Global Health Progress

International Policy Network (IPN), a nongovernmental educational organization focused on highlighting the role of free society institutions in social and economic development, recently discussed some of the limitations of the Unitaid pool for pharmaceutical patents. Written by Alec van Gelder and Philip Stevens, this report examines the implications involved in creating a pharmaceutical patent pool for anti-retroviral medicines (ARVs) in order to create treatments for HIV/AIDs. The executive summary can be found below. To view the full report click here.

What Purpose Unitaid’s Patent Pool?

Unitaid is a multilateral fund to provide sustainable funding for AIDS medicines, financed in part by small levies on airline tickets. Recently, Unitaid has taken steps to expand its remit to research and development (R&D) and has established a patent pool for the intellectual property rights protecting anti-retroviral medicines (ARVs). The rationale behind this move is the perception that patents on ARVs held by different companies hinder development of new “fixed dose combination” drugs (FDCs), because of the legal complications associated with combining pharmaceutical patents held by different rights holders. These FDCs form the backbone of AIDS treatment programmes in Africa and new combinations are needed for specific subpopulations such as children.

The Unitaid patent pool will ask companies to voluntarily contribute pharmaceutical patents on ARVs, which will allow third party organisations to research and experiment with different combinations. Any new medicines that emerge from the pool will be sold on a non-profit basis and the original patent owners will be given a royalty determined by the patent pool administrators and underwritten by Unitaid funding. In June 2010 a separate legal entity, the Medicines Patent Pool Foundation, was established to administer the pool. At the time of writing, no pharmaceutical company has committed a patent.

Is a patent pool the best way to spend money for global health research? Despite causing less than four per cent of mortality in less developed countries, HIV/AIDS already consumes around 40 per cent of all global health funding for R&D. Many more people die from easily preventable conditions related to infections and diarrhoea, for instance. Meanwhile, chronic conditions such as heart disease are rapidly displacing communicable diseases as the biggest health problem facing people in poor countries.

There is also the question of distributing any new ARVs that emerge from the pool, which face the major obstacle of dilapidated health infrastructure and a lack of trained personnel, which are the biggest barriers to access to medicines in the world’s poorest countries.

A solution in search of a problem?

One of the main arguments for the patent pool is that “patent thickets” hinder the development of combination therapies. However, many Indian companies already produce dozens of such therapies for export, even without the permission of the rights-holder. To date, no rights-holder has mounted a legal challenge against these activities. Moreover, there are many other additional voluntary licenses that have been agreed between innovator and generic companies for the manufacture of low-cost generic ARVs and FDCs. Many companies have established programmes which give academic researchers free access to vast proprietary compound libraries.

While a patent pool could in principle lead to rightsholders receiving compensation for the unauthorized copying of their intellectual property, it also has the potential to crowd out the legitimate ventures that already exist.

Other ways of promoting access to AIDS drugs

Given that the case for the patent pool is weak and that it is not without risks to overall innovation, it is worth examining other strategies to promote sustainable access to quality medicines. One such method, for example, is for companies to sell their products into different markets at different prices. “Differential pricing” or “market segmentation” encourages rights-holders to make their medicines available at lower prices in poorer countries and higher prices in rich countries, enabling greater access to therapies, while allowing sufficient profit to be re-invested in future R&D.

However, this pricing strategy is underpinned by the protection of intellectual property rights, and relies on companies being able to prevent the reselling of their products into different markets. The Unitaid patent pool makes this impossible, as rights holders would be obliged to surrender their intellectual property and with it the control of their pricing strategies for different markets.

Two patent pools from history

Patent pools are not new. Examples of state and privately managed examples stretch back to the mid nineteenth century. Two examples have particular relevance to Unitaid.

First is the private patent pool established to foster the creation of the 3G mobile broadband platform in the 1990s. This voluntary pool involved 19 telecoms firms, all of whom had a shared interest in the development of a common standard and an improved telecommunications platform for future growth and innovation. These shared interests and clear understanding of what was needed ultimately led this patent pool to successfully invent and disseminate the 3G mobile telephony standard that forms the backbone of mobile telephony today.

The first recorded patent pool, for sewing machines, was less auspicious. In 1856, competitors established a pool as a way of addressing the harmful cross-litigation and accusations of patent infringement that hobbled early American sewing machine producers. While licensing costs and the price of sewing machines fell in the short-term, the pool caused its members to become fiercely protective of their shared intellectual property, which hampered innovation inside and outside the pool. While the sewing machine industry stagnated in the US, it thrived in the UK where no such pool existed. Like the sewing machine example, the Unitaid patent pool appears to have not taken into account that a patent pool is only likely to be successful if its aims are narrowly-defined and easily understood by all the contributors.

Unitaid, prizes and innovation

Unitaid’s conflicting goals of reducing the cost of current medicines are at odds with increasing R&D into new medicines: if prices are reduced, then this will negatively impact the level of investment available for new treatments. Bringing a new medicine to market can cost around $800m, a cost which Unitaid is unlikely to be capable of reimbursing through its royalty rate, especially if it is intentionally set at a low rate.

An inappropriate royalty rate will result in an immediate crisis for the pool by discouraging companies from donating their patents. One suggestion is that this can be corrected by instituting a prize fund from which companies can be rewarded. The size of this fund would relate to the “health impact” of the contributing intellectual property.

However, prizes for innovation have many drawbacks, not least the inability of prize committees to accurately value a product in the same way as the market, leading to unpredictable patterns of under or over reward. This would either disincentivise future innovation, or result in a waste of public funds.

Prizes are also a “winner-takes-all” mechanism which discourages incremental, follow-on innovation. They cannot replicate the normal process of innovation, in which rivals fine-tune and enhance existing inventions, allowing products to evolve considerably over a long period. Finally, prizes are subject to political manipulation, which would lead to inventions being favoured on grounds other than clinical ones.

Compulsory membership of the patent pool?

Companies engaged in particularly risky forms of R&D (such as drug research) are unlikely to commit to a patent pool, particularly because the business case for doing so is weak. To address this, proponents of the pool may push for legislation to make membership compulsory for companies with ARV patents. This would inevitably be accompanied by a decline in R&D as the pool ‘crowds out’ private sector innovation. This could lead to an increased push for public funding of R&D to accompany the pool, a strategy which has a baleful history.