CEO of GlaxoSmithKline, to an audience at Harvard Medical School on February 13th.  In an address entitled "Big Pharma:  A Catalyst for Change," Mr. Witty squarely faced facts:  34 of the 50 poorest countries are in Africa, he said, and these countries were burdened with 24% of human disease.  He seemed to recognize what has been evident for some time:  that drug prices are the key motivator for governments in the developing world to grant compulsory licenses.  It would thus be prudent for Western drug companies to lower their own prices and thus blunt, if not forestall, the generic companies' justifications for government action.  There have been instances when this has happened (see, e.g., "Africa (Still) Depending on the Kindness of Strangers in Anti-AIDS Drug Pricing"), but there has been no coordinated effort by Western drug companies to develop a strategy around drug pricing in the developing world to address the compulsory licensing issue. 

Mr. Witty set forth four commitments directed to these concerns:

• Adopt a "more flexible" approach in "least developed countries" (as defined, inter alia, in "Trying to Find a Solution to the Global Drug Pricing Crisis").  These efforts would be particularly directed to "neglected tropical diseases" lacking research efforts and monies.  He proposed a "Least Developed Country (LDC) Patent Pool" for medicines for these diseases, where GSK would permit others access to its "relevant small molecule compounds" for developing new drugs.  He also proposed that participation in the pool would be voluntary and that "any benefits from the pool must go in full and solely to LDCs."  This latter provision would prevent transfer of new drugs for treating "neglected diseases" in Africa from being sold in the West, where GSK would be expected to want at least non-exclusive rights.

• Reduce prices for drugs under patent protection in LDCs to be no greater than 25% of the cost in the West, with the proviso that GSK would "cover" production, distribution, and other costs.  This is intended to be a maximum price, and Mr. Witty raised the possibility of "more aggressive" drug pricing under certain (undefined) circumstances.  He also indicated that while GSK would be willing to be flexible on drug pricing in "middle income" countries, such flexibility would "reflect more closely" the country's ability to pay for the drugs.

• Participate in greater collaborations against Diseases of the Developing World (DDW).  In this regard, Mr. Witty mentioned the GSK research center in Tres Cantos, Spain that is dedicated to DDW research.  He spoke of developing a "greater critical mass" and "partnership between public and private efforts to combat the existing "fragmented," "sub-optimal" efforts.  He asserted that GSK was willing to allow "partners" (including governments, foundations, or other companies) to use its facilities in the hope of creating "a truly world-class, global centre of excellence, not owned just by GSK."

• Taking responsibility for the state of global healthcare.  He advocated moving "from being a supplier of drugs to being a partner" in providing healthcare solutions to underserved populations, for example by identifying the individuals and institutions in these countries who can "ensure that the [healthcare] infrastructure" exists.  He committed 20% of GSK profits made selling drugs in LDCs would be reinvested in infrastructure projects in those countries, "benefiting the poorest people in the poorest countries directly."  This would involve acting not as a "Western" company but as a local company "committed to addressing the healthcare needs" of the countries GSKs work in.  He cited Brasil as an example, where GSK is "helping them build technical expertise so that in the long run they can produce vaccines for themselves" (presumably after GSKs patents have expired).  He said the resulting increased ties to these societies is "how it should be" for GSK, and presumably other Western pharmaceutical companies.

While forward-looking, Mr. Witty was able to cite existing GSK programs on malaria vaccines (the PATH Malaria Vaccine Initiative) that are entering Phase III clinical trials.  Should the vaccine successfully complete the trial, Mr. Witty said GSK needs "to make sure nothing gets in the way of access" to the vaccine for the children who "are among the poorest in the world."  He envisioned an international partnership to "mobilize the resources to pay for [the vaccine] and the infrastructure to deliver [it]."  

Other Western drug companies have proposed similar, more limited or focused efforts before.  GSK's commitment is reminiscent of Monsanto's proposal to use its technology to address world hunger (see "Monsanto Moves to Address World Food Shortages").  It is a bold first step; whether it is ultimately successful will likely depend on whether the remaining innovator drug companies see the benefits of such behavior and act accordingly.  Recent history indicates that such a coordinated strategy will be necessary if innovator drug companies are not to be left with none of the advantages that the TRIPS agreement was intended to have for their industry.

For additional information about this and other related topics, please see:
• "Monsanto Moves to Address World Food Shortages," June 4, 2008
• "Thailand Continues Its Compulsory Licensing Practices," March 11, 2008
• "Trying to Find a Solution to the Global Drug Pricing Crisis," July 16, 2007
• "Pharma Sanity Lacks Global Reach," July 13, 2007
• "Brasil Prevails in Dispute with Abbott over AIDS Drug Pricing," July 9, 2007
• "Africa (Still) Depending on the Kindness of Strangers in Anti-AIDS Drug Pricing," May 29, 2007
• "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

Comments

[Kevin Outterson]

I must have missed the "crisis" in TRIPS-compliant compulsory licenses. A handful have been issued, and USTR overreacted (especially at Thailand and Brazil), but since when do we call something a "crisis" when the rule of law is followed in an international treaty? Can you point to anything in TRIPS that limits compulsory licenses to AIDS? That position was explicitly rejected in TRIPS. See http://ssrn.com/abstract=1090270.

Doha is a threat to PhRMA? Do you mean the Doha par. 6 process, now found in Art. 31 bis? One successful effort in 5 years; Apotex says the process was so cumbersome (at PhRMA insistence) that they'll never do it again. The modest quantity of AIDS drugs went to Rwanda. This is not a threat to patent-based drug companies. See the Paige Goodwin article in the latest volume of the American J. of Law & Medicine.

And then you say: "... the levels of protection may be lower in the post-TRIPS world than they were before the GATT treaty was signed."

Really? I'd love to see the list of PhRMA execs that pine for those halcyon days before TRIPS.

And that's just the first paragraph.

[Kevin E. Noonan]

Dear Kevin:

Thanks for your perspective. We've been talking about this for a year or so; the earlier posts are cited in this one.

It wasn't just the USTR that "overreacted," the EU reacted in similar fashion. And it wasn't just Rwanda, it has been Brasil and Indai and Thailand and China. And it isn't just AIDS drugs, it includes Plavix and a number of anticancer drugs.

And the reason those "halcyon" days might be considered to be so is that countries, expecially Brasil, China and India, get the benefit of WTO membership (and the avoidance of tariffs and other barriers to markets like the US) without any real change in their own protectionary practices with regard to Western pharma.

But we realize that there is a problem - indeed, we have suggested (and suggest now, if you read past the first paragraph) that Western companies cannot hide their heads in the sand of the polical reality that LDC governments are doing precisely what they should be doing - acting to protect their citizens. We are not criticizing those countries or their governments; if anything, we have suggested that Western companies need to adapt to the political realities and not act as if TRIPS and GATT give them free reign to enjoy the kind of profits in LDCs that they enjoy in Europe and the US.

So the crisis isn't countries following the rule of law; it's the consequences of countries doing just that, and the crisis is for Western pharmaceutical companies.

Thanks for the comment.