Our companies contribute funding, human resources and products to health programs in developing countries around the world. Two good examples are donating medicines to treat river blindness and supporting national efforts to fight AIDS in Africa.

We also support and participate in comprehensive efforts to correct public health problems in developing countries, which are far beyond the capacity of any industry to solve alone.

The fact is only a government's public health programs and priorities can make a real and lasting difference.

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Where medicine and health are concerned, the focus should be on the quality, safety and effectiveness of drugs. Many pharmaceuticals are scientifically and technologically complex. Most countries lack the capability to manufacture them.

On a broader scale, there is no public health reason to produce medicines domestically. The premise of international trade is that each country should produce those goods and services for which it has a comparative advantage. All countries benefit by trading with each other. It is not logical for every country to produce every product for itself.

There is no justification for imposing tariffs, local working requirements or other trade barriers on imported pharmaceutical products. In fact, rules agreed to by all World Trade Organization members strictly forbid discrimination against foreign products. While tariffs are not prohibited by the WTO, many of its members have agreed to eliminate or substantially reduce tariffs on pharmaceuticals as an unwarranted tax on the sick and an unwanted barrier to treatment.

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As part of joint international efforts to improve public health, our companies are conducting research for diseases that afflict developing countries disproportionately.

About 15 antiretrovirals are available today to address HIV/AIDS, and more than 100 new AIDS medicines are in the research and development pipeline. This represents a tremendous advance from 20 years ago, when AIDS was considered untreatable and incurable. But much remains to be done.

Other activities include the following:

• UNICEF, the World Bank, the World Trade Organization and UNAIDS are looking at ways to guarantee a market for vaccines, including creating an international fund to purchase the drugs.

• The Medicines for Malaria Venture in an innovative public/private partnership working to develop new anti-malarial drugs. We have joined with the World Health Organization and others to stimulate the discovery and development of new treatments, with the goal of a new therapy every five years.

• Through the Global Alliance for Vaccines and Immunizations, we collaborate with our partners (including the Bill and Melinda Gates Foundation, UNICEF, the World Health Organization and national governments) to address ways to accelerate the development and introduction of new vaccines most needed by developing countries.

• The World Health Organization and our companies address issues related to research and development, drug quality and access to drugs. This process supports the "Malaria Pathfinder" initiative, which is examining ways to improve access to anti-malarial drugs and rational use of medicines.

• A drug-development working group is exploring ways to direct resources toward diseases particularly afflicting developing countries.

• Other proposals have been made to set up market-based mechanisms to encourage vaccine development for HIV, malaria and tuberculosis. Such policy measures are similar to the U.S. orphan drug legislation, and include tax credit and market exclusivity provisions to increase commercial feasibility of developing these medicines.

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As in the case of virtually all products, price differences exist for pharmaceuticals, within markets and across geographic boundaries. Within a market, prices may differ depending on who the buyer is: different individuals will value a particular product differently and will be willing to pay different amounts for it. In addition, a customer's buying power reflects his size or importance to the manufacturer.

Prices depend on supply and demand, which vary across international borders. Demand is affected by economic, social and political factors. The market for pharmaceutical products depends on a country's income level, its disease patterns, drug prescribing practices, cultural patterns and preferences, reimbursement systems, and whether patients and providers have information about available products. On the supply side, prices in a given market also reflect overall production and distribution costs. Tariffs and taxes, labor costs, transport costs, wholesale and retail mark-ups, regulatory requirements, levels of infrastructure, and quality standards all vary by country, resulting in different costs across borders.

Having differential prices for pharmaceutical products makes them available to more consumers, at lower prices, than would be possible if only one price were permitted. When there are different prices across markets (e.g., lower prices in developing countries), manufacturers can maximize overall output and serve all markets. This benefits both developing countries (by increasing the availability of products) and developed ones (by lowering prices through economies of scale in production).

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Prices are determined by a variety of factors, including manufacturing costs, mark-ups by wholesalers and retailers, tariffs and value-added taxes, and the competitive market environment. In some cases, prices also reflect direct government intervention in the market. Pharmaceutical prices generally are not much different because of patent protection. According to a recent study, Is Intellectual Property Protection Raising the Drug Bill in Developing Countries? by Rozek and Berkowitz, prices are not systematically higher in countries with patent protection.

In developing countries, the World Health Organization recommends that public health efforts focus on drugs deemed essential. It publishes the Essential Drug List, made up largely of drugs no longer protected by patents. Patents therefore play little role in pricing or access.

Many developing countries do not yet have laws that comply with an international accord called TRIPS (Trade Related Aspects of Intellectual Property Rights), which requires effective protection of patents. In some of these countries, such as India, generic copies of patented AIDS drugs are being produced. Parts of India and Africa still do not have access to these copied versions, suggesting that factors other than patents are involved.

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Patent protection is directly related to the ability of companies to meet the medical needs of patients in developing countries around the world. Patent laws provide the legal and business framework within which companies are able to engage in the risky, time-consuming, expensive process of drug-discovery.

To encourage risk and innovation, the patent system grants an inventor the exclusive right to manufacture, use or sell an invention for a limited period of time. A patent does not grant the inventor a monopoly on serving a market or performing a function. For example, new AIDS drugs - the second and third protease inhibitors, a breakthrough class of medicines - were introduced in March 1996, only three months after the first version's debut.

Experience shows that strong patent protection directly encourages pharmaceutical innovation. For example, in the decade after the enactment of the Orphan Drug Act of 1983, which provided limited market exclusivity and tax credits for drugs for small patient populations, 99 drugs for rare diseases were marketed, up from 10 in the decade before enactment.

Pharmaceutical research and development increased by more than 600 percent in the decade after Italy's weak patent law was strengthened. And after Canada improved its patent laws in 1987, pharmaceutical R&D rose from 6 percent to 10.6 percent of sales in four years. In a 1988 World Bank study of 12 industries, it was estimated that 65 percent of drug products would not have been introduced without adequate patent protection.

Because of the scientific challenges of finding safe and effective drugs, only one of 5,000 new chemical compounds discovered in the laboratory ever makes it to market. In part because of the increasing complexity of the chronic and degenerative diseases that have become the main targets of pharmaceutical research, it now takes on average 10 to 15 years to bring a new drug from the laboratory to market, at a cost of more than $500 million.

By comparison, a patent infringer can copy the drug for less than 1 percent of the R&D cost. Infringers, of course, do not benefit society by undertaking research on unmet medical needs.

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Governments sometimes allow production or sale of a product without the permission of the patent holder. Under TRIPS, World Trade Organization member states have agreed to protect patent rights. The TRIPS agreement does provide strict conditions under which compulsory licensing made be used - for example, in cases of extreme urgency, as long as there is strong legislative and enforcement protection for patent rights. It requires the patent holder to relinquish the product formula, but also requires fair compensation, based on the value of the product.

The negative consequences of using compulsory licensing as a means to further weaken intellectual property protection, however, are clear: fewer new medicines would come to market in the developing world.

Unfortunately, some members of the international community mistakenly call for the use of compulsory licensing as a means of providing better access to patented medicines in developing countries. Because the practice violates the innovator's intellectual property rights, it serves as a disincentive in the area of HIV/AIDS research - precisely the opposite of what the global community seeks. To find cures not only for AIDS but for many other diseases, and to help patients around the world, we need more research, not less.

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Compulsory licensing may or may not lead to cheaper drugs. It allows companies to manufacture drugs and base the price solely on production costs. But it does not guarantee that the drugs will be offered at a lower price. Meanwhile, manufacturers in developing countries don't always have the capability to produce the drugs. The drugs may not be available at all, or they may be of poor quality.

Established manufacturers and market leaders are the best source of a steady, reliable supply of quality medicines.

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Intellectual property is a legal concept developed to protect the ideas of creative people from unauthorized copying or imitation. Intellectual property law covers several major classes, including patents, trademarks, copyrights and trade secrets (also called "know-how"). The pharmaceutical industry largely relies on patents to protect its innovative products.

Patent systems require an inventor to share the knowledge behind the invention in order to obtain an intellectual property right. In exchange, the inventor receives protection against imitation for a limited period of time and accepts that after patent expiration the invention falls into the public domain and can be freely used. This balance between the sharing of knowledge and protection of innovation helps provide an environment that stimulates innovation and economic development.

Protecting innovation is critical to the future growth of developed and developing countries alike. The 21st century will be a century of ideas, and economic benefits will flow to those countries that protect the ideas and creativity of their citizens. There is a direct correlation between a country's protection of intellectual property and its economic growth and development.

Many developing countries are taking to heart the protection of intellectual property as part of a positive commercial climate necessary to attract foreign investment. Without protection of trade secrets, without patent or trademark safeguards, countries in every stage of development will fall short of their potential.

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Access to drugs in developing countries is a complex issue, and it would be overly simplistic, as well as wrong, to blame the TRIPS Agreement.

First, access to drugs encompasses the overall health care system, the distribution system for pharmaceuticals, the appropriate training for medical personnel, information for patients, as well as financial issues. The latter includes not only the price of the drugs, but the resources committed by governments to finance pharmaceutical purchases, the availability of insurance coverage or other aspects of the health care system. In short, in many developing countries where health care systems, transportation, storage and delivery infrastructure are weak, and where government priorities do not include health care much less pharmaceuticals, there are tremendous barriers (see: Challenges) to access to drugs. In most developing countries, in fact, the TRIPS Agreement has not been implemented, and therefore cannot be blamed for lack of access to drugs.

At the same time, it is important to recognize that implementation of TRIPS and other trade rules may, in fact, increase access to drugs. Our industry depends on the presence of consistent and fair trade rules, including those that protect our intellectual property rights. Without such practices, pharmaceutical companies and those who invest in them would be discouraged from providing the necessary capital to pursue the research and development of new medicines. This, in turn, will jeopardize patients' access to medicines not only in developing countries but worldwide.

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Parallel trade refers to the purchase of trademarked or patented goods in one country, and the subsequent export of those goods to another country, without the consent of the patent or trademark owner. The practice of parallel importation is driven by price differences among markets. In many countries, the government fixes the prices at which medicines can be sold or are reimbursed; it is this government interference in free markets that can encourage parallel trade. Parallel imports are generally exported from a low-price market and resold at a higher price in another country.

Such parallel trade may result in import/export of counterfeit or sub-standard products. Even where legitimate products are involved, this practice leads to a diversion of medicines from the relatively low-priced market. This process would leave patients in the lower-priced market with fewer medicines and drive up the prices of those that are available; the result is reduced access to medicines for local consumers. In effect, this practice harms patients in lower-priced markets (usually poorer countries), while benefiting consumers in wealthier countries.

Parallel imports of pharmaceutical products create health risks for consumers, as the handling and storage of the medicines cannot be guaranteed to be safe. Particularly in developing countries, with extreme climate conditions and unreliable sources of electricity, the safety and efficacy of these medicines can be compromised. Because parallel trade can involve production sites not approved by national regulatory authorities, there are inherent risks of importing counterfeit and/or substandard medicines. Consumers have been harmed, and some have even died, from the effect of low-cost counterfeit or other low-quality parallel imports. Counterfeit antibiotics, which frequently contain insufficient amounts of active ingredients, have increased the prevalence of drug-resistant infectious diseases.

Some may believe that parallel trade that results from government price controls will lead to lower prices of medicines for patients. However, recent evidence demonstrates that this does not necessarily happen. Often only the middleman benefits from buying low and selling high. In the end, patients on both ends of the unfair parallel trade process lose.

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The Trade Related Aspects of Intellectual Property Rights Agreement was a milestone in the multinational effort to establish stronger international legal standards governing protection of intellectual property rights.

TRIPS requires all World Trade Organization members to adhere to a set of minimum legal standards governing patents, trademark protection, copyrights and other forms of intellectual property. The agreement also requires all WTO members to grant rights expeditiously and to provide legal remedies for enforcement purposes.

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The Uruguay Round of talks from 1986 to 1994 led to numerous changes and updates to the General Agreement on Tariffs and Trade (GATT), the precursor to the World Trade Organization. These agreements now function as the framework the WTO uses to settle disputes and establish rules for global trade policy. Recognizing the importance of smooth, predictable and free trade, the approximately 130 WTO member nations agree to abide by the system.

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The Special 301 provision of the Trade Act of 1974 authorizes the office of the United States Trade Representative to track the status of a foreign government's policies regarding intellectual property protection.

This provision also allows the United States to take unilateral action against countries that do not provide adequate intellectual property protection and provides a mechanism for the U.S. government to initiate dispute resolution proceedings with the World Trade Organization.

This legal tool allows the United States to protect the integrity of U.S.-made pharmaceuticals - as well as other U.S.-made products - sold abroad, and defend against unfair trade practices or illegal copying.

USTR's most recent annual review examined intellectual property protection in more than 70 countries. The United States has filed 14 intellectual property-related complaints with the World Trade Organization since 1996.

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The office of the U.S. Trade Representative is responsible for developing and coordinating U.S. policy in international trade, commodities and direct investment, and leading or directing negotiations with other countries on such matters.

As part of its annual Special 301 review, the office of the USTR may place trading partners it regards as egregious violators of intellectual property rights - including those of pharmaceutical companies - on a "Priority Watch List," and less serious violators on a "Watch List." Failure to remedy the violations may lead to unilateral trade sanctions by the United States.

In her Special 301 review for the year 2000, Trade Representative Charlene Barshevsky placed 16 trading partners on the Priority Watch List, and 39 on the Watch List.

Countries on the U.S. Watch List are monitored for progress in implementing intellectual property rights protections and for providing comparable market access for U.S. intellectual property products.

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