[Ip-health] WTO TRIPS Council discussions on the transparency of R&D costs and the pricing of medicines: The Good, The Bad, and The Ugly

Thiru Balasubramaniam thiru at keionline.org
Mon Feb 24 01:03:33 PST 2020


WTO TRIPS Council discussions on the transparency of R&D costs and the
pricing of medicines: The Good, The Bad, and The Ugly

Posted on February 22, 2020 by Thiru

In February 2020, the World Trade Organization (WTO) de-restricted the
minutes of the TRIPS Council’s October 2019 session. While the official
minutes (IP/C/M/93/Add.1) were circulated to WTO members on 9 December
2019, the October 2019 minutes were only available to the general public in
February 2020. In October 2019, South Africa requested the WTO TRIPS
Council to examine the transparency of R&D costs and pricing of medicines
and health technologies guided by these five questions:
- What are the TRIPS flexibilities adopted by Members in their Patent laws
to ensure availability of patented medicines at reasonable prices?
- What are Members experiences with escalating prices of patented medicines
and what are the policy responses implemented to address this trend through
the use of TRIPS flexibilities?
- What approaches have Members implemented regarding price regulation of
patented medicines such as a combination of cost-based pricing, value-based
pricing, reference pricing, and/or through tendering and negotiation, and
regulating mark-up levels? If any of these approaches have been used, what
are the results and challenges that Members face to ensure compliance and
disclosure of necessary information or their effect on the prices of
- What measures have Members implemented to enhance the publicly available
information on the costs of manufacturing of medicines, vaccines and health
technologies, in particular information on grants, tax credits or any other
public sector subsidies and incentives relating to the initial regulatory
approval and annually on the subsequent development of a product or
- Can Members share their experiences to improve the transparency of the
patent landscape of medical technologies to ensure that no barriers are
created to generic competition through sharing complete and up to date

The official minutes of the October 2019 TRIPS Council meeting can be found
here <https://www.keionline.org/wp-content/uploads/M93A1.pdf>.

At the October 2019 TRIPS Council, South Africa opened up discussions on
transparency by noting the following <https://www.keionline.org/31946>:

   610. Mr. Chairman, I do not propose to read the entire paper, however I
   would want to focus on or two further areas before I turn to the questions.
   Pricing strategies are based on determinants such as, inter alia the cost
   of R&D, costs of production or financial returns to incentivize future R&D
   programmes. The true costs of R&D for pharmaceuticals are often unknown and
   highly variable, while the contribution made by public and
   non-profit-making sectors towards the R&D of medicines is not always
   accounted for. The marginal production costs of medicines are relatively
   small compared to their market prices while a significant proportion of
   this expenditure might be for marketing and promotional activities, which
   are costs not related to the development of the product. (Source:
   IP/C/M/93/Add.1, Page 67)

   611. South Africa calls on Members to share their experiences of how
   TRIPS flexibilities have been used to address high prices and barriers to
   access to medical technologies and medicines in order to achieve public
   health and related national objectives. In the past the impact of
   competition and anti-trust laws on access to medicines was explored in
   IP/C/W/643. The issue of abuse of IP rights remains relevant in the context
   of the application of national and regional norms to ensure cheaper and
   more effective access to medical technologies and medicine. Policies that
   influence the pricing of health technologies or the appropriate rewards for
   successful research outcomes can be better evaluated when there is
   reliable, transparent and sufficiently detailed data on the costs of R&D
   inputs (including information on the role of public funding and subsidies),
   the medical benefits and added therapeutic value of products. (Ibid)

The responses of Switzerland, the United States of America, and the
European Union to South Africa’a request to discuss the transparency of R&D
costs and the pricing of medicines and health technologies at the TRIPS
Council deserve further scrutiny.

In relation to pricing and biomedical R&D costs, Switzerland asserted that
discussions of the “pricing of medicines as well as the cost of research
and development to be outside of the purview of the TRIPS Council”.

   680. My delegation considers also the pricing of medicines as well as
   the cost of research and development to be outside of the purview of the
   TRIPS Council. The WHO is currently examining questions in this regard, as
   the communication of South Africa also notes. (Ibid, Page 74)

   681.Having said this, it would be misleading in this delegation’s view
   to imply that the price of a medicine is directly related to patents. To
   ask for a specific price, is not a right conferred by a patent on its
   owner. (Ibid)

The United States held that the pricing of medicines was a “very important
issue that is currently being discussed in the United States”. The United
States echoed Switzerland’s view that discussions on the pricing of
medicines were not an appropriate for the TRIPS Council.

   690. Pricing of medicines is a very important issue that is currently
   being discussed in the United States. (Ibid, Page 75)

   691. However, we do not believe that it is an appropriate topic for
   TRIPS Council. (Ibid)

In relation to patentability criteria, the United States provided the
following comment:

   700. In terms of pricing, it is important that patents are not issued
   for old and obvious ideas and that the patent term is not inappropriately
   extended, so that generic manufacturers can make medicines available at
   lower price. (Ibid, Page 76)

The initial response of the European Union at the October 2019 TRIPS
Council was a regurgitation of the position the EU expressed in November
2018 on intellectual property and competition; clearly the functionaries at
the European External Action Service and DG Trade did not get the memo that
South Africa’s proposal for October 2019 focused on the transparency of R&D
costs and the pricing of medicines and health technologies. Here are some
extracts from the European Union response.

   627. As already stated at the TRIPS Council of November 2018, in
   general, we do not consider the TRIPS Council the appropriate forum to
   discuss competition policy regarding pricing of medicines and health
   technologies. There are other international fora, such as the International
   Competition Network, where such international exchanges and cooperation are
   taking place. (Ibid, Page 69)

   628. While the submission from South Africa seems to consider the use of
   competition policy a TRIPS flexibility, the EU would be cautious. While
   TRIPS is obviously compatible with the application of competition policy
   measures, it clearly does not allow for an “absolute policy space”. As
   provided for in Articles 8.1 and 2, as well as in Article 40.2, these
   measures have to be consistent with the provisions of the TRIPS Agreement
   and cannot be used as tools in avoiding the obligations under the
   Agreement. (Ibid)

   629. Generally, competition policy plays an important role in
   controlling and sanctioning anticompetitive market behaviour in any sector,
   including the pharmaceutical sector. (Ibid)

   630. The examples concerning excessive pricing as a competition law
   infringement in the pharmaceutical sector in the EU show that competition
   law enforcement in the EU is done on a case by-case basis. (Ibid, Page 70)

The European Union response on transparency reminded the TRIPS Council that
the EU and its Members contributed EUR 19 billion from 2001-2016 to the
Global Fund.

South Africa re-entered the fray to remind the European Union of the
subject at hand (and the positions expressed by several EU member states on
transparency at the World Health Assembly in May 2019).

   705. I would like to point out that this particular item does not deal
   with competition policy as such. It deals with price transparency and so is
   different in emphasis. I believe that in respect of the UN High Level Panel
   Report we disagree that the panel’s mandate was narrowly focused on the
   issues that both the European Union and the US point out. We note that some
   of the EU member States have taken different views on the issue including
   in the World Health Organization related to transparency of medicine
   prices. (Ibid, Page 76)

In its endeavor to make a contribution germane to the discussions, the
European Union noted:

   714. When it comes to transparency of the cost of medicines members of
   the European Unionand the EU would agree that we have to provide guaranties
   and we have to work together so we can boost transparency in the
   marketplace.But the actual cost of producing medicines is relatively low or
   basically zero in some cases. (Ibid, Page 77)

   716.If we look at the procedure for bringing to market,clinical and
   pre-clinical tests can take years. Public funding differs between EU
   Members and differs around the world. Everyone knows that such
   help,subsidies which vary,are quite often part of the pricing. (Ibid, Page

The European Union provided these final remarks lest experts and scholars
doubt that the European Union was confused (between the subject of IP and
competition policy on the one hand, and and the transparency of R&D costs
and the pricing medicines, on the other).

   719. We do not think in the EU that we confuse competition policy with
   this. In the EU,within a single market,competition in the pharmaceutical
   sector is treated in the same way as for any other sector. We recognize the
   actual cost of the medicine is something which is very delicate. I did not
   want you to be confused and let South Africa’s communication say what it
   does not. (Ibid).

The World Health Organization provided the following perspective on the
transparency negotiations at the World Health Assembly in May 2019.

   711. During the last World Health Assembly in May 2019, WHO members,
   “Seriously concerned about high prices for some health products, and
   inequitable access to such products within and among Members, as well as
   the financial hardship associated with high prices which impede progress
   towards achieving universal health coverage”, approved the so-called
   “Transparency Resolution”, WHA72.8, co-sponsored jointly by more than 20
   developed and developing countries (including South Africa), on improving
   the transparency of markets for medicines, vaccines, and other health
   products.The Resolution recognizes “that the type of information publicly
   available on data across the value chain of health products,including
   prices effectively paid by different actors and costs, vary among Members
   and that the availability of comparable price information may facilitate
   efforts towards affordable equitable access to health products”. The
   Transparency Resolution urges members, inter alia, to share information on
   net prices of health products as well as on costs from human subject
   clinical trials; to facilitate improved public reporting of patent status
   information and the marketing approval status of health products; and to
   improve national capacities, including through international cooperation
   and open and collaborative R&D and production of health products in
   particular in LMICS. (Ibid, Page 77)

Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International
41 22 791 6727
thiru at keionline.org

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