Trade Note May 29, 2003

Implementing the Doha Mandate on
TRIPS and Public Health

Recent negotiations at the World billion people live on less than two dollars a
Trade Organization (WTO) on patents day.
The and public health have sought to im-
plement the work program agreed in A number of initiatives have been launched
World Bank Doha in 2001 on improving access to to reduce drug prices in poor countries. In
Group generic drugs for poor countries. the case of ARVs, pharmaceutical compa-
www.worldbank.org Promoting poor people's access to nies have offered steep price discounts to
medicines and vaccines is central to developing country governments. In se-
the alleviation of poverty. This is lected countries, they have also offered
most urgently the case for fighting the drugs for free and provided the supporting
HIV/AIDS epidemic. Currently, only health infrastructure to make anti-retroviral
six in a thousand of infected patients treatments effective. While such actions are
in the developing world receive the laudable, they are not systematic and
anti-retroviral (ARV) drugs that have depend on the goodwill of private firms.
made AIDS a treatable disease in rich Clearly, the scale of the health crisis in the
countries. It is equally important for developing world is too large to be solved
International combating malaria, tuberculosis, by private sector philanthropy alone.
Trade diarrhea, cancer and many other

Department diseases that annually kill millions of Another strategy is to rely on generic manu-
children and working-age adults in facturers to produce copycat versions of
poor countries. This note reviews drugs and force down prices through market
what is at stake in these negotiations competition. Indeed, the price discounts on
and how an agreement at the WTO ARVs offered by the drug originator com-
may affect access to medicines in poor panies were probably brought about by
countries. competition from generic producers as
much as they were voluntary (see Figure 1).
Patents, generics and drug prices Today, for a number of AIDS drugs, generic
By Carsten Fink manufacturers from Brazil, India, and Thai-
Newly developed medicines are pro- land offer the lowest prices, although the
tected by patents that extend time- originator drugs remain the cheapest for
bound market exclusivity to research- other ARVs.1
based pharmaceutical companies. The
These notes summarize
recent research on global patent system provides incentives for TRIPS, compulsory licenses, and the Doha
trade issues. They reflect pharmaceutical innovation. It allows Declaration
solely the views of the patent holders to charge prices in rich
author, and do not
necessarily reflect the country markets that recoup invest- Generic production is possible for the great
views of the World Bank ments in research and development majority of essential medicines that cur-
Group or its Executive
Directors, or the countries (R&D). But rich country prices for rently are not protected by patents in devel-
they represent. new drugs can be unaffordable to poor oping countries.2 However, this practice
people in the developing world. For may become difficult in future as stronger
example, the cost of an ARV drug patent rules required by the WTO come into
Trade Note 5 therapy in developed nations can effect. As part of the Uruguay Trade Round
easily exceed $30 a day--when three (1986-94), members of (what is now) the

TRADE NOTE May 29, 2003

Figure 1: Originator and Generic Drug Prices for a Sample ARV Triple-Combination

$12,000
Originator $10,439
Originator price
$10,000 Generic price

$8,000

$6,000

$4,000
Generic $2,767

$2,000 Originator $931 Originator $727 Generic $295 Generic $209

Generic $350

$0
y n l g p t v c n b r r y n l g p t v c n b r r y n l g p t v c
Ju Ju
Ma Ju Ju Au Se Oc No De Ja Fe Ma Ap Ma Ju Au Se Oc No De Ja Fe Ma Ap Ma Ju Au Se Oc No De
2000 2001 2002

Notes: Sample of ARV triple-combination: stavudine (d4T) + lamivudine (3TC) + nevirapine (NVP). Low est w orld prices per patient per year.
Source: M�dicines sans Fronti�res, December 2002, "Untangling the Web of Price Reductions," available at w w w .accessmed-msf.org.

WTO negotiated the Agreement on Trade Related involve complex administrative processes and can
Intellectual Property Rights (TRIPS). This Agree- be subject to political pressures. Third, the threat of
ment obliges countries to extend patent protection permitting the production of competing generic
to pharmaceutical products and processes. While medicines has led pharmaceutical companies to
TRIPS foresees various periods of transition for offer the drugs at cheaper prices themselves. This
developing countries, the supply of generics may be was arguably the case when some in the United
significantly curtailed in the near future (see Box States Government advocated the grant of a com-
1). pulsory license on the patented drug Ciprofloxacin
during the 2001 anthrax crisis.3 Similarly, the phar-
In principle, governments have the option of over- maceutical company Roche offered a 40 percent
riding the market exclusivity of patents by granting price reduction on its AIDS drug Viracept to Brazil,
so-called compulsory licenses to generic manufac- after the Government publicly announced in 2001
turers. TRIPS explicitly allows the use of compul- that it would issue a compulsory license to a local
sory licenses and, in case of "national emergency or laboratory.4
other circumstances of extreme urgency," does not
even require a government to make efforts to obtain In the future, granting a compulsory license to a
a voluntary license from the patent holder. local producer may emerge as an effective strategy
Responding to concerns that the TRIPS patent rules to promote generic competition in developing
could undermine access to medicines in poor coun- countries that have the capacity to manufacture
tries, members of the WTO issued a Declaration at pharmaceuticals. For example, well-developed
the Ministerial Meeting in Doha, Qatar in 2001, pharmaceutical industries can be found in Brazil,
which reaffirms the right of governments to use China, India, or Thailand. Yet many other devel-
compulsory licenses. In practice, few compulsory oping countries--especially the least developed
licenses have been issued, for several reasons. countries in Africa--do not possess pharmaceutical
First, as pointed out above, most medicines in de- manufacturing capabilities. These countries can
veloping countries have been free of patents, such effectively use the compulsory licensing option
that there has been little need to issue compulsory only if they are allowed to import generic drugs.
licenses. Second, the granting of such a license can Yet it is legally uncertain whether current TRIPS

TRADE NOTE May 29, 2003

Box 1: Untangling the TRIPS transition periods.

The provisions of TRIPS entered into force on a staggered schedule--with the main obligations applicable to devel-
oped countries at the beginning of 1996, and most obligations applicable to developing countries as of January 1,
2000. However, developing countries can delay the introduction of pharmaceutical patent protection to the begin-
ning of 2005 and least developed countries are entitled to a transition period ending in 2016 (with the possibility of a
further extension). At the same time, a convoluted compromise negotiated during the Uruguay Round obliges devel-
oping countries to accept patent applications for pharmaceutical products during the transition period (so-called
`mailbox' patents) and grant `exclusive marketing rights' to these products for five years or until the patent is granted
or rejected, whichever is shorter.

In practice, these transition periods mean that pharmaceutical compounds patented before developing countries im-
plemented their TRIPS obligations will never receive patent protection in those countries and are thus open to
generic competition. These include the great majority of medicines on essential drug lists, including a number (but
not all) of the ARVs. Drugs patented after developing countries implemented their TRIPS obligations--including
some of the most effective new treatments to combat HIV/AIDS, malaria and tuberculosis--are progressively com-
ing onto the market and will constitute an increasing share of marketed drugs as time goes by. A substantial change
is likely to occur in 2005, when all developing countries will be required to protect pharmaceutical product patents
and the `mailbox' drug patents will be processed. Least developed countries in Africa and elsewhere will not be re-
quired to protect drug patents for the foreseeable future, but this is of minor relevance as most of these countries do
not possess generic manufacturing capabilities in the first place.

rules allow importation in such a case (see Box 2). Another focus of negotiations was the development
The `Doha Declaration' acknowledged the difficul- of safeguards to minimize the risk that drugs des-
ties countries with insufficient or no manufacturing tined for poor countries leak in to rich countries'
capacity face in effectively using the compulsory pharmaceutical markets. This is a legitimate con-
licensing mechanism and called for negotiations cern. Sharp price differences between developed
"... to find an expeditious solution to this problem and developing countries create immense profit
... before the end of 2002." opportunities from smuggling of drugs. The
December compromise text required, for example,
Post-Doha negotiations that importing countries make a notification to the
WTO, detailing the names and expected quantities
Post-Doha discussions on implementing the Decla- of imported drugs, and that generic drugs benefiting
ration's work program focused on a number of rules from the system are appropriately labeled. While
that would govern the new importing mechanism. developing countries were concerned that some of
Which countries should be eligible importers? the safeguards could be too burdensome to allow
From a purely economic perspective, there is little effective use of the mechanism, they supported
reason to prevent any country from importing them. Clearly, every government has an interest
generic drugs under a compulsory license. If a gov- that an instrument designed for poor countries does
ernment decides to dilute the exclusive rights con- not undermine pharmaceutical companies' primary
ferred by a patent, it seems best to purchase drugs markets.
from the most efficient source, regardless of where
this source is located. This type of economic rea- Nonetheless, WTO Members were not able to strike
soning played little role in the negotiations, how- a deal by the agreed December 2002 deadline. In
ever. The eventual compromise text put forward by the end, the United States alone opposed the pro-
the Chairman of the TRIPS Council in December posed compromise. It was concerned that the solu-
2002 defined `eligible importing Member' as any tion could be abused by developing countries to
least-developed country as well as any other pursue industrial policy objectives and reduce the
Member that has found that it has insufficient value of patents and the incentives for future drug
pharmaceutical manufacturing capacity.5 research. The US Government sought to restrict an

TRADE NOTE May 29, 2003

Box 2: Why importation of generic drugs under a compulsory license may conflict with TRIPS rules

The TRIPS Agreement does not explicitly prohibit governments that wish to grant a compulsory license from importing
generic drugs. Instead, the conflict arises in the exporting country. Article 28 of TRIPS confers patent holders the
exclusive right to make patent protected products. Thus if a generic producer in country A wishes to produce the drug
for export to country B (where the Government has issued a compulsory license), this producer may violate the patent
rights in her home country A.

Some legal scholars have argued that the Government in country A could invoke Article 30 of TRIPS, which provides
for limited exceptions to conferred patent rights, and thus allow the producer to make and export the drug to country B.
But it is uncertain whether such an interpretation of the TRIPS Agreement would be upheld in WTO dispute settle-
ment.a The risk of litigation may deter generic manufacturers from producing drugs and governments from allowing
such production in the first place.

A special case arises, if the drug in question is already produced under a compulsory license in country A. Article 31(f)
of TRIPS mandates that compulsory licenses "... shall be authorized predominantly for the supply of the domestic
market of the Member authorizing such use." If compulsory licenses are granted in large developing countries such as
Brazil, China or India, a "non-predominant" share of production could still represent a significant supply for least
developed countries. However, there may well be cases in which a Member is requested by another Member (with
insufficient capacity) to fulfill a compulsory license when the prospective exporter would not intend to provide a pre-
dominant part to its local market. The current legal uncertainty is therefore unsatisfactory.

aSee, for example, the submission of the European Communities on the relationship between the provisions of the TRIPS Agreement
and access to medicines of June 2001. (WTO Document IP/C/W/280).

agreement to HIV/AIDS, tuberculosis, malaria and The European Union suggested assigning a role to
other infectious diseases of comparable concern to the WHO to assess which diseases constitute a
public health. This was unacceptable to developing public health concern in a developing country. The
countries. They saw such a restriction as a retreat Chairman of the TRIPS Council proposed limiting
from the Doha consensus which, in their view, did an agreement to "national emergencies or other
not impose a limitation on the diseases covered. circumstances of extreme urgency." Developing
The text of the Doha Declaration recognizes "... the countries have opposed these proposals, expressing
gravity of the public health problems afflicting concerns that such requirements would create a
many developing and least-developed countries, two-tier system whereby the poorest countries with
especially those resulting from HIV/AIDS, insufficient manufacturing capacity would face a
tuberculosis, malaria and other epidemics." greater barrier for using compulsory licenses than
other WTO Members. Recall that the TRIPS
From the viewpoint of public health policy, limiting Agreement already allows OECD countries and
the scope of diseases also seems a costly way of middle income countries such as Brazil, China or
addressing concerns over the possibility that an Thailand that possess pharmaceutical manufac-
agreement might be abused. While HIV/AIDS, turing capacity to use compulsory licensing without
malaria and tuberculosis undoubtedly represent any scope of diseases limitation or the need to
grave public health concern in the developing declare a national emergency.6
world, certain non-infectious diseases, such as
cancer, heart disease, asthma and diarrhea are major Moving forward: the need for complementary
causes of mortality among poor people. For action
example, according to data from the World Health
Organization (WHO), non-infectious diseases Finding a practical solution to the current negotiat-
account for 47.2 percent of Africa's disease burden, ing impasse would be desirable--not least because
as measured by disability-adjusted life years. Since the lack of progress on TRIPS has negative impli-
December 2002, several compromises have been cations for advancing the broader Doha Develop-
proposed to overcome the negotiating deadlock. ment Agenda. Yet progress at the WTO alone is

TRADE NOTE May 29, 2003

not sufficient for effectively promoting access to patients to quickly become resistant to drugs. A
medicines in poor countries. Complementary WHO program of pre-qualifying generic producers
action is needed in several areas. of ARVs already helps governments selecting qual-
ity generic producers. This program has been
First, governments in both developing and devel- financed by donor contributions from a number of
oped countries need to offer incentives for pharma- governments, but these resources have recently
ceutical patent-holders to systematically differenti- dried up. It is important to ensure the financial
ate prices for new medicines according to ability to sustainability of this international public good. In
pay--beyond the voluntary price discounts seen so addition, the WHO program may need to be com-
far. For example, rich countries already prohibit the plemented with quality assurance regulations and
parallel importation of patented medicines sold in increased capacity for implementing and monitor-
the developing world and such rules need to be rig- ing them at the national level.
orously enforced. Policymakers in the developed
world should also abstain from using prices Finally, relatively little research has been under-
observed in poor nations as implicit or explicit ref- taken into diseases prevalent in the developing
erence values for price regulations in rich country world, but not common in rich countries. Even if
markets. With such guarantees, pharmaceutical patents were not diluted by compulsory licensing,
companies would be in a better position to establish the low purchasing power of patients in poor coun-
differentiated pricing structures that are sustainable tries would limit the incentives for research-based
in the long term and that extend to developing pharmaceutical companies to invest in such
country retail markets. research. In the 12 months to October 2002, devel-
oped countries accounted for more than 95 percent
Second, funding for fighting the developing world's of the $270 billion of sales in the world's leading 20
health crisis needs to be scaled up. For example, country markets worldwide. The group of devel-
the latest projections by UNAIDS put the cost of oping countries that may benefit from a WTO
the global struggle against AIDS at $10.5bn a year agreement on importing generic drugs under com-
by 2005 and $15bn a year by 2007, up from esti- pulsory licensing probably accounts for less than 1
mated aid flows of just $3bn in 2002. The Global or 2 percent of global pharmaceutical sales. It is
Fund to Fight Aids, Tuberculosis and Malaria therefore important to find alternative incentive
remains cash-strapped. The US Senate recently mechanisms and funding sources to encourage more
passed a five-year, $15 billion bill to fight developing-country specific R&D.
HIV/AIDS in Africa and the Caribbean. This sig-
nificant commitment may inspire other countries to It is likely that the discussions on TRIPS and public
increase their own contributions. health will stretch out until the WTO Ministerial
Meeting in Cancun, Mexico in September 2003.
Third, to effectively treat patients in poor countries, Developing countries have a legitimate case to
large investments in complementary health infra- argue for a practicable and long-lasting solution that
structure are necessary, including hospitals, roads, addresses public health concerns of poor countries
warehouses, doctors and nurses. In addition, the with insufficient manufacturing capacity. Yet it is
procurement of generic drugs requires the develop- equally important to address the other barriers to
ment of quality control mechanisms. In the case of promoting access to medicines that are more bind-
ARVs, sub-standard quality drugs can lead AIDS ing in the short term.

This Trade Note was written by Carsten Fink, Economist in the Development Research Group.
Comments by Frederick Abbott, Philip John Hedger, Manjula Luthria, Richard Newfarmer, Juan Rovira,
Beata Smarzynska Javorcik and Arvind Subramanian are gratefully acknowledged. It draws on Chapter 5
of Global Economic Prospects 2002, and an Op-ed by M.Ramphele and N. Stern "The new AIDS fight;
Generic Drugs can Make the Money Last" in the New York Times (March 1, 2003).

TRADE NOTE May 29, 2003

Endnotes:
1 Comparing prices of originator and generic drugs is a tricky business. For example, the pricing guide published by
M�dicins Sans Fronti�res shows that originator drugs are the cheapest for the majority of ARVs among producers pre-
qualified by the WHO as meeting standards of quality and compliance with Good Manufacturing Practices. In many
cases, however, generic producers not pre-qualified by the WHO offer the cheaper prices. These generic drugs are not
necessarily sub-quality products, as exclusion from the WHO list does not mean that a drug has not been approved by
one or more national drug regulatory authorities. Different price quotation practices with regard to transportation and
distribution costs as well as currency fluctuations often further complicate price comparisons.

2 The World Health Organization's Model List of Essential Drugs has customarily not included many drugs protected
by patents, as affordability is one of the criteria used in designating medicines as `essential.' However, the WHO has
recently revised its Model List, and the latest list includes a significant number of patented drugs (particularly in respect
to HIV/AIDS).

3According to a October 2001 press release of the US Department of Health and Human Services (HHS), Bayer agreed
to supply ciprofloxacin at 95 cents per tablet to the HSS, which compares with a previously discounted price of $1.77
(http://www.os.dhhs.gov/news/press/2001pres/20011024.html). In a January 2002 "Form 20-F" filing with the US Se-
curities and Exchange Commission (SEC), Bayer informed investors that "... in response to the recent bioterror attacks
in the United States, the U.S. and Canadian governments contemplated compulsory licensing of our ciprofloxacin anti-
biotic--in effect, permission to generic manufacturers to market ciprofloxacin before the expiry of our patent rights."

4 See the August 2001 press release by the Brazilian Ministry of Health (http://portalweb02.saude.gov.br/saude/
aplicacoes/noticias/noticias_detalhe.cfm?co_seq_noticia=462).

5However, the majority of OECD countries pledged not to use the system.

6 Following the breakdown of the negotiations in December 2002, the United States declared a unilateral moratorium
confined to HIV/AIDS, malaria, tuberculosis and other infectious diseases. It pledged to not take any developing coun-
try that imported generic drugs under a compulsory license to WTO dispute settlement. Switzerland joined this
moratorium. The European Union adopted its own moratorium based on the December 2002 text. In addition to the
scope of diseases limitation, this sort of moratorium seems unsatisfactory to developing countries. It does not protect
developing country governments from private litigation and can be unilaterally revoked. At the same time, the United
States itself does not regard this moratorium as a permanent solution and has declared its preference for concluding a
multilateral agreement.

Data Sources

Data on the number of people infected by HIV/AIDS and those that receive anti-retroviral drugs are from the
WHO. The $30 figure on the estimated costs of antiretroviral therapy in developed countries is approxi-
mately equivalent to the $10,439 figure shown in Figure 1. The information on Roche's 40 percent price
discount is based on several newspaper articles published in August 2001. The pharmaceutical sales figures
in the world's leading 20 country markets are published by IMS Health Global Services.