The primary objective of the pharmaceutical industry is to discover, develop and manufacture drugs with assured quality and make them available and accessible to all sections of the population in all parts of the world at the lowest possible prices. During the last five decades, the industry has done yeoman service in meeting these objectives. The results are tangible both qualitatively and quantitatively since the plethora of drugs available today has enabled management of a large number of diseases, notably, bacterial and parasitic infections, cardiovascular disorders, metabolic diseases, mental disorders and many others. Morbidity and mortality figures have come down, life expectancy has increased in all parts of the world and infant and maternal mortality even in the least developed countries have declined. And yet very serious problems remain.
Many of the available treatments are not curative in nature; rather they offer only palliative support. Many diseases such as cancer, immune disorders, several viral diseases still have no treatments available. Even when drugs are available, their distribution to the needy patients in various parts of the world have been problematic. Almost 50 per cent of the world's population have no ready access to drugs. At any point in time one billion people suffer from some disease or the other of which at least 40 per cent are treatable if drugs were available, accessible and affordable. These numbers do not take into account another billion suffering from hunger and malnutrition for which the answers are elsewhere.
Over 30 new diseases have emerged during the last decade and every year newer ones surface in some part of the world or other, some of them with the potential to reach epidemic proportions. Treatment for many existing diseases have become ineffective due to resistance of the disease or the causative organisms to available drugs.
Prices of drugs
While all these are major challenges for the pharma industry, the biggest one is related the high and unaffordable prices of the industry's products. Since drugs do constitute 8 to 15 per cent of healthcare costs depending on the markets, controlling the escalating prices of drugs is a continuing and seminal objective of the industry. To understand the rationale and economics of drug pricing it is important to analyse the impact of R&D and innovation on costs and prices.
How does the industry sustain and grow?
The pharma industry is the most R&D intensive industrial segment with global R&D spending reaching an astounding 10 per cent of its global annual turn over of over $ 700 billion. While this activity had over the years delivered in a cost-effective manner all of to - days drugs, there has been a radical change in the last decade or more. In 2008, the number of drugs approved by the US FDA was just 21, one of the lowest of all time. The pipeline of drugs under development is relatively weak and products worth around $ 45 billion under current values are going off patents in the coming two years, many of them blockbusters.
The survival of this industry relies on the patent system which provides the much needed exclusivity in the market place for limited period of time. Even though the validity of patents is 20 years from the date of filing, effective patent life is not more than 10 to 12 years during which time the entire cost of drug discovery and development has to be recovered. It is a fact that during this period patent owning companies charge monopolistic prices not based on actual costs of the product but on what the market can bear, since R&D costs can be recovered only from the patented products, not from the generic ones. Most of them are outside the affordability levels of most patients. While this problem has been a sore point particularly in developing countries over the years, the real impact was noticed during the emergence of the global epidemic of HIV/AIDS.
With four of the six anti-retroviral drugs commonly used for this condition still being under patent protection, the annual costs of treatment initially was an astounding $ 15,000. Due to various political, moral and emotional pressures on the companies from developing countries such as India, Brazil, Argentina, South Africa and others and from global activist groups and NGOs, companies owning these products such as GSK, Wyeth, Merck and Roche were forced to reduce these prices to one tenth of the initial ones. The problem of high prices will continue since the new ARVs and FDCs all have patent validity running up to 2023. While monopolistic prices can be countered by the grant of compulsory licences to third parties, in practice system is too cumbersome and bureaucratic to be effective.
Drug prices have been a major barrier to drug usage by the needy. Even today only around four million, just a fraction of the those who need drugs for HIV/AIDS have access to ARV drugs. Only one third of adults and 10 per cent of children who need them receive them according to one study. As a sequel to global criticisms against such a scenario, leading Indian companies, notably CIPLA offered them at $ 350 to $ 600 for an year's treatment. In a way, the realistic reappraisal of prices by the innovator companies saved the patent system itself since there was a threat that countries where the drugs were needed, but were not affordable would flout the system and go against their committed norms under TRIPS. The debate still continues as to whether the monopoly offered by the patent system negates the universal principle of right to healthcare as a fundamental right. The Doha Declaration of 2001 which dictated that wherever and whenever there is a conflict between public health issues and private interests reflected through patents, the former will supersede the latter. And public interest can be served only by making available drugs more affordable even to the poorest of the poor.
Faced with this major problem, the international community including WHO have been exploring possible means of reducing the impact of prices on patients' access to life saving medicines without once and for all discarding the reward system offered for innovation through patents.
What are patent pools?
Over 90 per cent of patents granted and in force are never exploited by the patent holders , nor are they licensed out to third parties for exploitation. The rationale for filing, prosecuting and maintaining them are 1) to defend existing product range and extending their life by adding supporting patents 2) for preventing others from entering the therapeutic segment, 3) for extending the life of the patent if and when needed.
In that sense much of patenting efforts are to exploit a negative right of preventing others from competing with the patent holder. The reasons why patents are not exploited could also be commercial reasons of low market needs, insignificant therapeutic advantages and unwarranted investments on the new investments needed which are not commensurate with the returns. Large companies loaded with very high overheads and R&D expenditure do not develop and commercialise a patented product unless there is a minimum assured market regardless of medical need for such a product. Thus several useful innovations and new drug candidates which would have qualified as effective new drugs end up on the shelf unexplored. To accelerate the drug development process and save on costs, a new concept of patent pools have evolved in recent times. In an ideal case companies which are competitors join hands to pool their patents and resources to develop new products particularly for diseases of the poor which otherwise would never have been developed.
How does the patents pools work?
The new concept of patent pooling is primarily collective management of intellectual property rights including patents to speedily promote new innovations and freer access to medicines. An agreement involving two or more patent owners to aggregate their patents and license them to one of them or to third party is the beginning of the patent pool process. It is obvious that patent owners will license out only those patents which they themselves have no intention to develop. If successful, they would receive an allocated license fees on the basis of a pre-set formula.
The system of patent pooling has been used both in the case of the automotive industry as well as the IT sector. The concept is however new in the pharmaceutical sector primarily since this segment is highly competitive and has always worked towards achieving individual corporate excellence and exclusive markets and market shares at the expense of others. Some recent compulsions due to the emergence of perceived pandemics such as SARS, Chicken gunia and HINI strain of avian flu have indeed established the advantages of a consortium approach among pharmaceutical companies to develop prophylactics for these infections. Perhaps in coming years, other areas including Malaria and TB would be added under fresh schemes.
The benefits accruing from the concept and implementation of patent pools is that 1) patents will not block further development of a relevant innovation in the field 2) there will be no infringement issues 3) transaction and licensing costs will be minimal and 4) technology development, transfer and utilization will be simpler and smoother 5) in a win-win situation, unused patents will get a fresh lease of life and lead to new drugs which otherwise would never have been developed 6) patent owners would benefit from pre-determined royalties 7) would provide competition with the entry of generic manufacturers 8) would lower the prices due to increased competition and 8) enhance access to medicines.
Current status of patent pool
Potential models for patent pools have been initiated through WHO, UNAIDS, Essential Medicines Inventors Licensing Agency, Knowledge Ecology Leadership, Medicines Sans Frontiers, UNITAID etc. Many countries including France, India, Thailand, Netherlands and Brazil have endorsed the concept and approach. The basic tenets are: 1) it requires a host such as WHO or any other agency 2) can be global or regional in scope 3) patents and patent owners relevant to the patent pool for neglected diseases need to be identified 4) Licensing of the patents need to be negotiated 5) MoUs and contractual agreements between the patent owners and Governments licensing in the innovation including fixing of royalty need to be signed 6) possibility for grant of compulsory licenses provisions when voluntary licenses are not agreed upon need to be explored and implemented 7) generic companies capable of technology development and practice need to be identified and formal agreements signed with them 8) the products manufactured should be made available to the patients in any developing country of the world.
No final formula or licensing arrangement has so far been arrived at for the utilization of the patent pool programme, even though many patent holders, mainly large R&D based pharmaceutical companies have in principle agreed to collaborate. It is hoped that a template for proper implementation of patent pools will be arrived at in the near future and the concept converted into reality.
Patent pools and Doha declaration
In view of the Doha declaration and its implementation in the case of diseases which have the potential to be national disasters, patent pools will add considerable complementarity. However there are several challenges. They are: 1) Patents give rights to use the patented invention, but do not provide the much needed know how and technology 2) whether patents pools can be used for territorial rights at least in selected regions where the concerned drugs are needed 3) willingness of the patent holders to voluntarily agree to participate 4) fixing incentives, their nature and quantum to attract the patent holders to participate.
At the time the idea was mooted, it was primarily directed towards HIV/AIDS. As a second step perhaps it can be extended to other diseases such as TB, Malaria and other endemic diseases of the developing countries. The limitation rests with the fact that patent holders are unlikely to offer their patents in which they themselves have commercial interest. The concept is attractive; a lot depends on how it is structured and implemented in an effective manner.
Can India host, manage patent pool enabling model?
Patent pools, as they are envisaged now, are primarily for developing drugs for developing countries' diseases since in the absence of patent pools many valuable patents would remain unexplored. However, to promote and implement an effective programme, one needs a competent host and a champion. India by virtue of being a leading force in the global pharmaceutical arena, leader among the generic drug producers and a major science and technology outsourcing destination is eminently suited to be a champion of this model. It has gained confidence of the global R&D based companies by virtue of its TRIPS compliant patents Act 2005. The strong chemical technology base available enables the Indian pharma companies to produce even the most complex APIs of the highest quality at the lowest cost. Thus the products which are manufactured under licensed patent pools could be then supplied to those countries which need them the most considerably increasing timely access to drugs at the lowest possible prices.
(The author is a senior research scientist and industry expert based in Chennai)