American Journal of Law & Medicine

Patent buy-outs for global disease innovations for low-and middle-income countries.(Globalization of Pharmaceuticals: International Regulatory Issues)


The World Health Organization's CHOICE program analyzes the cost effectiveness of various health interventions related to the Millennium Development Goals. (1) The program identifies the best strategies for improving health in low-income countries, using a standard set of methodological assumptions. (2) These studies evaluate interventions in many areas, including child health (3) and HIV/AIDS. (4)

For some of these treatments, drug costs are a significant variable: if the drug price doubles, the intervention becomes less cost effective. But if the drug price is reduced by 90%, then more therapies become affordable. (5)

Drug prices are uniquely susceptible to radical price reductions through generic competition. Patented pharmaceuticals may be priced at more than 30 times the marginal cost of production; (6) the excess is the patent rent collected by the drug company while the patent and exclusive marketing periods remain. (7) Patent rents are significant. AIDS drugs which sell for US$10,000 per person per year in the US are sold generically for less than US$200. (8) If patented drugs could be sold at the marginal cost of production, cost effective treatments would become even more attractive, and other interventions would become affordable.

This Article proposes marginal cost (generic) pricing (9) for most essential medicines used in the developing world. Global collection of patent rents must be relaxed in order to achieve this objective. Some damage to the profits of pharmaceutical companies would ordinarily be expected, but a properly designed buy-out mechanism can ensure adequate incentives for pharmaceutical innovation.

Two case studies are examined to illustrate the proposal: the recently-developed Human Papillomavirus (HPV) vaccines for cervical cancer and second-line antiretroviral (ARV) treatments for AIDS.

Global pharmaceutical markets and global disease burdens are mismatched, making this proposal uniquely attractive. Some 80% to 90% of the global sales of patented pharmaceuticals occur in the 30 wealthy countries which are members of the Organization for Economic Cooperation and Development (OECD), roughly similar to the World Bank's definition of 29 high-income countries. (10) Pharmaceutical markets for patented products largely follow the money.

But the vast majority of patients needing treatment for global chronic and infectious diseases reside in non-OECD (middle- and low-income) countries. These countries include more than 84% of the world's people, and they are disproportionately sick. (11) The global burden of disease falls most heavily where the market is least attractive.

This mismatch between global pharmaceutical markets and global disease burdens leads to an interesting opportunity. Patented pharmaceuticals could be offered to more than 84% of the world's population at generic prices. (Only high-income country patients would continue to bear pharmaceutical patent rents). The gain in health from increasingly affordable pharmaceuticals would be considerable. The primary disadvantage of this plan would be a quite small reduction in global R&D cost recovery; but even this small deficit could be restored to the companies through a carefully designed patent buy-out mechanism. The World Health Organization recently agreed to appoint an intergovernmental working group to address issues of public health and innovation. (12) This article illustrates some of the concepts which could be useful in that process.


Much attention has been focused over the past decade upon 'neglected' or 'tropical' diseases, conditions largely overlooked by global pharmaceutical research companies. (13) Examples include onchocerciasis (river blindness), (14) leishmaniasis (kala-azar), Chagas disease, and African sleeping sickness. (15) In the past few years, donors have created some initiatives to direct R&D towards neglected diseases. (16)

The neglected disease programme tends to overlook the fact that chronic conditions in the high-income and low-income worlds are converging. (17) It is the poor themselves who are neglected, rather than just their diseases. Global diseases are conditions which affect patients in both rich and poor countries, but disproportionately affect the poor. (18) The global disease list includes many of the major chronic conditions associated with wealthy countries--including cardiovascular disease, stroke, mental illness, diabetes, and arthritis. These diseases are the leading causes of adult disease burdens throughout the world:


The first characteristic of global diseases is that a robust level of research is assured by high-income markets alone. Anticipated R&D cost recovery from low- and middle-income countries carry little or no weight in the decision to commit resources to R&D concerning global diseases. The powerful lure of high-income markets--particularly the US, the EU, and Japan--draw R&D funds to global diseases, without much regard for the market potential in countries like Brazil or Costa Rica. (21)

AIDS is a paradigmatic case of a global disease. Several thousand early AIDS cases in the United States and Europe were sufficient to trigger an avalanche of science. (22) The global aspects of the epidemic were either unknown or relatively unimportant to the decision to allocate research resources. ARV drugs would have been invented on the same timetable even if no African or Asian had ever been infected. High-income markets alone were sufficient incentive for discovery.

Cancer is another global disease. Development of HPV vaccines was prompted by the multi-billion dollar market to prevent less than 17,000 cervical cancer deaths per year in high-income countries, (23) even though more than 90% of cervical cancer deaths occur in low- and medium-income countries. (24) Similar global disease profiles exist for other cancers: one recent study listed the 12 major types of cancer for which the global burden of disease largely falls in the low- and middle-income countries. (25) In every category the majority of the global cancer disease burden fell in low- and middle-income countries. (26) Only cancers of the lungs, pancreas, colon and rectum were disproportionately found in high-income countries, but nevertheless the majority of the burden remained in low- and middle-income countries. (27)

Global diseases have a second important characteristic: global disease innovation can be shared without damaging innovation. Knowledge is nonrivalrous. (28) Global disease innovation can be offered to low- and medium-income countries without damaging patent rents from high-income countries. While diversion, theft and arbitrage from low-income to high-income markets is a potential threat, companies and governments possess many tools to block pharmaceutical arbitrage, and empirical evidence of significant dysfunctional arbitrage is limited. (29)

The much more significant threat to high-income country patent rents--and to public health--comes from counterfeit pharmaceuticals, which are greatly encouraged by the high price discrimination ratios made possible by IP law. (30) Counterfeit pharmaceuticals are a grave threat to health in the developing world, (31) and the US drug supply chain itself appears remarkably vulnerable. (32) One important ancillary advantage of generic pricing is the virtual elimination of the incentive to counterfeit drugs in low- and medium-income countries: with artificial price discrimination stripped away, the vast majority of the economic incentive to create a counterfeit disappears. (33)

With innovation assured, the further collection of patent rents can stand aside and permit generic-priced access for the majority of humanity. The fruits of OECD global disease innovation can be freely shared with the low- and middle-income world through marginal cost pricing without harming innovation incentives.

We now turn to two case studies to examine in more depth the potential for generic pricing in low- and middle-income countries.



Cervical cancer is a significant cause of cancer death for women worldwide. …

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