A RECIPE FOR PHARMACEUTICAL BALANCE RESEARCH AND DEVELOPMENT, AFFORDABILITY AND ACCESSIBILITY

By Michelle Frankel Albany Law School, Class of 2015 International Trade Law Prof. Peter Halewood

I.

Introduction The pharmaceutical industry constantly grapples with how to balance the cost of research

and development (R&D) with the need for affordable medication. It is a tricky balance to strike in both the domestic and international realm. However, the effects of an imperfect balance are particularly noticeable within the international context because only a handful of countries have the infrastructure to produce their own pharmaceuticals and most countries struggle to obtain even the most necessary medications. Pointedly, there is a large dependence on pharmaceutical production from select hubs in places such as the U.S. and Europe,1 and more recently in Brazil, China and India. 2 The U.S. and Europe often manufacture groundbreaking drugs, which

1

RUTH MACKLIN, DOUBLE STANDARDS IN MEDICAL RESEARCH IN DEVELOPING COUNTRIES 12 (2004) (explaining the role of the U.S. and Europe in “conduct[ing] or sponsor[ing] biomedical research in developing countries.”). 2 INTELLECTUAL PROPERTY AND HUMAN DEVELOPMENT: CURRENT TRENDS AND FUTURE SCENARIOS 60 (Tzen Wong and Graham Dutfield, 2011) [hereinafter INTELLECTUAL PROPERTY AND HUMAN DEVELOPMENT].

unfortunately are difficult, if not impossible, to afford. Even though Brazil, China and India have become more successful in producing affordable drugs, distribution problems still persist. Members of the World Trade Organization (WTO) have been trying to address this issue for decades, but have been unable to satisfy the competing interests of the developed and developing world, or to create an industry that continues to develop and produce affordable products. One reason that it is so challenging to resolve this problem is that there is a fundamental contrast between the interests of developed and developing countries. There is no concrete definition of what constitutes a developed or developing country, but the World Bank (WB) generally classifies countries based on their gross national income (GNI).3 A country may independently choose to be considered developing; however, that is controversial since that decision may be made in self-interest to gain preferential treatment.4 There are three categories of developing countries based on GNI: low income (GNI of $1,005 or less), lower middle-income (GNI of $1,006-3,975), and upper middle-income (GNI of $3,976-12,275).5 While upper middle-income countries are often newly industrialized, they are still considered to be developing.6 It is not until a country’s GNI exceeds $12,276 that it is no longer viewed as a developing country, but “most countries in the world qualify as developing.” 7 As a matter of fact, “two-thirds of the current 155 members of the WTO” are developing countries. 8 The contrasting viewpoints of developed and developing countries are particularly evident in the pharmaceutical context. Developed countries harp on the importance of research and development in ensuring the continued advancement of the pharmaceutical industry. They

3

DANIEL C.K. CHOW & THOMAS J. SCHOENBAUM, INTERNATIONAL TRADE LAW: PROBLEMS, CASES, AND MATERIALS 405 (2nd ed. 2013). 4 Id. 5 Id. 6 Id. 7 Id. 8 Id.

often use the necessity of adequate research and development, and the exceptional human and medical interests served, to justify the remarkably high cost of most pharmaceutical drugs. 9 Given their unique position, they are able to concentrate on research and development while somewhat disregarding the resulting financial burden of pricey drugs on consumers; their consumers and insurance companies struggle, but find a way to cover the costs of expensive, lifesaving drugs. However, consumers in developing countries are not typically as fortunate; they literally and figuratively cannot afford to overlook the actual cost of pharmaceuticals, no matter what vital medical purpose is served. The medical needs in developing countries are so great, yet infrastructure and resources are so deficient, that having affordable and accessible pharmaceuticals is indispensible, which often diminishes the preeminence of research and development in developing countries.10 Members of the WTO have considered the conflicting interests of developed and developing countries when drafting the General Agreement on Tariffs and Trade (GATT), the Agreement on Trade-Related Investment Measures (TRIMs) and the Agreement on TradeRelated Aspects of Intellectual Property Rights (TRIPs). It is important to note though, that neither TRIMs nor TRIPs can be implemented inconsistently with certain provisions of GATT, which is premised on the Most Favored Nation (MFN) principle that mandates “equal treatment for all nations.”11 The drafters of GATT endeavored to prevent discriminatory trade practices by banning preferential treatment, even though in 1947 when GATT was created, developing countries completely lacked the means to compete with developed countries.12

9

See generally CHOW & SCHOENBAUM, supra note 4, at 600. See generally id.; Gardiner Harris, Maker of Costly Hepatitis C Drug Sovaldi Strikes Deal on Generics for Poor Countries, N.Y. TIMES, Sept. 15, 2014, at B1. 11 CHOW & SCHOENBAUM, supra note 4, at 406. 12 Id. at 407. 10

It was not until the enactment of TRIMs in 1994 that the interests of developing countries gained some primacy. TRIMs aims to prevent the exploitation of “host nations,” or countries where foreign direct investment occurs,13 and also promotes the interests of developing nations by setting “local content and export performance requirements” to prevent discriminatory treatment by investors.14 Conversely, TRIPs tends to advance the interests of developed nations by liberalizing trade and creating formalities to promote the protection of intellectual property rights.15 It achieves this by preventing “a country from refusing to grant patents and obtaining free access to advanced technology.” 16 This promotes the interests of developed countries more than developing countries because most developing countries lack the infrastructure and resources to personally develop intellectual property that needs to be protected. After TRIPs was initially implemented, pharmaceutical companies began to exploit their patent rights and charge monopoly prices, which led to the denial of access to necessary medications in developing countries.17 As such, the WTO Ministerial Conference wrote the Doha Declaration to address the “gravity of the public health problems” impacting developing countries. 18 While the Doha Declaration affirmed the measures in TRIPs, it also stipulated certain flexibilities in its application to better enable developing countries to protect public health and promote access to medicine.19 Once again, this exemplifies how the WTO has attempted to deal with the conflicting interests of developed and developing countries. More specifically, different policies have been advanced to protect the interests and capabilities of developed and developing countries in the pharmaceutical industry. Such

13

Id. at 571. Id. at 572. 15 Id. at 572, 598. 16 Id. at 599. 17 CHOW & SCHOENBAUM, supra note 4, at 600. 18 Id. at 602. 19 Id. at 602–03. 14

strategies strike distinctive balances between the cost of R&D and the need for accessible and affordable pharmaceuticals. Government negotiations with pharmaceutical companies and the institution of direct price controls are beneficial in controlling the cost of medications, but such practices are currently illegal in the U.S.,20 unlike in Canada where such government regulation is a key component to balancing R&D against affordability. 21 Other practices that impact the balance, include: the relative protection of patent rights and development of a generic market, and the use of voluntary and compulsory licensing agreements, pooled purchasing, and bolar provisions. Currently, individual countries can choose to implement any combination of these strategies, which is counterproductive since each method fosters a unique balance. Accordingly, the WTO should create a new agreement and/or amend the current ones to establish more definitive and restrictive guidelines about what practices can or cannot be used. Gilead Sciences, Inc. (Gilead), a “biopharmaceutical company that discovers, develops, and commercializes innovative therapeutics in areas of unmet medical need,” attempts to ensure that developing countries have access to pharmaceuticals by using some of the strategies previously mentioned. Most recently, in September 2014, Gilead announced that it “signed nonexclusive licensing agreements with seven India-based generic pharmaceutical manufacturers to expand access to its chronic Hepatitis C medicines in developing countries.”22 This initiative represents one of the latest efforts by a pharmaceutical company to assist and guarantee that 20

See Jennifer L. Halser, Canadian Pharmacies: A Prescription for a Public Health Disaster, 54 DEPAUL L. REV. 543, 550 (2005) (explaining that “while pharmaceutical companies in the United States determine the price of prescription drugs, pharmaceutical prices in Canada are subject to federal price controls.”); Elisabeth Rosenthal, Lawmakers Look for Ways to Provide Relief for Rising Cost of Generic Drugs, N.Y. TIMES, Nov. 25, 2014, at A17 (discussing how the fact that “the United States does not regulate drug pricing or negotiate prices nationally like other countries, [has made] generic medicines a safety valve for American patients, allowing them to obtain needed medicines at lower costs.”). 21 Halser, supra note 21, at 553 (noting that “[u]nlike the U.S. government, the Canadian government sets price controls to regulate the cost of prescription drugs.”). 22 Press Release, Gilead Sciences, Inc., Gilead Announces Generic Licensing Agreements to Increase Access to Hepatitis C Treatments in Developing Countries (Sept. 15, 2014), available at http://www.gilead.com/news/pressreleases/2014/9/gilead-announces-generic-licensing-agreements-to-increase-access-to-Hepatitis-c-treatments-indeveloping-countries [hereinafter Gilead Announces Generic Licensing].

certain developing countries have access to a pricey but lifesaving drug. Gilead’s overall approach to promoting access to pharmaceuticals, and the specific methods used in its latest effort to combat Hepatitis C, highlights many of the intricacies in striking the right balance between promoting R&D and providing affordable and accessible pharmaceuticals. The remainder of this article is broken down into three parts. Part II explains how certain parts of GATT, TRIMs, TRIPs and the Doha Declaration impact the pharmaceutical industry. Part III provides background information about Hepatitis C and further details the components of Gilead’s licensing agreements with seven India-based generic pharmaceutical companies. Part IV then analyzes the pros and cons of Gilead’s initiative and explains how to ensure that there are sufficient incentives for the continued advancement of pharmaceuticals, while also more reliably guaranteeing affordable and accessible drugs in the developed and developing world. II. How GATT, TRIMs, TRIPs and the Doha Declaration Lay the Framework for Pharmaceutical Development and Procurement in the International Arena GATT was developed in 1947 and primarily endorsed by developed countries seeking “to liberalize trade in goods among members.” 23 [It] was founded on the Most Favored Nation (MFN) principle, which meant equal treatment for all nations. The MFN principle meant that GATT contracting parties could not discriminate against other parties, but it also precluded developing countries from receiving preferential treatment. Any preferential treatment provided to developing countries would have to be extended under the MFN principle to all GATT countries. 24 As a result, developing countries resented the development of GATT because it forced them to “compete on the same terms with developed countries,” even though they lacked any comparable

23

CHOW & SCHOENBAUM, supra note 4, at 26. Id. at 406; see also, Mary Hess Eliason, Regulatory Marketing Approval for Pharmaceuticals as a Non-Tariff Barrier to Trade: Analysis Under the WTO’s Agreement on Technical Barriers to Trade, 8 SAN DIEGO INT’L L.J. 559, 575 (2007) (explaining how national treatment prevents discrimination by ensuring that ‘“products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin.”’). 24

infrastructure or resources to compete fairly. 25 It was not until the enactment of TRIMs in 1994 that the interests of developing countries gained some significant influence over those of developed countries. TRIMs was devised to ensure that foreign direct investment (FDI), which occurs “when an investor based in one country (the home country) acquires an asset in another country (the host country) with the intent to manage the asset,”26 is not used in a discriminatory manner.27 While FDI can be risky for a home or host country, “all countries are interested in attracting FDI and are engaged in an intense and escalating international competition for foreign capital.” 28 Home countries risk host countries “nationaliz[ing] or expropriat[ing] all of the[ir] assets,” while host countries fear that home countries: (1) “do not have a long-term interest in the welfare of the [host] country,” (2) “might exploit the [host] nation’s workers by offering low wages, little training, and few benefits,” or (3) will use the host nation as a “dumping ground for hazardous wastes generated by the developed world.” 29 Generally, home countries are more reluctant to invest in host countries unless there is a substantial likelihood that FDI will lead to increased profits.30 TRIMs attempted to neutralize FDI’s natural promotion of self-interest and exploitation of host countries by prohibiting “any host country investment restriction that directly affects trade flows.”31 Still, developing countries assertively promoted that TRIMs be narrowly focused so that only FDI measures that directly affected trade would be forbidden. As such, all other FDI policies would be shielded from potential TRIMs scrutiny, thereby enabling more FDI

25

CHOW & SCHOENBAUM, supra note 4, at 407. Eric M. Burt, Developing Countries and the Framework for Negotiations on Foreign Direct Investment in the World Trade Organization, 12 AM. U.J. INT’L L. & POL’Y 1015, 1019 (1997) (citing World Trade Organization Secretariat, Trade and Foreign Direct Investment, PRESS/57, at 6 (Oct. 9, 1996)). 27 CHOW & SCHOENBAUM, supra note 4, at 572. 28 Id. at 570. 29 Id. at 569. 30 Burt, supra note 27, at 1020. 31 See CHOW & SCHOENBAUM, supra note 4, at 572; Burt, supra note 27, at 1034. 26

opportunities in developing countries. 32 Fortunately, TRIMs enables “host nations [to] impose [local content] restrictions [or export performance requirements] on FDI to protect themselves from exploitation.”33 Local content requirements typically condition some type of preferential treatment on the purchase of locally produced goods that can be used by the foreign invested enterprise (FIE) in its manufacturing process. The FIE is discouraged or prohibited from importing parts from its home country. Typical performance requirements are minimum export targets. Exports are beneficial to the host nation because they generate hard currency and help to improve the host nation’s trade balance.34 While developed countries oppose these requirements because they believe that such provisions merely allow “host government[s] [to interfere] with a liberal trade regime,”35 developing countries affirm that the restrictions are necessary to prevent abusive FDI practices. 36 Home countries are more likely to engage in FDI if a host country has a “strong IP legal regime,”37 since “[IP] rights are created by national laws and, as a result . . . an IP owner [must] follow the separate requirements and procedures of each country”38 in order to have that country protect his/her IP rights. Therefore, “innovator” countries, or countries that continually develop advanced technology such as the U.S., Germany and Japan, are “less likely to engage in international trade if a recipient country does not afford adequate protection for IP rights.”39 As a result, developed countries used this rationale to “push for the adoption of a set of minimum

32

See CHOW & SCHOENBAUM, supra note 4, at 572; Burt, supra note 27, at 1034–35. CHOW & SCHOENBAUM, supra note 4, at 571–72. 34 Id. at 572. 35 Burt, supra note 27, at 1034. 36 Id. at 1035. 37 CHOW & SCHOENBAUM, supra note 4, at 589. 38 Id. at 587–88. 39 Id. at 587. 33

substantive standards for patents in TRIP[s],”40 whereas before TRIPs, “nothing prevented a country from refusing to grant patents and obtaining free access to advanced technology.” 41 TRIPs Article 7 defines its objectives: The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.42 These objectives aim to recognize the “special needs of the least-developed country Members,” but still assert that IP rights need to be protected to ensure future development.43 In this sense, TRIPs statement of objectives “signified the first recognition of [IP] rights as a fully-fledged trade related issue.”44 TRIPs enables some interpretative flexibility since “WTO member countries [are] free to determine the appropriate method of implementing TRIPS within their own legal system.” 45 Pointedly, developed and developing countries interpret it in fundamentally different ways. Developed countries interpret TRIPs narrowly, asserting that it aims to fervently protect the rights of patent owners given the devastating impact that lenient patent protection can have on R&D. 46 Conversely, developing countries interpret TRIPs broadly, “acknowledg[ing] that patent

40

Id. at 599. Id. 42 Daniel C.K. Chow & Thomas J. Schoenbaum, World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) (1995), in INTERNATIONAL TRADE LAW: DOCUMENTS SUPPLEMENT 289 (2010) [hereinafter TRIPs Agreement]. 43 Id. at 286. 44 Joan Costa-Font & Aaron Burakoff, An Overview of Progress in the International Regulation of the Pharmaceutical Industry, 1 PIERCE L. REV. 103, 105 (2002). 45 Lana Kraus, Medication Misadventures: The Interaction of International Reference Pricing and Parallel Trade in the Pharmaceutical Industry, 37 VAND. J. TRANSNAT’L L. 527, 542 (2004). 46 Id. 41

protection is a prerequisite” for R&D, while also asserting that patent holders must be prevented from abusing their patent rights. 47 While there are pros and cons to patent based systems, it is hard to deny that the patent is a powerful tool. TRIPs defines “patentable subject matter” in Article 27 and explains which exclusive rights are conferred to patent holders in Article 28. 48 Patents can be obtained to protect goods or processes,49 and signify a “set of exclusive rights protecting inventions that exhibit novelty, non-obviousness, and utility.”50 Generally, an individual seeking a patent must fill out a patent application, which is then subject to a patent approval process that can “vary greatly among national legal systems.” Under TRIPs, a patent holder has the discretionary authority to decide whether or not “to assign, or transfer by succession, the patent and to conclude licensing contracts;”51 however, TRIPs “does not define how high the inventive step must be, what compromises an industrial application or what constitutes making, using, selling, offering to sell or importing,” which is why it is “denominated a minimum standards regime.” 52 Article 31 includes one of three TRIPs exemptions,53 and enables a Member government to grant compulsory licenses in certain situations to enable the use of the “subject matter of a patent without the authorization of the right holder.”54 Compulsory licenses may be approved: (1) when an individual or company unsuccessfully attempts to obtain a voluntary license and the patent holder failed to respond or denied such a request with an anti-competitive intent, or (2) if

47

Id. TRIPs Agreement, supra note 44, at 297–98. 49 Id. at 598; Judy Rein, International Governance Through Trade Agreements: Patent Protection for Essential Medicines, 21 N.W. J. INT’L L. & BUS. 379, 384 (2001). 50 CHOW & SCHOENBAUM, supra note 4, at 598. 51 Id. 52 INCENTIVES FOR GLOBAL PUBLIC HEALTH: PATENT LAW AND ACCESS TO ESSENTIAL MEDICINES 40 (Thomas Pogge et al. eds., 2010) [hereinafter INCENTIVES FOR GLOBAL PUBLIC HEALTH]. 53 Id. 54 TRIPs Agreement, supra note 44, at 299; Costa-Font & Burakoff, supra note 46, at 106. 48

there is a national emergency or desire to use the product for non-commercial purposes.55 However, they are non-exclusive and non-assignable, and may only be used for the specific purpose authorized and to supply the domestic market.56 In effect, compulsory licenses “increase the supply of products [by] deter[ring] patent holders from arbitrarily reducing supply or artificially increasing prices.”57 While they have “proven quite effective in practice to address health needs,” 58 advocates for developing countries still insist that the “public health” exception in TRIPs did not go far enough to ensure “access to life-saving medicines in poor countries.” 59 This issue truly came to light after TRIPs’ passage when “multinational pharmaceutical companies . . . [began] using their patent rights to charge monopoly prices that had the effect of denying access to life-saving medicines in poor countries.”60 The pre-TRIPs world was very different for developing countries because they had discretion about whether to recognize patents for pharmaceuticals, enabling them to copy drugs for “local use or even for export abroad,” which in turn helped them obtain “access to valuable technology.”61 However, in the post-TRIPs world, developing countries, which “formerly did not grant patents to pharmaceutical products or processes [came] under pressure to alter their legislation.”62 Developing countries were taken aback by this newfound pressure, given their lack of interest in the zealous protection of patent rights stemming from their personal inability to develop patentable subject matter and critical need for access to evolving technology. The 55

Id. TRIPs Agreement, supra note 44, at 299. 57 Costa-Font & Burakoff, supra note 46, at 106. 58 CHOW & SCHOENBAUM, supra note 4, at 601. 59 Id. at 600. 60 Id. 61 Id. at 599; Rein, supra note 51, at 386 (explaining how India and Brazil used to refuse to “extend any patent protection to pharmaceuticals” in order to facilitate the production and affordability of medicine in the developing world). 62 INTELLECTUAL PROPERTY AND HUMAN DEVELOPMENT, supra note 3, at 62. 56

Doha Declaration attempted to resolve this issue in 2001.63 Recognizing the “gravity of the public health programs afflicting many developing countries,”64 the WTO Ministerial Conference stated that TRIPs should be “interpreted and implemented in a manner supportive of WTO members’ right to protect public health and, in particular, to promote access to medicines for all.”65 More specifically, the Doha Declaration asserts certain flexibilities in TRIPs application including: (1) TRIPs should be interpreted by following the “customary rules of public international law” and “read in the light of the object and purpose of the Agreement as expressed in its objectives and principles”; (2) Each member of the WTO may grant compulsory licenses and independently determine the grounds for approving such licenses; (3) Each member of the WTO can “determine what constitutes a national emergency . . . it being understood that public health crises, including those relating to HIV/AIDs, tuberculosis, malaria and other epidemics, can represent a national emergency . . . .”; and (4) TRIPs allows each member of the WTO to “establish its own regime for [the] exhaustion” of intellectual property rights. 66 These assertions enabled developing countries to “take full advantage of the exclusions from patent eligibility or patentability provided under TRIPS.”67 The Doha Declaration also reasserts that developed country members should “provide incentives to their enterprises and institutions to promote and encourage technology transfer to [the] least developed country members.” 68 Similarly, the WTO Ministerial Conference ordered

63

CHOW & SCHOENBAUM, supra note 4, at 602. Id. 65 Id. at 603; see also INCENTIVES FOR GLOBAL PUBLIC HEALTH, supra note 54, at 62; see generally Rein, supra note 51, at 388 (noting that TRIPs specifically emphasizes the “necessity of considering public interest, and health policy, in formulating domestic intellectual property regulations.”). 66 CHOW & SCHOENBAUM, supra note 4, at 603; see also, INTELLECTUAL PROPERTY AND HUMAN DEVELOPMENT, supra note 3, at 63. 67 INTELLECTUAL PROPERTY AND HUMAN DEVELOPMENT, supra note 3, at 64. 68 CHOW & SCHOENBAUM, supra note 4, at 603. 64

the Council for TRIPs to find a solution to address the fact that some WTO members have “insufficient or no manufacturing capacities in the pharmaceutical sector” and could therefore have a difficult time using and obtaining the benefits of compulsory licensing. 69 However, even though the Doha Declaration assuaged some of the problems created by TRIPs, “the access to medicines debate is [still] one of the most controversial issues in the WTO.” 70 Overall, GATT, TRIMs, TRIPs and the Doha Declaration represent distinct efforts to address developed and developing countries conflicting interests. Despite their varied focuses and efforts to work in unison, different countries and companies continue to strike their own balance between the effective promotion of R&D and the affordability and accessibility of pharmaceuticals, as exemplified by Gilead’s Hepatitis C initiative. III.

The Prevalence of Hepatitis C and How Gilead is Trying to Help Hepatitis is a virus that causes inflammation of the liver and may lead to acute (short-

term) or chronic (long-term) infection.71 There are three forms of the virus: Hepatitis A, B and C.72 While Hepatitis A typically improves without treatment, Hepatitis B and C usually develop from acute to chronic infections that produce “long-term liver problems.”73 Additionally, while there are “vaccines to prevent Hepatitis A and B,” there are no vaccines that prevent Hepatitis C, which is contagious,74 and chronically affects 130–150 million people worldwide.75 However, Hepatitis C can be treated and/or cured by anti-viral medications. 76 As a result, the efforts of

69

Id. Id. at 600. 71 Hepatitis C FAQs for the Public, CENTERS FOR DISEASE CONTROL AND PREVENTION, http://www.cdc.gov/Hepatitis/c/cfaq.htm#cFAQ21 (last visited Jan. 31, 2015). 72 Id. 73 Id. 74 Id. 75 Hepatitis C, WORLD HEALTH ORG., http://www.who.int/mediacentre/factsheets/fs164/en/ (last updated Apr. 2014). 76 Id. 70

pharmaceutical companies like Gilead, which work to improve access to breakthrough drugs, are imperative to stabilizing and decreasing the global population of Hepatitis C patients. Gilead is attempting to combat the global prevalence of Hepatitis C by allowing “seven India-based generic pharmaceutical manufacturers” to produce generic versions of its brandname drugs known as Sovaldi and Harvoni. 77 Gilead has granted non-exclusive licensing agreements to these manufacturers in an effort to stimulate a competitive generic market that will produce more affordable versions of its breakthrough brand-name drugs, allowing easier distribution in 91 developing countries.78 India was selected as the hub for this endeavor because it manufactures “much of the world’s supply of finished drugs.”79 It is “the pharmacy of the developing world” and “exports 67% of its drug production to developing countries that either cannot produce any drugs or whose local production is not enough to meet local needs.” 80 Developing countries, in particular, are predominantly dependent on Indian pharmaceutical production. Even though India has a pre-existing pharmaceutical infrastructure, Gilead is providing each company with a “complete technology transfer of the Gilead manufacturing process to enable them to scale up production as quickly as possible.”81 The India-based companies will pay a 7% royalty fee to Gilead, but will set their own prices for the generic drugs82 to help stimulate competition and to improve accessibility. In the U.S., each pill of Sovaldi costs $1,000 per pill or $84,000 for a 12-week regimen, but will now 77

Gilead Announces Generic Licensing, supra note 23; Harris, supra note 11; Andrew Pollack, Harvoni, a Hepatitis C Drug From Gilead, Wins F.D.A. Approval, N.Y. TIMES, Oct. 10, 2014, at B2. 78 Gilead Announces Generic Licensing, supra note 23. 79 Harris, supra note 11. 80 Monica Steffen Guise Rosina & Lea Shaver, Why Are Generic Drugs Being Held Up In Transit? Intellectual Property Rights, International Trade, and the Right to Health in Brazil and Beyond, 40 J.L. MED. & ETHICS 197, 197 (2012). 81 Gilead Announces Generic Licensing, supra note 23. 82 Id.; Sean McLain & Jonathan D. Rockoff, Gilead to Allow Cheaper Hepatitis C Drug in Developing Countries: Biotech Signed Licensing Deals to Produce Generic Versions of Its $1,0000-a-Day Drug Sovaldi, WALL ST. J. (Sept. 15, 2014, 6:26 PM), http://online.wsj.com/articles/gilead-to-allow-cheaper-Hepatitis-c-drug-1410779963 [hereinafter Gilead to Allow Cheaper Hepatitis C Drug].

be sold in India for $10 per pill or about $1,800 for a 24-week course.83 Gilead hopes that the 99 percent price reduction will stimulate the Indian-based companies to sell their drugs at even lower prices.84 The rather extreme price reduction also reflects Gilead’s efforts to avoid the dilemma and criticism that arose when “expensive HIV/AIDS drugs became available more than 15 years ago.”85 The “high prices were seen as immoral in Africa and other developing nations where millions were infected [with HIV/AIDS] but were consigned to die because they could not afford [the drugs].”86 Avoiding this predicament is arguably even more critical when battling Hepatitis C because “far more people around the world are infected with [H]epatitis C than are infected with HIV/AIDS . . . .”87 Gilead’s partnership with the India-based companies will have a profound impact on the treatment of Hepatitis C by bringing generic versions of breakthrough drugs to “54% of the total global infected population”88 in 91 developing countries. The benefits of this newfound generic drug production are not boundless, however, because Gilead will not allow the India-based companies to distribute the “new drugs in middle-income countries, where over 70 percent of people with Hepatitis C live today.”89 The licensing agreements allow the new drugs to be sold in developing countries such as Honduras; Vietnam; South Africa; and Egypt,90 but prohibit their sale in countries such as Thailand; Brazil; Mexico; China; and Turkey. 91 However, Gilead will

83

Harris, supra note 11. Id. 85 Id. 86 Id. 87 Id. 88 Gilead Announces Generic Licensing, supra note 23. 89 Harris, supra note 11. 90 Gilead to Allow Cheaper Hepatitis C Drug, supra note 84; Aditya Kalra & Zeba Siddiqui, Gilead Signs Hepatitis C Pact to Cut Drug Cost for Poor, REUTERS (Sept. 15, 2014, 9:14 AM), http://www.reuters.com/article/2014/09/15/us-gilead-sciences-india-idUSKBN0HA0TT20140915. 91 Harris, supra note 11; Gilead to Allow Cheaper Hepatitis C Drug, supra note 84. 84

be offering the latter countries the brand-name drugs at discounted prices—such prices will be “very different than the U.S. price,” but not as low as the generic price. 92 Even though Gilead’s current effort is an imperfect solution to curing Hepatitis C worldwide, it is difficult to dispute that Sovaldi and Harvoni are revolutionizing the treatment of Hepatitis C. Older pharmaceutical treatments required taking 12 pills per day for 24 or 48 week regimens, 93 including an interferon drug which caused disabling side effects, such as “fever, nausea, fatigue, mood swings” or depression. 94 Additionally, those regimens were only about 40–60 percent effective in curing Hepatitis C.95 Comparatively, Sovaldi only involves taking one pill per day for 12 weeks and is 80–90 percent effective in curing Hepatitis C patients.96 Unfortunately, Sovaldi must still be taken with interferon drugs, whereas the even newer drug, Harvoni, can be taken by itself once per day. 97 Harvoni is composed of a “combination of sofosbuvir, the ingredient in Sovaldi, and a new medicine from Gilead called ledipasvir, which is not available as a stand-alone product.”98 It has a 90 percent cure rate for genotype 1 patients, which is the main subtype of Hepatitis that afflicts 70 percent of Hepatitis patients in the U.S.99 Therefore, even though Harvoni is more expensive than Sovaldi at $1,125 per pill or $94,500 for a 12-week course of treatment,100 it is an example of when the hefty price of a drug may be outweighed by its medical innovation.

92

Harris, supra note 11. Pollack, supra note 79; Liz Szabo, $1,000-a-pill Hep C Treatment to be Cheaper Abroad, USA TODAY (Sept. 16, 2014, 8:29 AM), http://www.usatoday.com/story/money/business/2014/09/15/gilead-to-license-generic-version-ofsovaldi/15660737/. 94 Pollack, supra note 79; Szabo, supra note 95. 95 Gilead to Allow Cheaper Hepatitis C Drug, supra note 84; Szabo, supra note 95. 96 Pollack, supra note 79; Szabo, supra note 95. 97 Pollack, supra note 79. 98 Id. 99 Id. 100 Id. 93

Gilead’s transformation of Hepatitis C treatment highlights the importance of maintaining sufficient R&D funding to ensure the continued promotion and advancement of pharmaceutical treatments. The miracle cures of such treatments are of limited benefit if the costs of the medications continue to escalate, making the drugs unaffordable and consequently unobtainable. Therefore, the strengths and weaknesses in Gilead’s latest effort to have its breakthrough drugs be more affordable for Hepatitis C patients can be analyzed to underscore which strategies are sustainable and to explain how similar efforts can be improved in the future. IV. Advantages and Disadvantages to Gilead’s Latest Effort: How Similar Endeavors Can Be Enhanced in the Future As previously discussed, there are many different strategies to balance the cost of R&D with the need for affordable and accessible pharmaceuticals. Gilead’s approach to improving access to pharmaceuticals in developing countries involves a combination of “tiered pricing, voluntary generic licensing (often in advance of U.S./EU regulatory approval), negotiations with national governments, regional business partnerships, product registration, medical education and partnerships with non-profit organizations.”101 More specifically, Gilead’s current partnership with India-based companies involves non-exclusive voluntary licensing and FDI, which are useful in collaboration. The non-exclusive licenses promote the development of a generic market by enabling multiple companies to manufacture pharmaceuticals, thereby stimulating a competitive atmosphere and lower prices. 102 Their voluntary nature further facilitates the growth of a generic market by eliminating the need for compulsory licenses, which may generate hostility due to their forced nature. Fortunately, Gilead has also willingly offered to substantiate its FDI with a full-fledged technology transfer to ensure that production occurs as 101

Gilead Announces Generic Licensing, supra note 23. See Maxwell R. Morgan, Medicines for the Developing World: Promoting Access and Innovation in the PostTRIPS Environment, 64 U.T. FAC. L. REV. 45, 70 (2006) (explaining how “an absence of competition can be a key barrier to accessing cheap drugs, particularly where patents block generic entry.”). 102

quickly as possible. This infrastructural assistance is critical for developing countries, as indicated by the fact that even India, which has one of the best pharmaceutical infrastructures in the developing world, needs the aid too. Pointedly, generic manufacturers need some financial incentive to invest in the development of a generic drug market. Otherwise, they are “discouraged from entering the market [when] brand manufacturers already provide, either directly to the private market or by providing the public sector at a discount close to generic prices, the bulk of drugs consumed in the country.”103 This is not a problem with Hepatitis C though because most people in developing countries cannot afford the brand name drugs and are therefore likely to purchase cheaper generic versions as soon as they become available. Still, pharmaceutical development is inevitably driven by profit. 104 Though, to some extent, the cost of pharmaceuticals is inherently required to be high since “it is very expensive to research and refine a new medicine and then to make it through elaborate clinical trials and national approval processes.”105 Also, more often than not, pharmaceutical companies must make up for lost expenses because “most promising research ideas fail somewhere along the way and thus never lead to a marketable product.”106 In this sense, the pharmaceutical industry is based on a “research and development business model [that] ties investment to potential markets.”107 Pointedly, brand-name companies demand high prices to compensate for bearing the exceptionally high cost of R&D, and they “make investment

103

Heinz Klug, Access to Medicines and the Transformation of the South African State: Exploring the Interactions of Legal and Policy Changes in Health, Intellectual Property, Trade, and Competition Law in the Context of South Africa’s HIV/AIDS Pandemic, 37 L. & SOC. INQUIRY 297, 312 (2012). 104 See JOHANNA GIBSON, INTELLECTUAL PROPERTY, MEDICINE AND HEALTH: CURRENT DEBATES 182 (2009) (explaining how “pricing is directed by a purely profit-driven approach as distinct from identifying a relationship between (therapeutic) value and the consumer.”). 105 INCENTIVES FOR GLOBAL PUBLIC HEALTH, supra note 54, at 136. 106 Id. 107 GIBSON, supra note 105, at 81.

decisions based on future market prospects”108 in order to ensure some level of efficient payback. Generic companies strongly consider future market prospects as well, “even though [their] frontend investments are [generally] much lower.”109 [This is because generic companies still face] substantial up-front transaction and capital costs. These include new plant and manufacturing capacity, drug bioequivalence testing, regulatory approval procedures, and marketing costs. Vigorous generic entry is far more likely where prospective markets are large and where sufficient sales can be anticipated to defray up-front investments.110 Thus, brand-name and generic pharmaceutical developers succumb to the financial burdens of research, development, manufacturing and sales, but undeniably expect, and do their best to ensure, profitability. 111 The need for profit is particularly troublesome within the pharmaceutical industry because the free market system cannot sustain its innovation. In a free market pharmaceutical system, “competition among manufacturers would quickly drive down the price of a new medicine to near its long-term marginal cost of production, and the innovator would get nowhere near to recovering its R&D investment.”112 This market failure is most commonly remedied with patents,113 the success of which is driven by the implementation of TRIPs. As previously discussed, TRIPs stringently protects patent rights by “bar[ring] generic entry into the market for the term of the patent . . . [thereby] provid[ing] the product’s original innovator [with] the opportunity to price above marginal cost and thereby recoup R&D expense[s].”114 Despite the relatively justified need and desire for profit, healthcare epidemics often jolt pharmaceutical companies back to the reality that not everyone can afford the prices that result

108

Morgan, supra note 103, at 82. Id. 110 Id. at 82–83. 111 See Kraus, supra note 47, at 531–32. 112 INCENTIVES FOR GLOBAL PUBLIC HEALTH, supra note 54, at 136. 113 See id. 114 Kraus, supra note 47, at 531–32. 109

from revolutionary R&D. Pointedly, Gilead’s efforts to make Hepatitis C drugs more affordable comes at the literal cost of a 99 percent price reduction in order to guarantee that people in certain developing countries can obtain the breakthrough drugs that they need. Gilead further fuels this affordability interest by enabling each generic company to set its own pricing in order to foster competition. This laissez-faire approach is probably more beneficial than direct price controls within the pharmaceutical realm—even though at a glimpse the latter may seem preferential, such direct limits will only facilitate funneled benefits as opposed to systematic ones. A happier medium stems from the institution of additional government negotiation to monitor prices rather than to demand them. Such negotiation may be direct with each company, and can be based on the duos ability to agree to a satisfactory price. This can also help reduce prices by giving significant bargaining power to governments, which “tend to be the sole purchasers of pharmaceuticals for an entire state or country [and] have a great deal of market power.”115 Another approach that is used to control pharmaceutical prices is Canada’s establishment of a Board to set price “ceiling[s];” this method is less extreme than direct price controls because the Board “fixes prices at market entry [but] may adjust them later,” thereby effectively “prevent[ing] brand name firms from abusing their monopoly position during the market exclusivity period” without definitively setting prices. 116 Overall, government negotiation and/or the establishment of price ceilings might be necessary to combat skyrocketing pharmaceutical

115 116

Id. at 532. Id. at 540.

prices in the U.S., which results from American pharmaceutical companies broad discretion.117 If a more effective balance is not struck between these competing interests, then: manufacturers will [continue to] choose not to launch their products in certain countries where the prices are too low, or in the most extreme scenario, manufacturers might discontinue research and development in countries where prices are highly regulated and shift activities to countries with high prices. 118 As a result, the WTO should alter the relevant parts of its current international agreements, discussed above, to restrict the discretion of individual WTO members to choose how to implement such laws domestically. As the agreements currently stand, “WTO member countries [are] free to determine the appropriate method of implementing TRIPs within their own legal system, leaving room for different [domestic] interpretations.” 119 Despite the benefits of flexible domestic implementation though, such discretion further obscures the balance between R&D and affordable pharmaceuticals. 120 As such, an even worse imbalance results due to the incompatible effects of each member deciding whether to allow or to refuse the development of a generic market, the use of government negotiation, direct price controls, voluntary or compulsory licenses, pooled purchasing, and/or bolar provisions. Such a busy diversity of initiatives looks good and creates the impression that a lot is being done to solve the problem. And most of these efforts are really doing good by improving the situation relative to what it would be otherwise. Still, these efforts are not nearly sufficient to protect the poor. It is unrealistic to hope that enough billions of dollars will be devoted to neutralizing the cost imposed on the world’s poor by the globalization of twenty-year patents. And it is even more unrealistic to hope that such billions will reliably and efficiently be spent year after year. It makes sense then to look for a more systemic solution that addresses the global health crisis at its root.121 See generally Halser, supra note 21, at 550 (noting that at the present time, “[p]harmaceutical companies set the prices of prescription drugs in the United States [because they] have broad discretion to price drugs at whatever levels the market will allow.”). 118 Costa-Font & Burakoff, supra note 46, at 108. 119 Kraus, supra note 47. 120 See generally id. (explaining that “despite the comprehensive requirements [of] TRIPs, [there is] some flexibility in the manner member countries may choose to execute their intellectual property laws domestically,” and this problem also arises with GATT, TRIMs, and the Doha Declaration). 121 INCENTIVES FOR GLOBAL PUBLIC HEALTH, supra note 54, at 139. 117

For starters, a better and more systemic approach requires pricing pharmaceuticals based on how revolutionary an individual drug actually is 122 and the extent to which it will help diminish or eliminate a disease.123 Diseases should then be categorized by how vastly they impact the global population and the magnitude of the benefit to affected individuals from improved access to specific drugs. More specifically, diseases may be classified as “global” or “neglected;” the former may include diseases for which there is adequate R&D but insufficient access in the developing world, whereas the latter may require stimulation of R&D to treat “seriously disabling or life-threatening diseases for which treatment options are inadequate.” 124 Any amendments to the WTO agreements should also address the counter-productive effects of different efforts to resolve the imbalance within the pharmaceutical industry because right now “the practical value of efforts to mitigate one problem [are] greatly reduced by the other problems that remain unaddressed; and efforts to mitigate one problem aggravate another.”125 Bulk or pooled purchasing, for instance, seems like an effective means to increase access to medicine.126 Even though such purchasing is advantageous because it “pool[s] demand for drugs from multiple developing world sources and then use[s] the resultant negotiating power to induce lower price offers from suppliers,” its benefits are actually limited unless used in collaboration with other efforts.127 As a result, such purchasing ultimately fails to eradicate the problem because, rather than promote the development of local infrastructure, it does nothing to reduce the dependency of developing countries on supplies from developed countries.

See generally Eliason, supra note 25, at 562 (explaining how profitability is impacted by “whether the particular drug is a minor improvement over the current treatment, a breakthrough drug in a known disease, or the first treatment available for a new disease . . . .”). 123 See generally Morgan, supra note 103, at 51 (comparing global and neglected diseases). 124 Id. at 52. 125 INCENTIVES FOR GLOBAL PUBLIC HEALTH, supra note 54, at 142. 126 See Morgan, supra note 103, at 89–90. 127 Id. at 89. 122

Consequently, the problem is worsened because the “brain drain” continues, meaning that “intelligent and productive workers from developing nations [continue to] leave their home countries” due to a lack of opportunities there. 128 It is for this reason that the WTO should make greater efforts to actually reduce the complacent acquiescence of developing countries to the commandeering approach of developed countries. In order to do this, the WTO may need to establish an independent body to monitor the overarching influence that developed countries typically employ while drafting WTO agreements. 129 Another approach to amending the WTO agreements is to shift the intellectual property rights’ emphasis from protecting the product to protecting the process.130 This could restore the pre-TRIPs balance in a positive way by allowing generic manufacturers, in countries such as India and Brazil, to produce cheap medicines while also maintaining the primacy of brand-name processes.131 In this vein, bolar provisions can effectively promote the development of more affordable pharmaceuticals, while maintaining the sanctity of patents and ensuring sufficient R&D incentives. Such provisions will “allow generic firms to compete in the patent market almost immediately following patent expiry” by enabling generic manufacturers to prepare drugs during the term of the patent, as long as they do not distribute them until the patent expires.132 However, this measure is still ineffective in resolving the imperfect balance between protecting drugs and ensuring their accessibility because it fails to limit the dependency of developing countries on developed ones as well. The only way to truly remedy this imbalance is to require the conception of intellectual property laws through a human rights lens. 133 The human need

128

Costa-Font & Burakoff, supra note 46, at 110. Rein, supra note 51, at 392 (explaining how the U.S., Europe, and Switzerland tend to dominantly outline the terms of intellectual property agreements, which developing countries then slowly have no choice but to accept). 130 Id. at 386. 131 See id. 132 Costa-Font & Burakoff, supra note 46, at 108. 133 See INTELLECTUAL PROPERTY AND HUMAN DEVELOPMENT, supra note 3, at 61. 129

throughout the world for access to pharmaceuticals is too great to keep brushing over the inadequate access that people in developing countries have to existing drugs. Thus, the WTO must begin to mandate better distribution systems while continuing to ensure the safety and affordability of medications. 134 The maintenance of drug safety further complicates the balance, but safety and affordability can co-exist if there is a greater emphasis on the capacity building 135 of people in developing countries; their skills can be capitalized to develop “safe” drugs, which have a “positive benefit to risk ratio,” at a lower cost.136 Also, drugs can be created at a lower cost if certain steps in the development process are skipped. Generic drug manufacturers successfully create cheaper drugs because the “drug discovery phase [is almost] entirely” avoided—generic companies simply duplicate drugs that have “already been deemed safe and effective.”137 Generic companies can also obtain regulatory approval much quicker because they “only need to do limited testing to show [that the] proposed generic version is bioequivalent,” meaning that the “products have the same active ingredient at the same dosage such that they are expected to act the same in patients.”138 There are many other ways to decrease regulatory hurdles and thereby reduce prices without adversely impacting safety. For instance, substantial efforts can be made to reduce duplicative compliance efforts, as well as research and trials around the world. 139 “Regional arrangements” can be used to facilitate pharmaceutical development in countries that lack the 134

See MACKLIN, supra note 2, at 164. Id. at 12. 136 Ileana Dominguez-Urban, Harmonization in the Regulation of Pharmaceutical Research and Human Rights: The Need to Think Globally, 30 CORNELL INT’L L.J. 245, 265 (1997). 137 CYNTHIA M. HO, ACCESS TO MEDICINE IN THE GLOBAL ECONOMY: INTERNATIONAL AGREEMENTS ON PATENTS AND RELATED RIGHTS 12–13 (2011). 138 Id. at 13. 139 Dominguez-Urban, supra note 137, at 258; see generally Trudo Lemmens, Pharmaceutical Knowledge Governance: A Human Rights Perspective, 41 J.L. MED & E THICS 163, 164 (2013) (discussing the benefits of the “globalization of knowledge production.”). 135

infrastructure to manufacture drugs on their own.140 Such arrangements can also foster the use of mutual recognition processes, “whereby [a] drug is submitted for approval in one country [and] subsequent approval by that country would be recognized by all others in the alliance.”141 Similar impediments within domestic approval processes can be remedied to prevent price increases that are created by avoidable time lags. 142 For example, European countries allow for “more flexible” pre-marketing regulation as long as heavier post-marketing regulation is used. This is effective because it enables “adverse reactions that show up only with prolonged use” to be discovered.143 These efforts demonstrate how the regulatory process can be simplified and improved without streamlining the process too much, which would be detrimental. 144 Even though the world is increasingly globalized today and “the line between [the] domestic and international [realms is becoming] illusory,”145 large price differentials still persist within the pharmaceutical industry.146 Although globalization should naturally foster a better balance within the industry, equilibrium is hindered by the lack of “strict international standards and enforcement mechanisms.” 147 As of today, the international system is still scattered with individualized and nationalistic endeavors rather than being composed of an industry where “new technologies provide extraordinary tools for cohesive global knowledge governance.” 148 A more collaborative international approach can remedy this problem by flipping the system on its head: “instead of unjustly imposing monopoly prices on the poor[,] which effectively excludes most of [the poor] from [access to] advanced medicines, we [c]ould grant open access to

140

Eliason, supra note 25, at 566. Dominguez-Urban, supra note 137, at 253–54. 142 Id. at 256. 143 Id. at 261. 144 Id. at 259. 145 Id. at 246. 146 INCENTIVES FOR GLOBAL PUBLIC HEALTH, supra note 54, at 146. 147 Lemmens, supra note 140, at 176. 148 Id. 141

competitive market prices in an efficient way.”149 This type of approach may finally teeter the balance away from developed country interests and create a more efficient pharmaceutical market by recognizing the fact that manufacturing approaches can and should vary over time and from country to country. This recognition may actually fuel pharmaceutical production since development ultimately “depend[s] upon the needs of the society and of the individual patients suffering from the ailment for which a cure is sought.”150 In conclusion, a critical assessment of current and past efforts is a good starting point to address the imbalance between R&D and the need for affordable and accessible pharmaceuticals. It will be trying, if not impossible, to achieve a utopian balance, even if the inherently conflicting interests of developed and developing countries are acknowledged more affirmatively, but it will still be worth the effort to make systematic changes because, after all, many good pills begin with a complicated recipe.

149 150

INCENTIVES FOR GLOBAL PUBLIC HEALTH, supra note 54, at 146. Dominguez-Urban, supra note 137, at 265.