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Patents and Prices By K Bala and Kiran Sagoo In mid-1999, Consumers International and Health Action International (CI/HAI) conducted a survey on the retail prices of 16 drugs in 36 countries. The objectives of the survey were to: 1. Study the impact of pharmaceutical patents on the availability and price of essential drugs. 2. Suggest solutions to ensure regular access to essential drugs in developing countries in a globalised economy with tighter intellectual property system. Selection of drugs
All the 16 drugs are widely prescribed in both developing and developed countries. They were identified from the first 73 of the 500 top selling drugs [13 within the first 45] worldwide in 1997 for the i. Ciprofloxacin, nifedipine, ceftriaxone sodium, acyclovir, captopril, metformin, atenolol and zidovudine, are on the WHO list of essential drugs. The other drugs are not in the WHO list. ii. Ranitidine, diclofenac sodium and diltiazem, are listed in the national essential drugs list of several iii. Simvastatin and omeprazole are the world’s top two selling drugs. iv. Fluconazole, lamivudine and indinavir sulphate are commonly used in the management of people living with HIV/AIDS. There is a global campaign to make drugs commonly used for HIV/AIDS more The drugs were grouped into three categories according to their patent status: Group one: Drugs still under patents in some countries - ceftriaxone sodium, indinavir sulphate, Group two: Drugs whose patents will be expiring soon or patents have recently expired in some countries - ciprofloxacin, fluconazole and omeprazole. In this survey, few competitors’ products of these three drugs had entered the markets in the 20 countries where the patents had recently expired. Group three: Multisource drugs, with several competitors’ products available in all the countries - ranitidine, diclofenac sodium, nifedipine, acyclovir, diltiazem, captopril, metformin and atenolol. Methodology
HAI partners and CI members were requested to select a leading retail pharmacy in the capital cities of the http://www.haiweb.org/pubs/hainews/Patents%20and%20Prices.html respective countries, and discuss with the pharmacy the following: • Ask for the availability and retail prices of the proprietary or brand name product of each drug • Find out the total number of products which include the originators’ brand, branded generics and generics of each of the 16 drugs available in the pharmacy. • Record the retail prices of the originators’ brand and the package size • In cases where there are several products of drug available, record the prices of the next two best selling products in addition to the proprietary brand or top-selling brand. • Record the prices of each package size in the national currency and convert it to US dollars Data & Analysis
Tables 1a, 1b and 1c give the retail prices in US dollars of 100 units of 29 dosage form of 16 drugs in 36 countries in July/August 1999. The countries included ten advanced industrial countries, 25 developing countries from Africa, Asia and Latin America and one from CIS (commonwealth of independent Analysis of the data reveals the following: Multinational drug firms market their proprietary brands at widely different prices in different developing countries. Table 2 gives a comparison of retail prices of nine originators’ proprietary brands of eight drugs sold in developing countries. There are wide variations in retail prices between countries India has recorded the lowest prices for six out of the nine dosage forms. Table 2 – Comparison of the lowest and highest retail prices in USD of 100 units of nine
originators’ proprietary brands of eight drugs in developing countries
Generic name of
Originator/
Retail price of 100 units in USD
lowest to
Price Country
Proprietary name
http://www.haiweb.org/pubs/hainews/Patents%20and%20Prices.html The retail prices of generic equivalents do not show the very wide variations seen in proprietary drugs, as shown in table 3. This table shows the range and ratios of the retail prices of three originators’ proprietary drugs and their generic equivalents in developing countries. The range for three drugs vary from 1:7 to 1:18 for generic drugs and 1:16 to 1:59 for proprietary drugs. Table 3: The range and ratio of the retail prices of the orginators’ proprietary brands and the
generic equivalents of three selected drugs in developing countries
Generic name & Range & ratios of the generic and originators’ proprietary brands
strength
Generic drugs
Proprietary drugs
Range of prices Ratio of lowest to Range of prices Ratio of lowest to
The very wide variations in retail prices among developing countries are not seen in the ten OECD countries as indicated in table 4. This table compares the range of ratios between the lowest and highest prices of selected drugs under different patent status in developed and developing countries. Table 4: Range of ratios between the lowest and highest prices of selected drugs under different patent status in developed and developing countries Range of ratios between lowest and highest retail prices of 100 units of selected
OECD countries
Developing countries
No of dosage forms Range of ratios No of dosage forms Range of ratios
The ratios for monopoly drugs range from 1:1.7–1:2.2 in OECD countries and from 1:1.2–1:4 in developing countries. However, multi-source drugs show a much wider differences in the range of retail prices both within and between OECD and developing countries. These findings indicate the http://www.haiweb.org/pubs/hainews/Patents%20and%20Prices.html 1. In OECD countries, the patented drugs enjoy a monopoly and there is very little price difference 2. Developing countries do not provide patent protection to these drugs. However being newly introduced drugs, competing national firms have not had adequate time to manufacture market and 3. The retail prices of multi-source drugs show that price competition has enabled competing firms to put into the market their drugs at lower prices. The competition is greater in some developing countries. Table 1c and 4 also show that some developing countries, particularly in Africa, have not put into their markets cheaper generic equivalents available in the world market. The ratio of the lowest to the highest price of a multi-source drug, Zantac in developing countries is 1:58. It is US$2 per 100 units in India and Nepal while it is $116 in South Africa. (Table 5). Table 5 – Retail prices of 100 units of Zantac (ranitidine) 150 mg in 9 developing countries Price in USD
Source: Tables 1a, 1b & 1c.
One would expect developing countries to make available low-priced generics of multi-source drugs. But in some countries in Africa although there is no patent protection, there are monopoly markets for multi-source drugs. Table 6 gives the number of countries, among the 12 surveyed in Africa, where only the originators’ proprietary brands of 11 drugs are marketed exclusively. These are all multi-source drugs and competitors’ products are available in the world market. Table 6 – Number of countries, among the 12 surveyed in Africa, where only the originators’
proprietary brands of 11 multi-source drugs are exclusively marketed
Generic name of drug
Number of countries in Africawhere only the originators
proprietary brand is marketed
http://www.haiweb.org/pubs/hainews/Patents%20and%20Prices.html * Eritrea is not included. Only four of the 29 dosage forms of drugs surveyed were available in Eritrea. Of the sample of drugs surveyed, the average retail prices of some of the proprietary drugs are higher in the developing countries of Africa and Latin America compared to much more affluent OECD countries. Table 7 gives the comparison of the range of prices of 14 dosage forms of proprietary brands of 12 drugs in OECD, African, Asian and Latin American countries. http://www.haiweb.org/pubs/hainews/Patents%20and%20Prices.html Table 7 - Comparison of the ranges in retail prices of 100 units of 14 proprietary dosage forms in
OECD countries and developing countries in Africa, Asia and Latin America
Generic name of drug Range of retail prices in USD
& strength
OECD countries
Developing
countries in Asia
Table 8 gives the average retail prices of the 14 proprietary dosage forms in the four geographical areas. Table 8 – Comparison of the average retail prices of 100 units of 14 proprietary dosage forms in OECD countries and developing countries in Africa, Asia and Latin America Generic name of drug Average retail prices in USD
and strength
OECD countries
Developing
Latin America
countries in Asia
The average retail prices of eight of the dosage forms are higher in African countries than in the much http://www.haiweb.org/pubs/hainews/Patents%20and%20Prices.html more affluent countries. The average retail prices of eleven out of 13 dosage forms are higher in Latin America than in the OECD. It should be noted that in Latin America out of the 14 dosage forms, only: • Five dosage forms were available in four countries; • Three dosage forms were available in two countries; • Two dosage forms were available in three countries; • One dosage form was available in three countries; • One dosage form not available in any of the five. This may explain the small variations in the ratio between the lowest and the highest prices of these dosage forms in the Latin American countries (Table 7). The ratios of the lowest to highest retail prices The small variations in the ratios between the lowest and highest prices of these dosage forms in OECD countries may be due to reasons including the following: • Co-marketing arrangements among manufacturers; Monopoly markets thrive in the absence of competition. Left to themselves without competition, the multinational drug companies will keep up the high prices wherever they can and up to as long as they can as shown in tables 2, 3, 5 and 7. Price competition is the best way to bring down monopoly prices. This is best illustrated in table 9, which compares the retail prices of originators proprietary brands in India and Indian competitors’ products. Table 9 - Comparison of retail prices of 100 units of originators’ brands and competitors’ products of eight dosage
forms of seven drugs in India
Generic name of drug
Originator
Originators’ Brand
Price of 100 units in
& strength
names/competitors’
products
http://www.haiweb.org/pubs/hainews/Patents%20and%20Prices.html Price competition has forced the multinationals to bring down their prices to compete with the Indian manufacturers. When faced with competition, multinationals will not leave the market. They will lower their prices and stay on to compete with the nationals. Another example comes from Bolivia where 100 units of 100mg of Retrovir (zidovudine) was priced at US$626 in 1997. Prices dropped to US$258 in 1998 when the competitor’s product of zidovudine was made available and sold at US$427. The best way to compete is to produce the drug at very low costs. It takes few years for national manufacturers to copy products by reverse engineering and enter the market as shown in table 10. This table gives an indication of the time lag between the introduction of a new drug in the world market and its introduction in India by national firms. It has taken about two to four years for an Indian firm to produce a new drug by reverse engineering. Table 10 – Time lag between introduction of a new drug in the world market and its introduction in Year Introduced
By originators in the world
By national firms in the Indian
http://www.haiweb.org/pubs/hainews/Patents%20and%20Prices.html Source: B.K. Keayla. Conquest by patents. TRIPs Agreement on Patent Laws: Impact on Pharmaceuticals & Health for All., Centre for Study of Global Trade System and Development, New It may take several years, after a drug is introduced in the market to capture a sizeable share, and reduce production costs to levels much lower than the originators. Table 11 illustrates this. It gives the retail prices of three dosage forms of three drugs still under patent protection in OECD countries and five dosage forms of 4 multi-source drugs in India[1] and the lowest retail prices of the originators’ proprietary brands of these seven dosage forms in the other 35 countries surveyed. Table 11 – The retail prices of eight dosage forms of seven drugs manufactured and marketed by
Indian firms and the lowest retail prices of the same dosage forms of the originators product
recorded among the 35 countries surveyed. The ratio between the Indian and the originators’
price are also given.
Generic name of drug
Retail price in US dollars
Ratio of Indian
and strength
Prices in India:
Originators’ brand
prices to lowest
originator price
Competitor’s product Lowest price
Source: Tables 1a, 1b & 1c.
(i) Retail prices in India of the competitors’ product. http://www.haiweb.org/pubs/hainews/Patents%20and%20Prices.html (ii) The lowest retail prices of the originators’ brands of the same seven dosage forms recorded among the The three drugs still under patent protection would have been introduced into the world market later than the four multi-source drugs. The Indian firms’ competing products for these three drugs would, therefore, have been in the market for shorter period compared to the four multi-source drugs. The shorter period would not have given Indian firms adequate time to capture a sizeable market share, increase production volume, lower production costs and effectively compete in prices. The Indian firms were able to market these drugs at about two to four times cheaper than the lowest prices of the originators’ proprietary drug recorded among the other 35 countries surveyed. On the other hand, the Indian prices for the multi-source drugs were about 6 to 15 times cheaper than the lowest prices of the originators’ proprietary drugs recorded among the 35 countries surveyed. The Indian manufacturers had adequate time to capture considerable market share, increase production volume, lower production costs and offer low-priced drugs to consumers. Time is, therefore, crucial in introducing generic equivalents of essential drugs soon after new drugs are put into the market, so that they can enter into price competition well before the originators secure brand loyalty for their products by skillful promotion. Many of the African countries surveyed had only the originators’ proprietary brand forms of the majority of the eight multi-source drugs, while lower priced generic equivalents were available in the African market. It will be in the interest of public health to have low-priced drugs available in the market in every developing country. This is very critical since one of the criteria developing countries use for selecting drugs into their national lists of essential drugs is the price of drugs. High costs drugs, for example some of the new anti-retroviral drugs for the treatment of HIV/AIDS, are not included in the lists of essential drugs in many developing countries, Conclusions & Recommendations
The most striking feature in this survey are the following: • The higher prices of proprietary drugs in some of the developing countries of Africa, Asia and Latin America compared to prices in the 10 OECD countries. The retail prices of 15 out of the 18 dosage forms of eleven drugs for which comparable data are available are all higher in some of the developing countries than in the OECD countries. • Proprietary brand forms of several of the multi-source drugs surveyed are the only products available in many of the African countries enjoying a monopoly market, although low priced generic equivalents, are available in the world market. These countries do not offer patent protection to drugs. • There is a very wide variation of retail prices in the countries surveyed: (i) The variation in the retail prices of proprietary drugs are much wider (range: 1:16-1:59), than the variation in prices of generic equivalents (range 1:7-1:18). (ii) The variation in the retail prices of multi-source drugs in developing countries (range 1:1.7-1:59) are much wider than the variations in OECD countries (range 1:2-1:11.5) It is assumed that market forces promote competition. It should therefore follow that in a free market, competition will result in lowering and more importantly, leveling of the prices. This appears to be so, in the OECD countries and to a certain extent in the generic drugs market in the developing countries http://www.haiweb.org/pubs/hainews/Patents%20and%20Prices.html but not in the proprietary drug market in developing countries. The smaller variation in retail drug prices in OECD may be due, as stated earlier, among others, to the • Co-marketing arrangement by manufacturers; The wide variation in prices of proprietary drugs in the developing countries suggests that the guiding principle which the drug industry seems to adopt in fixing prices is to set the limits according to what the market can bear. Profit maximisation seems to be the only objective. There is evidence that competition is possible in the pharmaceutical market and this will bring prices down. Data from India proves this. When competitors introduce their products, the originators will lower their prices and compete with the national firms. They will not withdraw from the market. Thus, it is important to introduce generic competitors as early as possible to prevent the originators having time to secure brand loyalty to their products by skillful promotion. There is a time lag between the introduction of a drug in the world market and a competitor to get its product into the home market. It takes further time to capture adequate market share so as to increase production, lower costs and compete with the originator. The Indian data on retail prices of three drugs recently introduced and four others which were introduced much earlier, illustrate this phenomenon and underscores the need for national policies on intellectual property system with provisions to enable national firms to initiate production of new drugs as early as possible. Indian firms were able to do this by a process of reverse engineering. This was possible because the Indian national legislation on patents did not provide patent protection for products. However with TRIPs Agreement taking effect, all member states of the WTO should provide patent protection for products and processes for 20 years. The only way national firms can initiate production is by compulsory licensing which is allowed in the TRIPs Agreement. Nevertheless, only a few of the advanced developing countries can use compulsory licensing to manufacture new drugs. A vast majority of developing countries do not have any facilities for production of pharmaceuticals. These countries depend on imports of raw materials and finished products. They can have access to lower priced drugs produced in the more advanced developing countries or by generic manufacturers in some developed countries only by parallel importing. This is also allowed in the TRIPs Agreement. Analysis of empirical data provided in this paper supports the position that compulsory licensing and parallel imports are two provisions which should be in all national legislations on intellectual property rights. TRIPs Agreement allows these provisions to be included in the national legislation on prices. This will enable developing countries regular access to good quality essential drugs at affordable prices. http://www.haiweb.org/pubs/hainews/Patents%20and%20Prices.html [1] India and Nepal seem to have a ‘common market’ in pharmaceuticals. Drugs introduced in India are immediately available in Nepal at Indian prices. http://www.haiweb.org/pubs/hainews/Patents%20and%20Prices.html

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