Data Exclusivity in Pharmaceuticals: Little Basis, False Claims
Article 39.3 of the World Trade Organisation’s agreement on Trade-Related Aspects of Intellectual Property Rights stipulates that undisclosed pharmaceutical test data should remain undisclosed in order to prevent its unfair commercial use. Explaining the historical context and the textual interpretation of Article 39.3, this paper examines whether such data exclusivity is justified. While the pursuit of data exclusivity may be viable for the pharmaceutical industry in the US and EU, the situation is altogether different for developing countries such as India, where pursuing data exclusivity could prove to be detrimental to its pharmaceutical industry.
BISWAJIT DHAR,K M GOPAKUMAR
I
In a submission made in 1999, the Pharmaceutical Research and Manufacturers of America (PhRMA) had argued for the implementation of effective data protection standards that provide the intended level and form of protection as provided for in Article 39.3.1 An effective implementation of data protection standards in view of PhRMA would require that the following steps should be taken:
(iii) preclude reliance by third parties on marketing approvals granted to the pioneer applicant by a health regulatory agency in another WTO member country.
The European federation of pharmaceutical industries and associations (EFPIA) in their position have stated that it is protection against “unfair commercial use” of data relating to pharmaceutical and agricultural chemical products that is the primary objective of Article 39.3.2 It is this rationale for using Article 39.3, as indicated by EFPIA, which is more significant in the present context. The EFPIA have held the view that the relevance of the article arises primarily because “more and more compounds are being developed which are not patent protected”. The development of these compounds, according to EFPIA, “does not require less extensive or complex tests and clinical trial data” and hence the need to introduce data protection.
These views held by the pharmaceutical associations were also articulated in unambiguous terms by the officialdom. The United States trade representative (USTR) general counsel stated in 1995 that “negotiators understood it [the term “unfair commercial use”] to mean that data will not be used to support, clear or otherwise review other applications for marketing approval for a set amount of time unless authorised by the original submitter of the data. Any other definition of this term would be inconsistent with logic and the negotiating history of the provision”. The European Commission also submitted thus: “Both the logic and the negotiating history of Article 39.3 of TRIPS leave no doubt that providing data exclusivity for a certain period of time was the envisaged way to protect data against unfair use as prescribed by Article 39.3… Whether any system other than data exclusivity over a reasonable period of time would meet the requirements of Article 39.3 of the TRIPS is to be assessed on a case-by-case basis but examples of actual application by WTO members of alternative – and TRIPS compliant – system to non-reliance over a reasonable period do not appear to exist.” More recently, the USTR special 301 report also asserts that there is an international obligation under TRIPS to provide data exclusivity.
The push for getting data exclusivity accepted as a commitment under TRIPS has several far-reaching implications for developing countries like India, particularly in the area of pharmaceuticals. During the last decade, the global community has repeatedly articulated the need to ensure that pharmaceutical products are available to the vast majority of the human race who are deprived of access to medicines at affordable prices. One of the most significant pronouncements in this regard was the Doha declaration on the TRIPS agreement and public health, which unequivocally stated that the TRIPS agreement “does not and should not prevent members from taking measures to protect public health”. The Declaration emphasised “that the agreement can and should be interpreted and implemented in a manner supportive of WTO members’ right to protect public health and, in particular, to promote access to medicines for all”.
It is our view that the objective of access to medicines at affordable prices can be best realised by encouraging generic manufacturers to enter the market. This move can ensure a considerable degree of competition in the market, which would drive down drug prices. In contrast, introduction of data exclusivity, in keeping with the demands made by the pharmaceutical majors, can help these conglomerates gain a stranglehold over the Indian market by eliminating the competition posed by the generic industry in the country.
This paper attempts to examine the issues that have arisen in the debate on the introduction of data exclusivity in the country. The paper is in two broad parts. In the first part, the paper tries to provide an interpretation of Article 39.3 of TRIPS. This discussion would put Article 39.3 in context by providing some insights into the negotiating history of TRIPS. The second part of the paper examine the justification of introducing data exclusivity that has been used by the pharmaceutical industry. Several studies conducted at the behest of the pharmaceutical industry have indicated that the costs of bringing new pharmaceutical products have increased quite substantially, implying therefore that society at large should be willing to pay for this “contribution” of the pharmaceutical industry by tolerating monopolies. The last part briefly touches on the implications of data exclusivity on the public health.
I Article 39.3 in Perspective
The requirements under Article 39.3 can be best understood by dwelling on two aspects – one, through an understanding of the essentials of the negotiating history of the provision, and two, through its textual interpretation. The following discussion dwells on these issues.
Negotiating History
The US was among the first movers for the inclusion of protection of undisclosed information as a part of TRIPS. In one of its early submissions to the negotiating group made in 1987, the US introduced the concept of trade secrets, which was defined to include undisclosed valuable business, commercial, technical or other proprietary data as well as technical information. According to the US, misappropriation, including unauthorised use or disclosure of a trade secret had to be prevented. Furthermore, it was argued that trade secrets submitted to governments, as a requirement to do business should not be disclosed except in extreme circumstances involving national emergencies or in the case of public health and safety, if such disclosure did not impair actual or potential markets of the submitter or the value of the submitted trade secrets.3
At least three features of the US’ submission to the TRIPS negotiating group are immediately evident. The first is that it introduced some of the key elements of Article 39.3, which included the concept of trade secrets or undisclosed information. Secondly, the submission went quite beyond the applicability of Article 10bis of the Paris convention, which was intended to check unfair competition as a result of the implementation of the regimes of intellectual property rights that were covered under this convention. It may be argued that Article 10bis was intended to prevent the misuse of any information consequent upon the right holders disclosing their inventions, which may be to the detriment of the commercial interests of the rights holders, and this was indeed the basis of its inclusion in TRIPS. Last but not the least important, particularly in the context of the present debate, the US proposed a misappropriation regime as opposed to one that conferred rights, for protecting information. This initial position was to change later as has been indicated below.
A similar approach was also adopted by the business communities of Europe, US and Japan, who along with the US made a joint statement proposing a framework for the regime of intellectual property protection that, in their view, should be adopted at the end of the TRIPS negotiations. In their submission, the business communities proposed the following in respect of protection of test data:4
Information required by a government to be disclosed by any party
shall not be used commercially or further disclosed without the
consent of the owner.
Information disclosed to a government, as a condition for reg
istration of a product shall be reserved for the exclusive use of
the registrant for a reasonable period from the day when the
government approval based on the information was given. The
reasonable period shall be adequate to protect the commercial
interests of the registrant.
The business communities were thus clearly aiming for the realisation of a regime, which provided exclusive rights over the data that was submitted to the government for the registration of the product. The EU, US and Switzerland made separate proposals to the negotiating group on the protection of data. According to the EU data shall protect against unfair exploitation by competitors.5 US proposed the contracting parties “shall not use the trade secrets for the commercial or competitive benefit of government or of any person other than the right holder except with the right holder’s consent, on payment of the reasonable value of the use or if a reasonable period of exclusive use is given the right holder”.6 Switzerland proposed, “the government agencies shall not be entitled to use the information for commercial purposes”.7
In a later submission before the TRIPS negotiating group, the US put forward the view that the issue underlying the protection of trade secrets was the same as that underlying the protection of intellectual property rights, namely, that of not benefiting from the fruits and labours of others improperly. It was suggested that a two-pronged approach should be taken to the protection of trade secrets. First, with regard to the transfer of know-how between private parties, the confidentiality of information given to employees and restrictions on its divulgation should be protectable through the courts; protection against use in a competing enterprise should also be available when such information had been improperly obtained by a third party. Second, there should be restrictions on the use and disclosure of information made available to governments. The need for exceptions in this respect was acknowledged in the US’ proposal. It was argued that such an exception could be provided in the case of a national emergency or for environmental reasons, but in no event should the recipient of the information be allowed to use such information to compete with the person who had generated it.
Regarding the question of the definition of trade secrets, Correa referred to the definition contained in the relevant US law. The definition contained in the Uniform Trade Secrets Act of the US was that a trade secret is any information, including a formula, pattern, compilation, programme, device, method, technique or process that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. In essence, a trade secret was considered
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identifiable information, which (i) was protected from disclosure by reasonable efforts by its owner and (ii) had value because it was not known and could not be ascertained easily by others.
The chairman of the TRIPS negotiating group provided the initial formulation for including undisclosed information in the proposed agreement, which read thus:8
Parties which require that trade secrets be submitted to carry out governmental functions, shall not use the trade secrets for the commercialisation or competitive benefit of the government or of any person other than the right holder except with the right holder’s consent. Proprietary information submitted to a government agency for the purposes of regulatory approval procedures such as clinical or safety tests, shall not be disclosed...
The draft submitted in 1990 to the Brussels ministerial conference, which was supposed to conclude the Uruguay round negotiations according to the time-table agreed to in Punta del Este where the eighth round of GATT negotiations was launched, presented the following text to the contracting parties in respect of undisclosed information:9
Parties, when requiring as a condition of approving the marketing of pharmaceutical products or of a new agricultural chemical product, the submission of undisclosed tests or other data, the origination of which involves a considerable effort shall [protect such data against unfair commercial use. Unless the person submitting this information agrees, the data may not be relied upon for the approval of competing products for a reasonable time, generally no less than five years, commensurate with the efforts involved in the origination of the data, their nature and the expenditure involved in their preparation. In addition parties shall protect such data against disclosure, except where necessary to protect the public] (emphasis added).
The final text of the agreement on TRIPS adopted in 1994 made no mention of the reliance upon the approval of competing products. Further, it also omitted reference to the period for which undisclosed information was to be granted protection. According to the EU, “the US negotiators had decided to drop the more explicit language of the earlier drafts since they did not view such wording as essential” because the common understanding of protection against unfair commercial use included granting of protection for a fixed period of time.
The veracity of this claim made by the EU can be questioned in using the explanation given by the Vienna convention on the law of treaties on the interpretation of treaty language. According to the Vienna convention, “a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”. Hence, one cannot argue that the term “unfair commercial use” obligates members to provide data exclusivity because such a reference to the concerned article has been removed in the final text.
A Textual Interpretation
According to Article 39.3 of TRIPS “Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilise new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, members shall protect such data against disclosure, except where necessary to protect the public or unless steps are taken to ensure that the data are protected against unfair commercial use.”
Thus, there are two obligations under Article 39.3, viz, (i) to protect data submitted for marketing approval against unfair commercial use and (ii) to protect the submitted data against disclosure by the authorities and the disclosure is permitted only under two circumstances, i e, to protect the public and to disclose data after taking steps against unfair commercial use. Therefore, the moot question is whether the reliance of the originator’s data for subsequent marketing approval constitutes an unfair commercial use under Article 39.3 of TRIPS. In other words, India can define the parameters of unfair commercial use to exclude data exclusivity (non-reliance). The following paragraph examines this question.
Our view is that the obligations under Article 39.3 should be understood in the light of Article 39.1 of TRIPS. According to Article 39.1 “in the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris convention (1967), members shall protect…data submitted to governments or governmental agencies in accordance with paragraph 3.” Thus the obligation of the members is to protect data submitted to the government or government agencies in the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris convention. Even though, Article 39.3 uses the term “unfair commercial use” instead of unfair competition”, the purpose and the meaning of the word unfair commercial use conveys the same meaning. Article 10bis of the Paris convention defines unfair competition as “any act of competition contrary to honest practices in industrial or commercial matters”. The examples given in the same article do not talk about any exclusive rights on the undisclosed information. Further, the World Intellectual Property Organisation (WIPO) developed model provisions on protection against unfair competition (model law) in 1996, essentially to give effect to Article 10bis, does not give any exclusive rights on undisclosed information. According to WIPO, “repression of unfair competition is not concerned with exclusive rights but is directed against acts of competition contrary to honest practices in industrial or commercial matters, for example, in relation to undisclosed information (trade secrets)”. This model law spells out the requisites, which in view of the WIPO would be essential for implementing Article 10bis. The model law does not indicate that a fixed term of protection of undisclosed information is what is necessary for effectively implementing the above-mentioned article of the Paris convention. More importantly, under the discipline of unfair competition, protection is not based on the existence of “property” rights. According to commission on intellectual property rights, innovation and public health (CIPIH) appointed by the World Health Organisation, Article 39.3 “does not create property rights, nor a right to prevent others from relying on the data for the marketing approval of the same product by a third party, or from using the data except where unfair (dishonest) commercial practices are involved”.10 Hence, there is no obligation under Article 39.3 to create exclusive rights on the data submitted for market approval.
It needs to be emphasised here that the protection of data against unfair commercial use does not prevent the government or its agencies from relying on the originator’s data to provide the subsequent marketing approval. Such reliance on the data by government or its agencies cannot be termed as commercial use, let alone it being unfair commercial use because the purpose of such reliance is in the public interest to ensure access to safe and quality medicines. Further, the obligation is to protect the data against unfair commercial use and therefore it necessarily implies that the data can be used/relied on for fair commercial use. Reliance of data by the DRA for the subsequent marketing approval is a fair commercial use for the competitor and also termed as a fair use by the government. Hence, there is no obligation to provide data exclusivity under Article 39.3.
Article 39.3 also prescribes certain criteria for the protection against unfair commercial use. First, the obligation against unfair commercial use is limited to undisclosed test data and does not cover the whole range of data submitted for marketing approval. This means the data, which is already published or available in the public domain, is not eligible for protection. Hence, a large chunk of data, which is published through research journals and other publications, need not be protected against unfair commercial use or by the regulatory authority. Further, there are two more criteria to be satisfied to qualify for protection under Article 39.3. These criteria are: the data should be related to new chemical entities (NCE) and the origination of data should involve considerable effort. TRIPS does not provide any clarifications/definitions on the meaning of these terms. Therefore, it is up to each member to define these terms.
From an operational perspective, Article 39.3 hinges on these two key terms. The first is that the scope of protection is limited only to NCEs. The second issue is that protection can only be justified when considerable effort has been expended for the development of pharmaceuticals (or agricultural chemicals). These elements need clarification since the TRIPS agreement does not provide any guidance on their possible definitions.
The USFDA defines “a new molecular entity (NME) or new chemical entity (NCE) [to] mean a drug that contains no active moiety that has been approved by FDA in any other application submitted under section 505(b) of the Federal Food, Drug, and Cosmetic Act. An active moiety means the molecule or ion, excluding those appended portions of the molecule that cause the drug to be an ester, salt (including a salt with hydrogen or coordination bonds), or other noncovalent derivative (such as a complex, chelate, or clathrate) of the molecule, responsible for the physiological or pharmacological action of the drug substance”. However, the advocates of data exclusivity would like to increase the scope of the definition. Hence, the data exclusivity protection is available to change in dosage, route of administration and even salts, esters, ethers, isomers, mixtures of isomers complexes or derivatives of an active substance. This would result in a number of monopolies in the pharmaceutical market. Hence, developing countries like India need not protect any data related known substance.
The last requirement to be eligible for the protection is considerable effort: The data, which is entitled to protection, should involve considerable effort in the origination of data. In the normal sense of the term, considerable effort is required only to develop a new chemical entity and not to change the dosage or route of administration of a known substance. Therefore, the data created through truncated trails need not be protected against unfair commercial use under Article 39.3.
Recent Developments
Currently, many developing countries including Argentina, Brazil, India and South Africa do not provide data exclusivity. The US had requested the constitution of a panel under the WTO dispute settlement understanding against Argentina on the subject of data exclusivity. However, the US withdrew its request for the panel. It is with the same understanding on Article 39.3 that the US is insisting on explicit data exclusivity provisions in the regional trade agreements (RTA) and free trade agreements (FTA) with developing countries. India’s submission to the WTO, along with other developing countries, expressed the above position. India’s submission to the TRIPS council on June 29, 2001 states:
Article 39.3 of the TRIPS agreement leaves considerable room for member countries to implement the obligation to protect test data against unfair competition practices. The agreement provides that “undisclosed information” is regulated under the discipline of unfair competition, as contained in Article 10bis of the Paris convention. With this provision, the agreement clearly avoids the treatment of undisclosed information as a “property” and does not require granting “exclusive” rights to the owner of the data.11
This submission also clarified that provisions of Article 39.3 should be taken to mean
that a third party could be prevented from using the results of the test undertaken by another company as background for an independent submission for marketing approval, if the data had been acquired through dishonest commercial practices.
More importantly, it was added,
Article 39.3 does permit a national competent authority to rely on data in its possession to assess second and further applications, relating to the same drug, since this would not imply any “unfair commercial use”.12
It is our view that there has not been any fundamental change in the circumstances during the past few years that can be used to justify a complete turnaround from the position that the country had taken in 2001.
Therefore, the obligation to protect data against unfair commercial use under Article 39.3 is in accordance with Article 10bis of the Paris convention. Thus, the protection against unfair commercial use does not prevent government authorities for using the data for subsequent market approval. In addition, the prohibition is against the use of data by private parties for unfair commercial advantages as mentioned in article 39.3 of TRIPS.
Even two independent international commissions share the same view on data exclusivity. The commission on intellectual property rights (CIPR) recommends that “countries may allow health authorities to approve equivalent generic substitutes by ‘relying on’ the original data. Developing countries should implement data protection legislation that facilitates the entry of generic competitors, whilst providing appropriate protection for confidential data, which may be done in a variety of TRIPS-compatible ways. Developing countries need not enact legislation the effect of which is to create exclusive rights where no patent protection exists or to extend the effective period of the patent monopoly beyond its proper term”.13 The same concern is squarely reflected in the report of CIPIH, which states, “A public health justification should be required for data protection rules going beyond what is required by the TRIPS agreement. There is unlikely such a justification in markets with a limited ability to pay and little innovative capacity. Thus, developing countries should not impose restrictions for the use of or reliance on such data in ways that would exclude fair competition or impede the use of flexibilities built in TRIPS”.14 Therefore, India should emphasise on the public health aspects of data
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exclusivity rather than looking at corporate gains of a few pharmaceutical companies.
II How Justified Is the Demand for Data Exclusivity?
Advocates of data exclusivity have justified their position by arguing that the development of pharmaceutical products involves a considerable amount of investment of physical and human resources in clinical trials over an extended period of time. The firms making such investments, therefore, need to be encouraged in two ways. First, the data generated by the firm should be recognised as its property through the grant of exclusive rights over the use of such data. Even the DRA cannot rely on this data for granting marketing approvals of similar products based on the bioequivalence. Second, exclusive rights should be extended for a few years to enable the firms engaged in clinical trials to recoup their investments.
The justification for granting data exclusivity rests critically on the cost of development of new drugs, and interestingly, there seems to be no consensus on the extent of spending by the pharmaceutical firms on drug development. The lack of consensus stems essentially from the fact that there seems to be no way in which estimates of expenditure on drug development that the industry has put out with increasing frequency can be independently verified.
The most quoted figures on the cost of drug research are provided by studies conducted by centre for the study of drug development, at Tufts University. The team led by Joseph DiMasi has produced a series of papers highlighting the point made by the pharmaceutical industry that the cost of drug development has indeed gone up quite substantially in the past few years. In one of their early studies, DiMasi et al estimated that the cost of new drug discovery and development was approximately US$ 231 million for drugs introduced in between 1970 and 1982.15 These estimates were based on data on “self-originated new drugs”, which are defined as drugs that were synthesised or isolated and developed under the auspices of a single firm.16 The study also indicated that pre-clinical expenses17 accounted for 58 per cent of the cost of bringing a new chemical entity in the market.18 Another significant finding was that the cost of new drug development was fast increasing. Estimates provided by the study indicated that the average cost of drug development in nominal terms had increased four-fold as compared to an earlier study,19 which took into consideration drugs introduced during a 12-year period starting in 1963. However, estimates of the full cost of bringing a NCE to market, based on 1990 prices, show that the development costs for drugs that were marketed in the 1970s had doubled as compared to those in the immediately preceding decade.20
The office of technology assessment (OTA) provided two sets of estimates of drug development costs based on DiMasi et al. First, brought forward the base from 1987 assumed by DiMasi et al to 1990. The change in the base, according to OTA, results in an increase in the US$ 231 million price tag for new drug development provided by DiMasi et al to US$ 259 million.21 Secondly, OTA reworked the drug development costs by altering the assumptions made by DiMasi et al, particularly in respect of the cost of capital. DiMasi et al had assumed the real cost of capital to be 9 per cent, which in view of the OTA did not consider the fact that research and development (R&D) ventures were more risky than those involved in manufacturing activities. After making suitable adjustments to the cost of capital, which, in view of OTA, was closer to the real world, the average drug development cost (in 1990 dollars) was found to be US$ 359 million. Inflated to the year 2000, this estimate increases to US$ 473 million,22 a figure that is closer to the widely publicised figure of US $ 500 million.23
It may be argued that the findings of the DiMasi study and the adjustments made by the OTA, had profound long-term consequences. Coming as they did in 1991, when the Uruguay round negotiations had reached a critical juncture, the above-mentioned estimates for new drug development provided critical support for the pharmaceutical industry position that the patent system needed strengthening because of the fast increasing costs of pharmaceutical R&D. The global community did recognise the contribution that the industry had made by producing new drugs through their R&D efforts by strengthening the rights of the patent holders.
More recently, DiMasi et al provided cost estimates of new drug development based on products that obtained marketing approval in the 1990s. They report that the average cost of development of a new drug has dramatically increased to US$ 802 million (in 2,000 dollars), with clinical trials accounting for more than 58 per cent of the costs incurred. It may be recalled, in their 1991 study DiMasi et al had reported that it was the pre-clinical expenses that had a 58 per cent share in the total expenditure on new drug development. In other words, the new study shows that the clinical trials have assumed greater importance in the delivery of new drugs. As they had done during the Uruguay round negotiations, these recent estimates of the cost of drug development provided arsenal to the pharmaceutical industry to argue a case for protecting their “investments” made for generating data while conducting clinical trials by introducing data exclusivity.
The estimates of drug development costs provided by DiMasi et al have several methodological limitations – a point that has been made in several papers that have critically examined these estimates. In the following discussion, we would highlight some of the major problems with the estimates of drug development costs.
It should be mentioned at the outset that the data used by DiMasi et al for their studies was provided by the firms, the authenticity of which could not be verified independently. For instance, while mentioning the data source in their 2003 paper, the authors state that “[t]en multinational pharmaceutical firms, including both foreign and US-owned firms, provided data through a confidential survey of their new drug R&D costs”24 (emphasis added). Besides, data on total R&D expenditure broken down by categories such as “self-originated new drugs”, licensed-in or otherwise acquired drugs, etc, were obtained from the respondent firms.
The point of highlighting this aspect of the data source assumes importance in light of the fact that the pharmaceutical industry has long been reluctant to share data related to R&D expenditures, even with the authorities. This was highlighted in a case involving the US general accounting office (GAO) and the pharmaceutical industry in which the latter successfully thwarted all attempts made by the GAO for a decade to “obtain information about the individual companies’ research, development, and marketing costs”.25 This information was sought as a part of the congressional investigations pertaining to government contracts with pharmaceutical companies. The GAO’s remit was to seek financial data that would allow it to estimate research, development, marketing, promotion and distribution costs for individual products. In a series of law suits that the GAO was involved in over its attempt to secure the necessary information, the courts agreed that the direct costs, such as manufacturing costs, royalty costs and delivery costs were relevant to the contract and were therefore subject to GAO review. There was, however, disagreement over the GAO’s right to access indirect costs such as those pertaining to R&D, marketing, promotion, distribution, etc.26 It was a decision made by the Supreme Court that put paid to GAO’s attempt to secure data that it was looking for in this case. The court ruled that the GAO could only seek access to direct costs and that its powers were clearly defined by the congress.
The reason for the reluctance on the part of the pharmaceutical industry to disclose details about their R&D spending lies in the fact that funding for activities is not even remotely associated with what is generally understood and R&D are included under this head. Commentators have indicated that R&D budgets could include the following expenses: (i) executive costs in finding and negotiating with other firms for new products, (ii) costs for medical writers and public relations to develop stories and market demand for products in trials as they progress, (iii) support for scientific journals and supplementary issues in which the results of industry-supported research get published, (iv) lectures and courses to inform physicians about current research, (v) legal fees devoted largely to patents and research-related issues, and (vi) land and costs for buildings in which some research is done. Surely, these are not the kind of “investments” that should be considered for the kind of statutory protection that the pharmaceutical industry is seeking.
The point that we have tried to make in the foregoing is that there are compelling reasons to believe that purported contribution of the pharmaceutical industry in R&D activities, which DiMasi et al have indicated using their estimates, is exaggerated. This fact can be further elaborated if two additional facts are taken into consideration. The first is the benefit that is extended to the pharmaceutical industry by way of tax deductions, particularly on R&D activities. The second is the substantial contribution that government makes in furthering R&D efforts in the area of pharmaceuticals.
In its 1993 study, the OTA indicated that federal tax credits constitute one of the most substantial forms of government involvement in the operations of the pharmaceutical industry. For instance, in 1987, the federal treasury made US$ 1.4 billion in tax expenditures through credits to drug companies. Of this, only about US$ 90 million was for credits whose specific policy purpose was for stimulating R&D activities. The major part, US$ 1.3 billion, of the tax revenue foregone was due to the foreign and possessions tax credits.
According to the OTA, among all industries in the US, innovation activities of the pharmaceutical industry had historically been the most dependent on academic research and the federal funds that support it. In the more recent years, advances in biotechnology that occurred within academic research laboratories added to the task of transferring basic scientific knowledge from academia and government to industrial applications.
The table captures the relative contribution made by the pharmaceutical industry in the promotion of R&D activities in 2001.
The facts presented in the table clearly undermine the claims that the pharmaceutical industry has been making about the contribution that it makes in promoting innovation in the sector. Further, there is no credible data on the incremental modifications on the drugs, which constitute the major per cent of the pharmaceutical market. Expensive clinical trials are not required in the case of incrementally modified drugs (IMD) because there is enough data already exists data to show the efficacy and safety of chemical substances and the innovator has to submit limited data to bridge the gap. Hence, the cost of development of IMD is expected to be low. It is a travesty that an industry which is so heavily dependent on the largesse from the taxpayers should push for measures like data exclusivity that have far-reaching implications for public health. The following section briefly discusses this issue.
III Public Health Implications of Introducing Data Exclusivity
It was indicated in an earlier discussion that data exclusivity prohibits the drug regulatory agencies from relying on/using originator’s data for the approving generic drugs. As a result, generic companies have to wait until the end of data exclusivity period for marketing approval. The immediate impact of the introduction of data exclusivity is therefore, the delay in the introduction of generic drugs in the market.27 As in the case of a the patent monopoly, data exclusivity also would result in high prices and would thus, compromise the access to drugs.
Data exclusivity would severely affect public interest safeguards such as the compulsory licensing system that has been built into patent legislations. Data exclusivity could make compulsory licensing ineffectual in case the patent holder obtains marketing approval on the patented product. Under such circumstances, even if a compulsory licence were granted, the licensee would not be able to function because the pioneer applicant would have been able to pre-empt the entry of competitors. In other words, compulsory licence and government use provisions would remain only in theory and not in practice.
Introduction of data exclusivity could encourage the “ever greening” of patents. This tendency to extend market monopoly that was initially obtained through the patent rights can prevent the entry of generic producers once the patent term has expired. In its recently amended Patents Act, India has taken steps to prevent “ever greening” of patents. Section 3(d) of the Patents Act excludes various forms of known substances from patent protection. Although this provision lacks the required legal clarity now, it would nevertheless be useful in preventing “ever greening” to a certain extent. Incremental modifications of products patented earlier can benefit from a data exclusivity regime if the regime is not monitored in a desirable manner. Such a situation could undermine the functioning of section 3(d) of the Patents Act.
Data exclusivity, at least, in theory does not prevent third parties
Table: R&D Spending in the Pharmaceutical in 2001
(in US $)
Categories Total R&D Basic Research Per Cent Basic Funds for Research Funds Breakthrough by Source Drugs
I Governmental and public
programmes 46.6 billion 41.5 billion 78.7 II Foundation and
non-profit sources 8.1 billion 2.0 billion 3.8 III Pharmaceutical and
biotech corporations:
(iii) Net corporate funds 35.3 billion 6.3 billion 12.0 Total 105.9 billion 52.7 billion 84.2 Public
12.0 Industry
3.8 Foundations
Source: Light (2006).
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from obtaining marketing approval based on independent clinical trials. However, this is not a practical option. Clinical trials need prior permission, involve cumbersome protocols and are time consuming. Hence, small and medium level companies cannot afford to opt for that route. Further, expenses involved in the clinical trials would be reflected in the price of generic drugs and make them as costly as originators’ drugs. Data exclusivity also encourages multiple clinical trails on the same substance. Repetitive trials on known substances are unethical and also involve adverse public health implications.
IV Conclusion
These developments indicate that considerable changes are globally afoot in the realm of data protection, the ramifications of which can be quite considerable on the generic industry that has developed considerably in countries like India. Imposition of data exclusivity of the kind prevailing in the US and the EU would be a death knell for these generic industries. The consequences of this threat faced by these industries would be felt by most sections of the population in not only the countries that are home to these industries but also other countries, dependent on the industries.
It is particularly important to point out that the positions taken up by the industry associations of the pharmaceutical majors, which has been endorsed by the US trade administration through its annual special 301 report is a violation of the multilateral system. The discussion in this study has pointed to the fact that neither Article 39.3 of the TRIPS agreement nor Article 10bis of the Paris convention require that the WTO member countries need to introduce regimes of data exclusivity of the kind that the US and the EU provide. The attempts to impose global standards of data exclusivity are aimed at ensuring that the pharmaceutical majors get protection for their products into perpetuity, thus maintaining their stranglehold over the markets for pharmaceutical products. The global community would have to take a step back and ask the question at this juncture, as to whether they would be giving precedence to the super profits of the pharmaceutical majors over public health concerns.
EPWEmail: bisjit@gmail.com gopa.kumar@centad.org
Notes
[The views expressed here are personal.]
1 PhRMA (1999). 2 EFPIA (2000), position paper: TRIPS Article 39.3 (protection of undisclosed
data), November 2000. 3 GATT (1987). 4 Quoted by Correa (2002), p 53. 5 GATT (1990a). 6 GATT (1990b). 7 GATT (1990c). 8 GATT (1990d). 9 GATT (1990e).
10 Commission on Intellectual Property Rights (2006), p 143. 11 WTO (2001). 12 Ibid. 13 Commission on Intellectual Property Rights (2002), p 51. 14 Commission on Intellectual Property Rights (2006), p 144. 15 Quoted in DiMasi et al (2003). 16 In a subsequent statement, DiMasi, the lead researcher conceded that the
process of development of the so-called “self-originated new drugs” “doesnot preclude the possibility that the firm sponsored studies that wereconducted by, or in collaboration with, academics, a government agency, or a non-profit institute. It also does not preclude the possibility that thecompany supplied the drug to any of these groups for their own independentinvestigations into the fundamental biology of disease”. See ManhattanInstitute for Policy Research Conference Series (2002).
17 The preclinical period is defined in this database as the length of timestarting at the synthesis of a drug to the beginning of human clinical studies.
18 Office of Technology Assessment (1993), p 15.
19 Ibid, p 15.
20 Ibid, p 54.
21 Ibid, p 15.
22 Public Citizen (2001), p 2.
23 The pharmaceutical industry has long argued that the cost of developmentof a new drug is US$ 500 million, a figure that has been revised latelyafter the emergence of the new series of estimates by DiMasi et al (2003).
24 DiMasi et al (2003).
25 Office of Technology Assessment (1993), Appendix D.
26 Ibid.
27 According to the commission on intellectual property rights, “dataexclusivity can be a barrier to generic entry irrespective of whether thedrug was patented, or the patent period has expired”. See, Commissionon Intellectual Property Rights (2002), p 50.
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