Multinational Monitor

MAR/APR 2007
VOL 28 No. 2


Big Pharma and AIDS Act II: Patents and the Price of Second-Line Treatment
by Robert Weissman

Manuel Cossa's Story: Mining and the Migration of AIDS
by Stephanie Nolan

Slow on Generics: Bush Policy Saves Lives, At a Premium
by M. Asif Ismail

HIV In Uganda: The Challenges of Getting Pills to Patients
by Richard Kavuma

Building Up Baja: US Suburbanization Comes to the Peninsula
by Dan La Botz


Cry for Action: Shameful Neglect and the Search for Hope in AIDS-Ravaged Africa an interview with Stephen Lewis

Four Million Short: The Healthcare Worker Shortage
an interview with Lincoln Chen


Behind the Lines

Deadly Dictates: The IMF, AIDS and the Healthcare Crisis

The Front
Climate Changing Africa -- African Inequality

The Lawrence Summers Memorial Award

Greed At a Glance

Commercial Alert

Names In the News


Big Pharma and AIDS: Act II Patents and the Price of Second-Line Treatment

by Robert Weissman

Six years ago, very few people with HIV/AIDS in the developing world outside of Brazil were receiving lifesaving antiretroviral (ARV) drug treatment. Today, more than two million are.

Much more needs to be done. Those on treatment represent roughly a third of those in clinical need, based on standards calling for much later drug intervention than is the case in rich countries. But dramatic progress, practically inconceivable less than a decade ago, has been made.

The trigger for the revolution in global AIDS care was the sharp reduction in price of ARVs brought about by generic competition. In the late 1990s, the price of lifesaving combination of ARVs in developing countries was $10,000 a year per person or more, the same as in rich nations. A few years later, the price tag had dropped to $350 a year, and it has kept falling.

The price reduction made it possible for some in the developing world to access drugs, but, more importantly, made it feasible for international donors to fund large-scale treatment programs. The two largest are the President's Emergency Plan for AIDS Relief (PEPFAR), the main U.S. AIDS program for developing countries, and the Global Fund to Fight AIDS, Tuberculosis and Malaria, an international effort to direct aid monies to the three diseases.

The impressive, if very partial, gains in treatment provision are now threatened by the high cost of new AIDS drugs. ARV treatment involves shifting drug regimens over time, as patients develop resistance to initial therapies. The high cost of newer drugs threatens to make it much more costly to maintain treatment for those already on ARV therapy, and to undermine a global commitment to provide treatment to everyone who needs it by 2010.

By 2004, organizations such as Medecins San Frontieres/Doctors without Borders (MSF) had already begun sounding alarm bells about the coming crisis in developing country access to newer and second-line drugs.

Then, in late 2006 and 2007, Thailand acted to issue compulsory licenses - authorizations of generic competition for products that remain on patent - for two key, newer AIDS drugs.

Thailand's actions led to sharp, global price reductions - and provoked cries of protest from Big Pharma and threats of sanctions from the U.S. government. One company, Abbott Laboratories, even withdrew registration applications for new drugs from Thailand.

Thailand's efforts showed the way forward to ensure that artificially high drug prices do not again block programs to provide and expand treatment to people with HIV/AIDS, according to public health advocates. What remains unclear is whether other countries have the political will to follow suit.

The Price Plunge

The first clinical evidence that ARVs would be effective in treating AIDS started appearing in the late 1980s, but it was not until the advent of combination therapies in the mid-1990s that their real lifesaving effects became evident.

Brand-name companies set very high prices for the ARVs. Burroughs-Wellcome, now part of GlaxoSmithKline, charged $8,000 a year just for AZT, the first effective ARV [see "the Ten Worst Corporations of 1989, Multinational Monitor, December 1989]. Protests from ACT-UP and other AIDS organizations led the company to drop prices modestly. Prices stayed consistently high, however, and protests faded as public and private insurers in the United States agreed to pick up the costs of ARVs.

The $10,000-$15,000 per person annual price tag for combination therapy was completely unaffordable for almost everyone in developing countries, however, where the AIDS pandemic was picking up steam. And so almost everyone with HIV in developing countries died once the disease progressed to full-blown AIDS.

Things went differently in one key country, Brazil. Under its constitution, the government had an obligation to provide medicines to people in need, and the government sought to respect this mandate. Rather than buy from the brand-name companies, Brazil sought to make ARVs domestically.

Brazil was able to undertake this effort because it effectively did not grant patent monopolies on pharmaceuticals until 1997, so products invented before that time are not patented in Brazil. Over time, Brazil was able to drive down its prices substantially.

For most of the rest of the developing world, brand-name prices prevailed. In many countries, some of the ARVs were patented. Other countries did not have the know-how or, even more importantly, sufficiently large markets to produce ARVs efficiently on their own.

Then, in 2001, Cipla, a large generic pharmaceutical manufacturer based in India, announced that it would make available a combination of ARV drugs for $350 per person per year - less than a dollar a day.

The Cipla price announcement revolutionized thinking about treating people with AIDS in developing countries. Former Office of Management and Budget (OMB) Director Mitch Daniels explained that when the price of ARVs fell by an order of magnitude, the Bush administration was willing to look seriously at supporting massive treatment programs.

After the Cipla announcement, other large Indian generic makers began offering price discounts. Competition, greater efficiencies achieved over time and economies of scale drove the cost of the lowest priced generic combinations to less than $100 per person per year by 2007 - a decline of more than 99 percent from the price less than a decade earlier.

Following the introduction of steep generic price reductions, the brand-name companies offered major discounts as well, although their prices consistently trailed those of the generic makers by substantial amounts.

In 2002, following a proposal from then-UN Secretary General Kofi Annan, the Global Fund was launched. Later that year, the United States announced PEPFAR.

The Global Fund and PEPFAR directed billions of dollars into treating people with HIV/AIDS, relying on the price discounts achieved by generic competition.

Tripping Up Developing Countries

The World Trade Organization's Agreement on Trade-Related Aspects of Intellectual Property (WTO's TRIPS), went into effect in 1995. It requires all member countries - the vast majority of the world's nations, and every single large economy except Russia - to adopt U.S.-style patents, providing 20-year patents in every field of technology, including healthcare and medicines. Prior to TRIPS, many developing countries provided no or limited patent protection for pharmaceuticals.

TRIPS includes important safeguards, however, and also a built-in transition period for developing countries.

Under TRIPS, middle-income countries were not required to become TRIPS compliant until 2000. Brazil, which effectively did not grant patent monopolies on medicines before TRIPS, used the period of transition. That means that medicines invented before 2000 are not patented in Brazil - which was how Brazil was able to make the decision to produce generic versions of AIDS drugs domestically.

The initial Brazilian production of generic ARVs was crucial not only in enabling the country to provide treatment to Brazilians with HIV/AIDS at much more affordable prices, but in lowering the global costs of generics. Brazil's large-scale purchases of the raw materials (known as APIs, for active pharmaceutical ingredients) for ARVs created economies of scale that drove down the global price of generic APIs. That would be crucial for enabling the Indian generic firms to eventually offer their dramatic discounts.

India took advantage of a longer transition period in TRIPS, and did not adopt robust patent protection for pharmaceuticals until 2005. India has the world's most vibrant generic pharmaceutical sector, which emerged following a 1970 amendment to its patent law doing away with U.S.-style patents on drugs. India has a large and growing population of people with HIV/AIDS, but the government has been extremely slow to roll out treatment. Because of the country's patent rules, however, numerous sophisticated and very low-cost firms were able to compete for the growing markets in developing countries, primarily in Africa, the epicenter of the AIDS pandemic, as donor money for drug purchases became available and grew.

Under the original terms of TRIPS, most sub-Saharan African countries other than South Africa were not required to be TRIPS compliant until 2005. And the 2001 Doha Declaration on the TRIPS Agreement and Public Health, an agreement among WTO members, authorized least developed countries not to enforce patents until 2016, with an option to extend the period longer into the future. Very few countries have taken advantage of this option, however.

African countries have nonetheless overcome or circumvented patent barriers for older AIDS drugs. Brand-name companies did not patent many of the older ARVs in African countries. Several companies have announced policies of not enforcing patents on AIDS drugs in Africa, or have adopted such a policy in practice. Many have worked out licensing deals with generic makers in Africa.

For Big Pharma, maintaining high prices on and monopoly control over older ARVs in Africa became very difficult after the Cipla price announcement. Cipla's announcement made it clear that treatment was achievable with generic pricing, and global AIDS activists put the issue in the headlines of the world's leading newspapers.

Big Pharma perhaps might have been willing to stomach the public relations disaster if countries did not have tools to overcome patent monopolies. But they did.

Under TRIPS and national laws, countries may issue compulsory licenses - authorizations of generic competition for products while they remain on patent. If Zambia finds the price of a patented medicine sold by Pfizer to be too high, for example, it may issue a compulsory license. That license authorizes other competitors to make and sell the medicine, even while it remains on patent. The 2001 Doha Declaration reiterated that countries could issue compulsory licenses, and could do so on terms of their own choosing, so long as they followed relatively straightforward TRIPS-mandated procedures, including payment of a reasonable royalty to the patent holder. The U.S. government issues compulsory licenses more frequently than any other government, typically in the areas of defense (enabling defense contractors to use patents without negotiating with the patent holder) and antitrust (for example, approving a merger proposal only on condition that the merging firms license other companies to make patented products that the merging entities had formerly sold in competition with each other).

Although many developing countries have been reluctant to issue compulsory licenses because of uncertainty over their legal rights and fear of retaliation from the United States, many have done so. Mozambique, Malawi, South Africa, Ghana, Eritrea, Indonesia and Malaysia have all issued compulsory licenses on the older ARVs.

Looming Disaster

Yet even as African countries, with donor support, finally began rolling out large-scale treatment programs that relied on cheap generic drugs, a new drug pricing threat loomed.

Antiretroviral treatment involves fighting the HIV virus with a combination of drugs. Over time, people on ARV therapy develop resistance and need to switch to different medicines. The initial drugs people take are called first-line; they are followed by second-line and third-line therapies.

The first-line therapies currently prescribed throughout the developing world use older drugs. Second- and third-line drugs are more recent inventions. The picture is now becoming more complicated, as new medicines for which Gilead and Merck hold patents are emerging as a preferred first-line therapy. These new medicines, combined as a once-a-day pill sold under the brand name Atripla, are not yet widely available in Africa.

In general, the older drugs are less heavily patented in developing countries than the newer ones. And the newer drugs are covered by patents in middle-income countries like Brazil, unlike the older ones invented before these nations were required under TRIPS to have patent protection for medicines.

As a result, newer and second-line drugs are not subject to the robust competition that now prevails for first-line drugs, and are much more expensive.

For those providing treatment to people with HIV/AIDS, the inevitable crisis has long been clear.

"Resistance to first-line ARVs is as inevitable in poor countries as in rich ones," Dr. Alexandra Calmy, MSF AIDS adviser, noted at the 2004 International AIDS Conference. "Yet with second-line treatments costing as much as $5,000 per patient per year in developing countries - 15 times the cost of first-line treatments - it will simply be out of reach. Unless this situation changes, per patient costs will skyrocket and people will die needlessly."

A year later, the situation had become more urgent. MSF, which had led the way in providing treatment to people with HIV/AIDS in developing countries - in large measure to show that it could be done, a point of contention not many years ago - saw some of its patients need to make the switch to second-line drugs, at skyrocketing prices.

"We are already beginning to confront the 'second-line crisis' that newer treatment programs may not feel for several years," said Dr. Felipe Garcia de la Vega, an MSF AIDS specialist, in 2005. "Although our clinical outcomes are good so far - the average survival rate in our projects is 80 percent after 12 months on treatment - some of our programs have been operating for more than five years now and we have naturally started having to switch some of our patients to second-line treatments as they have developed resistance to first-line drugs."

"Today, MSF pays less than $250 per person per year for WHO-prequalified first-line treatments sourced from Indian generic manufacturers. This has only been possible because there have not been patents on pharmaceuticals in key manufacturing countries like Brazil and India, and because there has been robust generic competition," said Fernando Pascual, an MSF pharmacist, in 2005. "But when we switch to second-line treatments, the price increases six- to 12-fold."

By way of example, Pascual explained, "In Guatemala, where MSF provides ARV treatment for 1,700 people with HIV/AIDS, Abbott charges $2.66 per capsule. Although MSF is treating just 11 patients with lopinavir/ritonavir [a second-line combination drug made by Abbott], we pay more than $5,800 per person per year for the one drug alone."

Without effective generic competition, purchasers were left to the whims of the brand-name companies. The companies offered tiered discounts for developing countries, with modest price breaks for middle-income countries and more significant reductions for poorer countries with high HIV/AIDS burdens. But these price breaks have not matched the price reductions achieved with genuine competition.

The problem first became severe in Brazil, because that country had been earliest to roll out significant treatment. By 2005, a Brazilian civil society coalition noted, "Eighty percent of the National AIDS Program's budget for ARVs is spent on imported patented drugs. Seventy percent is spent on the purchase of four patented drugs, lopinavir/ritonavir, tenofovir, efavirenz and nelfinavir."

In 2001, 2003 and 2005, the Brazilian government threatened to issue compulsory licenses on second-line drugs. Each time, however, the government instead re-entered negotiations with the brand-name companies, securing price discounts and retreating from the compulsory licensing threat.

The government's reluctance was due to several factors, but key among them was a perception that the United States would retaliate against Brazil. In the 2005 round, government officials pointed out the multifaceted nature of their relationship with the United States, and worried that the United States might penalize imports of cotton or oranges, among other products.

The government's perception was buttressed by very aggressive comments from industry associations and industry-allied organizations with close ties to the Bush administration.

"Brazil's threat to strip patent rights from a U.S. company should concern all investors and every business around the world because of the precedent it sets for the treatment of intellectual property," said Thomas Donohue, head of the U.S. Chamber of Commerce, in 2005. "Intellectual property is one of the most valuable assets in any industry and its protection should be paramount."

Brazil's negotiated price reductions enabled its program to continue more affordably, but the failure to kick-start generic competition meant that the country did not benefit from the dynamic benefits of generic competition - with multiple competitors, prices continue to fall over time, with the most significant benefits typically attained years after generic entry. The rest of the world suffered, too. Where Brazilian domestic production of generic versions of first-line ARVs created economies of scale in the global generic API market, the negotiated deals with the brand-name companies had no such positive external effect.

Meanwhile, as the large-scale treatment programs through PEPFAR, the Global Fund and other initiatives began to mature, and the prospect of significant numbers of patients needing second-line treatments grew closer, the high prices for second-line drugs threatened the programs' future viability.

"It is obvious that U.S. drug costs [for PEPFAR] will escalate significantly as a result of the higher cost of second-line medicines" that receive patent or other monopoly protections, explains Brook Baker, a Northeastern University law school professor and member of the AIDS activist group Health GAP.

Doing back-of-the-envelope calculations, and using conservative assumptions, Baker estimated at the start of 2007 that PEPFAR would see its drug expenses rise by at least five times once patients currently on treatment shifted to second-line ARVs. That in turn would mean nearly three quarters of PEPFAR's current treatment budget would need to be allocated to pharmaceuticals, crowding out monies to pay for doctors, nurses, other healthcare workers and infrastructure.

The high prices of second-line treatments will make the promised expansion of PEPFAR's treatment base much more expensive and perhaps financially infeasible. Monopoly protections for second-line drugs and a lack of effective generic competition "guarantees that the U.S. PEPFAR program will become more and more costly over time," notes Baker, "and will reduce its ability to scale up the number of people on treatment."

"Each patient who is started on a cheaper first-line drug regime will need to transfer to second-line therapy at some point because of drug-resistance or adverse effects," explains Baker. "Each such transfer will mean that only one patient can be treated for the same cost that 2.4 patients were treated previously."

This problem remains largely unappreciated by the global AIDS bureaucracy, including in the U.S. government. As Baker and others have pointed out, the Bush administration - like the Clinton administration before it - is pushing developing countries in bilateral trade negotiations to grant stronger and longer monopolies on medicines, even though these policies, if unchecked, may lead to the demise of the same administration's prized PEPFAR initiative.

Thailand Steps Forward

While official Washington may not have appreciated the pending crisis, health officials in Bangkok did.

In November 2006, Thailand issued a compulsory license on an important, newer ARV, efavirenz, sold by Merck under the brand-name Stocrin. The government announced that the compulsory license would enable it to cut the price of efavirenz in half, and to expand the number of people receiving the drug through the public health service.

"We have around 120,000 people on ARVs in Thailand," Dr. Suwit Wibulpolprasert, senior adviser on health economics in the Thai Ministry of Public Health, explained in a published interview with MSF. "The first formulation that we use is the nevirapine-based, triple therapy, but about 20 to 25 percent of patients cannot really take these drugs, due to side effects, some of which are even fatal. These patients have to be switched to efavirenz, which is three times more expensive. So we need a cheaper drug because we cannot afford it. Since October 2003, the Thai government has had a policy of universal access to ARVs for all HIV positive patients who need it. Patients under the scheme get their drugs for free."

The government's program is to switch patients currently on ARVs once they develop resistance to nevirapine. But new patients will begin on the clinically preferable efavirenz-based therapy.

The Thai Network of People Living With HIV/AIDS applauded the decision, calling it "groundbreaking," and urging that it set the stage for future compulsory licenses.

The reaction from the brand-name industry was, not surprisingly, of a different tenor. "The recent announcement by Thailand's Ministry of Health to issue a compulsory license without any attempt to negotiate with the patent owner is of grave concern," said Pharmaceutical Research and Manufacturers of America (PhRMA) President and CEO Billy Tauzin. "This action appears to be inconsistent with the procedures in Thailand's own patent statute. The affected company stated publicly that they are prepared to work closely with the Thai authorities to resolve this matter. We strongly urge the Thai government to engage the company in discussions."

Soon after the Thai compulsory license was issued, Deputy U.S. Trade Representative (USTR) Karan Bhatia called the Thai Embassy in Washington, D.C. The embassy says he sought to pressure the country to reverse the compulsory licensing decision.

In subsequent meetings, USTR officials would say that they did not pressure Thailand or ask for a reversal of the decision, only that the Thai government "consult" with all "stakeholders."

Responding to a letter from 22 Members of the U.S. Congress concerned about USTR pressure on Thailand, USTR Susan Schwab wrote in January that "we have taken care to respect the Thai government's ability to issue compulsory licenses in accordance with its own law and its obligations as a member of the World Trade Organization."

In January 2007, Thailand issued two more compulsory licenses, on the combination AIDS drug lopinavir/ritonavir, sold by Abbott under the brand names Kaletra and Aluvia, and on the heart disease drug clopidogrel, sold as Plavix by Sanofi-Aventis.

Although it is not required under international law to issue any justifications for its actions whatsoever, the Thai government issued a detailed, 100-plus page white paper explaining what the compulsory licenses covered, and why.

Contextually, the government explained, it adopted a universal health system in 2001, under which all Thais have a right to medicines on the national drug list. Government expenditures on healthcare rose from 4 percent of the national budget in the 1980s to nearly 10 percent at present. Expenditures on ARVs rose from $10 million in 2001 to $100 million in 2007. But although Thailand is a relatively fast-growing economy, government resources are limited, and the obligation to provide medicines means it cannot simply deny treatment in the face of high prices. "Due to limited budget [resources] and the mandate to achieve universal access, the government cannot afford to pay the price of the patented products. Opening of this new market for competition among all generics as well as with the patented products will allow the government to provide good quality essential drugs at an affordable price to all Thais, to fulfill the legal and political commitment to universal access to essential medicines," according to the Thai white paper.

The Thai government estimated that 50,000 Thais will need second-line treatment in the near future. The cost of providing lopinavir/ritonavir at Abbott's price to this population would be more than the entire current budget for ARVs, according to the government. The immediate price discounts from the compulsory license would enable the government to provide an additional 8,000 people with the medicine, and that number will grow as generic costs fall over time.

For clopidogrel, the Thai government said the compulsory license would enable it to cut costs immediately by 90 percent, making it possible to provide the blood thinner in the public health system.

The government also maneuvered to preserve meaningful markets for the companies whose products were compulsory licensed. The compulsory licenses applied only to the public health system. The brand-name companies' monopolies still apply in the private sector, which serves richer Thais and a considerable population of medical tourists who go to Thailand for cheaper treatment options.

"Patients who make use of the universal health insurance program government services," says Jon Ungphakorn, the executive secretary of the AIDS Access Foundation in Thailand, "are mainly poor to low- and middle-income people who can't afford these drugs anyway. The better-off people in Thailand generally go to private hospitals where they have to pay for the branded product." About 20 percent of the Thai population uses private healthcare, according to the government.

This effort to carve out the drug companies' existing market notwithstanding, Big Pharma reacted harshly to the Thai efforts. A lot was at stake.

Although many other developing countries had issued compulsory licenses, Thailand's action was a breakthrough in at least three respects. First, the licenses on efavirenz and lopinavir/ritonavir were the first compulsory licenses issued on the second-generation of AIDS drugs. Second, the licenses were the first issued by a middle-income country with substantial market size - large enough to start the process of reducing the costs on the raw materials markets. Third, the Thai license on clopidogrel signaled a refusal to let compulsory licensing be confined to AIDS drugs.

From the industry's point of view, things got much more serious in May, when Brazil issued a compulsory license on efavirenz. The Brazilian government decided not to continue the practice of threatening compulsory licenses but not following through. It estimated the lower prices it could immediately obtain from compulsory licensing - not taking into account how prices are likely to fall over time - would save the government $237 million by 2012.

"Merck has attempted to negotiate in good faith with the Government of Brazil, but a fair offer on Stocrin [the brand name for efavirenz] has been rejected," the company said in a statement. "This expropriation of intellectual property sends a chilling signal to research-based companies about the attractiveness of undertaking risky research on diseases that affect the developing world, potentially hurting patients who may require new and innovative lifesaving therapies."

For the industry, the core concern was that developing countries would stop treating patents as sacrosanct, and compulsory licensing would become routinized.

"There could be 'a spreading epidemic of disrespect for IP rights,'" PhRMA's Tauzin worried aloud in a news conference in May.

Thailand is a small share of the [global] market," said Tauzin, "but any dimunition of intellectual property in the area sends huge, important signals to investors and companies about their future plans."

Speaking after a meeting with the Thai Health Minister, Tauzin said, "We impressed upon the Minister our deep concern that the use of compulsory licensing sends a very negative signal concerning the investment of research dollars into critical medicines regarding diseases that all of us share and are combating."

The reaction was strongest from Abbott. In March, the company withdrew applications to market seven new medicines in Thailand. One of those medicines was the heat-stable formulation of lopinavir/ritonavir - meaning it does not require refrigeration, an important consideration in a tropical country like Thailand.

Public health advocates denounced what they labeled as an attempt at "blackmail."

"Our patients in Thailand, who still use the old version of the medicine, have been waiting for this new version for a very long time," said Dr. David Wilson, of MSF in Thailand. "The drug was registered in the United States in October 2005, but still cannot be used in Thailand and many other countries where it is desperately needed. Refusing to sell the drug here is a major betrayal to patients."

In April, activists around the world organized a day of action to protest Abbott's actions. Demonstrations were held in at least 14 countries.

"What Abbott has done is not only against Thailand but against the entire world. It is completely immoral to withdraw drugs from a country whose government has exercised an entirely legal act of trying to ensure access to medicines to people living with AIDS," said Ungphakorn.

However unfair the companies may have thought Thailand's action, it had a huge impact on drug pricing. In April, Abbott announced it would drop its price for lopinavir/ritonavir for middle-income countries from $2,200 to $1,000 per person per year. In February, Merck reduced its discount price for efavirenz by 14 percent for countries with a low Human Development Index (HDI - a group of generally poor countries) or medium HDI and HIV incidence of 1 percent or more. It dropped the price by almost 6 percent for medium HDI countries with HIV prevalence of less than 1 percent.

Tensions reached a new height in April, when USTR issued its annual Special 301 Trade report, which details countries allegedly infringing on patent, copyright and other intellectual property claims by U.S. corporations. In the 2007 report, USTR elevated Thailand from the "watch" list to the more threatening "priority watch" list. Developing countries generally take very seriously their appearance on the lists, which can foreshadow trade sanctions and, more typically, intense political pressure.

The USTR listing for Thailand complained about the country's rules for copyright and trademark protection, but there were no discernible changes in these areas from the previous year. The significant change involved the government's issuance of compulsory licenses. The Special 301 Trade report stated that, "in addition to these longstanding concerns with deficient IPR [intellectual property rights] protection in Thailand, in late 2006 and early 2007, there were further indications of a weakening of respect for patents, as the Thai Government announced decisions to issue compulsory licenses for several patented pharmaceutical products. While the United States acknowledges a country's ability to issue such licenses in accordance with WTO rules, the lack of transparency and due process exhibited in Thailand represents a serious concern."

USTR also complained in the report about Brazil's consideration of compulsory licenses - the Brazilian compulsory license on efavirenz was issued just days before publication of the 301 report, and presumably too late for inclusion.

The USTR treatment of Thailand and Brazil followed lobbying by the brand-name industry, and generated cries of outrage from health groups and Members of Congress.

"The sanctioning of countries for using legitimate and important flexibilities in the TRIPS agreement," says James Love, executive director of the Washington, D.C.-based Knowledge Ecology International, "brings shame to all U.S. citizens who are increasingly seen in Thailand and elsewhere as bullies and hypocrites."

"The Thai compulsory licenses are highly transparent, with long, detailed explanations and briefings for the company and the public," says Love. "They are far more transparent than the uses of compulsory licenses by the United States or other high-income countries.

What is not transparent is the incredibly arbitrary and political process that creates the 301 list," Love argues. "Since Thailand is acting legally, the USTR makes vague allegations that while Thailand has the 'ability' under the WTO rules to issue such licenses, there was something undefined that the USTR cannot or will not explain that was worth citing on the 301 list. If Thailand actually did something the U.S. claims is contrary to U.S. trade policy, the USTR should at least be able to explain it. What is the 'due process' for the 301 list? We should not be giving the impression to the world that U.S. pharmaceutical industry lobbyists can use USTR to settle commercial disputes, entirely outside of the framework of global trade rules."

Several dozen Members of Congress echoed these sentiments, albeit in more muted terms. In a June letter, Representative Henry Waxman, D-California, and 34 other Members of Congress sent a letter to USTR Schwab. The letter called for removing Thailand from the priority watch list. "It is difficult to interpret this decision" to include Thailand on the 301 priority watch list "as anything other than retaliation for Thailand's recent actions," they wrote. "It sends a troubling message, not only to Thailand but the entire world, that the exercise of recognized public health flexibilities in trade obligations is frowned upon by the United States. This response runs counter to the United States' obligation to respect the right of all nations to implement their intellectual property rules in a way that is supportive of public health."

Progress and Peril

The Congressional letter's point that the USTR action sent a message to countries other than Thailand hit a key point: Thailand has made clear that it is not going to revoke its compulsory licenses. Big Pharma's interest was, if possible, to stop Thailand from issuing more licenses - but above all to frighten other nations from following the same path.

There's little doubt that the Big Pharma-USTR effort has had some considerable success. Thailand's maneuvers have resulted in lower prices and expanded access to medicines, but they have not been widely emulated.

Nonetheless, the overall situation with regard to newer and second-line AIDS drugs was undergoing a clear shift as 2007 unfolded. As markets for generics slowly gained ground, economies of scale began to drive costs down.

In May, the Clinton Foundation and UNITAID - an international drug purchase facility established in 2006 by France, Brazil, Chile, Norway and the United Kingdom - announced new, low prices for newer and second-line AIDS drugs. The main price cuts were made available by the Indian generic manufacturers Cipla and Matrix. According to the Clinton Foundation, the new prices covering 16 ARVs will generate an average savings of 25 percent in low-income countries and 50 percent in middle-income countries.

The Clinton Foundation and UNITAID also announced a less than a dollar-a-day price for a generic version of a key, new first-line treatment. The new treatment is a once-a-day pill combining a new drug patented by Gilead with Merck's efavirenz and an older drug, and has a less toxic side effect profile than existing first-line treatments. The version of this product marketed by Gilead and Merck is not widely available in developing countries, and is set to be priced for least-developed countries at almost twice the generics' best price.

But economies of scale remain too small to bring generic costs for new and second-line medicines down to the price of older first-line treatments. Even the Clinton Foundation's dollar-a-day price for the new first-line treatment is much higher than the $99-a-year price now available for current first-line drugs. And the best generic prices ($695 a year) for heat-stable lopinavir/ritonavir are cheaper than Abbott's middle-income country price, but still more than its low-income country charge.

The catastrophic explosion in AIDS treatment costs that appeared on the horizon at the end of 2006 seems to have been averted. But prices for newer and second-line drugs remain dramatically higher than they would be with robust generic competition, which means money will inevitably be diverted from treating more people. Whether more governments - in developing countries where the pandemic is killing millions, or in rich countries, which are spending billions of dollars every year to provide treatment - will act to bring down prices further and save more lives remains unclear.

Multinational Monitor Editor Robert Weissman is Director of Essential Action, which works on access to medicines issues.

Preserving the Pharmacy to the Developing World

The massive rollout of treatment for people with HIV/AIDS in developing countries has depended on the existence of cheap generic antiretroviral (ARV) drugs. And there would be no cheap ARVs without the Indian generic industry.

India's robust generic industry is an outgrowth of a 1970 amendment to the country's patent law, which effectively limited patents on pharmaceuticals. The 1970 amendment meant Indian generic firms could produce drugs that were on-patent in the United States and other rich countries. These favorable market conditions facilitated the development of a thriving generics industry.

Under the World Trade Organization's Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), however, India was required to adopt a U.S.-style patent system by 2005, threatening the viability of the generics industry.

After a prolonged debate, in 2004 India adopted a law that was TRIPS-compliant, but aimed to take advantage of many of the flexibilities in the agreement.

One key effort was to tighten the standards for patentability, so that it would be harder to obtain a pharmaceutical patent than, say, in the United States. Where patents were not in force, generic makers could still compete.

One of the early drugs to undergo patent review under India's new patentability standards was imanatib mesylate, a very effective anti-leukemia drug sold by Novartis under the brand-name Glivec.

The Cancer Patients Aid Association (CPAA) of India in 2005 challenged the patent claim, arguing that it did not meet the standards for "novelty" and "non-obviousness" under India's new patent law. (The core standards for patentability are that an invention be new, useful and non-obvious.) CPAA argued that Novartis had patented the molecule imatinib in 1993, and that imanatib mesylate was just another form of an already known substance.

In 2006, the official patent office denied the patent, agreeing with the CPAA's arguments.

Novartis sued to overturn the decision. Not only did the pharmaceutical giant seek to challenge the decision on patentability of imanatib mesylate, it challenged the validity of India's patent law.

India's patent law says that, for the purposes of determining patentability, pharmaceuticals will not be considered "new" if they are a new form of a known substance and the new form does not enhance the efficacy of the known substance. Novartis argued that this standard is narrower than the TRIPS requirement for novelty (which is undefined), and that Indian courts should therefore invalidate the law.

Not only is the Indian patent law provision not compatible with TRIPS, argued Novartis in its submission, but it "will undermine the incentives for those companies, including domestic companies, which may not currently have the resources to develop new chemical entities in the pharmaceutical field to engage in other forms of pharmaceutical innovation."

Global AIDS and public health campaigners understood the Novartis suit as about much more than access to the very important drug imanatib mesylate. The suit challenged a key element of Indian law designed to preserve some opportunity for rapid introduction of generic competition. And because it is Indian companies that are providing most of the cheap generic AIDS and other new drugs used in developing countries, the consequences of the Novartis suit would be global.

"If Novartis' challenge against the Indian patent law is successful, a key safeguard that can protect the production of affordable medicines will be lost," said Ellen 't Hoen, policy director of the Campaign for Access to Essential Medicines at Medecins Sans Frontieres/Doctors Without Borders (MSF). "People the world over who rely on India as a source for their medicines may be affected if Novartis gets its way."

MSF spoke from experience. Eighty-four percent of the AIDS drugs MSF uses to treat over 60,000 patients in more than 30 countries are generic medicines produced in India.

MSF, Oxfam and other organizations organized a global campaign calling on Novartis to withdraw the lawsuit, saying it endangered India's status as "pharmacy to the developing world."

The company refused.

The company argued that strong patent protection was necessary to incentivize global research and development efforts. "Internationally compatible patent laws would spur investments in biomedical R&D [research and development] activities in India, a promising field for the rapidly growing Indian economy," said Thomas Wellauer, Novartis head of corporate services. "Only if patents are respected can research-based organizations continue making long-term, risky investments in new medicines for patients."

Campaigners' focus on access was misplaced, Novartis argued. In the case of imanatib mesylate, Novartis charges $30,000 a year per patient. But Indian companies sell generic versions for about a tenth the cost, still a very high price.

Novartis said the answer to access challenges is corporate philanthropy. Through a cooperating nonprofit, Novartis says it has provided Glivec at no cost to 20,000 people in developing countries.

But public health advocates insist systemic solutions are needed, saying that donation programs only cover some drugs, do not reach all who need them, depend on the sponsors' goodwill and aim to preserve high prices for everyone else.

The broader policy implications notwithstanding, the Novartis case ultimately turned on precise legal issues, and Novartis' legal argument turned out to be surprisingly weak. It had argued that Indian law was not compatible with TRIPS. The ruling Indian court did not even reach this issue. "The challenge to the validity of the amended section on the ground that it is not compatible to TRIPS cannot be legally sustained before Indian courts," the court held. Determinations of whether Indian law is compatible with TRIPS or other WTO obligations are to be made through challenges brought by countries in the WTO dispute settlement process, the court explained, not by private parties in Indian courts.

"We fought for patients' rights in this litigation, and we are greatly relieved that the court has ruled in our favor, and recognized that patients need protecting more than patents," Y. K. Sapru, founder and chairman of the CPAA, said after the ruling.

"The issue is not merely of providing affordable drugs to patients in India," added Supra, "but also to patients in other countries, as India is the source of generic drugs to over hundred countries. This landmark victory will help avoid many deaths from life-threatening diseases in India and other countries."

- R.W.

Trading Up for Affordable Medicines

For a decade, it has been U.S. policy - under both Democratic and Republican administrations - to negotiate bilateral and regional trade agreements that require U.S. trading partners to provide longer and stronger protection for patent monopolies than required under the World Trade Organization's Agreement on Trade-Related Aspects of Intellectual Property (TRIPS). These measures have become known colloquially as TRIPS-plus.

Negotiation of bilateral and regional trade agreements accelerated under the Bush administration, as the administration's first U.S. Trade Representative, Robert Zoellick - now president of the World Bank - pursued a policy that he labeled "competitive liberalization." Countries that agreed to U.S. demands - key among them, expanded patent monopolies - would be rewarded with the purported benefits of reduced tariffs on exports of certain products to the United States.

Public health advocates have argued that TRIPS-plus measures will delay the introduction of generic competition, and delay access in developing countries to lifesaving AIDS drugs and other important medications. [See " Dying for Drugs: How CAFTA Will Undermine Access to Essential Medicines," Multinational Monitor, April 2004.] Efforts to insert these concerns into Congressional debates over trade agreements have generally met with only limited success, with issues related to labor, the environment and particular industry sectors overshadowing access to medicines matters.

When the Democrats regained control of the Congress in 2006, it appeared likely that they would refuse to consider many of the trade agreements awaiting Congressional approval or under negotiation.

The key members of the House of Representatives, Representatives Charles Rangel, D-New York, chair of the Ways and Means Committee, and Sander Levin, D-Michigan, chair of the Trade Subcommittee of Ways and Means, decided on a different course, however. In March, they announced a "New Trade Policy for America." Their intent was to pass the pending trade deals, but with reforms that addressed key Democratic concerns.

"We must use trade as a tool to shape globalization and spread its benefits more broadly," said Levin.

To the surprise of public health advocates, access to medicines was listed as a priority concern. The announced policy sought to "re-establish a fair balance between promoting access to medicines in developing countries and protecting pharmaceutical innovation."

In May, Rangel announced a deal had been reached with the Bush administration on principles to modify outstanding agreements with Peru, Panama, Colombia and South Korea (though the Democrats raised additional concerns about the Colombia and South Korea deals, and did not commit to support them).

"This is truly an historic breakthrough," said Rangel. "For decades now, trade has been a polarizing issue in Congress, but today's agreement signals a new direction and a renewed spirit of bipartisanship."

In June, the administration released new text for the trade agreements, which incorporated the principles agreed upon with the key Democrats.

Fair trade advocates denounced the deal, emphasizing especially weakness in the labor and environmental provisions.

The Rangel-Levin negotiation produced the most substantive changes in the area of access to medicines, however. The most critical public health advocates argued that the revised terms would still leave countries worse off than they would be with no trade deal. But they agreed that the Rangel-Levin negotiated provisions relating to access to medicines were significant improvements from the original agreements.

Key revisions obtained by Rangel and Levin included:

  • Eliminating mandatory patent extensions to offset delays in granting a patent or regulatory approval for a medicine.
  • Eliminating the requirement for "linkage" - a prohibition on drug regulatory agencies granting regulatory approval if a patent is claimed. Under linkage provisions, an agency like the U.S. Food and Drug Administration (FDA) is prevented from considering a marketing approval request for a medicine from a generic manufacturer if a party claims the medicine is covered by a patent. The FDA-like agency typically has no authority or expertise to assess whether the claimed patent is valid. "Linkage" has been abused in the United States to delay generic entry, as even the Bush administration has acknowledged.
  • Softening - but not eliminating - requirements that countries provide "data exclusivity," a monopoly protection for the use of clinical trial data submitted to obtain marketing approval. To obtain marketing approval, generic firms typically rely on a brand-name firm's clinical trial data showing that a product is safe and effective. The generic firm then shows that its product is chemically equivalent and "bioequivalent" to the brand-name product. (Bioequivalence means it works the same in the body as the brand-name product.) If generics cannot rely on the brand-name test data, they are effectively barred from entering the market - repeating tests is too costly and time-consuming for less-capitalized generic firms. Such tests would also be unethical, because they would seek to re-establish what is already known. U.S. trade agreements require countries to provide five to 10 years of data exclusivity, a period which may extend beyond the life of the patent.

- R.W.

Cakewalk Ken Adelman Returns to the Stage

No voice was more shrill in attacking Thailand for its compulsory licenses than a Big Pharma-allied organization called USA for Innovation.

Headed by Ken Adelman - the neoconservative infamous for proclaiming that U.S. forces would enjoy a "cakewalk" in Iraq - USA for Innovation launched a massive campaign against Thailand's compulsory licenses, noteworthy for its readiness to accuse the Thai government while playing fast and loose with facts itself.

USA for Innovation bought full-page advertisements in the Wall Street Journal and the Thai media. The Wall Street Journal advertisement compared the Thai military government - which took power in a bloodless coup in September last year - with the ruling Burmese military junta. But the ad's focus was on the Thai compulsory licenses, not any human rights abuses.

In May, USA for Innovation announced that it was creating a website,, "to draw attention to the deceit in Thailand's decision to steal American and European innovation." After its first claims were harshly rebutted - and questions were raised about whether Ken Adelman should be accusing others of lying - USA for Innovation changed the website to On a daily basis, the organization then publicized what it claimed to be 10 deceptions from the Thai government.

USA for Innovation's first identified "lie" was that Thailand is a poor country that cannot afford Western medicines. To prove that Thailand is not so poor, the group cited economic data showing that the Thai economy is fast growing (which it is).

What the organization did not do is provide the single most relevant statistic to determine the country's relative ability to pay the sky-high prices charged by brand-name drug monopolists: per capita income.

According to the World Bank, Thailand's per capita income is $2,720 - roughly one-sixteenth U.S. per capita income.

One of the products for which Thailand issued a "compulsory license" - an authorization of generic competition for a product that remains on patent - was for lopinavir/ritonavir, the important combination HIV/AIDS drug sold by Abbott Laboratories under the brand name Kaletra. Abbott's "discount" price for Thailand before it issued its compulsory license: $2,200.

USA for Innovation's pretense in providing actual facts or robust, informed policy arguments only diminished from this first claim.

The group's third posting identified the purported "myth" that "Thailand is just trying to lower the cost of western medicines." The "fact," according to USA for Innovation, is that "drug manufacturers have slashed the cost of drugs shipped to Thailand."

In particular, said USA for Innovation, Abbott cut its prices on lopinavir/ritonavir from $2,200 to $1,000.

USA for Innovation neglected to point out that Abbott reduced its prices only after Thailand issued the compulsory license.

Health advocates had in fact pointed out that one of the great benefits of the Thai compulsory license was that developing countries around the world benefited almost immediately, because it spurred the Abbott price reduction.

Ken Adelman has more connections to Big Pharma than heading an industry-friendly nonprofit that appears to do only sporadic work.

Adelman says he serves as senior counselor at Edelman Public Relations Worldwide.

Among its largest clients, Edelman lists Abbott Laboratories and Merck. Half of the 14 companies Edelman lists as its largest clients are drug makers. Besides Abbott and Merck, these are AstraZeneca, Johnson & Johnson, Novartis, Pfizer and Schering-Plough.

Adelman is also married to Carol Adelman, who has long worked for the Hudson Institute, a corporate-backed think tank that receives funding from large pharmaceutical companies. Carol Adelman works on global development issues, which at the Hudson Institute includes taking positions on access to medicines questions aligned with Big Pharma's interests.

After the USA for Innovation full-page ads began appearing, it became a bit of a Washington parlor game to find who was funding them. The organization does not answer its phones, and did not respond to requests for comment from Multinational Monitor or other reporters.

Shawn Zeller of CQ Weekly asked the brand-name industry trade association if it funded USA for Innovation. A spokesperson said no. Merck denied that it had provided funding. Neither Abbott nor Bristol-Myers Squibb (the U.S. maker of the heart disease drug for which Thailand issued a compulsory license) responded to Zeller's requests for comment.

Multinational Monitor asked PhRMA CEO Billy Tauzin if he knew who funded USA for Innovation. "Those are not our ads, we're not behind them," he said. "I don't know who is funding them. I can't comment on it; I wish I could. I don't know; if I did, I would tell you."

By fall, USA for Innovation had taken down its organizational website; and soon after, it removed the site. Whether the organization continues to exist, or whether it will reappear with a new name, is unclear.

- R.W.

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