Michael A. Tew
Monday, March 19, 2007

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Are Third World countries arbitrarily revoking the patents of American drug companies?

The concern - which could deprive American and other international pharmaceutical companies of recouping their enormous costs in finding new miracle drugs - was a major topic at a House/Senate briefing Friday last Friday.

Leading the charge on this issue were Senator Sherrod Brown and Congressman Tom Allen, who chaired the hearing on the matter, focusing on Thailand's compulsory licensing of three patented HIV and cardiovascular drugs.

A compulsory license is when a government forces a company to provide its patented products to its citizens without selling the license; in other words, patent theft.

The first drug to be forced into such licensing was the HIV/AIDS drug Kaletra, is produced by Abbott Laboratories.

The second, Plavix, is a very popular drug used to treat heart disease and manufactured by Bristol Myers Squibb and Sanofi Aventis.

The Thai government arbitrarily granted itself the right to produce Kaletra for five years and Plavix indefinitely. In November, the Thai government issued a compulsory license for an antiretroviral treatment for HIV without even warning the manufacturer.

Such a move is a clear violation of international patent and property protections - and if accepted could start a dangerous trend.

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The Thai government defends this compulsory license through the TRIPs (Trade-Related Aspects of Intellectual Property Rights) provision within the World Trade Organization.

The TRIPs agreement allows for member states to impose compulsory licenses only "in the case of a national emergency" or other circumstances of extreme urgency or in cases of public non-commercial use. The article also requires payment of "adequate remuneration.taking into account the value of the authorization."

In the Thai case, not only was their compulsory license issued outside the terms of TRIPs and the WTO framework, but they also did not have an adequate dialogue or negotiation with the companies prior to issuing such licenses.

Even if the Thai AIDS situation were a matter of national emergency (it is most certainly not), heart disease is by no means of epidemic proportions there. And the true motives exposed at the briefing when Jamie Love, anti--free marketer leading the charge for this dangerous measure and defending the Thai government, gave testimony at the briefing that the Thai leaders should have the right to get not just HIV/AIDS drugs but any drugs for any diseases when the government saw fit! Does that mean Lipitor or Viagra is next?

As of last fall, the Thai government has been operating as a military dictatorship. Most importantly, the Thai decision is obviously a political one, with serious ramifications for its citizens.

Shortly after the new government seized power, the country's military leaders awarded themselves pay increases of over $9 million per year. At the same time, the government increased its military budget by more than one third, or $1.1 billion, while cutting its public health budget by $12 million.

Translation: More money for the military government, less money to be spent on the health of its citizens.

As military dictatorships go, this sounds pretty good for those running the country and not so good for those people living in the country, don't you think? In addition to imposing compulsory licensing, the Thai Health Ministry has begun importing shipments of Indian generics to replace the patented drugs so they can save money on public health expenditures and spend more on self serving industries like defense and government.

Effectively, the leaders of Thailand's government have done what military dictatorships do best: get themselves paid at the expense of their own people.

The Thai government is clearly setting a dangerous precedent for the future of innovation and access to affordable drugs. In fact, the only reason the generic drugs that the Thai government has bought from India exist and are available in today's marketplace is as a result of the patented drugs that have been invested in and created by companies like Abbott.

Abbott has already withdrawn its application for six new drugs to treat HIV/AIDS.

Many pharmaceutical are facing the same worry: are they going to invest further in new drugs if there is the possibility of governments revoking their patents if they cannot recoup their investment? No major pharmaceutical enterprise can be responsible to their investors if they accepted such a risk.

According to the U.S. Government Accounting Office, the pharmaceutical industry spent $60 billion on research and development of new drugs in 2004. It costs pharmaceutical companies nearly $1 billion to develop a new drug.

Comparatively, it cost $2.4 billion to build Steve Wynn's newest casino in Las Vegas, a product that provides no health benefit - and, some may argue is detrimental to our health. I don't see anyone up in arms about that investment; which is comparatively perfectly legal and regulated in the market.

We need to be careful about how we view drug companies. Yes they produce life saving miracle drugs. Yes they produce life enhancing drugs. Yes they produce drugs that improve people's lives so they can be more productive and live fuller, happier existences. And yes, they charge for their products just like all industries do and should. At a billion dollars a clip, for a product that can save or enhance your life, we should support and protect their investment and innovations.

Michael A. Tew is the Principal of CapitalHQ and an intellectual property policy analyst.

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