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Viewpoint (September 2003)

Author: Juan Rovira, Senior Health Economist, Health Nutrition and Population, The World Bank 

The concerns of consumers and policy makers for the rising costs of pharmaceuticals in both developed and developing countries explains the increasing interest for generic drugs and policies. Recently the Health, Nutrition and Population Sector of the World Bank launched a consultative process in order to explore the role of generics and local production in    
attaining the Millennium Development Goals. As it is often the case, the initiative provided more questions than solutions. Still, it helped to identify the key issues and the gaps in our knowledge and to point to promising options and areas that require further information and research. 

What are generic drugs? 

Generics might be defined as drugs that 

  1. are not subject to patents or other forms of exclusive marketing rights in a given jurisdiction,  
  2. have a proven therapeutic interchangeability with a reference drug (based on bioequivalence or any other accepted proof of therapeutic equivalence), and  
  3. are sold under an international non-proprietary name. 

There is not an internationally agreed definition of generic drug. The term generics is often applied and legally defined to refer to drugs that are sold under brand names and have no proof of equivalence. In order to avoid confusion we'll refer to these categories of drugs as "branded generics" and "similars", respectively. 

There are obvious public health and economic advantages to the use of generics: first, there is a guarantee of a standard quality for a multisource product. Second, the introduction of generics tends to lower drug prices. Generic drugs are sold at prices close to the cost of production, because they allow price competition to work. Selling products by an international non-proprietary name eliminates the incentives for companies to increase the demand for their own products by investing in marketing aimed at differentiating their products and attain consumer loyalty. But the introduction of generics also drags down the prices of the branded versions of the drug. For that reason, the World Bank requires its borrowers to use the INN or generic name in bidding documents. 

Generic policies can be best analyzed by focusing on its role in improving access to three separate categories of drugs: 

  1. Off-patent drugs 
  2. On-patent drugs for diseases that are prevalent both in developed and developing countries 
  3. Drugs for diseases mainly prevalent in low-income countries, i.e. neglected diseases.

The obvious target of a generics policy is the set of drugs that are not subject to any exclusivity marketing rights, patents or otherwise. Most of the drugs in the WHO's Essential Drug List, which are assumed to be the highly cost-effective therapies for a broad list of diseases, are off-patent in all countries. Still, a large proportion of the population in low-income countries does not have adequate access to them. The strategies required for implementing a generics policy for off-patent drugs are in the hands of the national authorities: quality control, generic substitution, reference pricing, etc. This does not mean that the implementation of a generics policy might not face problems and opposition. Consumers, prescribers and insurers might oppose it because they might associate generics with substandard quality drugs. Implementing good quality assurance programs and educating the public can of course change perceptions. Prescribers might derive additional private benefits from prescribing branded products (originators, generics or similars). A large proportion of the profits of most companies, even of those involved in research and development (R+D) comes from branded off-patent products. The producers of branded drugs are not likely to welcome savings for consumers and insurers that constitute a loss of income for them. 

Global innovative drugs

In the context of the present international policy debate on the focus is on the impact of intellectual property rights of drugs that are patent protected in developed countries on accessibility in developing countries. In the absence of intellectual property rights all products are potentially generics. This is likely to reduce prices and increase accessibility. It also gives the opportunity to a local industry with limited or no R+D capacity to compete in better conditions with the patent-holder companies. 

Drugs for neglected diseases

Finally, there is the issue of the neglected diseases. These are, by definition, diseases whose actual and potential treatments are not backed-up by a sufficient purchasing power. As a consequence, intellectual property rights become a secondary problem regarding accessibility. Theoretical proposals and actual initiatives point to partnerships among industry, public sector, international organizations and donors as the mechanisms to set up demand-pull and supply-push strategies that can overcome the lack of insufficiency of a market demand. Still, any solution should consider how the property rights of the innovation would be allocated. 

Patents as incentives to R+D and innovation.

Patents grant the innovator exclusive rights on the innovation, which often allow the patent-holder to enjoy a monopoly position. During the period of patent protection the innovator is able to charge higher prices than it would under competition. This allows it to recover the resources invested in R+D. The R+D industry often claims that a growing share of generics at low prices might harm the rate of R+D and innovation. The situation is often pictured as an unavoidable trade-off between short-term affordability of on-patent drugs and innovation and hence long-term availability and affordability of new therapies. 

No one denies that intellectual property rights constitute an incentive for private companies to invest in R+D. There is, however, less consensus on whether intellectual property rights are the only or, at least, the most efficient tool to attain the maximum social benefits from R+D and innovation. 

Beside the issue of affordability, there are other concerns on possible negative effects of a strong intellectual property rights system. There is no evidence, for instance, that a longer duration of patents would result in more investment in R+D. Intellectual property rights might be a barrier to, or at least, discourage innovation in fields that have large number of patents. Companies often engage in defensive R+D and intellectual property rights strategies that are less concerned with therapeutic advances than with protecting the monopoly attained by a previous innovation. The management of intellectual property rights systems is becoming increasingly sophisticated and costly, especially for developing countries. Litigation costs are the most obvious example. 

Similarly, there is no evidence that the introduction of intellectual property rights systems similar to those existing in developed countries will generally increase pharmaceutical production and R+D in developing countries, although it might be true for some emerging developing countries. Intellectual property rights systems are perceived as more beneficial for developed than for developing countries. The optimal characteristics and strength of an intellectual property rights system probably depends on the level of development and industrial capacity of the country. As a consequence, the trend towards the international standardization of intellectual property rights is perceived as a North-South conflict. 

The way forward

The recent decision of the Council for TRIPS on the implementation of paragraph 6 of the Doha declaration on the TRIPS Agreement and public health has clarified the concerns of developing countries without manufacturing capacity in relation to how they can effectively use compulsory licensing as a tool for improving accessibility to key medicines. The agreement reached is neither perfect nor the final solution, but will hopefully be an important step towards the development of a dialogue that ensures the implementation of sustainable mechanisms aimed at increasing accessibility of the poor in developing countries to valuable therapeutic innovations, while providing the incentives for the private and the public sectors to invest in R+D. It will be necessary to continue exploring proposals and initiatives looking at alternative incentive and property rights systems to the present ones. 

But it is also essential to pay adequate attention to other key factors that have been often neglected in the heat of the debate on patents. 

The most important probably is the issue of quality assurance. Most developing countries lack the human and economic resources required in order to set up a regulatory system that guarantees the quality of the drugs. The WHO prequalification initiative for HIV-AIDS products has provided a short-term solution, but it is uncertain whether it is a sustainable approach that can be generalized to all drugs. 

Finally, there are justified concerns and little evidence on the capacity of the industry to producing the amount of quality drugs required in order to attain the Millennium Development Goals or, more generally, to substantially scaling-up the accessibility to drugs. Many countries seem to assume that local production of drugs is a solution to accessibility, but there is limited evidence supporting that believe. Local production is often associated with more expensive and lower quality drugs than what the country could obtain by importing the drugs. Moreover, local production is sometimes aimed at exports and does not have any impact on accessibility among the population in producer country. The most likely scenario is that a limited number of multinational generic manufacturers from a few emerging countries - India, China, Brazil - will become the main international suppliers of generics to developing countries. 

Drugs are and will remain in the future a key factor in improving the health and in attaining the MDG. It is therefore of the utmost importance to ensure the access to drugs for the population in developing countries, specially for the most disadvantaged groups, which are the most difficult ones to reach. 

Juan Rovira  

Further Reading

  • Dean Baker and Noriko Chatani. Promoting Good Ideas on Drugs: Are Patents the Best Way? The Relative Efficiency of Patent and Public Support for Bio-Medical Research, CEPR, October 11, 2002. 
  • IFPMA. TRIPS, Pharmaceuticals and Developing Countries: Implications for Heath Care Access, Drug Quality and Drug Development. Geneva, 2000. 
  • Mamphela Ramphele and Nicholas Stern. Generic Drugs Can Make the Money Last. NYTimes. March 1, 2003 
  • Maria del Val Diez Rodrialvarez (Coord.). Genericos. Claves para su conocimiento y comprension. Editores Medicos, SA. Madrid, 1999 
  • WHO. Pilot Procurement and Sourcing Project: Access to HIV/AIDS Drugs and Diagnostics of Acceptable Quality, September 5, 2003 
  • The World Bank. Global Economic Prospects and the Developing Countries. 2002. Chapter 5: Intellectual Property: Balancing Incentives with Competitive Access. 


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