As an elusive covid-19 vaccine draws closer, big pharma is licking its lips at the monetary potential of what could be a virtually limitless ongoing global demand. But governments may use compulsory licensing regulation to inject a measure of affordability as the death toll escalates. Never before have intellectual property rights been so starkly pitted against massive human loss. Freny Patel reports

As the covid-19 pandemic threatens lives and the global race to develop a vaccine gathers pace, governments around the world are beefing up legislation to ensure affordable access to appropriate drugs and vaccines to combat the virus. The death toll from the pandemic has already spiralled past the one million mark and public health concerns are likely to supersede the protection of intellectual property (IP) rights. Multinational pharma players are bound to take a hit as governments choose to strengthen laws and interfere in the pricing of any treatment or vaccine in the public interest.

One way for governments to dampen multinational pharmaceutical companies’ ability to mint megabucks is the use of compulsory licensing. Compulsory licensing is one of the flexibilities in the field of patent protection that enables a government to allow a third party to produce a patented product without seeking the consent of the patent holder.

India is among the first few countries to have invoked compulsory licensing, back in March 2012, when it permitted NATCO Pharma, a domestic company, to manufacture and sell the generic version of Bayer’s patented and protected anti-cancer drug, Sorafenib Tosyalte. This landmark judgment saw multinational pharma companies raise a hue and cry as they feared the loss of their exclusivity rights in India. But what it really did was ensure that drugs sold by international pharma companies in India were affordable and, more importantly, that “supply met demand”.

Compulsory licensing is a powerful bargaining tool for price negotiation. Whether governments choose to use this tool will depend on the availability of any vaccine, as well as rights holders’ ability to meet states’ needs at an affordable cost, Gordon Gao, a partner at Fangda Partners advising on intellectual property, tells Asia Business Law Journal.

It is “more of a bargaining chip for governments in negotiations with pharmaceutical companies, for achieving lower drug prices and balancing public interest of rights holders,” says Gao.

While Bayer’s example paves the likelihood of India forcing down the price of a covid-19 vaccine, mainland China has never triggered article 49 of its Patent Law, which provides a patent compulsory licensing system for pharmaceuticals.

Shanghai-based IP lawyer Helen Cheng, a partner with Zhong Lun Law Firm, says the Chinese government is unlikely to issue compulsory licensing for covid-19 vaccine-related patents, based on the legislation and practice of the compulsory licensing system in China. Instead, the government is more willing “to negotiate with pharma companies and place large-volume orders to ensure the vaccine is accessible and affordable to the public,” she says.

Nevertheless, Cheng does not rule out the possibility of Chinese pharma companies encountering compulsory licensing in overseas markets, as regulations and practices vary across countries.

vaccine licensingRichard Blewett, a Brussels-based partner at Clifford Chance and a member of the firm’s antitrust group and head of practice in Greater China, says it would be rash to make any predictions about what requirements on licensing or pricing might apply in the scramble for governments to protect their citizens from covid-19.

It may be rash to make any assumptions, given the current pandemic situation, and that quite a few governments across the globe have initiated legislation to issue compulsory licensing in the eventuality that patentees fail to make vaccines accessible.

Governments in Chile and Ecuador have done so already, while other developed nations like Canada, France and Germany are preparing the necessary groundwork to facilitate the issuance of compulsory licensing if warranted.

Back in Asia, the Indonesian government has the power to exercise compulsory licensing under its existing patent laws, and a new regulation came into force on 8 July expanding its ability to use patents for the public interest.

Compulsory licences enable governments with the right to intervene in cases of national emergency and extreme urgency, even after granting of a patent. “However, to exercise the said powers, circumstances such as national emergency or extreme urgency are required to be established,” says Ajay Bhargava, a senior partner at Khaitan & Co based in New Delhi. Bhargava is a senior member of the dispute resolution team with expertise in IP and pharma.

This could have a negative bearing for pharmaceutical companies, which usually profit from their R&D spend thanks to the 15-20-year exclusivity period under most patent regimes. With the threat of compulsory licensing hanging over their heads, they will need to think twice before deciding on their pricing strategy for a covid-19 vaccine.

Cheng agrees. “Considering the deterrent effect of compulsory licensing, the urgent demand of the public and the cost of vaccines, the pharma companies will probably offer a price relatively acceptable to both parties.”

Affordability and availability

US-based Gilead Sciences, for instance, signed non-exclusive voluntary licensing agreements with generic pharmaceutical manufacturers in Egypt, India and Pakistan to expand the supply of an antiviral drug, Remdesivir.

In a statement, Gilead said that voluntary agreements allowed pharma companies – like Cipla, Dr Reddy’s Laboratories, Eva Pharma, Ferozsons Laboratories, Hetero Labs, Jubilant Lifesciences, Mylan, Syngene and Zydus Cadila Healthcare – to manufacture Remdesivir for distribution across 127 countries. These countries include the majority of low-income ones facing significant obstacles to healthcare access.

“While the idea behind Gilead’s licensing agreements is for technology transfer to quickly scale up the production of Remdesivir, this strategy may safeguard the US pharma major from any advent of compulsory licensing,” says a London-based IP lawyer who wished to remain anonymous.

Companies that enter into voluntary licences have an upper hand in deciding the royalty “if at all they want to charge it”, says the IP lawyer. “This needs to be minimal, which would ensure the affordability and availability of the drug.”

Gilead, for instance, has allowed licensees to set their own prices for the generic product produced. The licences are royalty-free until the WHO declares the end of the public health emergency, or until another drug or vaccine is approved to treat or prevent covid-19.

Lawyers interviewed cautioned that pharma companies currently focused on developing a vaccine to combat the coronavirus will have to pay heed to the strong possibility of government intervention. Even if governments choose to enter into a voluntary agreement with generic companies, this does not stop them from imposing compulsory licensing.

The Indian government would be well within its rights to issue compulsory licensing “to effectively combat the public health crisis”, says Bhargava.

The issuance of a compulsory licence is a drastic step as it impinges on the exclusivity and monopoly rights of a patentee, forcing the patent holder to unwillingly settle for possibly a lower royalty rate as compared to a voluntary licence. “Such a step should only be resorted to in case the patentee is unwilling to enter into reasonable licences for the adequate supply of the patented drug/vaccine at reasonable rates,” Bhargava points out.

Section 92 of the Indian Patent Act 1970 identifies that in cases of a national emergency, extreme urgency, or cases of public non-commercial use, the central government may, at any time after the sealing of the patent, grant a compulsory licence in respect of any patent in force to any person interested.

When it comes to a public health crisis, as is the case today, the procedure laid down under section 87 of the act for granting a compulsory licence need not be followed. This would expedite the issuance of a compulsory licence, which would fast-track public access to the patented invention, Bhargava reasons.

However, New Delhi-based Abhishek Malhotra, the founding partner of TMT Law Practice, with expertise in IP and commercial dispute resolution, points to the “long and strenuous” procedure for compulsory licensing, which differs across the global regulatory spectrum. A lot of policy tweaking will be required before compulsory licensing is invoked, he suggests.

vaccine licensingIf pharma companies like AbbVie and Moderna take a more socially conscious approach, there may not be a need for government intervention to issue compulsory licensing to settle patent disputes, says Gao. AbbVie and Moderna have promised not to enforce any patent rights related to covid-19.

Gao does not rule out the possibility of some patent holders invoking a protectionist stance and seemingly attempting to profit from the global pandemic through the patent system, citing Labrador Diagnostics.

SoftBank-owned Labrador Diagnostics, which acquired patents from a failed blood-testing startup called Theranos, recently filed a patent infringement lawsuit against BioFire Diagnostics, a health startup that launched three covid-19 tests. Labrador requested an injunction demanding BioFire to stop using the technology covered by the Theranos patents. However, post filing the lawsuit and after a public backlash, Labrador was forced to throw in the towel and allow third parties to use its Theranos patents to develop covid-19 tests with a royalty-free licence.

Impact of competition

“Compulsory licensing would enable competition in the market for a patented drug,” says Deeksha Manchanda, a competition counsel at Chandhiok & Mahajan in New Delhi. “As the patent holder would have to grant a licence to another manufacturer by fixing the royalty rate, competition could reduce the price,” she explains.

Although compulsory licensing is well-entrenched and tested under India’s Patent Act, Malhotra is optimistic that the government may not need to resort to it, and could instead allow companies to set reasonable prices. This is because the Serum Institute of India, with its headquarters in Pune, has the wherewithal to produce a covid-19 vaccine on a large scale, he reasons.

The private pharma company, which is one of the largest manufacturers of vaccines worldwide, has received authorization from the Central Drugs Standard Control Organization to produce a covid-19 vaccine, and has been conducting human trials of a vaccine developed by the University of Oxford and AstraZeneca, in the UK.

vaccine licensingHowever, Kanika Nayar, a partner at L&L Partners in New Delhi, does not share Malhotra’s optimism. Although she cautions that the provision of compulsory licensing should be used judiciously, given that it is an exception to the general rule of patents, she does not rule out government intervention in India because there are only “a handful of potential covid vaccine candidates”.

Gao points out that while compulsory licensing would be seen as a desperate measure by governments to address the urgent need for vaccine accessibility, the main challenge is still the absence of any approved vaccines or cures.

There are reportedly 47 vaccine candidates between phase one and phase three clinical trials worldwide, with three having been approved for limited use, but it will be a long arduous road before any real cure is found. For instance, on 8 September, AstraZeneca was forced to halt clinical trials of a candidate vaccine on account of “an unexplained illness” among participants enrolled in the clinical trial in the UK. According to media reports, its vaccine had commenced phase three clinical trials in early September, with the delivery schedule of the first doses expected in October.

AstraZeneca, one of nine global pharma companies in the late stages of phase 3 human trials, has since resumed clinical trials. There is an expectation that in the next 12 months, more than 300 million doses would be made available for the majority of the US population. Yale Institute for Global Health’s director, Saad B Omer, who is based in New Haven, Connecticut, and is working with the WHO on the rollout of a vaccine, says that even in an equitable distribution scenario there is not a realistic expectation of the availability of vaccines for the entire world.

Viability of dual pricing

Understandably, while many governments are in panic mode, some are preparing the groundwork to invoke compulsory licensing. What countries need to bear in mind is that this could have a serious chilling effect on the future of R&D. With sizeable investments running into tens of billions of dollars, Omer suggests “a Robin Hood kind of model”, where high-income countries pay a higher price than low-income countries, which would help subsidize the latter’s vaccine access.

Gao agrees, advising that dual pricing/regional pricing should be an industry practice. “After all, drug pricing is a matter of public health, insurance, patient affordability, pharma company R&D incentives, and even involves epidemiological surveys, pharma-economics,” he points out.

Pharma companies may decide the price based on the cost, the product positioning, competitor pricing and consumer acceptance, says Gao. “The current forms of drug price control and principles of drug pricing leave drug managers a fairly large profit margin,” he points out. Governments in developing countries can also be involved in the pricing for covid-19 vaccines, he adds.

More pharma companies and governments have opted for “value-based pricing of drugs”, says Gao, where pharma companies may provide discounts for patients with less effective outcomes after administrating their drugs. “Such pricing policy is appealing to patients and prompts the pharma companies to develop more effective drugs.”

While from an economic standpoint dual pricing could be helpful for pharma companies, it could also be likened to price discrimination and encourage legal challenges from other regulators, says Malhotra. “Dual pricing will bring in further scrutiny and regulators will wish to retain visibility to ensure that policies are not flouted, and consumers are not impacted,” he explains.

Manchanda agrees and does not favour dual pricing. “Countries where the price is significantly higher will use local laws such as price control regulations to reduce prices,” she says. A stark difference in prices across different countries may not be possible.

While dual pricing “is a possibility that could be explored”, it ought to be supported by justifications, says Nayar. Pharma companies can consider dual pricing based on the country classification, in terms of developed or developing, as per the UN Department of Economic and Social Affairs, in its World Economic Situation and Prospects Report.

“While government intervention in the private sector could lead to litigation, courts are likely to side with the larger public interest,” says Nayar. “Pharma companies would be better off looking at equitable distribution of a vaccine and keeping economic considerations secondary. Governmental intervention, which may prejudice future innovations, should be seriously considered and legally challenged if the need arises.”

vaccine licensingRewarding endeavour

While the immediate future may look grim for pharma companies developing the vaccine, Blewett seems confident that the rush to find a vaccine suggests that the pharma companies investing all this time and effort “clearly believe that there will be plenty of rewards to be had, financial or otherwise”.

The way the disease is progressing, with chances of reinfection looming large, pharma companies should continue to race to find a cure, while at the same time discuss and negotiate with governments and international agencies to subsidize the vaccines, says Manchanda.

The subsidization of a vaccine’s cost, by the UN or other such multilateral agencies, could be possible to ensure accessibility at an affordable price, she says, adding there is also the possibility of concerned regulatory authorities fixing a ceiling price for a vaccine. The pricing of many drugs in India is controlled under the Drug Price Control Order. Similarly, as the cost of healthcare has increased dramatically, many Southeast Asian countries are using various pricing strategies to contain prices. “Considering that the entire world population is expected to purchase a cure, multinationals will play it as a volume game and not necessarily look at the unit pricing,” says Bhargava.

vaccine licensingFurther, a compulsory licence is usually granted for a fixed period of six months to a year. Since covid-19 is not expected to go away in six months, and many countries have witnessed the recurrence of the virus in terms of a second and even third wave, patent holders stand to benefit once the compulsory licence ends, reasons Bhargava, “especially if their drug has been a tried and tested product”.

Cheng points out that compulsory licensing cannot guarantee the smooth development and manufacture of a biosimilar vaccine by generic companies. The reason is that, as a kind of biological product, the vaccine’s technical threshold is higher than that of chemical drugs, and the quality of the vaccine is more vulnerable to the production environment and process. “Even if a compulsory licence is issued, there are still many obstacles for generic pharma companies to overcome,” she says.

This would not be the first time that governments have chosen to intervene and ensure affordable access to medicines. Almost two decades ago, during the height of the AIDS crisis, the World Trade Organization stepped in as scores of citizens across numerous countries were not able to afford life-saving treatment. The Doha Declaration, adopted in November 2001, reaffirmed that the Agreement on Trade-Related Aspects of Intellectual Property Rights “should not prevent members from taking measures to protect public health”.

Could the recent case of Glenmark Pharmaceutical having been slapped with a notice by the Drugs Controller General of India, allegedly “for false claims and high prices” of its antiviral FabiFlu drug, be a harbinger for the future?

A notice filed against Glenmark was triggered by a complaint from a member of parliament that the pricing of the drug was not in the interest of the poor, lower middle class and middle-class sections of the population.

Glenmark vouched that these allegations were “unsubstantiated” and “devoid of merit”. The pharma major had initially priced the drug at ₹103 (US$1.40) per tablet in June 2020, but reduced it to ₹75 a month later.

Time will tell on to what extent governments around the world will be forced to act to safeguard accessibility and affordability for a vaccine. Ultimately, it will be a matter of striking a balance between protecting public health and IP rights.