When access to drugs meets catch-up: Insights from the use of CL threats to improve access to ARV drugs in Brazil

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By Eduardo Urias, UNU-MERIT, urias@merit.unu.edu  

For Citation: SITE4society Brief No. 16-2018
Related to SDG Goals:  #SDG3 (Ensure healthy lives and promote well-being for all at all ages), #NHM (National Health Mission): Universal Access Programme of Brazil
SITE focus: Technology catch-up, Innovation and Governance for Access;  
Country Focus: Brazil, Emerging Countries 
Sub-Disciplines:  Economics of technology, innovation and development, Public Health
Based on: Ramani, Shyama V., and E. Urias. “When access to drugs meets catch-up: Insights from the use of CL threats to improve access to ARV drugs in Brazil.” Research Policy 47, no. 8 (2018).
Acronyms:   CL: Compulsory License; MoH: Ministry of Health; IPR: Intellectual Property Regime; TRIPS: Trade Related Intellectual Property Rights System PPP: Public Private Partnerships

Context:  In macro-economics, catch-up refers to the hypothesis that poorer economies’ per capita incomes will tend to grow at faster rates than richer economies. A similar notion is applied to technological capabilities, wherein countries or individual firms can catch-up in relation to the technological frontier by reverse engineering existing technologies and tailoring them to suit local conditions. Untitled
Catch-up is important for policy makers, because of the underlying implicit assumption that if production is increased, then its trickle-down benefits would improve access to commodities, in terms of their availability and affordability. For most products, these trickle-down benefits are left to be determined by markets, with the state being held accountable for catch-up in terms of the technological, innovative and industrial capabilities upstream, and the quality and safety of goods reaching final consumers downstream. However, for some essential commodities and services, like medicines, access is also deemed to be the responsibility of the government, and not to be left to markets alone. This leads to a question largely understudied in the catch-up literature. Can the need to improve access to an essential commodity impact the sectoral catch-up trajectory of the corresponding industry?
When a country is faced with a high disease burden and has to improve access to the Untitled4corresponding drug, its response is affected by its level of catch-up and whether or not the drug is patented. The manufacturing of small molecule drugs involves two main operations in decreasing levels of complexity and knowledge intensity: production of ‘active pharmaceutical ingredients’ (API) and drug formulation. The wider the scope of technological capabilities over the production process, the higher the catch-up in pharmaceutical manufacturing. For emerging countries with limited API production capabilities, the problem may become untenable, if drug manufacturers are unwilling to supply adequate quantities at acceptable prices and/or the corresponding technology cannot be licensed from the supplier and developed independently by other firms.

For our research queries, the Brazilian catch-up experience in the production of antiretroviral (ARV) drugs required by HIV/AIDS patients presents itself as an ideal Untitled3trajectory to study. In 1996, Brazil initiated a policy of universal and free access to highly-active ARV therapy (HAART) (or simply Universal Access Policy), which put an enormous pressure on the Brazilian Ministry of Health (MoH). In order to ensure an adequate supply of ARVs in the public healthcare system with a limited budget, MoH started negotiating price reductions for high-cost patented drugs, often deploying the threat of using compulsory license.

Compulsory license (CL) is a provision in the Agreement on Trade Related Aspects of Untitled5Intellectual Property Rights (TRIPS) that allow a government to permit third parties to produce the patented product without the consent of the patentee. This is a measure that has been purposefully introduced to minimize the potential negative impact of patents on access to medicines. Scholars have confirmed that the CL option empowers developing countries to negotiate prices with pharmaceutical companies more aggressively (Beall et al., 2015Beall and Kuhn, 2012Ramani and Urias, 2015).

 

Research Questions: For an emerging country with limited manufacturing and innovation capabilities, what are the possible inter-temporal impacts of sectoral catch-up in pharmaceuticals on access to life saving drugs and vice versa? 
Furthermore, what insights can be gained from the interrelationships between price negotiations of essential patented drugs, access and catch-up?

Data and Methodology Used: A mixed methodology is applied to answer our central questions. The literature is first examined and its main findings on catch-up and access are summarized as theoretical constructs through figures. Then, ARV price negotiations data compiled from diverse secondary sources are analysed. A case study is constructed from the above, complementing it with primary data obtained from 26 semi-structured and exploratory interviews with stakeholders familiar with the Brazilian experience in price negotiation for ARVs. The case study method is applied, because it is suitable for studying complex contemporary social phenomena, when boundaries between a phenomenon and its context are not clearly evident. Moreover, since the number of observations of CL threats in Brazil is not sufficiently high to justify a statistical analysis, the case study method is more appropriate.           

Main findings and discussion:

  1. Catch-up in the manufacturing of an essential commodity need not automatically lead to better access, but public agencies can play a crucial in creating such synergies.

The catch-up literature mainly portrays it as a process within the production space of an innovation system. Like standard macroeconomic theories of growth, catch-up frameworks of income convergence and sectoral studies seem to assume that access for local consumption will improve through catch-up. 

However, the literature on access to medicines, points out that, for catch-up to improve local access to essential commodities, going beyond markets, there is a need for public actor bridging of the production and consumption sub-systems. In the Brazilian case, the MoH served that role, demonstrating that it is possible for public agencies focusing on access rather than on knowledge or firm capabilities enhancement to do the same. These confirm the observations that growth benefits may not trickle down to improve poverty alleviation unless the system, especially the state and public agencies, nurture structural changes and capability building for pro-poor growth (Kakwani et al., 2000Nussbaum and Sen, 1993).

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  1. Past catch-up, even if aborted, can nurture better access in the future and present need to improve access can trigger future catch-up.

The Brazilian industrial policy implemented since the 1970s to build technological and innovation capabilities was directly responsible for the success of the Brazilian health policy to tackle the HIV/AIDS epidemics, even though there is a consensus that this policy failed to build a competitive pharmaceutical industry and reduce trade deficits in pharmaceuticals. Skills in fine and organic chemistry accumulated locally, notably at Farmanguinhos and in a handful of private companies in the 1980s, created absorptive capability and prior knowledge bases for the local production of ARV drugs. Furthermore, compulsory licensing enabled accumulation of technological capabilities for API and formulation of key drugs like efavirenz, only because of absorptive capabilities developed over prior aborted catch-up. Thus, with respect to an essential commodity like medicines, sectoral catch-up can have a strong inter-temporal relationship with access.  

  1. interactions and struggles, the impact of instruments used to ensure access can be nuanced and not clearly favour either access or catch-up.

 

 

In turn, with respect to the ongoing debate about whether promoting catch-up in the pharmaceutical sector is likely to be harmful for access to medicines, or whether the two can be complementary, our results indicate that neither argument can be generalized. Evaluation has to occur on a case by case basis even within the same country.

 

 

 

 

 

  1. For emerging countries under TRIPS: (i) lack of access can be a necessary condition to trigger catch-up, though it need not be sufficient. (ii) catch-up led access improvement will depend upon international regulation and building of organizational capabilities of local firms.

 In order to ensure access to essential commodities like medicines, countries with the requisite resources and capabilities are engaging in gradual build-up of industrial capabilities. However, if the need is urgent, prices can be negotiated and alternative corridors are available, with one of them being compulsory licensing. Drugs developed after 2005 are subjected to patent protection in emerging countries and thus their exports would demand a CL under the Paragraph 6 system of TRIPS Agreement. However, this involves enormous procedural challenges at present and must be tackled. Public private partnerships (PPP) and international partnerships are viewed as crucial for catch-up under TRIPS. Brazilian companies such as Cristalia, Orygen, Bionovis, Libbs are engaged in both. 

 

Policy Recommendations:

First, emerging countries with basic technology and innovation capabilities ought to invest in closing the knowledge gap in essential drugs production. The Brazilian case study indicates that given the paramount role of local technological capacity in bargaining with patent holders, public policy should support technological capacity building.

Second, for emerging countries, there can be real trade-offs between catch-up and access. As the Brazilian case study amply illustrates, price discounts by MNEs for their patented drugs improve access, but they slow down catch-up, because then it becomes even more challenging for local firms to become equally competitive. Similarly, following a CL or initiation of a PPP, while there will be catch-up, access might be improved more by importing cheap generics than by procuring costlier locally produced drugs.

Third, especially for emerging and developing countries, a strong public sector would be a good source of bargaining power. It is not necessary for the public sector to undertake manufacturing of drugs, this can be left to the private sector. However, the public sector must have state of the art technological and innovation capabilities so that it can transfer technology to local firms whenever necessary. Thus, emerging countries must invest in the development of well-performing public sector entities to close the knowledge gap in drugs production for their important disease burdens.
All tables and figures are detailed in the article.