TWN Info Service on Intellectual Property Rights and Health
1 November 2023
Third World Network
www.twn.my

USITC Report Confirms Inadequacy of Voluntary License, Tier Pricing, International initiatives to Support Access in Developing Countries

By Sangeeta Shashikant

The much-awaited report from the United States International Trade Commission (USITC) on “COVID-19 Diagnostics and Therapeutics: Supply, Demand, and TRIPS Agreement Flexibilities” found that “disparity among countries of different income groups is wide in terms of access and availability to COVID-19 diagnostics and therapeutics”. About 80 percent of government procurements were by high income countries.

While recognizing that many factors impact availability and demand the report states that “high prices and the lack of price transparency appear detrimental to many countries seeking access”, finding as well that compulsory licenses “is linked to increased generics and lower prices, and increased access to pharmaceuticals”.

Notably, the findings of the report affirm the insufficiency of existing initiatives such as voluntary licenses, tier-pricing and access schemes of international organizations in facilitating prompt access to COVID-19 diagnostics and therapeutics in developing countries. The findings echo concerns raised by developing countries and numerous advocates who have been urging mutatis mutandis extension of the June 17, 2022 Ministerial Decision on the TRIPS Agreement on COVID-19 vaccines to diagnostics and therapeutics.

Paragraph 8 of the TRIPS Decision states: “No later than six months from the date of this Decision, Members will decide on its extension to cover the production and supply of COVID-19 diagnostics and therapeutics”. Implementation of paragraph 8 is on the agenda of the TRIPS Council meeting in Geneva on 30-31 October 2023.

The USITC report, unveiled on October 17, was initiated in response to a request from the US Trade Representative (USTR) in December 2022, to gather information regarding the issues and factors surrounding COVID-19 diagnostics and therapeutics.

Nevertheless, for many observers, this investigation is perceived as nothing more than an additional effort to postpone a definitive decision regarding the implementation of paragraph 8 of the TRIPS Decision, as the six-month timeframe elapsed.

Piotr Kolczynski, an advisor associated with the anti-poverty NGO Oxfam and the People’s Vaccine Alliance, voiced skepticism, stating, “It is really hard to believe that this investigation was intended to be anything more than a stonewalling tactic,” as reported by Euractive on October 27.

Estimating Need and Scope of COVID-19 Diagnostics and Therapeutics

A key ask of the USTR was for the investigation to examine whether existing production and supplies of diagnostics and therapeutics can meet demand. The USITC’s report, however, grapples with the complexity of this task, concluding that “[m]easuring need is challenging, particularly in the face of multiple epidemiological and policy uncertainties”.

Expanding on the complexity, the report clarifies that “estimating need is challenging, requiring assumptions about eligibility for the drug (i.e., authorized eligibility for certain treatments is only for patients infected with COVID-19 with high risk of hospitalization and death), as well as multiple epidemiological and policy uncertainties around the world. Estimates depend on many specific factors, including timely testing and tracking of COVID-19 caseloads; assumptions about the number of confirmed COVID-19 infections in high-risk patients; the health-seeking behavior of individuals; and other considerations such as regulatory guidance, country priorities, and test availability and turnaround. Estimating future need also depends on the trajectory of the virus in terms of infection rates and emergence of new variants.”

Some observers have criticised that while the USITC report factually states that WHO has declared that COVID-19 would no longer be classified as a public health emergency of international concern but it does not sufficiently emphasize that COVID-19 is a pathogen with continuing pandemic potential, and as new variants emerge, there is a strong likelihood of rise in infections, morbidity, and mortality, with national and global social and economic consequences, and hence the need for developing countries to be ready with policy tools to address future risks and their needs. The report also fails to mention the continuing need for therapeutics that prevent, shorten, or ameliorate “long COVID”, which could greatly expand needed supplies to cover all at risk of developing long covid.

As per the USTR’s specific request, the USITC also delved into the definitions and scope of “diagnostics” and “therapeutics” concerning COVID-19. The USITC points out that, generally in the medical context “COVID-19 diagnostic is a good used to diagnose COVID-19 or identify how patients respond to a treatment for COVID-19, and a COVID-19 therapeutic is a good used to treat COVID-19” adding that “the universe of products that fall within these expansive definitions is broad and varied” and that “as the virus mutates, the efficacy of a given diagnostic or therapeutic for COVID-19 can also change.”

The report states that determining a definitive scope of what products are covered by the terms “diagnostics” and “therapeutics” as they pertain to COVID-19 and what constitutes relevant COVID-19 diagnostics and therapeutics covered by patents is complicated, highlighting in particular the danger of excluding critical COVID-19 diagnostics and therapeutics.

Experts have also pointed out that such an exercise is unwarranted as the TRIPS rules specify that the scope and duration of compulsory license shall be limited to the purpose for which it was authorized. The purpose of the TRIPS Decision is clear, in that it is for the “production and supply” to “address the COVID-19 pandemic”.

Professor Brook Baker from Northeastern University, School of Law regrets that the report fails to recognize that therapeutics can also serve as pre-exposure measures to prevent COVID-19 infection, especially for individuals who are immunocompromised and should not receive vaccinations.

Expansive Patent Landscape

The scope of patenting concerning COVID-19 diagnostics and therapeutics is vast, as revealed by the information within the report.

Although foundational patents for PCR and antigen tests have reportedly expired, the USITC underscores that “[t]his does not mean that patents are irrelevant; for example, they may be used to protect testing platforms and associated inputs used in automated testing processes for COVID-19 and other diseases”.  Referring to a US Patent and Trademark Office (USPTO) patent landscape report which identifies 824 COVID-19 diagnostic-specific published patent filings between December 2019 and the end of March 2023., it adds “[t]here are also emerging diagnostic technologies [….] that may be subject to patent protections”.

The report further highlights that “IP protections associated with COVID-19 diagnostic testing platforms reportedly have given rise to access challenges”. It offers the example of Cepheid’s GeneXpert system widely used in developing countries, “wherein the cartridges needed to perform a GeneXpert test are reported to be under patent until 2037”, concluding that “[p]atent and trade secret barriers to generic replication of cartridges are reported to have constrained testing capacity for laboratories dependent on GeneXpert devices for automated PCR testing”.

In the domain of COVID-19 therapeutics, the USITC identifies extensive patenting, with virtually all COVID-19 therapeutics experiencing a multitude of primary and secondary patent applications, alongside granted patents across various jurisdictions. The report goes on to state that cross-country studies “have provided evidence that patent protection supports innovation in the health sector in more developed countries but has little to no positive effect for innovation in developing countries and negative effects for access and affordability”.

Voluntary License

The report offers an analysis of the advantages and disadvantages associated with voluntary licenses, shedding light on critical aspects of these agreements. A key observation highlights “the substantial control maintained by the licensor can give rise to disadvantages in terms of access to medicine” in developing countries. This issue is elaborated upon in three main points.

“First, the licensor determines what IP rights and products are made available to licensees. There is no assurance that the most successful or most needed treatments will be made available for licensing. Second, licensors control the countries to which licensees may export their products and the countries that may obtain access through imports from licensees. With respect to COVID-19, this option may exclude countries for which access to licensed products would be valuable from a public health perspective, […]. Third, BLAs [bilateral license agreements] generally are not published; this means complete information about the terms and conditions of the agreements is not available”.

“The geographical scope of MPP [Medicines Patent Pool] licenses is a challenging aspect of the program”, the report stresses, as a substantial number of upper middle income developing countries are excluded under MPP licenses: molnupiravir (28 of 54 UMICs), nirmatrelvir (+ ritonavir) (41 of 54 UMICs), and ensitrelvir (19 of 54 UMICs), as well as countries outside the scope of the remdesivir BLAs (22 of 54 UMICs).

The report refers to an analysis conducted in the fall of 2022 revealed that only 10% of global COVID-19 diagnoses occurred in developing countries included in the Pfizer-MPP voluntary license for nirmatrelvir (+ ritonavir), while a substantial 29% of diagnoses came from developing countries categorized as low- and middle-income countries (LMICs) and upper-middle-income countries (UMICs) not covered by the agreement.

The report points out a notable condition within voluntary licenses that requires regulatory approval by a stringent regulatory authority (SRA) or the World Health Organization (WHO). This is considered an advantage because it ensures the distribution of safe therapeutics. However, the USITC also considers it to be a “challenge—because of the difficulties and delays that may be associated with regulatory review”. In the case of some therapeutics, such as remdesivir, WHO recommendation and prequalification of a generic version came a full two years after U.S. authorization and the first voluntary licenses were signed.

Furthermore, the report emphasizes that WHO prequalification, a requirement in most Medicines Patent Pool (MPP) sub-licensing agreements, “requires significant effort by manufacturers in order to complete the application requirements and address data standards, which may be challenging for some manufacturers”. The report also highlights concerns about the affordability of these processes for smaller manufacturers in many low- and middle-income countries (LMICs), as they entail a one-time application fee of $25,000 in addition to an annual fee of $20,000 for a comprehensive product assessment.

Tier-Pricing & access initiatives of international organizations

Differential pricing practices employed by the industry and the access initiatives of international organizations are often cited by opponents to the extension of the TRIPS Decision as a basis for denying the existence of access challenges in developing countries.

However, the USITC’s findings counter this argument by emphasizing that “[t]he affordability of COVID-19 therapeutics has been noted as a significant barrier to access for many LICs and MICs”, “[e]ven though the middle and lowest “best access” prices are well below the highest price points paid by HICs, they may still be untenably high for LICs, LMICs, and UMICs. Indeed, for many countries, the “best access price” exceeds the average annual health care expenditure for LICs ($39 per capita) and is more than half the price of the average annual per capita health care expenditure of LMICs ($137)”.

In the later part of the report, the USITC states “[t]he tiered price for these UMICs is about $250 per treatment course for nirmatrelvir (+ ritonavir), which is about half of the average per capita annual health care expenditure ($524)[….] Many UMICs excluded from certain MPP agreements have average annual per capita health expenditures that are even less than that. For example, a $250 treatment course price would comprise almost 70 percent of the $354 annual per capita health expenditure in the Dominican Republic”.

With respect to the CHAI access initiative for certain lower income developing countries for the supply of courses of nirmatrelvir (+ ritonavir) for $25 per treatment, the USITC found that “As of publication, however, no licensed manufacturers party to the CHAI arrangement are producing nirmatrelvir (+ ritonavir)”. It adds that “for many drugs, but especially for nirmatrelvir (+ ritonavir), generics have been slow to become available”. “Only one [generic] licensed manufacturer, who is not part of the CHAI arrangement, has received WHO prequalification for nirmatrelvir(+ ritonavir)— a pre-condition of the MPP sublicensing agreement—and the firm has had little demand for its products priced at $60 per treatment course”, it further states.

“Additionally, the potential $25 per treatment course price under the CHAI (Clinton Health Access Initiative) agreement would only be available once a minimum purchase threshold is reached”, the report further adding that “Several sources stated that, without more manufacturers coming on board with generic versions of nirmatrelvir (+ ritonavir) and further lowering the price, the pricing for LICs and LMICs may be untenable”.

The USITC also addresses the argument about funds provided by international organizations: “countries must prioritize what to purchase with these funds. At $80–90 per course (the “best access price” for nirmatrelvir (+ ritonavir)), many courses may not be affordable, given the total amount of funding dollars, and other priorities for limited national healthcare budgets may be competing”.

Prof. Brook Baker points out that the report erroneously over-estimated the percentage of COVID-19 antivirals actually made commercially available to LMICs by counting the UNICEF and Global Fund option agreements as fully funded pre-purchase agreements.  “UNICEF and Global Fund did not pay for 4 and 6 million courses of treatment.  Global Fund purchased a very small quantity, but the bulk was for reserved sale to LMICs either on a no-profit basis to LICs and LMICs (still a high price estimated at a minimum of 80-90 per course of treatment) or unaffordable tiered prices to UMICs ($250 per course of treatment or higher)”, he stressed.

Extension of TRIPS Decision Supports Timely Access

A key feature of the TRIPS Decision is the waiver of the limitation on exports in Article 31(f) attached to the use of compulsory license, to overcome patent barriers. Lifting the export restrictions would enable manufacturers to achieve economies of scale and to supply other developing countries with insufficient manufacturing capacity. The TRIPS Decision also reaffirms countries’ right to use existing flexibilities.

In its investigation, the USITC found that “[t]he primary, commonly cited benefit for countries utilizing CLs (compulsory licenses) is the reduced cost of the pharmaceutical product or products at issue and improved access”.  The report further adds that “[w]hen prices of the patented product are unaffordable and VLs are not granted, CLs can provide an avenue of developing a local solution and then increasing access”.

Responding to various claims especially by the multinational pharmaceutical industry about the negative effect of using CL, the report notes “[i]n the available literature on the impact of CLs on pharmaceutical products, researchers have generally found that CLs are associated with decreased pharmaceutical prices in the countries that used CLs”.  “The available research also associates CLs with increases in the number of people with access to patented products. There is some evidence that CLs encouraged innovation, where the literature has generally focused on the broader chemical industry”, the report adds.

The USITC report asserts legal and procedural hurdles in various forms present a substantial challenge for countries to utilize CLs” adding that “the requirement of Article 31(f) that a CL issued under that provision be used predominantly for the domestic market limits the extent to which countries without a capable domestic manufacturing base can benefit from the flexibility”. The report also reiterates concerns that Article 31bis conditions imposed on the CL grantor and the CL beneficiary (i.e., importer) “are considered particularly burdensome and prevent utilization of that flexibility”.

[Article31bis of TRIPS is a mechanism to waive Article 31(f) condition adopted on 30 August 2003, and in 2005 translated into a permanent amendment of the TRIPS Agreement as Article 31bis. But this mechanism has mostly proven to be ineffective and unworkable due to the numerous long rigid procedures attached to its use.]

Notably, the report acknowledges that “[c]ountries that use CLs often encounter political and economic pressure when granting a CL or attempting to issue a CL” which comes in various forms including the threat of sanctions, claims of expropriation under investment law, and withdrawal of financial support on unrelated matters, noting concerns on the “chilling effect on the use of CLs by developing countries in the first place”.

“Implementation of the 2022 Ministerial (TRIPS) Decision has been highlighted as a potential means of reducing both this political pressure and potentially limiting retaliation from the pharmaceutical sector, as it reaffirms the right to issue a CL in a similar way to the 2001 Doha Declaration on the TRIPS Agreement and Public Health”, the USITC report emphasizes.