Author: Jasson Urbach
Source: Business Day
Collaboration and innovation rather than property expropriation will drive down the price of live-saving drugs.
The long-awaited draft intellectual property (IP) policy, recently published by the Department of Trade and Industry, proposes several key reforms. The aim is to introduce changes that will make it more difficult to register patents, easier to “break” patents, and to limit the remedies available to patent holders.
The draft policy correctly points out that “knowledge, innovation and technology are increasingly becoming the drivers of progress, growth and wealth. Therefore, SA needs to transition towards a knowledge economy, and away from overreliance on natural resources. A specific framework of conditions is necessary to enable SA to make this transition, and an IP policy is one of the core elements required to achieve this objective.”
However, contrary to the intention conveyed in this statement, the proposed policy changes will weaken the IP rights environment and have serious ramifications for SA’s economic growth and job creation prospects.
For science, technology and innovation to drive economic growth, SA requires strong respect for IP rights. Innovators need assurance that once registered with the Companies and Intellectual Property Commission and disclosed to be capitalised upon, their ideas will receive adequate protection. Predictable laws and institutions that attract and encourage investment are fundamental to economic growth and job creation.
IP rights protection in the pharmaceutical sector is of immediate concern. SA urgently needs to contribute to finding innovative solutions to combat various diseases prevalent in Africa. Professor Kelly Chibale of the University of Cape Town’s Drug Discovery and Development Centre (H3D) says existing unmet medical needs require innovative solutions, “and the necessary research and development is expensive. Based on recent estimates, on average, one new drug could take up to $2.5bn to discover and develop and represents anything up to 10,000 false starts. Someone has to pay for these costly failures along the way to one success.”
The proposed policy calls for a “workable” compulsory licensing system and a nonjudicial mechanism for awarding such licences. Compulsory licences allow the government to “break” a patent and give a licence to a local manufacturer — or perhaps, in SA’s case, the proposed state manufacturer, Ketlaphela — to produce a drug.
In simple terms, the government wants to make it easier to expropriate IP from innovators by bypassing the courts, but this will almost certainly not pass constitutional muster.
For many years, critics of patents have claimed that for HIV/AIDS treatment programmes and other healthcare interventions to thrive, we need to produce medicines locally and do away with vast swathes of the drug patent and IP regime.
However, research cited in an article published in the journal Health Affairs debunks this view and demonstrates that negotiation and collaboration on mutually beneficial terms provide better returns than simply taking someone’s property.
In the article, Canadian and US researchers Read Beall, Randall Kuhn and Amir Attaran construct a database of compulsory licensing activity for antiretrovirals. They then compare the prices attained through compulsory licensing against those in the World Health Organisation’s global price reporting mechanism and the global fund’s price and quality reporting tool.
The authors find that “compulsory licence prices exceeded the median international procurement prices in 19 of the 30 case studies, often with a price gap of more than 25%”.
In other words, if developing countries want cheaper drugs, especially for HIV/AIDS, circumventing patents by issuing a compulsory licence is not a good strategy for securing the best price. The best price is more likely to be obtained through voluntary negotiations.
Given the South African government’s aspirations to weaken property rights by making it easier to issue compulsory licences, and to establish a state-owned pharmaceutical company, the findings of this peer-reviewed journal article should give it pause to rethink its strategies. Indeed, Beall et al state: “Countries may desire a compulsory licensing strategy as a possible way to build local industry, even if it means overpaying for drugs. However, the ethics of this kind of policy are thorny since this means that, given a fixed budget, fewer antiretrovirals will be bought and fewer HIV/AIDS patients will be treated.”
Rather than trying to make it easier to expropriate property and thwart innovation, policy makers should enact simple reforms that will improve access to medicines. One urgent reform would be to overhaul the process of registering medicines and devices.
SA’s drug regulator, the Medicines Control Council (MCC), or its successor, the newly formed South African Health Products Regulatory Authority, can take more than seven years to approve a drug that typically has already been approved by US or European regulators. This inertia has resulted in a backlog of more than 2,000 drug applications and is denying thousands of patients access to medicines that could cure or manage their symptoms, with sometimes fatal results.
The inability to approve drugs timeously also deters investment. A study conducted by EY entitled, “A comparative analysis of the registration processes for medicine in SA and other representative countries: a benchmarking study”, demonstrates that pharmaceutical companies invest in countries with shorter and predictable review processes. Delays and unpredictability adversely affect patient wellbeing and act as a disincentive for companies choosing where to invest.
One way to improve the registration timelines would be for the regulatory authority to draw on the work of larger, better-resourced foreign drug regulators rather than tackling the entire review process itself. This would prevent duplication of efforts, save money and speed up access to medicines.
With one stroke of the statutory pen, the government could also remove value-added tax on pharmaceutical drugs and devices. If the government wants a healthy and productive workforce, it makes no sense to tax the sickest and most vulnerable members of society.
The Department of Trade and Industry’s draft IP policy takes us in the wrong direction. Robust IP protections will foster local innovation and attract committed investors who can drive SA’s economic growth and human development long into the future. Without them, we will never make the transition from a resource-based economy to one based on knowledge and ideas.
• Urbach is an independent economist.