The New Political Economy of Pharmaceuticals

Production, Innovation and TRIPS in the Global South

Kenneth A. Loparo, O. Williams, Kenneth A. Loparo, O. Williams

• Publisher: Palgrave Macmillan
• Year: 2016
• ISBN:
  9781137315854
• Topic: Politica e relazioni internazionali
• Subtopic: Commercio e tariffe

Some two decades will shortly have passed since the WTO's Trade Related Aspects of Intellectual Property Rights agreement came into force in 1995. This volume is the first cross-country analysis of how TRIPS has affected the capacity of 11 major low or medium income countries to produce generic drugs.

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The New Political Economy of Pharmaceuticals: Conformity and Resistance in the Global South

Owain David Williams and Hans Löfgren

Some two decades will shortly have passed since the World Trade Organization’s Agreement on Trade Related Aspects of Intellectual Property Rights (henceforth WTO and TRIPS) came into force in 1995 (World Trade Organization, 1994). TRIPS has proven to be one of the most politically charged and divisive multilateral agreements yet negotiated. The agreement has polarized opinion with regard to its effects on knowledge production and consumption in areas as diverse as agriculture and food security, literacy and education, software and the internet economy, and its general implications for capitalist accumulation.

TRIPS has received the greatest critical scrutiny and generated the fiercest opposition in the area of pharmaceutical innovation and access to medicines. TRIPS-mandated minimum intellectual property rights (IPRs), including 20-year patent protection for products and processes in ‘all fields of technology’, and a cluster of associated practices, rules and trade agreements, now constitute a global regime of private monopoly rights which is widely recognized as an impediment to access to essential medicines. This regime complicates and delays the production and market entry of lower cost generic drugs, with dire implications for affordable access and public health (‘t Hoen, 2009).

This volume examines the political economy of pharmaceutical production in the Global South in the aftermath of TRIPS through case studies of developments in Brazil, China, Cuba, Egypt, India, Indonesia, Malaysia, Pakistan, South Africa, South Korea and Turkey. Before 1995 these countries framed national IPR legislation in terms of sovereignly determined social and developmental goals, and most did not recognize pharmaceutical product patents. These are also countries which pre-1995 had relatively significant local pharmaceutical industries (Ballance et al., 1992).

Many studies of pharmaceutical markets have presented powerful critiques of the IPR system in general and the extension of pharmaceutical product patents to low and middle-income countries (LMICs) in particular (see e.g. Hollis, 2007; Love and Hubbard, 2007; Pogge et al., 2010). This volume continues in this vein of work. We promote an approach which examines the interaction of IPRs with other market and policy dynamics in play in the case study countries. Clearly, IPRs are not the sole determinant of the political economy of global drug production. Indeed, critiques of their impact on access to medicines have become more nuanced, with greater appreciation of the underlying ‘real world’ economics of innovation and generic production. Contributors to this volume have sought to go beyond the academic and policy literatures focused on the minutiae of IPRs, integrating such work with empirical analyses of how the pharmaceutical sector in these countries has evolved over the last several decades, and has often done so in conjunction with policies towards national health systems and population health, or those for economic and technological development.

The global IPR regime has evolved unevenly, with variations in strength and enforcement in different jurisdictions (Williams, 2012). There are also significant pockets of resistance. In particular, countries such as China, India and Brazil bring growing political and economic resources to bear in their interactions with the multinational companies (MNCs) and with the governments of the US and Europe. Also significant is the global coalition of public health advocates, non-governmental organizations and some LMIC governments which, since the mid-1990s, has limited the impact of IPR protection on access to medicines (Sell, 2002). This coalition also contributed to the establishment of new product development partnerships and new health governance institutions such as the Global Fund to Fight Aids, Tuberculosis and Malaria (the Global Fund). Pressure also produced The Declaration on the TRIPS Agreement and Public Health—the Doha Declaration—perhaps the major achievement of the international access to medicines campaign. Adopted at the fourth WTO ministerial conference in Doha in 2001, the Declaration confirmed and extended the right of WTO members to utilize a range of ‘flexibilities’ available under TRIPS, allowing the circumvention of patent rights to meet pressing population health needs (World Trade Organization, 2001).

Subsequent chapters demonstrate the diversity of patterns of pharmaceutical production and supply in key LMIC countries. This diversity is shaped by a range of factors. First, the role of foreign (health aid) donors and the new global health partnership organizations has become apparent in promoting the wider use of generics under the ‘select disease’ focus of many ‘vertical’ international health programmes, particularly those targeting HIV/AIDS (Rushton and Williams, 2011; Williams, 2012). This has provided a boon for generic firms and suppliers of active pharmaceutical ingredients (APIs), including production of anti-retrovirals (ARVs) and anti-malarials, particularly in India and China. Second, the distinct composition of local health sectors, including price controls and social insurance arrangements, shapes patterns of consumption and production. Third, joint ventures between MNCs and LMIC firms, as well as North-to-South (and also South–South) mergers and acquisitions, appear to replicate industry consolidation in developed country markets. Fourth, in several of our case studies we find evidence of abuse of TRIPS-compliant IPRs by both foreign and local firms through evergreening (patenting of marginal product modifications) to extend the term of monopoly pricing, patent thickets (multiple patents on a single chemical entity) and excessively broad patenting (with consequent obstruction of follow-on innovation or even basic medical research) through exploitation of low patentability standards. Fifth, studies of the patent landscape of individual LMICs add valuable detail to patterns of foreign pharmaceutical patent filing and litigation in domestic courts. Sixth, much scholarly and political interest is focused on the use of so-called TRIPS flexibilities, including definition of patentability criteria, patent oppositions, ‘bolar’ and research exceptions, parallel imports and especially compulsory licensing. Finally, it is widely recognized that generic entry, provided for differentially in different jurisdictions, is more effective in lowering of prices and widening access to medicines than philanthropy or the MNC-preferred model of tiered or differential pricing strategies.

Both this chapter and the volume proper, therefore, engage with many of the socio-economic, legal and political forces which are shaping and constraining the pharmaceutical industries in the Global South. The volume aims to provide a more detailed, comparatively framed empirical picture of how generic production and profile of markets have changed since 1995 than has previously been available, but acknowledges that not all of what has transpired in the case study countries is a consequence of the implementation of new forms of IPR protection. In keeping with this approach, we proceed in this introductory chapter to offer a perspective on the wider global strategic environment for drug production and an overview of the responses to changes in this environment by governments and firms in the case study countries.

A changing strategic environment

The pharmaceutical industry consists of thousands of firms engaged in one or several of the functions of discovering, developing, manufacturing and marketing medicines for human use. The industry’s strategic environment has recently been dramatically reshaped by economic globalization, which has brought about a wave of mergers and acquisitions, and the re-engineering of corporate structures to achieve greater flexibility and increased capacity to engage in external collaborations. More than ever in a global economy, patents (and exclusive marketing rights) enable research-based companies to charge monopoly prices, and the extension of patent protection often translates into many millions or even billions of dollars.

Yet, the boundary between the research-based and the generics segments of the pharma industry is blurring. Most big pharma companies also supply generics, including so-called pseudo-generics that are identical (not copies but produced at the same production lines) to their branded equivalents (Lofgren, 2007). Conversely, some generics companies also supply patented products.

In this globalized economy, interdependencies, and even competition, between the ‘big pharma’ MNCs headquartered in the US and Europe, and generics producers in the Global South, is more pronounced than ever before. The MNCs are ‘in a period of rapid environmental change and intense competition, following a relatively long period of …. stability in which the same business models …. dominated for many decades’ (Smith, 2011, p. 100). McKinsey Quarterly puts it more colloquially: ‘The good old days of the pharmaceutical industry are gone forever’ (Hunt et al., 2011). Other factors coming together to reshape the industry’s strategic environment include steadily falling research and development (R&D) productivity, the expiry of patents on many major products, a shift towards biological medicines, health cost constraints in developed countries, the threat of pandemics, and political mobilizations for access to medicines for all.

Some of these influences are grounded in economic and scientific– technological rationalities, others in relatively autonomous political and social dynamics, such as rising regulatory hurdles and mounting expectations of access to essential medicines as a human right. Reinforcing the volatility is the unfolding of the global economic and financial crisis which commenced in 2008. This crisis puts downward pressures on growth in developed country pharma markets, and possibly it will transpire that these markets ‘will contract for the first time in history’ (IMAP, 2012, p. 1). Furthermore, the tendency towards relative stagnation in developed country markets forms part of the backdrop to a shift of MNC business strategies to focus more on LMICs; and ‘[t]here is consensus that future growth in the Pharma Industry will mainly come from emerging markets, most notably China’ (IMAP, 2012, p. 1).

For us, the IPR system provides a pivotal strategic tool for the MNCs and the governments of the US and the EU. The IPR regime, intertwined with international trade law, is the principal mechanism by which these dominant actors exercise (political) agency over the global political economy of pharmaceuticals. The IPR regime instituted over the past 20 or so years now encompasses a relatively coherent ensemble of norms, rules, institutions and sets of policies and practices, externalized from the national systems of developed countries. One of the objectives of this volume is to make clearer, in the light of case studies, the centrality of top-down transmission of rules and policies from the global to the domestic level (or from North to South), as well as the responses to them from the South.

TRIPS provides minimum standards for the global regime, which have been overlaid incrementally by other forms of IPR protection and exclusivities (Williams, 2012). Disparate mechanisms are available for the disciplining of recalcitrant members of this regime. These include threats of trade sanctions and power politics, legal challenges to governments for alleged failures to properly enforce patent rights, and even seizures of generic drugs traded internationally (Micara, 2012; Sell, 2011). Conflicts have been played out in many different institutional contexts. For example, the Anti-Counterfeiting Trade Agreement (ACTA), negotiated in secret from 2007, and rejected by the European Parliament in 2012, would, if implemented, provide a means for more stringent IPR enforcement. Public health advocates and generics producers were concerned that ACTA would blur the distinction between piracy/counterfeiting, alleged infringement of patent rights and public health (Love, 2011). Importantly, the global IPR regime also includes a plethora of bilateral and regional free trade agreements (FTAs) entailing so-called TRIPS-plus provisions which have the effect of entrenching and extending patent protection and thus delaying the market entry of cheaper generic drugs (Joint United Nations Programme on HIV/AIDS, 2012).

Any barriers to MNC dominance within the wider IPR regime’s provisions is the cause of tensions in the strategic environment, none more so than the compulsory licensing route offered under the TRIPS agreement and subsequent Doha Declaration. A compulsory licence authorizes a third party to manufacture and sell a product without the consent of the patent holder in return for ‘adequate’ compensation. The Doha Declaration confirmed that ‘[e]ach member [country] has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted’ (World Trade Organization, 2001). Yet the US and other governments in the North exercise strong pressures for compulsory licences to be considered legitimate only in circumstances of national emergency, and as a consequence developing countries have not made extensive use of such licences. Between January 1995 and June 2011 there were only about 24 compulsory licensing episodes in 17 nations, mostly for HIV/AIDS medications (Beall and Kuhn, 2012, p. 1). Notwithstanding such pressures, and further obstacles built into many of the FTAs, compulsory licences are on the policy agenda in many countries and have proven an effective threat to MNCs in some price negotiations, for example in Brazil and Malaysia. The MNCs, however, combat this threat wherever they can, as they did in India in 2012 (see further below).

Above and beyond asserting the right to produce generics for pressing health needs, many now question the basic rationale for the global patent regime. In arguments over IPRs and access to affordable medicines it is endlessly repeated that patent protection is necessary for the financing of the discovery and commercialization of new drugs. Yet many of the new drugs commercialized post-1945 were discovered and introduced before product patents were available in most countries (Boldrin and Levine, 2008; Munos, 2009). It is only in the past 20 years, with TRIPS as a milestone, that the notion of product patents as a basic requirement for pharmaceutical innovation gained the status of common sense, at least in terms of the need for their blanket global availability. Moreover, product patents in this sector are relatively recent even in many developed countries. Japan did not introduce product patents for drugs until 1976, and pharmaceutical powerhouse Switzerland waited until 1977 to introduce patents covering pharmaceutical products. Spain, Portugal, Greece and Norway introduced product patents over drugs as recently as 1992. At the end of the 1980s, at least 40 developing countries, including the most populous, provided no protection for pharmaceuticals (Chien, 2003, p. 864).

Indeed, the unavailability of patents in many countries was not considered important until the 1980s. Then a group of US business groups and corporations, including the big pharma association Pharmaceutical Research and Manufacturers of America (PhRMA), led by Pfizer and Johnson & Johnson, commenced the campaign for the global extension of IPRs (Sell, 2003, p. 107). This campaign succeeded in the reframing of IPRs as a trade issue in the Uruguay Round of General Agreement on Tariffs and Trade (GATT) negotiations which preceded the establishment of the WTO in 1995 (Drahos and Braithwaite, 2001; Sell, 2003). We have therefore taken this date as the start of the post-TRIPS transition to a new legal/political superstructure governing global drug production.

Surging drug markets in the Global South

The MNC business model, which has been premised on profits from sales in developed country markets of patent-protected ‘blockbuster’ drugs (loosely defined as those generating more than US$1 billion in annual sales), is now faltering. The pipeline of such new products is drying up at the same time as patents expire on major drugs. This is considered in the trade literature to mark ‘a fundamental shift in the structure of the research-based industry’ (Kaitin and DiMasi, 2011, p. 183). While R&D investments by the world’s top 500 pharmaceutical and biotechnology companies are estimated to have increased between 2002 and 2011 by 93 per cent to $133 billion, the number of new drug launches in the US remained stagnant at an annual average of 25 (AstraZeneca, 2011, p. 16). The so-called R&D productivity crisis and declining growth in developed markets are driving consolidation through mergers and acquisitions as well as large-scale plant closures and lay-offs. In 2011 alone, ten top pharma MNCs shed almost 25,000 staff, mostly in developed countries (IMAP, 2012, p. 6). Yet the dominant trend may not be consolidation in the form of giant corporations; McKinsey Quarterly reports that ‘the number of companies competing for the profit pool has more than doubled’ (Hunt et al., 2011, p. 5). Instead, the MNCs are building innovation and production networks linking public research systems, smaller dedicated biotechnology firms and various types of service providers across many locations. The MNCs form the nodal points of these networks, through which promising molecules are in-licensed and some innovation and production activities outsourced. Growing markets for contract research and manufacturing services (‘CRAMS’) offer opportunities for firms in LMICs, particularly in India and China, to join these networks. In India, recent MNC acquisitions of domestic firms, and a plethora of collaborations and outsourcing arrangements, are a manifestation of this trend (see Chaudhuri in this volume).

The crisis...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Tables and Figures
• Acknowledgements
• Notes on Contributors
• List of Acronyms and Abbreviation
• 1. The New Political Economy of Pharmaceuticals: Conformity and Resistance in the Global South
• 2. The Political Economy of Pharmaceutical Production in Brazil
• 3. Pharmaceuticals, Health Policy and Intellectual Property Rights in China
• 4. Immunity to TRIPS? Vaccine Production and the Biotechnology Industry in Cuba
• 5. TRIPS and Access to Medicines in Egypt
• 6. The Pharmaceutical Industry in India after TRIPS
• 7. The Healthcare System and the Pharmaceutical Industry in Indonesia
• 8. TRIPS, Free Trade Agreements and the Pharmaceutical Industry in Malaysia
• 9. The Pharmaceutical Industry, Intellectual Property Rights and Access to Medicines in Pakistan
• 10. TRIPS, Access to Medicines and Local Production in South Africa
• 11. TRIPS and New Challenges for the Pharmaceutical Sector in South Korea
• 12. Neoliberalism, Intellectual Property Rights and the Turkish Pharmaceutical Industry in the 2000s
• 13. Conclusion: TRIPS, Drug Production in the Global South and Access to Medicines
• Index