G20 should consider a new, more fair intellectual property rights regime

Cynics say that G20 meetings are a complete waste of time. The G20 was created for a coordinated fiscal and monetary push out of the Great Recession of 2008-10. Since then, it seems to have lost its rationale. Arvind Panagariya, India’s Sherpa for the next G20 summit, seeks new ideas that India can take up at the next G20 summit.

I think the recent drug scandal in the US is an excellent opportunity to launch a long-term campaign to gradually change the US emphasis on tough drug patents, and shift towards the softer patents desired by countries like India. The US aims through its new trans-Pacific and trans-Atlantic trade deals to make tough patents a fait accompli in all the countries that dominate the world economy minus the Brics.

Drug Lords, Only Legal

The key feature of the new trade pacts is not lower tariffs — these are already very low — but tighter standards on intellectual property rights (IPR) and the environment. How can India challenge this? The G20 summit gives India — as well as Brazil, China and other low-cost drug producers — achance to highlight recent US abuses of a tough patent regime.

American drug companies have broad public support — with some exceptions — for stringent patent rules that allow companies unlimited pricing power for new drugs. This is seen as a just reward for life-saving innovations that are expensive to bring to the market, and should be encouraged by a limited monopoly — that’s what a patent is — and no price limits.

But the US public was absolutely scandalised last week by the cynical price strategy of Martin Shkreli of Turing Pharmaceuticals. He raised the price of Daraprim, used for a parasitic infection called toxoplasmosis, by a whopping 4,000% overnight. Why? Because he could, he sneered, and needed no further justification.

Shkreli has done no R&D to merit such an increase. His company purchased the drug rights after realising there were no competing producers for this drug: it was off patent and had limited specialised uses. So, it had become a natural monopoly. This enabled him to raise prices sky high. Shkreli’s unrepentant cynicism stoked US public indignation, and induced the media to investigate price gouging further. They uncovered many other examples.

URL Pharma got exclusive marketing rights for Colchicine, an ancient home remedy for gout, and raised the price per tablet from 9 cents to $4.85, an increase of over 5,000%. Another old drug, tetracycline, is off patent. But branded tetracycline is suddenly selling for $11 a pill, against 5 cents as recently as 2013. Clomipramine, an antidepressant used in the 1960s, cost just 22 cents per pill in 2012. But today, some branded pills cost $8.17, an increase of 3,600%.

The examples are striking because they show companies’ power to raise prices even for off-patent drugs. Clearly, the scope is even higher for patented drugs. The fact is that free markets do not function in medicines. Patients do not exercise free choice or show price-resistance to gouging, as happens in normal products.

When a patient in the US is ill, the doctor prescribes medicines without considering the cost of cheaper alternatives that are almost as good, and is influenced more by the marketing ploys — and sometimes even bribes — of drug companies. US companies typically spend more on marketing than R&D. Big medical bills are mostly paid by US insurance firms, which recoup the rising cost through higher insurance premia for patients. So, the system eviscerates price resistance and rewards gouging. The US media are now exposing this in a big way.

A Diseased Model

Indian activists gleefully claim that this vindicates their anti-patents campaign, and for “putting people before corporations”. Alas, this is seductive but bogus rhetoric. The world urgently needs new drugs. Many old diseases, including malaria and tuberculosis, are making a comeback.

No effective drugs exist for some tropical diseases, and corporations do not innovate remedies because these look unprofitable. Purchasing power in tropical countries is low, and price controls can be high.

Germs of all sorts are becoming resistant to existing drugs. New drug discovery has become very slow, and so, diseases are gaining ground. Simply abolishing patents, or weakening IPR norms, will further slow drug development, increasing sickness and deaths by millions. The need of the hour is to accelerate new drug discovery. Drug companies can be price gougers. But they are also lifesavers. So, we definitely need IPR rules that induce innovation, while checking price gouging. Price control and compulsory licensing are two such techniques, but should be used carefully to create a fair patient-corporation balance, and not become a populist way of making drug discovery unprofitable.

Former British prime minister Gordon Brown suggested diverting foreign aid to a fund that would pay large lump sums upfront to drug companies for new drugs to combat tropical diseases, making such discovery profitable. We need constructive new approaches that treat patients and companies as allies, not foes. This requires new attitudes from not just the US, but from India and China too, and will take time. The G20 is suited for long-term tasks.

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