Health | Latin America

Bargaining Through Compulsory Licensing: ARV Treatment in Brazil

The peer-reviewed PLoS Journal is carrying a study by Amy Nunn of the Harvard School of Public Health, on the “Evolution of Antiretroviral Drug Costs in Brazil in the Context of Free and Universal Access to AIDS Treatment” (PDF here). This is a fascinating study on how Brazil has used aggressive negotiations with big pharma, combined with the credible threat of issuing compulsory licenses for generic manufacture, to bring down the prices of patented drugs. It concludes:

We estimate that the total cost savings resulting from price reductions for patented drugs was approximately US$1.2 billion from 2001 to 2005.

This is the first real study of how much developing countries must spend on patented drugs, and it reveals many interesting observations. For instance, Brazilian generics turns out to be more expensive that those available internationally, resulting in an extra cost of 10%. Simultaneously, patented drugs account for over 80% of total drug costs for the treatment program.

The most interesting observations are however, in where the negotiations work best…

Brazil generally has limited power to threaten to issue compulsory licenses and negotiate prices for drugs when no generics or APIs are available; often no generic competitors exist for several years after Brazil integrates the newest ARVs into treatment guidelines. Brazil’s negotiations have therefore been most successful for ARVs for which generic competition is emerging, including lopinavir/r, efavirenz, and tenofovir, and less so for atazanavir, which does not yet have a WHO-prequalified generic competitor. Two recent examples highlight how generic competition has influenced global prices with direct effects on Brazil. First, in May 2006 Indian generic manufacturer Cipla launched a price of US$700 PPPY for generic tenofovir, which coincided with both Gilead’s 50% price reduction for tenofovir in Brazil and Gilead’s announcement that it would issue voluntary licenses to generic manufacturers to produce tenofovir. Second, emerging competition also likely prompted Abbott’s seven-year US$920 PPPY contract with Brazil for heat-stable lopinavir/r in 2005 and Abbott’s 2007 decision to further lower lopinavir/r prices for 40 more low- and middle-income countries, including Brazil.

…and where the Brazilian model does not work so well:

While Brazil’s model has been highly effective in lowering prices for patented ARVs, middle-income countries without domestic pharmaceutical industries or public drug production capacity have less power than Brazil to negotiate prices for patented drugs and may choose not to take the international political risks associated with issuing compulsory licenses. Moreover, even if other middle-income countries opt to issue compulsory licenses, importing generics may be cheaper and more feasible than producing drugs locally. Our cost findings may be less relevant to low-income countries, which typically enjoy the lowest global prices for patented ARVs but often do not integrate the most costly ARVs into treatment guidelines.

Brazil’s model has affected ARV prices around the globe. First, Brazil’s model set an important precedent for price negotiations and tiered pricing schemes for other developing countries. Second, Brazil’s treatment policies have helped create a market for generic ARVs; in turn, generic competition has facilitated Brazil’s price negotiations and lowered global ARV prices. Third, other countries have also used compulsory licenses in order to import drugs and reduce drug prices. For example, Thailand issued compulsory licenses for several antiretroviral and cardiovascular drugs in 2006 and 2007, including lopinavir/r and efavirenz, among others. Thailand’s decision to issue compulsory licenses, in turn, fostered greater transparency about global ARV prices and set a new precedent for middle-income countries. Shortly after Thailand issued compulsory licenses, Brazil issued its first compulsory license for Merck’s efavirenz. Additionally, in April 2007, Abbott further lowered its prices for original and heat-stable lopinavir/r from US$2,200 to US$1,000 PPPY in more than 40 lower middle-income and low-income countries (including Brazil and Thailand) and to US$500 for nine additional low-income countries outside sub-Saharan Africa

What does this mean for India?

What this seems to suggest is simple - compulsory licenses are a good thing for governments. They shift the balance of power somewhat towards the buyer (government) from the seller (big pharma). Of course, they should be used only sparingly, but just enough to make future threats credible. And the existence of a strong domestic generic industry helps the process by making the threat even more credible.

India, it would seem, is ideally suited to adopt this strategy. It is a large economy with substantial buying power. It also has a healthy generics industry. And it has traditionally had a loose patent regime. So why is it not doing so?

The answer may lie in the aspirations of the Indian pharma industry to become outsources of pharma manufacturing and R&D. Rather than challenge the business model of big pharma, Indian pharma wants to keep the model, and replace the players. Essentially, much of Indian pharma wants to be big pharma.

This was evident, as I noted previously, from a survey of the pharma industry after 2005 (when a new patent regime came into place). It noted that the Indian pharma industry has focused private R&D investment towards treating the diseases of the rich world. This may be good for parts of the Indian pharma industry, but is hardly as good for India’s public health priorities.

© 2007 The Discomfort Zone.