D Ravi Kanth: Drug capitalism

TRADING THOUGHTS

It takes some courage for a leading beneficiary of global capitalism to chart out a new path at a time when it is confronted with a grave crisis. But that is precisely what Bill Gates did at the WEF's annual meeting in Davos, over a week ago. Being the last speech at Davos before he relinquishes his pivotal role at Microsoft, there was sufficient curiosity about what he'd say on "A New Approach to Capitalism in the 21st Century."

Gates' central worry was "the world is getting better, but it is not getting better fast enough." And more disturbingly, "it is not getting better for everyone." That is especially true when you look at access to essential medicines, Gates' special concern. It is well known that about 2 billion people world over lack access to essential medicines. Health analysts say a mere improvement in access to existing medicines could easily save 10 million lives annually, and this could effectively halve the child and maternal mortality in South Asia and Africa. Unsurprisingly, 15 per cent of the worlds' population consumes over 90 per cent of its pharmaceuticals.

"We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well," Gates said, arguing that "I like to call this idea creative capitalism." His whole message is centred on how companies and corporations can "stretch the reach of market forces to bring the benefits of science and technology to everyone." His address was full of examples, including tier-pricing for medicines as well as the Doha TRIPS and Public Health Agreement. The costs incurred by pharma firms in developing new medicines and access to medicines remains Gatesburning concern.

However, the moot issue is whether the gap between those who invest billions of dollars to develop new medicines and those who need them most, particularly, the poorest of the poor, is bridgeable. There are no easy answers to this. "There are ways to address the access issue," says Daniel Vasella, the chairman of the Swiss pharmaceutical giant Novartis. Despite losing a major patent-related dispute over its cancer drug Glivec in India last year, Novartis maintained it was ready to address the problem of access to its costly drugs in India. But if innovation cannot be priced appropriately and protected adequately, then, there will be a grave danger in the development of new medicines to tackle deadly diseases, he told Business Standard.

The Swiss company suffered major financial losses during the last quarter of 2007 because of intense competition from generic drug companies, particularly Israeli company Teva. Teva decided to produce generic versions of the blockbuster blood-pressure drug Lotrel and herpes-drug Famvir "" two major branded drugs of Novartis "" in the US market. Novartis took the issue to US courts but failed to win a favourable verdict.

Indeed, many leading pharma firms have the same problem Novartis has because the patents for their branded drugs are about to expire in the next one or two years. Small wonder then that the generic companies are on a rampage the world over to shorten the length of time in which companies have an exclusive right to sell their medicines because of their patent rights. Coupled with sluggish research productivity, the so-called giants of the pharmaceutical world are in dire straits. With generic companies able to sell the same branded drugs at one-third of their price, R&D-based firms which price their drugs on a what-the-market-can-bear principle are in danger.

Beside the threat from the generic companies, there is another problem. The new drugs developed by R&D-based companies are outside the reach of the poor consumers in rich countries. And the problem is much worse in poor countries where the disease burden is high and where the inaccessibility to these vital drugs is much higher. A market-based solution to this conundrum has proved difficult to conceive.

True, there are public policy instruments such as compulsory licensing to address this issue under the World Trade Organisation rules. But compulsory licenses are given to third parties against the will of patent owners. And since these instruments are granted by either governments or court-based interventions, they amount to a non-market-based solution to address the problem.

Besides, attempts to use these instruments invariably provoke a strong negative response from the patent-holders as well as their home governments. There are numerous instances of how the US pressured countries such as Thailand, Brazil and South Africa not to avail of or use compulsory licensing. In essence, though non-market interventions for making drugs available at affordable prices are permissible under WTO rules, they are difficult to implement in real life public emergencies. Gates referred to the possibility of using WTO's Doha Agreement on TRIPS and Public Health.

Thus, the dichotomy between market-instruments and public policy interventions for making the latest drugs available at affordable prices calls for a broader global framework. Unless, governments, non-governmental organisations, research-based pharmaceutical companies and generic drug companies are parties to this framework, the problem of affordable access to medicines will continue to persist.