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Effect of TRIPS on Pricing, Affordability and Access to Essential Medicines in Bhutan Tandin Dorji Aug 31, 2007

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 Effect of TRIPS on Pricing, Affordability and Access to
Essential Medicines in Bhutan
Dr. Tandi Dorji*
Abstract
Health care in Bhutan is free and the Essential Drugs Program
under the Ministry of Health has been able to provide high quality
effective medicines for the people. The bulk of these medicines is
imported from generic companies in India, where based on its
1970 patent laws, copies of patented drugs were manufactured
using different processes which made it cheap and affordable for
many developing countries. However with the enactment in India
of its new patent laws in 2005 and with Bhutan becoming a
member ofthe WTO, the affordability of those medicines developed
post-1995 will become severely limited. With both India and
Bhutan becoming TRIPS compliant, we will have to incorporate
and amend our national laws and review how best we can utilize
the flexibilities in TRIPS, afforded by the Doha Declaration and the
Decision of the General Council. We need to address these issues
if we are to safeguard public health and to continue to access
affordable high quality medicines for our people.
Introduction
With the small population of approximately 700,000, Bhutan
has made significant strides in health since 1961, when the
health department and the first hospital were established.!
Health care is free for all citizens, delivered through public
hospitals and dispensaries. Access to health care is good with
90 % of the population having access to a health center
within 3 hours walking distance.2 The Drugs, Vaccines and
Equipments division (DVED) is responsible for the purchase
and supply of all medicine, throughout the country.
* Pediatrician, JDWNR Hospital, Thimphu.
i  Planning Commission  (1999).  Bhutan 2020. A  vision for peace,
prosperity and happiness., Thimphu: Royal Government of Bhutan.
2 Department of Health Services (2000). A Report: National Health
Survey 2000, Thimphu: Royal government of Bhutan.
128
 Effects of TRIPS on essential medicices ion Bhutan
In the 9th five year plan (2002-06) the ministry of health
received 6.4 % of the total budget outlay, which is one of the
highest in the region.3 Like most developing countries
procurement of pharmaceuticals accounted for the second
highest expenditure.4 The Essential Drug Program (EDP),
which began in 1987, distributes medicines to different levels
of care and is considered exemplary by the World Health
Organization (WHO).5 It noted that 90 % of people had access
to high quality essential drugs, and only 0.75 % ofthe overaU
budget was wasted on expiry drugs. The National Drug Policy
guides the procurement and supply of medicines usually from
pre-quatified suppliers and through central procurement. The
government was thus able to negotiate and purchase these
essential medicines at a price that was 50% below the world
market prices.6
Regular prescription and drug utilization surveys enable
pharmacists to interact closely with doctors and ensure that
the medicines are put to their best use with minimum waste.
The people thus benefit from these policies, with access to
health care made available by the government and the EDP
ensuring timely availability of high quality drugs. However
with Bhutan on the verge of becoming a member of the World
Trade Organization (WTO), we wiU have to comply with the
TRIPS (Trade related aspects of inteUectual property rights)
agreement and this poses several chaUenges to accessing and
being able to afford essential medicines. To aggravate the
situation, India who is our biggest source of essential drugs,
enacted its new patent laws and like other least developed
countries (LDC), Bhutan wiU find it difficult to maintain the
present    system    of   providing   free,    cheap,    high   quality
3 National Statistical Bureau (2004). Statistical Yearbook of Bhutan,
2003, Thimphu: Royal Government of Bhutan.
4 Hogerzeil, H.V. (2005). "The concept of essential medicines: lessons
for rich countries," British Medical Journal, 329.
5 Organization WH. Bhutan: Health infrastructure. In; 2002. Available
at http://w3.whosea.org/ehp/pdf/books/bhu-2003/resources.pdf
6 Group   TFW   (2004).    Millennium,   project:   Access   to   Essential
medicines, Geneva: United Nations Development Fund (UNDP).
129
 Journal of Bhutan Studies
medicines.
There have been several discussions from various sectors on
the advantages and disadvantages of becoming a member of
the WTO here in Bhutan, however very little has been
discussed or written from the health perspective. This paper
wiU therefore discuss the issue of access and affordabitity of
medicines in relationship to TRIPS, which is the major
consequence for health on Bhutan becoming a member of the
WTO.
Background to TRIPS and its challenges to developing countries
In 1994, when the WTO was formed, its member states
adopted TRIPS as a means for securing inteUectual property
protection for pharmaceuticals and other technologies. The
reason for this was to encourage funding and to provide
incentives for big pharmaceutical companies to continue to
research and develop new drugs. It costs between US $402-
793 million,7 and takes 10-15 years of research to put new
medicines into the market. TRIPS enabled these major R&D
pharmaceutical companies to recover their costs by way of
patents. As per article 27 ofthe TRIPS agreement, patents on
these new drugs provided exclusive rights to the producer
and prevented others from "making, using, offering for sale,
selling or importing" the new product for a period of 20 years,
during which time they not only regained their cost but also
made huge profits. Developing countries were given until
2000 to comply with TRIPS provisions and LDCs were given
six additional years until 2006, which was subsequently
extended to 2016 with respect to medicines.
Although theoreticaUy this seems fair, in reality this puts
developing countries at a huge disadvantage.
Drug companies are driven by profits and therefore tend to
7 DiMasi, J.A., Hansen, R.W. and Grabowski, H.G. (2003). "The price
of innovation: new estimates of drug development costs," J Health
Econ, 22:151-185.
130
 Effects of TRIPS on essential medicices ion Bhutan
invest in developing medicines for diseases that are more
prevalent in Western countries, mostly addressing the so
called lifestyle diseases as these richer and bigger markets
helped generate better profits. Diseases that are rampant in
developing countries are neglected and it is for this reason
that we have not seen any new drugs for diseases tike
tuberculosis, leishmaniasis, shigellosis and meningitis for the
last three or four decades. Between 1975-1997 there were
1,223 new chemical entities commercialized, out of which 379
(30.9 %) were considered as therapeutic innovations and only
13 were specific for tropical diseases and sadly only 4 were
produced as a direct result of R & D conducted by
pharmaceutical industries.8 Even when new drugs are
developed (e.g. artemesinin for malaria), they are too
expensive to be affordable for a vast majority of people that
need them.
Developing countries on the other hand lack technical,
financial and human resources to carry out research and
develop new drugs, especially given that they must foUow
'Good manufacturing practices'. This is a process by which
new drugs have to pass through various stages to ensure that
it is effective, safe and of high quality before the drug is
marketed. AU these requirements lead to high production
costs, thereby making patented drugs expensive and out of
reach for the poorer section of the world.
Up until 2005, India had followed its own patent laws
established in 1970, which granted patents to processes only
and not for products. Therefore by using different processes
such as reverse engineering, India was able to produce
generic versions of patented medicines and this lead to the
growth of a huge generic industry, which supplies 70% of the
world's generic medicines. In addition, for registration of
these generics and to prove that the drug was bio-equivalent
8 Pecoul, B, Chirac, B, Trouller, P et al. "Access to essential drugs in
poor countries: a lost battle?" JAMA. Available at:
http://www.accessmed-msf.org/prod/publication.asp
131
 Journal of Bhutan Studies
(of the same standard in terms of efficacy and quality) to the
original patented drug, it did not have to pass through the
same stringent process of testing and providing supportive
data. It could use the evidence of the data submitted by the
original company or proof of the original drugs registration by
a stringent regulatory authority in another country. It also
had the freedom to combine multiple patented drugs into a
single tablet/capsule (there are no patents on fixed dose
combinations) thereby making it convenient for the patients
in terms of compliance. Since these drastically reduced the
costs of production, generic medicines were much cheaper,
leading to a major reduction in drug prices. The effects of
these price differences were significantly seen with anti-
retroviral medicines, which are used for treating HIV/AIDS
patients. With the pandemic reversing the development
achievements in many African nations and threatening to do
the same in Asia, a reduction in prices of anti-HIV/AIDS
drugs from an unaffordable US $ 10,000 (for treating one
patient for a year) to an affordable US $ 140 was a boon and
a blessing for many developing countries combating this
disease.
While the countries of the south, non-governmental
organizations (NGO's), civil society and international
humanitarian organizations welcomed this, the major drug
companies were fuming, seeing their potential profits dwindle.
They continued to exercise their influence with the support of
their governments and pushed the WTO for more stringent
measures to follow TRIPS protocol and on several occasions
brought governments to the WTO for arbitration, which often
ended in embarrassment for these companies.9 At the same
time, developing countries continued to fight for more
recognition of public health concerns and better access to
cheap, effective and high quality generic drugs. This conflict
came to the forefront in November 2001 at Doha, Qatar,
which was regarded by many  as  a victory for  developing
9     Brazil,     Abbot,     &     AIDS     drugs     patents.     Available     at:
http: / /www.natap.org/2005/HIV/070805 01.htm
132
 Effects of TRIPS on essential medicices ion Bhutan
countries.
The Doha Declaration of 2001 ensured access to cheap high
quality generic drugs for diseases such as HIV, malaria and
tuberculosis. It allowed countries such as India, Brazil and
Thailand to use certain flexibilities within TRIPS, especiaUy
compulsory licenses, to continue to manufacture these
essential drugs in the generic form.10 Article 31 (f) of TRIPS
however, stated that compulsory licenses for the manufacture
of medicines were to be issued "predominantly for the supply
of the domestic market of the member".n Non-Producing
Countries (NPC), tike Bhutan, with no domestic
pharmaceutical industry or market, cannot make use of
compulsory licenses, and importing cheap generic drugs from
India is the only lifeline. The only relevant comment for such
countries from the declaration, is the instruction given to the
"Council for TRIPS to find an expeditious solution to this
problem" by 2002. Subsequently after nearly 2 years of
debate in 2003, the General Council by way of its 30th
August decision12 agreed to waive article 31 (f) of the TRIPS
agreement for LDCs and this was further supplemented with
a statement by the General council chairman in 2003.
Although several concessions were made and many of the
points clarified,  it made implementation of the flexibilities
io World Trade Organization (2001). Declaration on TRIPS agreement
and public health. Ministerial declaration. Ministerial Conference,
fourth session, 9-14 November 2001, DOHA. WT/MIN (01J/DEC/2,
Available at:
http://www.wto.org/english/thewto e/minist e/minOl e/mindecl t
rips e.pdf.
11 World Trade Organization. Agreement on Trade related aspects of
intellectual property rights. Part II, Standards concerning the
availability, scope and use of Intellectual property rights, Article 31
(f). Available at:
http://www.wto.org/english/tratop e/trips e/t agm3c e.htm.
12 WT/L/540 and Corr.l. Decision of the General Council of 30
August 2003. Implementation of paragraph 6 of the Doha
Declaration on the TRIPS Agreement and public health. Available at:
http://www.wto.org/English/tratop e/trips e/implem para6 e.htm
133
 Journal of Bhutan Studies
cumbersome and impractical. 13 Countries intending to import
or export medicines had to pursue several labyrinthine
procedures and fulfil all the criteria as set out by the council
making it unlikely for any member to use it effectively. Even if
Bhutan attempts to meet the requirements mentioned in the
decision, it is unlikely that the Indian companies wilting to
export drugs wiU take the initiative or the effort to fulfil their
part of the criteria because of the myriad of labyrinthine
procedures and the relatively small demand.14
India's decision to become TRIPS compliant with the passing
of the Indian patent act by parliament in March 2005 will
further aggravate the situation. Amidst a walkout by the
opposition party, the controversial law was passed, and what
was disheartening for most developing countries was that the
law went beyond what was required by TRIPS.15 Under the
new law, besides new chemicals and products, patents can
also be given for formulations, new drug delivery systems and
combinations, making it possible for companies to acquire
patents on new uses of old drugs and on new combination of
old drugs. This wiU severely restrict access to
pharmaceuticals, even for those drugs that were made prior
to 1995, which are exempt from patent laws. The new laws
also make the exporting of compulsory licensed drugs iUegal if
the importing country does not have a license too. For
Bhutan, which does not have to comply with TRIPS until
2016, and where there are no patents for any drugs, it seems
absurd to issue a compulsory license for a non-existent
patent.    With    limited    financial    resources    and    heavily
is Correa, CM. (2004). Implementation ofthe WTO General Council
decision on paragraph 6 of the DOHA declaration on TRIPS
agreement and public health. Department of Essential drugs and
medicine policy, Geneva: World Health Organization.
14 For example the number of HIV infected people is only 72 and
there are a few hundred with tuberculosis and malaria. (Annual
health bulletin 2003. Ministry of health, Royal government of
Bhutan)
15 Sharma, D.C. (2005). "Indian patents may hamper access to anti
retroviral globally," The Lancet, 5: 136
134
 Effects of TRIPS on essential medicices ion Bhutan
dependent on donors, Bhutan wtil not be able to afford the
more expensive patented drugs. This can have serious impact
on the sustainability of the present provision of free
medicines.
Effect of TRIPS on pricing, affordability and access
Given its geographical location and rapid globalization,
Bhutan reluctantly began its accession to the WTO in 2004,
aware of the many pitfaUs and the heavy disadvantages that it
faced. 16 However, very little discussion took place with
regards to TRIPS and public health, and especially with
affordability and accessibility of drugs. The application of
national laws can still assist poor countries in accessing
affordable drugs, however with limited trained professionals
in aU sectors we are yet to address such issues and to amend
and refine our trade laws, in particular those related to
TRIPS. Even after establishing relevant laws, it wiU be
essential to have a system in place and a common
understanding between aU sectors in safeguarding our rights
to use the flexibilities because companies can stiU find ways
to block the export of drugs, as was seen in Phtiippines,
where after issuing compulsory license for 51 drugs, only 1
managed to be distributed and that too after 10 years of
effort. 17
Bhutan also depends upon btiateral agencies and the UN for
much of our revenue. For example, in 2000, 27.5% of our
expenditure for public health came from external sources, i8
Even though we spend a high percentage of our budget on
health,   it  wiU  be   difficult  to   sustain  the   delivery  of free
16 Wangyel, Tashi (2004). "Rhetoric and reality: An assessment ofthe
possible impact of WTO on Bhutan," in The Spider and the Piglet,
Thimphu: The Center of Bhutan studies.
17 Correa, CM. (2004). Implementation ofthe WTO General Council
decision on paragraph 6 of the DOHA declaration on TRIPS
agreement and public health. Department of Essential drugs and
medicine policy, Geneva: World Health Organization.
is World Health Organization. Health resources: Bhutan. Available at
http://w3.whosea.org/cntryhealth/bhutan/bhuresource.htm.
135
 Journal of Bhutan Studies
medicines and continue our policy of free health care.
Insurance companies are unlikely to take over the financing
of health care because the numbers of clients are likely to be
small and because of the absence of private hospitals and
medical facilities in Bhutan. Moreover, more and more
patients, those who can afford to pay the premiums wiU seek
care in third countries making such ventures for insurance
companies non-viable. Therefore, unless alternatives are
explored and tested, Bhutan wiU not be able to afford the
patented drugs with the present budget.
Although health services wiU be accessible, the provision of
free drugs may not be possible unless some mechanism of
charging fees is developed. This will then lead to essential
drugs becoming inaccessible to a majority of the population.
Because poor people tend to pay out of pocket for medicines,
there is a danger of having a 2-tier system of access, one
having access to effective expensive drugs and the other to
older, less effective, patent expired generics. 19
Options for utilizing the TRIPS flexibilities
We are not required to be TRIPS compliant till 2016; however,
since we do not have a domestic pharmaceutical industry, we
are dependent on other countries, predominantly India, which
has not only become TRIPS compliant but has also
implemented its national laws incorporating these changes. It
is for this reason that we need to address TRIPS and other
issues in relation to public health so that we continue to
safeguard the health of our people and ensure access to
affordable and effective medicines. As a LDC/NPC, Bhutan is
eligible to utilize the Para 6 Decision as an importer and to
purchase generic medicines from any manufacturer. The only
requirement as per the General Council August decision is for
us to make a notification to the WTO in this regard. However
for the exporter there are several procedures; seek voluntary
license from the patent holder on commercially reasonable
19 Mudur, G. (2005). "Changes to India's patent law may deny cheap
drugs to millions," British Medical journal, 330: 692.
136
 Effects of TRIPS on essential medicices ion Bhutan
terms for a reasonable period, seek and obtain a compulsory
license from its government, manufacture and export only the
specified amount, pay royalties to the patent holder based on
the commercial value in the importing country, investigate
the patent holders product in the importing country and
differentiate it significantly and prominently, seek registration
and prove bio-equivalence to the regulatory authority in the
importing country, and notify to the WTO along with postings
of the entire detail on its website. This same procedure has to
be replicated for every individual drug and for every country
to which the exporter intends to export! Given these
procedures, the consequent delay in production, and the cost
implication, no generic manufacturer would be inclined to
take the initiative, especially when you consider the small
demand of the Bhutanese market.
For Bhutan, the options available from the TRIPS flexibilities
are to import no-patent drugs (older) without restriction or to
negotiate with exporting countries for issuing of compulsory
license for export. There are no restrictions on importing
medicines from a no-patent country, but where there are
patents, such as in India, we can import either only non-
predominant amounts or an unlimited amount depending
upon whether a ordinary compulsory licence (Article 31 (f)) or
a compulsory license to effect Article 31 (k) (related to patent
abuse) is issued in the exporting country. Both of these are
unlikely because of the limited commercial benefits for the
drug manufacturer, an incapacity to reach economies of
scale, and its adverse impact on foreign direct investment.
Another option to consider is to seek and negotiate with the
exporting country for an Article 30 Limited exception export,
whereby it permits a pharmaceutical company to
manufacture products for export to a no-patent country or in
response to a compulsory license from a NPC. This is
considered by many, including international organisations
tike the World Health Organisation, to be the most efficient
and expeditious way to access cheaper generic medicines.
However, there is very limited experience in using this clause
137
 Journal of Bhutan Studies
and it therefore may be considered risky by the
manufacturer. It will also require strong legislative authority
and the support of the government. Developed countries and
the patent holder can still challenge this limited exception
rule and bring the case before the WTO. But given the
commercial risk, many exporters will not have enthusiasm for
this route.
Therefore, even though the Doha Declaration and the
Decision of the Council promises to ease access to essential
medicines for developing countries tike Bhutan, in practical
terms it wiU be more difficult to do so. The inability to utilize
aU the flexibUities afforded by these decisions, absence of
strong national laws and legislations, and the fear of
repercussion from powerful Western governments and lobbies
pose serious threats to LDCs efforts to safeguard public
health. More over, there is a constant danger of powerful
countries adding TRIPS plus provisions into any bilateral or
regional trade negotiations, which effectively deny these very
flexibilities.
Recommendations
The first and foremost action that we need to take in respect
to TRIPS and public health is to develop national laws that
incorporate TRIPS so as to safeguard the country's ability to
import and deliver high quality drugs to its people.
Regulations and legislations should address such issues as:
granting of compulsory license to import drugs for
government non-commercial use without prior notification;
import and re-export within the region; registration of generic
drugs and proof of bio-equivalence; limiting patent holders'
rights of appeal; setting royalty rates; defining international
exhaustion regimes; and above aU to legally enable the EDP
and the Ministry of Trade to resort to aU the flexibUities in the
TRIPS agreement and related texts. At the same time, laws to
prevent the re-export of licensed generics should also be
made and enforced in order to gain the confidence of patent
holders. Consultation should be held between the Ministry of
Health, the Ministry of Trade, the Foreign Ministry, the Royal
138
 Effects of TRIPS on essential medicices ion Bhutan
Court of Justice, and the relevant international organizations
that provide technical assistance. The waiver offered by the
2003 council meeting must be incorporated as a solution
through urgently needed national laws.
Secondly, negotiations with the Indian government through
regional organizations, such as SAFTA (South Asian Free
Trade Agreement), should be initiated soon in order to
address ways to increase access to generic drugs. A regional
approach would benefit both the manufacturer in terms of
reaching economies of scale and the member countries as
exemplified by the African InteUectual Property Organisation.
The decision of the General Councti in paragraph 6 also
encourages such co-operation and specifically mentions that
"Article 31(f) of the TRIPS Agreement shall be waived to the
extent necessary to enable a pharmaceutical product
produced or imported under a compulsory license in that
Member to be exported to the markets of those other
developing or least developed country parties to the regional
trade agreement that share the health problem in question."
Another mechanism that could be employed is to have a
centralised pooled system of purchasing essential drugs.
Pooled procurement, like the Eastern Caribbean Drug
Service20 helps member countries to purchase drugs from a
single manufacturer and because the bulk ordered is large,
helps to negotiate prices and bring them down to affordable
rates.
LDCs do not have to comply with TRIPS untti 2016, and so
Bhutan should take full advantage of the flexibUities accorded
and in the meantime develop a pool of professionals from the
different departments to address aU the issues of TRIPS. For
the Ministry of Health and especially the procurement
division of the EDP, it is important that key personnel are
trained to address these issues nationaUy and internationally
20 Rouselle, M.F. and Burnett, F. "Cost containment through
pharmaceutical procurement: A Caribbean case study," International
Journal of Health Planning and Management, 11 (2): 135-57.
139
 Journal of Bhutan Studies
so that uncertainties about patent status do not create a
barrier. They should also ensure that appropriate policies on
selection, purchase, appropriate taxes and prescribing
practices are drawn up so that these factors do not feature in
the rise of drug prices.21
Bhutan should continue to push for simpler and faster
procedures to benefit from compulsory licenses, differential
pricing and the waiver of article 31 (f). With other partners
Bhutan should urge the WTO to explore new ways to benefit
poorer countries, such as equity pricing,22 automatic
licensing and fixed royalties for patented drugs.23 It should
negotiate with India on paraUel import mechanisms and also
on immediate export with a notification from Bhutan, without
the cumbersome procedure of getting a compulsory license in
India.24
Summary
Bhutan has an effective EDP with more than 90% of its
people having access to high quality medicines, mainly
generics imported from India. With India's new patent laws,
the sustainability of the EDP and free health care policy is
threatened. Without a domestic pharmaceutical industry, a
compulsory license is unlikely to benefit Bhutan and we
should rely instead on the waiver issued by the council in
2003. It is important that Bhutan enact its own national laws
to safeguard affordability and access to quality drugs and
explore aU the flexibilities accorded in the Doha Declaration.
2i Henry, D and Lexchin, J (2002). "The pharmaceutical industry as
a medicines provider," The Lancet, 360: 1590-95.
22 Chaudhuri, S., Goldberg, P.K., and Jia, P. (2003). "The effect of
extending intellectual property rights protection to developing
countries: A case study of the Indian pharmaceutical marke,"
National Bureau of Economic Research, working paper 10159,
Cambridge.
23 Chaterjee, P. (2005). "India's new patent may still hurt generic
drug supplies," The lancet, 365: 1378
24 Ahmed, K. (2005). "India's new patent bill threatens generic
industry," The lancet, 5: 265.
140
 Effects of TRIPS on essential medicices ion Bhutan
It should also build a strong technical professional team to
address these issues nationally and internationally. It is
important to forge ties with its neighbours within the region
to set up mechanisms to protect the fundamental right of its
citizens to quality health care. It must ensure that its citizens
have access to quality and effective drugs at a cost which the
country can afford. In this highly globalised and unequal
world, this wiU only be possible through its own political will.
141

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