Anthrax, Drug Transnationals And TRIPs

Kavaljit Singh

The current anthrax crisis
has, once again, raised highly controversial issues related to intellectual
property rights. Just a few months back, the world witnessed heated debate on
the patent controversy when the Pharmaceutical Manufacturers’ Association of
South Africa (PMASA), a body representing South African subsidiaries of 39 drug
transnational corporations (TNCs), took the South African government to court to
prevent it from importing cheaper versions of patented drugs for patients
suffering from Acquired Immuno Deficiency Syndrome (AIDS). However, under
tremendous pressure generated by health activists and concerned groups around
the world, the drug TNCs unconditionally dropped the lawsuit against the South
African government.

The current
controversy on patented drugs started when the first signs of anthrax attacks
appeared in U.S. in early October 2001. Ciprofloxacin, an antibiotic drug, is
prescribed for treating patients suffering from anthrax and other bacteria.
German drug TNC, Bayer AG, holds the patent for Cipro (the brand name of
ciprofloxacin) in the U.S. till December 9, 2003. Under the present TRIPs
agreement of the WTO regime, it implies that no other drug company is allowed to
commercially manufacture and sell the generic versions of this drug in the U.S.
until the Bayer patent expires, except under extraordinary circumstances that
allow compulsory licensing and parallel importing. Under compulsory licensing, a
government can allow local companies to produce cheaper versions of drugs whose
patents are controlled by foreign drug companies. Local companies can produce
and sell drugs in the country after paying a reasonable royalty on sales to the
foreign drug companies. By increasing competition in the market, compulsory
licensing can significantly lower the prices of drugs. While parallel importing
allows countries to import cheap, generic versions of drugs without permission
from the patent holders. For instance, the U.S. government can import drugs from
an Indian company to sell them in the country. Since the prices of drugs are
lower in several countries, particularly in the developing ones, parallel
imports can help in lowering the prices of drugs. Recent experience shows that
both these measures can be helpful in promoting access to drugs at affordable
prices. But the scope of these measures is severely restricted under the present
TRIPs regime. Cipro is not only one of the best selling antibiotic drugs in the
world but it is also a mega profit earning drug for Bayer. In the U.S. alone,
Bayer sold $1.04 billion worth of Cipro in 1999.

As the specter
of an anthrax epidemic loomed large on the horizon, people started stockpiling
Cipro. The sudden increase in the demand for Cipro led to a steep hike in its
retail prices. With the wholesale price of Cipro at $4.67 for a 500 mg pill in
the U.S., the retail price went up to as much as $7 a pill. For anthrax
treatment, it is recommended that patients should take two pills a day for 60
days. Thus, the retail price for two months stock of Cipro was well over $700,
much beyond the means of poor Americans. Given the fact that two months stock of
a generic version of Cipro costs a fraction of the prevalent price in the U.S.,
there was uproar over the monopolistic profits made by Bayer from the public
health crisis. In India, for instance, Bayer’s Baycip (the brand name of
ciprofloxacin in India) is available at drug stores at $0.13 a pill. Thus, the
retail price for two months stock of Baycip would be just $17. Whereas two
months stock of a generic version of ciprofloxacin is available at a price as
low as $8 at drug stores in India (see Table 1).

In spite of
higher prices, there were not adequate stocks of Cipro in U.S. drug stores.
Bayer expressed its inability to produce sufficient supply of Cipro at  short
notice as requested by U.S. health authorities. At best, Bayer offered to
produce 200 million pills within 60 days, much lower than the requirement of 1.2
billion pills. Confronted with a scenario where panic was spreading like wild
fire all over the U.S., the Bush administration should have busted Bayer’s
patent on ciprofloxacin and allowed sale of generic versions of the drug in the
country. There are a host of drug companies (including Ranbaxy, Dr. Reddy’s Lab,
and Cipla from India), which have already received quality approval from the
U.S. Food and Drug Administration for manufacturing cipro- floxacin. Many of
these companies were not only ready to provide ciprofloxacin to the U.S. within
60 days, but also offered it at a fraction of price than what Bayer was charging
the Americans.

There are legal
provisions in the U.S. that allow compulsory licensing. Under the U.S. Federal
law (28 U.S.C 1498), the U.S. can purchase products like ciprofloxacin for
official use from manufacturers other than the patent holder. In addition, the
U.S. government can also promulgate HR 1708 that exempts it from paying any
compensation to Bayer for suspending its patent.

Not only health
activists and anti-corporate campaigners in the U.S., even politicians like
Charles Schumer, a Democrat senator from New York, strongly demanded the
suspension of Bayer’s patent. In a letter addressed to Tommy Thompson, U.S.
Secretary of Health and Human Services, Ralph Nader (consumer advocate and
former presidential candidate), along with his colleague, James Love, called on
the Administration to immediately authorize generic production of ciprofloxacin.
In the letter, they pointedly asked the U.S. Health Secretary, “your official
responsibility is to protect the public’s health, and not to defend large
profiteering pharmaceutical companies, which are already making a fortune
because of our country’s current problems. How do you define the patriotic
choice here?”

extensive domestic support to suspend Bayer’s patent on Cipro, the response of
Bush administration was outrageous. Tommy Thompson considered it “illegal” to
suspend Bayer’s patent on Cipro and he preferred to enter into negotiations with
Bayer with the sole intention of lowering the price of Cipro. Facing an
unprecedented public embarrassment, Bayer agreed to lower the price of Cipro for
government purchase from $1.77 to $0.95.

Dubbed as an
“historic victory” in U.S. official circles, it would be absurd to view this
agreement as a major accomplishment of the Bush administration. Rather, it was a
major victory for Bayer because the agreement is based on the condition that the
company would continue to remain the sole supplier of the drug in the U.S. till
December 2003. Further, the agreement with Bayer only covers government
purchases of Cipro from the company while the drug will be sold at hospitals and
drug stores at normal price. Even on the discounted price, Bayer is still making
profits from huge orders placed by health authorities. Meanwhile, disturbed over
this lopsided agreement with Bayer, consumer activists and concerned groups in
several states have filed a lawsuit asking the court to scrap the agreement that
gives monopoly rights to Bayer.

Had the Bush
administration suspended Bayer’s patent and allowed the commercial manufacture
and sale of generic versions of Cipro as per the existing national laws and
international agreements, the American people would have been able to procure
drugs in time and at reasonable prices. This episode confirms the allegations of
anti-corporate activists that drug TNCs are being rewarded by the Bush
administration for their large financial contributions to the Republicans in the
election campaigns.

While these
developments were taking place, allegations of price manipulations by Bayer have
also come to light. It is alleged that the U.S. subsidiary of Bayer AG signed
illegal agreements with three of its competitors—Barr Laboratories, Rugby, and
Hoechst-Marion Roussel—to prevent them from challenging its patent rights over
Cipro. According to anti-corporate activists, Bayer has paid a total sum of $200
million to date to these companies for not manufacturing or marketing a generic
version of Cipro, thereby neutralizing competition to protect monopoly profits.


Flip-flop Posture

Watching these
developments in the U.S., neighboring Canada announced on October 18 that it
would suspend Bayer’s patent on Cipro and allow generic drug makers to
manufacture and sell the drug in Canada. The Canadian authorities approached a
domestic generic drug maker, Apotex, to produce one million pills. Apotex agreed
to sell its generic version at $0.95 per pill to health authorities, which was
significantly lower than $1.59 charged by Bayer. This move by the Canadian
health authorities sent shock waves through the entire pharmaceutical industry.
The drug industry was taken aback by the sudden change in the Canadian stance
because the country had been consistently supporting the U.S. position on the
intellectual property rights issue in the past. Bayer, in collusion with several
lobby organizations, used all kinds of pressure tactics, including a threat to
sue the Canadian government for reversing this move. Within hours, the Canadian
authorities reversed their stand and announced that they would honor Bayer’s
patent on Cipro and would buy the drug only from the company. This sordid
episode demonstrates the shady role played by the drug companies and their lobby
organizations to stifle competition from low cost generic drug manufacturers.


U.S. Hand in
Glove with Drug TNCs

Realizing that scrapping
Bayer’s patent would set a precedent that could give legitimacy to the growing
demands of the poor and developing world for more flexibility on patent issues,
the U.S. has given a clear message to the world that patents are more important
than public health.

It is ironic
that the U.S. administration abandons its responsibility when it comes to
protecting its own citizens from public health calamities while it acts as a
supercop when drug industry’s patents and profits are at stake. In international
economic negotiations, the U.S. administration has been one of the strongest
allies of the global drug industry. Acting on the behest of drug TNCs, the U.S.
played a key role in initiating the Uruguay round of GATT negotiations where
several agreements including TRIPs were pushed forward. The U.S. has challenged
various countries at the WTO tribunal and has even threatened trade sanctions
against several countries including Thailand, India, South Africa, and Brazil
for breaching TRIPs. Although the TRIPs agreement does allow member countries to
take compensatory measures to counter the effective monopolies of companies
owning patents, undue pressure has been put on many developing countries to
refrain from exercising their rights of compulsory licensing and parallel
import. The dispute settlement case lodged by the U.S. against Brazil in the WTO
in relation to its Industrial Property Law and the lawsuit filed by 39 drug TNCs
against the South African government are instances of such pressure tactics.

Particularly in
the last couple of years, U.S. has been advocating stringent measures for
protecting patents under the so-called TRIPs-Plus mechanism. It is not
surprising that the U.S. has been vehemently opposing a document on patents and
drug issues prepared by nearly 50 WTO member countries, including the Africa
Group, Brazil, and India. Concerned with poor peoples’ lack of access to
affordable medicines due to high prices of patented drugs and the resultant
public health crisis, this document seeks suitable changes in the present TRIPS
agreement. The document clearly states that “nothing in the [TRIPs] agreement
shall prevent governments from taking measures to protect public health.” The
document has been prepared for ratification at the Fourth WTO Ministerial
Conference in Doha, Qatar during November 9-12, 2001. The chances of this
document being ratified at the Doha conference are extremely bleak as the
developed countries, led by the U.S., have already expressed their intentions to
push for a new round of negotiations in areas such as investment and competition
policy to further expand the operations of TNCs.


Lip Service
at Doha Conference

The wider concerns for
protecting public health were expected to usher substantial changes in the
existing TRIPs agreement at the Fourth WTO Ministerial Conference in Doha, Qatar
held during November 9-13, 2001. But the outcome of Doha conference was
disastrous for the world’s poor because it provides a few concessions on drug
patents issue. Except for providing least-developed countries additional 10
years to implement TRIPs and giving autonomy to governments to define public
health emergencies in which TRIPs could be suspended, the Doha conference failed
to resolve the fundamental conflicts between patents and public health. The lip
service approach to this vital issue can be gauged from the fact that the
declaration on the TRIPs agreement and public health was issued as a separate
declaration, not part of the main Ministerial Declaration.

The agreement
reached at Doha conference for a new round of negotiations is a significant
achievement for the U.S., the EU, and Japan as it opens up new opportunities for
TNCs to further expand their global outreach. It is important to highlight the
hypocritical stand of Indian authorities on WTO issues, which got completely
exposed during the Doha Conference. A few weeks before the Doha conference,
Indian authorities took a strong posture seeking drastic changes in the TRIPs
agreement as well as opposing new round of negotiations till contentious issues
related to the implementation of Uruguay round of negotiations are resolved. Not
only the poor and developing countries, several Indian and international NGOs
also joined the ranks in support of Indian authorities. But within hours after
asserting that “a new round of trade talks at the WTO is not necessary, it is
evil,” India’s Commerce Minister, Murasoli Maran, agreed to a new round of
formal negotiations without any major gains in key areas such as textiles,
agriculture, TRIPs and transfer of technology. This is hardly surprising given
the fact that the same Indian government is not just pursuing amendments in the
domestic patent laws to conform with the WTO regime but also pushing
liberalization agenda in several sectors of economy (for instance, financial
sector) that are well beyond the purview of WTO.



Several inferences can be
drawn from the anthrax crisis in the U.S. First, by sacrificing the public
health concern of its own citizens to protect private interests of drug TNCs,
the U.S. has unabashedly acknowledged the supremacy of patents over public
health. Second, the present patent regime not only poses a grave danger to
public health in the poor and the developing world, but the developed world is
also not immune to it. Hence, this episode should serve as a wake up call to the
rest of the developed countries who usually follow in the footsteps of the U.S.
on patent issues. Poor and ordinary people, irrespective of their location, have
a basic right to sound health, and therefore, safeguarding public health must
take precedence over patents and monopoly profits of the drug TNCs. Third, apart
from universal health programs and other public funded interventions, it is of
utmost importance that monopolies in the drug industry be dismantled to ensure
that crucial drugs are made accessible to poor patients at affordable prices.
Therefore, strict regulation of drug TNCs must be an integral component of
building public health system in the developed as well as the developing world.

Fourth, with
critical support from the developed countries not forthcoming, the
responsibility for demanding a comprehensive review of TRIPs, including
reduction in the duration and scope of patent protection for drugs that are
essential for public health rests with poor and developing countries. This calls
for greater unity and solidarity among the poor and the developed world on
issues of common interest at the WTO and other international economic

Finally, it is
high time the primacy of national health policy over international agreements,
including the WTO, be restored.                             Z


Singh is director of the Public Interest Research Centre, New Delhi.