Lead Author: Gabriela Chaves
Additional Authors: Adriana Mendoza Ruiz, Angela Esher Moritz, Claudia Garcia Serpa Osorio-de-Castro, Maria Auxiliadora Oliveira, Rondineli Mendes, Vera Lucia Luiza
Organization: Department of Medicines Policy and Pharmaceutical Services, Sergio Arouca National School of Public Health, Oswaldo Cruz Foundation
Disclaimer: This proposal does not reflect the views or official position of the National School of Public Health Sergio Arouca, of the Oswaldo Cruz Foundation, of the Ministry of Health of Brazil. It is the position of a group of researchers with experience in public and pharmaceutical health policies, it presents its thoughts on the misalignment between the rights of inventors, international law of human rights, trade rules and public health which prevents innovation of technologies and access to them with the aim of responding to the call of the High Level Panel on access to Medicines Secretary General of the United Nations.
The purpose of this abstract is to contribute to the fight against high priced medicines that are currently under monopoly. A “medicine under monopoly” is a product that is owned by and available from only one provider (company) in a given country. Generally, this is because the product is awaiting approval of pending patent applications, or patents have already been awarded in said country. Evidence of various mechanisms and distortions associated with high prices of medicines under monopoly are presented, including significant efforts by numerous parties to overcome this problem. A proposal is made to eliminate the patent barrier for medicines considered to be essential or for those defined by health systems as necessary to meet national health goals. This abstract supports and complements an already published proposal aimed at making the TRIPS Agreement consistent with human rights obligations by revising Articles 27 and 7 thereof. For Article 27, the author of this already published proposal suggests excluding patentable medicines considered essential. She suggests that essential medicines should be defined as those on national lists of essential medicines. We propose adding the following interpretation to the definition of “essential” in Article 27: “Medicines on national lists of essential medicines or those defined by health systems as necessary to meet national health goals.”
1) DESCRIPTION OF THE PROBLEM (INCOHERENT POLICIES)
This document aims to contribute to the fight against high priced medicines that are currently under monopoly. A “medicine under monopoly” is a product that is owned by and available from only one provider (company) in a given country. Generally this is because the product is awaiting approval of pending patent applications, or patents have already been awarded in said country .
Since the TRIPS Agreement of the World Trade Organization (WTO) took effect, an international patent system has formed with special interests in the pharmaceutical sector that have contributed to strengthening the monopoly over medicines, ensuring greater market power for companies to dictate prices.
In a context of patent granted monopolies, medicine prices are justified as a way to recoup the costs of product Research and Development (R&D). In addition to R&D, companies also have other costs such as the cost of producing the medicine  and the marketing costs .
Today, the primary challenge is: what’s an acceptable limit on product pricing that allows for supposed R&D costs to be recouped while, at the same time, providing an affordable price for those who need the medicine?
Several strategies for regulating the pharmaceuticals market are described in the literature [4,5]. This includes regulating medicine prices and limiting government or insurer expenses. For patented products, instruments are cited such as “Direct Price Control” using external reference pricing (ERP), price negotiation or therapeutic reference pricing (TRP).
Direct control by ERP refers to the definition of “a reimbursement or market price maximum for patented products based on prices of similar medicines in other countries” . The option of “price negotiation” in addition to the reference price adopts other strategies to establish the prices of the patented products (Maximum price, cost-plus formulas, price freezing, etc.) . The TRP refers to establishing prices for generic and patented products, the latter’s price depending on the price of generics within a specific therapeutic class .
While significant, these regulatory methods can be limited or lack the desired scope in some situations, such as:
(A) Identifying existing international reference prices – Under the TRIPS Agreement, developed and developing countries are supposed to recognize patents, of procedures and products, for the pharmaceutical sector. This means that countries with similar levels of development will have patent applications filed for the same medicines, leading to a trend by companies to set similar or high prices. Additionally, some countries or institutions negotiate prices with companies and do not make them public, making it difficult to get a reference value on the discounts obtained (Scherer, 1996 apud Reis et al 2004) . Price negotiations for countries can apply at different levels when forming domestic prices, i.e. a government price, a price for insurers, wholesale prices (or for wholesale distributors), and end-user prices. An example is the direct control of Lopinavir/ritonavir and other medicines in Colombia .
(B) Bargaining power – Negotiating prices of products under monopoly with a government committed to ensuring universal access to medicines puts companies in an advantageous position, since they know the purchase is a sure thing. Aspects that can increase a government’s bargaining power include reliable estimates or knowledge of the production costs, existing international reference prices, the possibility of importing and/or producing locally, as well as adopting strategies to overcome the patent barrier [1,9-11]. When these aspects are absent from negotiation, it is very unlikely a company will feel threatened to reduce its price.
Over the last two decades, Latin American countries have formed important alliances to negotiate prices together (first with ARVs and later cancer drugs) with mixed results. At first, the drops in price were satisfactory, but as products under monopoly increased – despite collective bargaining – the reductions obtained did not meet the predicted reduction levels. Nevertheless, the countries continue to rely on this strategy to cope with the problem [12, 13, 14, 15].
Another mechanism that has been used in the Americas is the PAHO (Pan American Health Organization) Strategic Fund . The combined drug needs defined by the countries allows the PAHO-SF to negotiate a price based on a given volume and sign agreements for a given duration. Significant reductions have been achieved. However, the products under monopoly are the most expensive . In any case, the prices agreed upon are made public. This option allows countries in this region to acquire quality products – that may or may not have been registered locally – and meet international purchase standards and national regulations.
(C) TRP – There exists the risk that all the drugs in a given therapeutic class may be under monopoly and any alternative generic drugs won’t be available in the short term. In the United States, the price for tyrosine-kinase inhibitors was determined based on the first drug in its class, imatinib. In 2001, the introductory price of annual treatment with this product was US $30,000, reaching US $92,000 per treatment per year in 2012. Subsequent introductions of nilotinib and dasatinib were made at a price of US $115,500 and US $ 123,500  per treatment per year, respectively. In Latin American countries, the price for annual treatment with these drugs was, respectively, US $29,000, US $39,000 and US $49,500 in Mexico and US $52,000, US $73,500 and US $80,000 in Argentina .
The 20-year term under the TRIPS Agreement, in addition to the TRIPS-plus provisions implemented primarily through the signing of free trade agreements (FTA), have left a series of lessons on the patent system dynamic in the pharmaceutical sector. The first of these is that a medicine under monopoly doesn’t just depend on the grant of a patent, i.e., on the mere existence of patented medicines.
This dynamic has given rise to, what we call, “a bloated patent system.” Situations have arisen as to whether a product is patentable or not, which can grant to the company filing the patent application(s) a marketing period: (a) greater than than the product’s first 20-year patent period; and/or (b) for however long it takes to reach a decision on granting the patent, or not, or on the litigation arising from the patent application(s) filed.
From a drug company’s perspective, the so-called practice of “evergreening” has left its mark on the pharmaceutical sector. This consists of strategies to extend the monopoly of products already on the market (17). In terms of patenting, one of the strategies is to file several patent applications (“Secondary patents”) covering one medicine while incorporating arguments not just for the active ingredient but also for its salts, polymorphs, dosage forms, prodrugs, uses, etc. [19, 20].
In Brazil, there at least 11 pending patent applications for the antiretroviral drug lopinavir/ritonavir. The patent granted for the compound (active ingredient) is valid until 2017. The Ministry of Health replaced the capsule with the tablet because it doesn’t require refrigeration. The company holding the patent for the compound filed a patent application for the “tablet” dosage form. If this patent is awarded, the monopoly will be extended until 2023 . The Brazilian patent office initially refused to award a patent, but the company appealed the decision in court .
For the government, through its patent office, there is also the risk that it could take years for the filed patent applications to be examined (unexamined patent application backlog). When the TRIPS Agreement took effect many developing countries had to begin examining patent applications in technological fields that they previously didn’t have to. In Brazil, patent applications can take up to ten years to be examined. Under Brazilian law, this extends the duration of a monopoly beyond 20 years [23, 24].
A company can market its products exclusively for the time its patent applications are pending, either because potential competitors won’t risk entering the market until a decision regarding grant, or not, of the patent(s) is issued or because the customers (government, insurers, etc.) aren’t willing to assume the risk either.
Antiretroviral tenofovir, adopted by the Ministry of Health of Brazil in 2003, was marketed exclusively by Gilead (the patent applicant) until 2010. The company had filed a patent application there for fumarate, a salt. In 2006, the first generic alternative became available internationally . That same year, opposition to granting the patent for fumarate (referred to as an aid to examination) was filed with the National Intellectual Property Institute [Instituto Nacional de Propiedad Intelectual (INPI)] by the Oswaldo Cruz Foundation (Fiocruz) and civil organizations in Brazil [26,27].
The INPI’s ruling denying the patent was handed down in 2009. Learning of the ruling in favor of the public interest, Brazil’s own Ministry of Health stated, “Considering that the patent application submitted to the INPI generates an expectation of monopolistic right, with an impact on the product price…” .
Accordingly, it can be concluded that both the patent granted and the “bloated patent system” in the pharmaceutical sector lead companies to increase their chances of setting high drug prices, which aren’t always coherent with recouping the costs of R&D and production.
In addition to the incoherent policies of the current patent and pricing system as it concerns guaranteeing the right to access medicine as a component of a basic human right to health, it’s also worth illustrating the trade-off imbalance caused by granting patents as justification to recoup R&D costs.
One option for regulating drug prices under monopoly is to overcome the patent barrier by making use of the public health safeguards in the TRIPS Agreement [29, 30]. Depending on when they are used, they can be classified as pre- or post-grant safeguards [31, 32]. These have become a legitimate option to fighting high drug prices and have been upheld by countries in different forums of the United Nations System [32, 33, 34]. Although they have been used in specific cases with significant impact on drug price regulation, the resistance of those involved is well known when trying to implement these safeguards.
Systematic use of safeguards has not kept up with the challenge faced by countries when purchasing essential medicines under monopoly. Add to this the continual negotiation and approval process of bilateral and regional FTAs containing TRIPS-plus provisions that limit policy space to adopt safeguards and reinforce market exclusivity for companies, even when products are not protected by patent (Ex. Exclusivity of data to obtain health certificates from health authorities).
There have been estimates on the impact of adopting the TRIPS-plus provisions on the pharmaceutical market and drug costs in Latin American countries (Colombia, Ecuador, Peru, Costa Rica and the Dominican Republic) [36-41