Compulsory licences could be used more widely to prevent over pricing of drugs but they must be fair to all

Growing concern about the rising price of drugs used in the treatment of life-limiting medical conditions is putting pressure on governments in Europe to increase their use of Compulsory Licence Orders.

Compulsory licences can be enforced in a number of countries of the world if the controlling government believes that a patented drug is needed to treat its population but is not readily accessible, possibly due to cost reasons. Reluctant to impose such licences for fear of the impact such action could have on investment in drug research programmes, most governments prefer to use them sparingly.

However, recent global examples of high pricing by some drug companies have led to calls from political lobby groups such as the European Free Alliance, for governments to increase their use of compulsory licences. In the US, for example, there was uproar recently when it emerged that Turing Pharmaceuticals was attempting to retail an anti-parasitic drug used in the treatment of toxoplasmosis at a vastly-inflated price of about $700 per tablet, when the previous cost was about $13 per tablet. This approach to pricing is difficult to defend and needs to be addressed but it is also in everyone’s interests to ensure that drug companies are treated fairly. Interestingly, the drug sold by Turing Pharmaceuticals was not even covered by a patent.

The main sticking point for all those interested in making drugs available to the people that need them, as cheaply as possible, is agreeing what is a fair price. Drug companies need to be able to demonstrate how they have arrived at their pricing structure. Drug development programmes can be incredibly difficult and costly to undertake and pharmaceutical companies need to know they will be able to recoup these costs and make a profit by selling their drug during the period of monopoly provided by its patent protection. They also need to account for other costs associated with the many drugs under development which fail to meet regulatory approval and, therefore, never reach the market despite substantial investment.

Despite the protests of some lobby groups, pharmaceutical companies need to know that they will be able to profit from their activities. Without this, investment in drug research programmes to find treatments for conditions such as malaria and hepatitis C that are prevalent in third world countries, could dry up altogether. Basically, if you cannot make a profit, why invest?

It is also important to note that pharmaceutical companies are not making more profits than those in other sectors.  In the latest Forbes Global 2000 report on the richest companies in the world, the highest position taken by a pharmaceutical business was 48th.

As long as they are used fairly – balancing the interests of pharma companies with the needs and economic means of individual countries – it should be possible to use compulsory licence orders to good effect without blocking investment activity. New legislation could also help to keep rising drug prices in check. For example, provisions could be introduced which would allow drug companies to lower the entry price of individual drugs in exchange for a longer period of market exclusivity.

To some extent, market forces will also have a moderating influence on drug prices. In the UK, the National Institute for Health and Care Excellence (NICE) – the body responsible for assessing the efficacy and effectiveness balance of drug treatments for the NHS – is helping to achieve this. An interesting case arose recently when NICE was assessing a life-extending breast cancer drug called Kadcyla, developed by Roche. The UK Government was encouraged to invoke a rarely-used provision of the UK Patents Act, normally only used to force a compulsory licence with respect to arms or other military goods in the interests of the crown. Although the UK government did meet with Roche to discuss the pricing of Kadcyla, no use of the UK Patents Act provision was made. However, the price of the drug was subsequently reduced. Despite this, guidelines issued by NICE have said the drug is still ‘too expensive’ for routine use by the NHS and it is possible the price of the drug could fall further in the future.

Rather than just leaving the matter to market forces, there may well be pressure on governments to use compulsory licence orders in the UK and across Europe to challenge pharmaceutical companies if they appear to be over pricing their drugs. However, a balanced approach is needed to ensure investment in drug research programmes continues for the benefit of everyone.

Adrian Tombling is a partner and patent attorney at European intellectual property firm, Withers & Rogers. Based in the firm’s Munich office, Adrian heads up its Life Sciences and Chemistry group.


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