Changing Drug Markets Under New Intellectual Property Regimes: The View From Central America

Abstract

The intellectual property rules inscribed in the Central American Free Trade Agreement have generated concern about access to medicines.

We examined the implementation of the new intellectual property regime by tracking the policies and practices in place across 4 Central American countries. Although all 4 were responding to the same requirements under the agreement, their implementation of intellectual property rules differed. Not only were institutional practices different, but the lists of drugs to which intellectual property protection was applied varied in both volume and content.

We also found that even without the influence of intellectual property, drug pricing in the region was often unpredictable and that lower cost was not the only motivation driving governments' purchasing decisions.

The term intellectual property (IP) refers to a set of protections for inventors and artists to ensure that proceeds from their creation are not usurped by copycats. In recent years, most countries around the world have introduced reforms to strengthen protections for IP in the field of pharmaceutical products. This trend has brought with it growing concern about the potential impact of these changes on access to medicine.

APPLYING INTELLECTUAL PROPERTY PROTECTION TO MEDICINES

In medicines, the most well-known form of IP is the patent, designed to promote innovation by rewarding originators of new drugs with a period of exclusive access to markets. Newer IP standards, however, include far more than patents; other forms include the mandated protection of test data such that for a specified period manufacturers of generic drugs are unable to register their product simply by proving bioequivalency to the original product.¹ Although not a patent, test data exclusivity is effectively patent-like in that it grants a temporary market monopoly, but it differs from patents in that it is automatically granted when a product enters the market.² Other IP standards involve specific institutional arrangements at national ministries of health to further protect the interests of IP rights holders (producers of brand name drugs) in the drug registry process.

Historically, countries have arrived at their own determination regarding the degree to which IP rights have been applied to pharmaceuticals. This method has changed with trade liberalization in recent years. In 1994, the World Trade Organization's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) introduced the first universal standard for IP protection, including a 20-year patent term. In many cases, further IP reforms have been ushered in during negotiations for bilateral trade agreements with the United States or European Union; these agreements have typically required more stringent standards have than those demanded under TRIPS. These new standards are often referred to as TRIPS-plus, reflecting the heightened nature of IP protections they require.

Opposing Sides in the Intellectual Property Debate

Proponents of strengthened IP policies, such as the Pharmaceutical Research and Manufacturers of America, the Office of the United States Trade Representative, and other promoters of liberalized trade policies (sometimes referred to as free trade) argue that such provisions are beneficial to public health. Strong IP protections, they assert, serve to reward innovation, which is necessary to discover cures to deadly diseases. Because innovation is costly, those who undertake it must be well compensated to ensure that they continue to devote their energies to the production of new drugs.

IP protection detractors warn of dire consequences. Organizations such as Oxfam, Doctors Without Borders, Amnesty International, some United Nations committees, and patients’ rights groups across the global South have argued that the market reward system that IP protection seeks to strengthen creates incentives to innovate in certain niches but not necessarily where the greatest need exists. As a result, diseases that afflict the poor go unstudied, while new products to ameliorate baldness or erectile dysfunction proliferate. Furthermore, these critics caution, even if the system worked, it would be unconscionable to force poor patients to pay for brand name drugs to prop up corporate profits when more lives could be saved by producing cheaper generic alternatives. As Joseph Stiglitz writes, IP protection represents a stark tradeoff: “life versus profits.”^3(p104)

Clashes between these contending interpretations have occurred in several settings: at the World Trade Organization itself, where a coalition of countries in the global South argued successfully that increased flexibilities were necessary to ensure that the dictates of TRIPS did not infringe on public health commitments, resulting in the Doha Declaration on the TRIPS Agreement and Public Health; at IP-specific meetings and venues, such as the World Intellectual Property Organization; and, perhaps most visibly, in the context of the negotiation and ratification of bilateral trade agreements involving the United States or European Union, virtually all of which have included TRIPS-plus standards.

For the most part, the differences of opinion evident in these discussions reflect divergent assumptions about how IP protections will work in practice. Both defenders and detractors of IP protection rely heavily on projections of future impact; even 15 years after TRIPS, we have a paucity of data by which to judge IP protection's impact. This insufficiency is partly because of the nature of the provisions themselves: they apply only to new drugs and generally involve the extension of monopolies at the tail end of patent lives, so their aggregate impact will only gradually be felt. Furthermore, because poor countries were granted several years to implement TRIPS, many did not begin to enforce IP provisions until the past decade. Although several studies are under way to document IP protection's actual—no longer projected or assumed—impact, much of the discussion continues to rely on projections formulated on the basis of certain assumptions.

Intellectual Property Research in Central America

From 2007 to 2009, we coordinated a network of researchers in the 5 Central American countries that were party to the Central American Free Trade Agreement (CAFTA) with the United States. Our focus was the agreement's IP chapter and its impact on access to medicines. Other Central American countries, such as Panama and Belize, were not included in this agreement and were therefore not bound to implement the same TRIPS-plus policies.

Although researchers from all 5 countries participated in network discussions, researchers from only 4—Costa Rica, El Salvador, Guatemala, and Nicaragua—went on to conduct studies with a uniform methodology, aimed at understanding how IP laws were being implemented and what effects might be expected in the future. The studies also examined current drug pricing to draw a baseline against which future comparisons might be made. The research involved interviews with key informants, review of official documents, and a survey of specific drug prices in urban areas.

HISTORY OF CENTRAL AMERICAN INTELLECTUAL PROPERTY POLICIES

In Central America, changes to the IP regime began with TRIPS and have continued ever since. Before the 1994 passage of TRIPS, only Costa Rica and El Salvador had limited IP laws on the books. These laws had short patent terms and lax enforcement, providing such meager incentives that few companies bothered to seek patents in these markets. TRIPS granted Central American countries a 5-year transition period to become IP compliant or face World Trade Organization sanctions; most countries of the region introduced legislation in late 1999 or early 2000. Most reforms in this period were limited to introducing a 20-year patent term and the legal concept of test data exclusivity. Laws passed in 3 countries established no set term for test data protection, in accordance with the text of TRIPS, but Guatemalan legislation passed in 2000 mandated 15 years of test data exclusivity, a standard well beyond that required by TRIPS.⁴ For the most part, these laws generated little discussion in Central America at the time of their passage. Guatemala constituted an important exception: after its legislature passed the world's most aggressive law to protect pharmaceutical test data, considerable outcry and popular mobilization followed, eventually provoking several reforms to the law (J. Miranda, unpublished manuscript, October 2008).

CAFTA's ratification by the respective legislative bodies occurred in 2005 in Guatemala, Honduras, Nicaragua, and El Salvador and in 2007 in Costa Rica, prompting further changes to IP policy. These reforms sought to harmonize existing legislation with new, more stringent TRIPS-plus standards contained in the trade agreement. For example, CAFTA mandates the extension of patent protection beyond the 20-year term TRIPS established, to compensate for unreasonable procedural delays, either in granting patents (Article 15.9.6a) or in securing marketing approval for pharmaceuticals (Article 15.9.6b). CAFTA also establishes a minimum of 5 years for test data protection, unlike TRIPS, which leaves the protection period open to interpretation. Furthermore, where TRIPS mandates the application of test data protection to new chemical entities, CAFTA mandates the application of test data exclusivity to new products—a broader category than that contained in TRIPS.⁵ Other provisions in CAFTA also shift significant responsibility for IP rights enforcement to the state, through linkage and other provisions.

Although the reforms triggered by TRIPS and CAFTA have constituted 2 waves of (relatively) visible changes to IP policy, standards remain in flux today: brand name pharmaceutical industry groups have continued to push for strengthened IP provisions in the context of other trade-related discussions. These include the 2007-2010 negotiations, leading to a trade agreement with the European Union and the discussions regarding the adoption of common customs standards in the region, ongoing at the time of this writing. In general, IP policy has become more stringent since the introduction of TRIPS and CAFTA, but the specific policies and practices through which the policy is enforced remain subject to intense political pressure and are likely to continue be in flux.

Changes to Central American IP regimes were responses to transnational pressures. The content of both TRIPS and CAFTA were largely determined by more powerful nations, leaving the smaller countries of the Central American isthmus with little option but to accept these terms or renounce their ability to participate in transnational trade regimes. An opinion piece published in the Guatemalan newspaper Siglo Veintiuno by then–US ambassador John Hamilton speaks starkly to this point. Ambassador Hamilton warns that if Guatemala fails to “take its [IP] obligations seriously” there could be consequences for its inclusion in CAFTA.⁶

Despite the uniformity of obligations imposed on Central American countries under TRIPS and CAFTA, a perhaps surprising diversity of IP practices are in place across the region today.

UNIFORM INTERNATIONAL STANDARDS, DIVERSE NATIONAL INTERPRETATIONS

Our analysis of legislation adopted by the 5 Central American countries revealed important divergences in the way transnational mandates have been inscribed into national law.⁷ In some cases, Central American legislative assemblies have passed IP laws stricter than those required under CAFTA itself.

Implementation Variations

The implementation of these laws introduces yet further diversity. We found significant differences in access to the information necessary to discern the impact of IP laws. For example, in Guatemala, health authorities maintained an online database listing patented and data-protected drugs in readily identifiable fashion; this made it relatively easy—though still challenging—to determine which drugs' generic entry was delayed because of IP enforcement. In El Salvador, by contrast, these databases were more difficult to access (e.g., they were not posted online). In addition, their contents identified only the chemical composition of a patented compound, not the commercial name of the product, so only a person with advanced knowledge of chemistry and the current drug market might be able to identify drugs affected by patents (E. Espinoza et al., unpublished data, December 2009).

In Nicaragua, information about patented and data-protected drugs was only available pursuant to a written request to the health authorities. The information on patents, when received, included a narrative description of the protected substance but not its commercial name. For example, the list noted that Sanofi-Aventis solicited a patent on “an antagonistic antibody for cancer treatment,” but a researcher would have to request the specific file to determine which drugs, if any, were affected by this protection (D. Quintero, personal communication, June 22, 2009). In Costa Rica, policies were still being crafted to implement CAFTA's IP rules at the time of our research.

Variations in Patent Protection

The list of drugs for which generic market entry was delayed because of new IP rules varied dramatically from country to country. Obstacles to access to useful information made patent list comparisons nearly impossible, so we focused on test data exclusivity. As Figure 1 illustrates, we found little overlap among the lists of data-protected drugs in Guatemala, El Salvador, and Nicaragua.

FIGURE 1.

Molecules with test data exclusivity in 3 Central American countries, May 2008.

Source. E. Espinoza et al., unpublished data, December 2009; D. Quintero and C. Berríos, unpublished data, January 2010; A. Moreno and C. García, unpublished data, December 2009.

Guatemalan authorities applied test data protection to a vastly larger set of drugs (a total of 98, including some whose protection will last 15 years). By contrast, El Salvador protected only 19 drugs and Nicaragua only 5, with the protection lasting 5 years. The smaller lists in neighboring countries were not simply subsets of the Guatemalan list: only 2 drugs—the diabetes drug Januvia (sitagliptine) and the smoking cessation drug Chantix (varenicline)—appeared on test data protection lists for all 3 countries (Table 1).

TABLE 1.

Example of Molecules With Test Data Exclusivity in 3 Central American Countries, May 2008

Molecule	Indication or Description	El Salvador	Nicaragua	Guatemala
Nesiritide	Acute cardiac arrest	X		X
Rimonabant	Obesity	X		X
Paliperidone	Antipsychotic	X		X
Tigecicline	Antibiotic	X		X
Proteins L1 (types 6, 11, 16, 18)	Vaccine for human papilloma virus	X		X
Sorafenib	Cancer	X		X
Erlotinib	Cancer	X		X
Sunitinib	Cancer	X		X
Drosperinone + etinilestradiol	Oral contraceptive	X		X
Maraviroc	AIDS		X	X
Desvenlafaxine	Antidepressant		X	X
Bevacizumab	Cancer		X	X
Sitagliptine	Diabetes	X	X	X
Varenicline	Smoking cessation	X	X	X
Bortezomib	Cancer	X
Aliskiren	High blood pressure	X
Protein variants G1, 2, 3, 4, P1	Vaccine for HIV	X
Vidagliptine	Diabetes	X
Deferasirox	Iron overload	X
Insulin lispro	Diabetes	X
M-polyethylene-glycol-epoetin β	Chronic anemia	X
Doripenem	Antibiotic	X

Note. For space reasons, not all of the drugs protected in Guatemala (98 drugs) are shown. The entire lists for Nicaragua (5 drugs) and El Salvador (19 drugs) are shown. Costa Rica did not have any drugs with data protection at the time of the study.

Source. E. Espinoza et al., unpublished data, December 2009; D. Quintero and C. Berríos, unpublished data, January 2010; A. Moreno and C. García, unpublished data, December 2009.

Disparities in Drug Pricing

We observed important differences in drug pricing across the region that could not be explained by the introduction of new IP rules. We also found purchasing decisions that favored high-cost original drugs when IP standards did not preclude lower-cost alternatives. Although the data we collected were not sufficiently consistent across countries to enable a systematic comparison, other researchers have examined prices for the generic versions of 16 essential medicines in the region and found significant price variation even among drugs where competition was not constrained by IP barriers (Figure 2).⁸

FIGURE 2.

Price of generic essential drugs from metropolitan areas in 5 Central American countries, 2008.

Note. Data from Nicaragua is from March 2009.Source. Consejo Centroamericano de Protección al Consumidor [Central American Council for Consumer Protection].⁸

Our analysis of drug prices in the region suggested that some of the most expensive brand name drugs were purchased by governments, even though IP protections did not prevent the purchase of generic alternatives. For example, in El Salvador, Roche's anticonvulsant clonazepam (trade name Rivotril) was purchased by the government at a price almost 160 times the international reference price (E. Espinoza et al., unpublished data, December 2009). In neighboring Nicaragua, the same drug was available in generic form at 90% of the international reference price (D. Quintero and C. Berríos, unpublished data, January 2010). Similarly, in Nicaragua, the heartburn drug omeprazole (Nexium) was purchased at prices that dramatically exceeded the international reference price; the generic alternative could have brought considerable cost savings, and IP legislation did not pose an obstacle to its purchase. In other words, states appeared to be making purchasing decisions that favored brand name drugs even where IP law did not mandate such choices. The impact of IP protection on prices, and eventually on state public health budgets, must be understood in this context.

INTERPRETING TRANSNATIONAL DISPARITIES

What do we make of the disparities in IP practices across countries? With the industry's heavy lobbying for inclusion of IP protection in CAFTA and the US government's willingness to push hard for such principles, our findings that the industry has apparently taken little advantage of the new IP rules in countries such as Nicaragua or El Salvador may be surprising. We suggest 3 possible interpretations, although further study is needed to prove their validity.

First, TRIPS and CAFTA intellectual property standards may still be too new to be uniformly implemented, either by states or by private parties in this region. Perhaps over time these disparities will lessen as both governments and private industry develop a stable set of practices in this new legal landscape. For this reason, ongoing monitoring is necessary over time, and this monitoring must go beyond scrutiny of international legal mandates to include, for example, analysis of specific practices implemented by health ministries in the drug registry process. Often in the daily practices of enforcement, important differences are detected.

Second, these findings may suggest that IP laws are best understood as just another instrument in a varied, and locally determined, tool kit that the pharmaceutical manufacturers dip into at will, rather than a frontline strategy. Perhaps Central America was never a market of much interest in and of itself—globally, Central America represents less than 1% of the medicines market—but primarily served as a stepping stone to the more lucrative South American markets. Peter Drahos has written about the IP ratchet, whereby the brand name pharmaceutical industry has sought to continually increase IP protections over time by applying pressure in different venues: bilateral trade agreements, national court decisions, international agreements on counterfeiting, and so forth. The point, he argues, is not so much that every battle is vital but that the overall upward trend must be maintained.⁹ From the viewpoint of the brand name drug industry, the main value of ensuring rigorous IP protection in Central America may simply be to extend a seamless cloak of IP protections across the Americas, thus strengthening the hand of those negotiators who might eventually broker trade deals with Brazil or other countries of greater economic interest to manufacturers.

The explanation might signify opportunism; perhaps other tools are available in Central America that allow the pharmaceutical industry to advance its interests without invoking IP protection as a first line of defense (or offense). Aggressive marketing, direct advocacy in bidding processes, and other tactics may be more appealing than IP law as a means to protect profits. Our findings suggest support for such a hypothesis: even brand name drugs that faced legal competition from generics were purchased by governments at premium prices. IP norms cannot be the explanation for these decisions. As scholars and advocates attempt to forecast the effects of IP norms, then, we should not assume that the availability of IP protection means it will always be invoked.

PUBLIC HEALTH CONTRIBUTIONS

Because IP protection is being phased in, the full impact of these new laws will not be known for some time. Although our initial results suggest that their impact may vary dramatically by country, researchers must continue to monitor developments in Central America and other regions where IP protection has recently been adopted, to see whether the diversity of IP practices we documented persists over time. However, thorough and effective monitoring will require greater access to information than is currently the norm in Central America.

Documenting the number and nature of drugs for which generic market entry is delayed is only 1 step toward understanding IP protection's impact on access to medicines more generally. Ultimately, to understand how IP constrains access, we also need more information about drug-pricing practices and state purchasing decisions. IP critics have often insisted that IP protection straitjackets states’ ability to access the lowest-cost drugs for their populations. As drug prices continue to soar and the prevalence of chronic conditions in Central American patient populations also trends upwards, the challenge of maintaining public health priorities in the face of rising costs undoubtedly takes on increased importance. Strengthened IP protections clearly complicate this situation. Yet as our findings suggest, even absent IP mandates, prices vary widely, even on generic drugs, and states appear to make questionable decisions about which drugs to buy. In this context, to advocate for more sustainable administration of health budgets, public health researchers require far greater transparency about drug pricing and purchasing. Efforts to monitor the impact of IP legislation are vitally important, but should inform—and be informed by—a broader set of inquiries into the relationship between public health priorities and drug markets.

More involvement of public health practitioners and scholars in trade advisory committees in the United States, and of analogous counterparts in other countries, is needed to ensure that commercial interests are not at odds with public health priorities.^10,11 As of this writing, the international IP regime is under scrutiny, and different parties are working to envision a new regime that facilitates better access to medicines without undermining the incentives for research and development of new pharmaceuticals.^12,13 Public health practitioners and scholars should add their voices and perspectives to such initiatives.