Posted
February 22, 2007

Another Chapter in Big Pharma's War Against Generics

Corporations reap giant profits on drugs developed with our tax money, then resist efforts to sell those drugs for less.

In recent years, Big Pharma has invented all sorts of subterfuges to try to undermine the generic drug market; it’s a classic story of the proprietary trying to enclose the commons. Now comes word from James Love of Knowledge Ecology International (formerly Consumer Project on Technology) of a particularly odious instance of such enclosure.

In a complaint filed with the Federal Trade Commission, KEI charges the drug company Gilead with using its patent on an AIDS drug, emtricitabine, to control the market for low-cost ingredients used in two AIDS drugs around the world. Emtricitabine was developed with our tax dollars at Emory University.

KEI charges Gilead with using patent licenses for emtricitabine in 45 countries to control the supply of the “active pharmaceutical ingredients” (APIs) in more than 100 other countries. The company is also said to be using patent licenses to cut off low-cost supplies of a second AIDS drug, tenofovir, which is generally off-patent in developing countries. (The KEI Complaint to the FTC is available here.)

KEI explains how the licensing scheme works:

The main focus of the Gilead licensing strategy is to co-op the generic manufacturers, so that they only sell or buy APIs with companies approved by Gilead. For receiving a license to use the Emory patents in 45 countries, the license requires payment of royalties in countries where Gilead does not hold a patent, and to not compete in countries that collectively have 2.5 billion residents. By partitioning the market in this way, Gilead has made generic suppliers of APIs less efficient, and reduced the number of competitive suppliers in all markets, leading to higher prices for AIDS drugs purchased by US government funded health programs.
KEI told the FTC that the patents on emtricitabine were based upon publicly funded research grants to Emory University, and that as a consequence, the US government can easily demand changes in the Gilead licensing practices, by threatening to exercise its royalty free rights in the patents.
“It is particularly troubling that some of the drugs were developed with federal government funding, and that the costs of any such anticompetitive licensing would be paid by American taxpayers who subsidize developing country purchases through the PEPFAR program,” said Joshua D. Sarnoff, from the Glushko-Samuelson Intellectual Property Law Clinic at American University. [PEPFAR stands for the President’s Emergency Plan for AIDS Relief.]

Although the details are complicated, the general scenario is familiar: Taxpayers support development of a new drug. Drug company gains exclusive patents over it. Drug company uses its patents, trade policy and market power to charge exorbitant prices and corner a market of captive consumers (sick people) – assuming they can pay.

Not only does Gilead’s ingenious licensing scheme raise the price of AIDS drugs in more than 150 developing country markets, says KEI, it soaks U.S. taxpayers a second time, when the U.S. Government buys the drug. (The U.S. government is the largest purchaser of AIDS drugs in the developing world.) So American citizens are paying for emtricitabine as the original investor, as a government purchaser, and as individual consumers. You gotta love the free market.

A hearty Salute of the Grateful Commoner to Jamie and KEI for blowing the whistle on Gilead. Here’s hoping the FTC gives the complaint serious attention.