Compulsory Licensing: The Wild Card

India seems to be in no mood to buckle down and has hardened its stance on ensuring access to expensive patented drugs which have been largely unaffordable to its population. And it is now resorting to compulsory licensing, a tool it had in its kitty since long.

The WTO’s Ministerial Conference in Doha adopted a TRIPS and Public Health Declaration back in 2001 affirming that the agreement should be interpreted in a manner that does not prevent its members from taking suitable measures to support the right to health and access to medicines for all.

The Declaration clarified: “In this connection, we reaffirm the right of WTO Members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose.” Thus it is the onus of every country to ensure that its patent regime suits its own needs and is in larger public interest while being effectively regulated and enforced in a pro-competitive manner (including aligning it with industrial policies to encourage domestic production of generics) emergency situations, epidemics, public non-commercial use, tackling anti-competitive practices or as outlined by the country’s law could be some of the grounds for issuing a license.

A boon for developing countries?

“The Indian patent office received three applications for CL post 2005 after the product patent regime came into force, but it rejected two of them for want of fulfilment of procedures laid down in the law. Only one CL has so far been granted.” TC James Consultant, Research and Information System for Developing Countries

Analysts argue that although developed countries such as the US, Canada and Italy have been issuing CL on grounds of security or inadequate working of the patented product in the country, it is when developing countries do the same, they come under the scanner. Says TC James, IPR specialist and Consultant at Research and Information System for Developing Countries (RIS), “The Indian patent office received three applications for CL post 2005 after the product patent regime came into force, but it rejected two of them for want of fulfilment of procedures laid down in the law. Only one CL has so far been granted. The Indian Patent Office thus does not issue a CL lightly.”

Referred here is the landmark ruling by the Indian Patent Office over Bayer’s liver and kidney anti-cancer drug Nexavar in March 2012 which allowed Natco Pharma to manufacture the generic version of the drug, albeit for domestic consumption. Natco cited the high cost of the drug ($5,500 per month) that made it unaffordable to Indians. In its ruling the patent office wrote, “The mandate of the law is not just to supply the drug in the market, but to make it available in a manner such that substantial portion of the public is able to reap the benefits of the invention. If the terms are unreasonable, such as high cost, availability is meaningless.”

Natco Pharma is now manufacturing the drug at $171 per month, 97 per cent lesser than its initial price.

“CL is an important tool for developing countries to improve access to patented drugs that sell at high prices. In general, India is in better position to use CL than most developing countries with similar per capita income since it has a well developed local pharma industry.” Kamal Saggi Professor of Economics, Vanderbilt University

In a paper published last year, Eric Bond and Kamal Saggi, from the Department of Economics at Vanderbilt University espouse the role of CL in developing countries on grounds of the countries inability to reverse engineer patented drugs by innovator companies which in turn create barriers to consumer access to medicines. They argue that while price control and CL are complementary tools to enable greater access to medicines from the perspective of developing countries, stricter price control in isolation might dissuade Big Pharma from entering emerging markets. A stricter CL policy allows developing countries to set a more stringent price control(under entry) while also shifting the patent holder’s preference in the favour of the entry. It helps make voluntary licensing less attractive to the patent holder thereby helping it extract greater share of the surplus.

“CL is an important tool for developing countries to improve access to patented drugs that sell at high prices. In general, India is in better position to use CL than most developing countries with similar per capita income since it has a very well developed local pharmaceutical industry,” reiterates Saggi.

However, Bond and Saggi also state that a CL can only benefit developing countries if they either improve the terms at which voluntary licensing occurs or undertake measures to help the patent holder to switch from licensing to entry. Both policy instruments (price control and compulsory licensing) have different effects on how a patent holder chooses to work its patent in the country.

Big Pharma’s woes, challenge for generic companies

“A reasonable gestation period is needed for converting the patent(s) into marketable drugs which are duly approved by DCGI. Additionally, it has to be ensured that the desired production levels will be achieved.” Raghava Saha Past Head, Patent Facilitating Centre, TIFAC, GoI

The paper by Bond and Saggi, however, points out a shortfall that most developing countries who have issued CLs have faced- the quality of the generics manufactured. After Thailand issued a CL on the HIV/AIDS drug Kaletra (originally from Abbott), the quality of the drug produced by the Thai government pharmaceutical organisation (GPO-vir) proved to be substandard. Brazil, which in 2007 issued a CL on the HIV/AIDS medicine Efavirenz, after failing to negotiate a price with Merck was also unable to manufacture the drug for two years due to its lack of technological knowhow, during which it imported the drug from India.

“When issuing a CL, the government must take into account whether or not indigenous production would be of sufficiently high quality. If it is not, you can end up replacing limited access to a high quality product by greater access to a lower quality one,” adds Saggi. It also needs to be noted that both the countries have issued CLs for drugs under their government programme unlike India where the onus of manufacturing is on a company. So far there have been no issues around quality of Sorafenib by Natco Pharma. Quality aside, planning is also crucial. Cautions Raghava Saha, who headed the Patent Facilitating Centre, TIFAC, Government of India, “A reasonable gestation period is needed for converting the patent(s) into marketable drugs which are duly approved by DCGI. Additionally, it has to be ensured that the desired production levels will be achieved and the requirement of public will be met by adequate supply at reasonable price. A monitoring system will have to be in place.”

Big Pharma on the other hand is at odds with the unfolding of events in the Indian pharma landscape. In a recent hearing before the IPAB, Bayer’s plea against Natco Pharma was dismissed even as it argued that it did not get enough time to ‘work’ its patent over and above the three years entitled under the Indian law under which a generic competitor has to wait three years after the grant of a patent before a compulsory license to market a more affordable generic version can be filed.

Roche, whose breast cancer drug Herceptin is one of the three drugs recommended for a CL signed a commercial deal with Emcure Pharma, soon after March 2012 to market the drug under a new name. However, the price difference is not substantial and the drug continues to remain unaffordable. The International Federation of Pharmaceutical Manufacturers & Associations (IFPMA) a global non-profit NGO representing the research-based pharma industry asserts that systematic issuance of CL sets a negative precedent thus dissuading investment in R&D of new medicines that address unmet medical needs. It recommends tiered pricing or voluntary licensing as effective and sustainable strategies, both medically and economically.

The Pharmaceutical Research and Manufacturers of America (PhRMA) has even gone a step ahead and said that if this continues, the developing world may no longer have generic medicines as the impetus to invest in R&D would cease. It also takes a strong objection to the fact that ‘working’ a patent requires a company to manufacture within India and considers it to be at loggerheads with India’s TRIPS commitment.

On the right track?

While it was NATCO who earlier filed the application for CL, the latest move is an outcome of suggestions by an expert committee made to the Department of Industrial Policy and Promotion (DIPP), responsible for policy decisions regarding intellectual property rights.

Madhukar Sinha, Professor, Centre for WTO Studies, pontificates, “Provisions governing grant of a CL under Sections 84 and 92 of the Patents Act, 1970 require any person to make an application for granting of CL after weighing commercial benefits from the license against a set of costs, including potential loss of opportunities of obtaining licenses from research-based pharma companies. Both provisions require a willing person. It seems politically correct since direct use of patented products by the Government as provided u/s 100 of the Act may be a more aggressive approach which the GoI does not appear keen to adopt immediately.

“Legitimate and imminent health emergencies that require making exceptions to intellectual property rights can be accommodated under the international framework, but only after exhausting all other efforts.” Krishna Sarma Managing Partner Corporate Law Group

However, some legal experts also feel that CL might not be able to solve issues of access. “CL cannot solve India’s larger problems regarding access to medicines and healthcare, and the fact that CL are lawful in some circumstances does not mean that they should be regarded as appropriate policy measures in all instances. Legitimate and imminent health emergencies that require making exceptions to intellectual property rights can be accommodated under the international framework, but only after exhausting all other efforts and in extraordinary circumstances. CL is not the only way to access affordable cancer drugs. There are other options Government should consider to ensure we foster an environment that brings new medicines for Indian patients,” exhorts Krishna Sarma, Managing Partner Corporate Law Group.

Elucidating some of these options which include invoking the provision of ‘dominant position’ in the Competition Act, Saha says one could argue that anti-competitive or unfair trade practices are being followed by companies, thus not making the drugs available to people at reasonable price. The government could also negotiate with these companies on the prices of the drugs. The patients can be supplied drugs at lower and affordable prices but the difference in this price and the negotiated price may be borne by the Government, he adds.

Reji K Joseph, Assistant Professor, Centre for Studies in International Politics and Governance, Central University of Gujarat, builds up India’s case further by stating that there is a direct link between catastrophic health spending and poverty. With medicines forming a major chunk of it, India is well within its rights, given the mandate of Doha Declaration on TRIPS and Public Health and provisions in the Patents Act, to issue CL on grounds to protect public health, he states. Finally TC James urges innovator companies to introspect.

“Instead of crying foul too loud, patent owners should take a re-look at their strategies, including domestic manufacturing and technology transfer, which were flagged as the benefits that the Agreement on Trade Related Aspects of Intellectual Property Rights of 1994 for developing countries. A law can survive only if it meets the national aspirations and requirement and patent law is no exception to that.” Meanwhile the world is watching.

In its Special 301 Report last year, soon after India issued its first CL, the United States Trade Representative to the US Congress stated, “As affirmed in the Doha Declaration on TRIPS and Public Health, the United States respects a trading partner’s right to protect public health and, in particular, to promote access to medicines for all, and supports the vital role of the patent system in promoting the development and creation of new and innovative lifesaving medicines” However, it remains to be seen what the stance will be when the report is released in April this year.

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