E-drug: Speech Dr M. Scholtz WHO
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[Caution: very long message, HH]
Please find attached the speech of Dr Michael Scholtz, Executive
Director, Health Technology and Pharmaceuticals, WHO, presented at
the Conference on Increasing Access to Essential Drugs in a
Globalized Economy, Amsterdam, 25-26 November 1999
Regards,
Jorg Hetzke
WHO/HTP-EDM
Health Technology and Pharmaceuticals
mailto:hetzkej@who.int
International Trade Agreements and Public Health: WHO's Role
Dr Michael Scholtz, Executive Director
Health Technology and Pharmaceuticals
World Health Organization
Presented at the Conference on Increasing Access to Essential Drugs
in a Globalized Economy, Amsterdam, 25-26 November 1999
Ladies and Gentlemen,
Thank you for your invitation to attend this important and inspiring
Conference. I welcome the opportunity to discuss with you more in
detail the World Health Organization's views on pharmaceuticals and
its role within the context of the international agreements on trade as
just outlined by Dr Gro Harlem Brundtland, WHO's Director-General.
Each of WHO's 191 Member States, in joining the Organization, has
agreed that health is a human right. And access to essential drugs is a
critical part of this fundamental human right. Our work in WHO is built
on that premise.
It is WHO's view that with the globalization of the world economy we
need to pay particular attention to access to drugs. With this
globalization goes increased access for some. But for far too many
this is not the case - and this will continue to haunt the international
community.
As Dr Brundtland has just said to this Conference, "Essential drugs are
a public good and not simply just another commodity." We need to
make this clear to those who now prepare to sit down as a new round
of trade negotiation starts.
Since the concepts of national drug policies and essential drugs were
introduced by WHO nearly 25 years ago, three out of four countries -
nearly 150 countries in total - have adopted national essential drugs
lists. Nearly 100 governments have put these lists into practice
through clinical treatment guidelines. Most importantly, through a
combination of public and private health systems, the absolute number
of people with access to essential drugs has nearly doubled, from 2
billion people in 1977 to nearly 4 billion people in 1997.
It has been repeated over and over again: despite this greatly
expanded access to essential drugs and vaccines in the last two
decades, many problems persist, particularly in developing countries.
As we approach the year 2000, one-third of the world's population
still lacks access to essential drugs. In the poorest parts of Africa and
Asia, over 50% of the population do not have regular access to the
most vital essential drugs. Unlike in most industrialized countries, we
know that up to 90% of medicines are paid "out-of-pocket" in
developing countries. We also know that this expenditure represents a
much larger proportion of household spending in a developing country
than in a developed country.
Today, 13 million children under five years of age die every year in
developing countries and about 10 million of these deaths are due to
acute respiratory infections, diarrhoeal diseases, tuberculosis and
malaria alone. Many of these deaths could be prevented if essential
drugs were made available. And let us be clear about it - many of
these deaths occur in countries which actually do have essential drugs
policies. There are countries which have essential drugs lists, but lack
the drugs on the list, while at the same time drugs which are not on
the list are available. So we are confronting a highly complex issue
and will intensify our work to improve access for those in need.
Today, I should like to address three critical questions concerning
access to essential drugs, multilateral trade agreements, and WHO's
broader role in the area of health and trade. These questions are:
- First, what is WHO's approach to securing access to essential
drugs?
- Second, what are WHO's views on multilateral trade agreements and
access to drugs?
- Third, what is WHO's broader role with respect to international trade
agreements and public health?
Turning to the first question, what is WHO's approach to securing
access to essential drugs?
Rational selection and use of essential drugs in both the public and
private sectors are fundamental to securing access. Access can never
be ensured if drugs are not selected according to their comparative
efficacy and cost-effectiveness; nor if they are over-prescribed by
health professionals and over-consumed by patients.
Adequate Financing
Beyond rational selection and use, three factors are critical for
securing access: (1) adequate financing, (2) affordable prices, and (3)
reliable supply systems.
In our view, payment for essential drugs through general government
revenues and social health insurance is the preferred approach to drug
financing. Where such an approach has been effectively pursued, it
has achieved the greatest equity and solidarity - and, most
importantly, such an approach has achieved the best access to
essential drugs. But securing adequate financing through public
revenues and social health insurance is not an easy task.
Even among countries at the same level of economic development,
governments vary greatly in their financial commitment to health care
and, within health expenditures, the share spent on pharmaceuticals.
This results in over a five-fold difference in per capita public spending
on essential drugs among countries with comparable national incomes.
The evidence is clear: countries which invest wisely in health do
experience greater economic development. Among other things, this
involves allocating adequate funding for essential drugs and targeting
the use of this funding to high-impact public health problems such as
tuberculosis, malaria, HIV-AIDS, and childhood illness. Governments
must play their role. In quoting Nobel Laureate Amartya Sen's
concluding remarks from the keynote address to the Fifty-second
World Health Assembly in May 1999, I should like to reiterate that,
and I quote, "If it is the doctor or the school teacher or the nurse who
feels more threatened by resource considerations than the military
leaders, then the blame must at least partly lie on us, the public, for
letting the militarist get away with these odd priorities".
WHO is seeking ways to achieve results through better spending on
health in addition to more spending in many countries. We are looking
at how selected governments, which have the foundations for success
in place, can be assisted in formulating a health component of Poverty
Reduction Strategies. We are also looking at ways to improve the
sharing of experiences between countries.
One promising trend is the increase in social and private health
insurance coverage and expanded drug benefits in countries as diverse
as Argentina, the People's Republic of China, Egypt, India, the Islamic
Republic of Iran, Georgia, South Africa, Thailand and Viet Nam. Some
of these programmes have special arrangements for rural and low
income populations. Drugs represent 25% to 70% of total costs for
these schemes. Increasingly, WHO is working with such programmes
to apply the essential drugs concept and to address the particularities
of drug management within health insurance.
Private, out-of-pocket spending on drugs is the largest household
health expenditure in many countries, accounting for 50% to 90% of
pharmaceutical sales. User charges for drugs in public health services
are also increasingly common. These should be seen as transitional
measures to more equitable public financing and social health
insurance.
WHO is exploring with major foundations and other funding sources
the development of endowment funds or other innovative financing
mechanisms for eradication and control of specific communicable
diseases in the least developed countries.
Just look at the current initiatives to link debt relief with renewed
investment in the social sector. When the richest nations decided to
embark upon a new programme of debt relief for the highly indebted
poor countries, there was an underlying current that, this time, a new
agenda should be put in place: an agenda of social development and
poverty reduction. Resources freed from debt relief should go to
strengthen the health and education components. If things go well we
will have yet another financing tool to help us invest in cost-effective
health interventions especially among the poor. Such a sustainable
external source of financing may contribute to secure access in the
poorest countries.
We have also seen an increasing number of drug and vaccine donation
programmes, aimed at specific diseases, such as to fight river
blindness, elephantiasis, polio, leprosy and other diseases targeted for
eradication. WHO applauds and encourages the increasing
preparedness of the private sector, governments, bi- and multi-lateral
donors for their efforts. In the mid-term we must be able to establish
planned donations as a sustainable component of drug supply
systems. However, in the long-term, only self-sufficiency can be an
answer to increasing disease burden.
Affordable Prices
Sustainable financing is critical. But equally important, drug prices
must be affordable for government and consumers. A variety of
measures exists to contain pharmaceutical prices paid by governments
and the costs paid through health insurance programmes. Many of
these measures can be used to contain direct consumer expenditure.
Manufacturers' selling prices (MSP) can be contained through
competition and volume purchasing. Competition among chemically
different, but therapeutically similar patented drugs can bring down
the price of patented products. This effect is beginning to be seen
among HIV-related drugs. I will add to this discussion on
manufacturers' selling prices later in my review of the TRIPS
agreement.
Effective measures to reduce manufacturers' prices can only be part
of the strategy, however. In developed countries, manufacturers'
prices typically represent 50%-60% of the final consumer price, which
means that prices roughly double between the manufacturer and the
consumer. The situation can be worse in developing countries where
the MSP can be as little as 20% of the price finally paid by the
consumer. Up to 80% of the price paid for drugs by the consumer
consists of import duties, taxes, distribution costs, and dispensing
fees - a five-fold increase between the manufacturer and the patient!
WHO is advocating the reduction or even elimination of import duties
for pharmaceuticals - still over 30% in some countries for the private
consumer. We also need to address reduction of value-added and
other national and local taxes, which can be 20% or more of the final
selling prices.
Finally, WHO supports governments in seeking reasonable levels of
distribution and dispensing mark-ups. Countries are slowly moving
from the older system of percentage mark-up for the pharmacist to a
system of fixed professional dispensing fees. This may reduce prices.
More importantly, though, it reduces the incentive for the pharmacist
or drug seller to dispense higher cost products - for example,
dispensing a 50 rupee product when a 20 rupee product would be
equally effective.
Whatever strategies are used to contain pharmaceutical prices, price
information is essential. WHO provides monthly price information on
nearly 200 pharmaceutical essential drug active ingredients and other
starting materials, including HIV-related drugs. WHO also distributes
price information on finished dose essential drugs. Within countries,
prices and cost/benefit information should be readily available to both
health professionals and consumers for
making informed decisions when evaluating alternatives.
Reliable Supply Systems
The third critical element for access to essential drugs is a reliable mix
of public and private supply systems. Many countries continue to
struggle with an unfortunate combination of inefficient public supply
systems meant to serve the entire country and private supply systems
which serve mostly urban areas. Decentralization of public services
sometimes compounds the problem. Yet we have seen progress
through innovative approaches to public and private supply systems in
countries such as Benin and other West African countries, Colombia,
Guatemala, the Newly Independent States, South Africa and Thailand.
These promising developments have much to teach all of us.
In summary, addressing the problem of access to essential drugs
depends on having all three critical factors in place. Too often,
manufacturers who should be working to reduce prices are busy
blaming unreliable supply systems; policy-makers in a position to
influence drug financing are busy blaming high prices; and health care
managers who could improve supply systems are busy blaming
inadequate financing. Instead, all parties should be working toward a
common solution - each contributing constructively from their own
political, technical and economic perspectives.Let me now turn to the
second question I posed: What are WHO's views on multilateral trade
agreements and access to essential drugs?
When the World Trade Organization came into being in 1995, several
new trade treaties came into effect which are binding on all members.
Among these agreements, TRIPS (the Trade-Related Aspects of
Intellectual Property Rights) has been of greatest significance with
respect to pharmaceuticals. Prior to the Uruguay Round, countries had
adopted various approaches to drug patents, suited to their policies
and needs; at least 40 countries did not grant patents for
pharmaceutical products per se.
As many of you know, in May 1999 - after a series of discussions
among WHO Member States over an 18-month period - the World
Health Assembly adopted the resolution on the Revised Drug Strategy.
Among other things, the resolution took note of, "concerns of many
Member States about the impact of relevant international agreements,
including trade agreements, on local manufacturing capacity and on
access to and prices of pharmaceuticals in developing and least
developed countries."
The resolution called on WHO to, "cooperate with Member States, at
their request, and with international organizations in monitoring and
analysing the pharmaceutical and public health implications of relevant
international agreements, including trade agreements, so that Member
States can effectively assess and subsequently develop
pharmaceutical and health policies and regulatory measures that
address their concerns and priorities, and are able to maximize the
positive and mitigate the negative impact of those agreements."Patent
laws affecting pharmaceuticals should not be viewed separately from
the health systems in which they operate. To go back to the first part
of my intervention: it is not the TRIPS agreement which is to be
blamed for the failure to provide access to essential drugs; it is not the
existence of the multilateral TRIPS patent agreement that is under
discussion, but the implementation of TRIPS provisions and their
effect mid-to long-term.
WHO has consistently given five messages to highlight public health
concerns in using patents for pharmaceuticals:
1. Patent protection stimulates development of needed new drugs, but
countries must ensure a balance between the interests of the patent
holders and the needs of society.
2. The Research & Development priority setting for pharmaceuticals
and vaccines does not respond to the needs of the majority of people,
therefore public involvement is needed to ensure development of new
drugs for certain priority health problems.
3. Generic competition should begin promptly upon patent expiration.
4. Preferential pricing is necessary for lower-income countries and
should be actively pursued.
5. Health regulations should not create technical barriers to trade.
First: Patent protection stimulates drug development and research
Patent laws specify the rights of the patent holder and the public. The
working of patent rights for pharmaceuticals should be closely
monitored in an impartial way to ensure that it benefits both the
patent holders and the public. Essential drugs are a public good and
cannot be treated as just another commodity. Intellectual property
standards should be implemented in line with the provisions made
with appropriate use of the exceptions to ensure equitable access in
the case of national emergencies and/or patent rights abuses. The
TRIPS agreement provides a number of safeguards meant to protect
the rights of the public. These include extension of transition period,
disclosure of inventions, compulsory licensing and exceptions which
can support the marketing of generic drugs. As the UN technical
agency for public health, WHO's mandate is to protect public health
interests and to propose measures to safeguard these interests.
Therefore, WHO encourages governments to enact national legislation
that allows them to use these safeguards within the scope of WTO
agreements. Provisions included in the WTO agreements to protect
public health and the rights of the public should be understood for
what they are, safeguards to be used as intended. Exceptions should
not be misunderstood as "loopholes", to be ignored or closed.
WHO has long been sensitive to the potential misuse, for protectionist
purposes, of measures intended to safeguard public health. Very early
in WHO's history, for example, the World Health Assembly called for
elimination of quarantine restrictions of doubtful medical value that
interfered with international trade and travel.
Finally, we must keep in mind that a patent is not a product.
Significant intellectual, financial and manufacturing capacity is
sometimes required to transform the licence of a patent into a
product. We should not forget that a number of patents have, in the
past, not been filed in developing countries owing to lack of
commercial interest. Voluntary licensing, preferably coupled with
technology transfer, may better serve to increase access to essential
drugs than compulsory licensing.
Second key message: The Research & Development priority setting for
pharmaceuticals and vaccines does not respond to the need of the
majority of the people
As the balance between demand and supply for pharmaceuticals is
often imperfect, so is the priority-setting for investing in related
research and development. Patents have stimulated the discovery of
new drugs, but it does not follow that these new drugs have been
affordable to all people or that they have met the most pressing
therapeutic needs. And increasing concern is being expressed that
countries, in which clinical trials are carried out to prove efficacy and
safety for registration purposes, do not benefit from the results.
Research and development in the pharmaceutical industry follows
industrialized countries' market demands. Tropical diseases, chronic in
countries where cash incomes are extremely low, are particularly
neglected.
We therefore need to create mechanisms and incentives that drive
research and development into neglected areas of high medical need
according to disease burden. This is especially so in the more
unattractive low economy markets. WHO is actively encouraging other
sources, such as the public sector, to finance research and
development in pharmaceuticals and provide incentives for innovation
in vital fields, for instance that of tropical diseases. The recently
created "Medicines for Malaria Venture" and the "Global Alliance for
Vaccines and Immunization" are concrete initiatives addressing this
concern, that are welcomed by many of WHO's stakeholders. But the
innovations and patents created with public funds should, as a rule,
be licensed on an non-exclusive basis in order to encourage
competition, at least those applicable for disease that are in the centre
of public health interest.
Third key message: Preferential pricing is essential for lower-income
countries and must be actively pursued
Lower-income countries simply cannot be expected to pay the same
prices for essential drugs as the wealthier countries. This principle of
solidarity, namely that the richer pays absolutely and relatively more
than the poor, is very common in national tax laws. Experience in the
vaccine sector demonstrates that significant price differentials can be
achieved between prices in developed countries and those in
low-income countries. We recently heard an encouraging statement
from one company that indicated similar price differentials may be
achieved for other pharmaceuticals, including newer essential drugs.
Therefore, WHO strongly supports efforts to develop mechanisms for
preferential low prices, defined as "market segments", for essential
drugs in lower-income countries. For governments, industry and other
interested parties there is a range of options which might be used to
achieve preferential pricing. These include voluntary licensing with
transfer of know-how and market segmentation with alternative, lower
cost presentations and packaging in a closed public sector and private
distribution systems in low-income countries.
Parallel imports can also contribute to lower prices, especially where
drug prices are higher in poorer countries than in richer ones. At the
same time, where lower income countries are benefiting from
preferential prices, these prices for developing countries must be
protected by measures which would prevent parallel exporting to
developed countries. This principle would obviously apply to essential,
patented drugs rather than generics.
Fourth key message: Generic competition should begin promptly upon
patent expiration
WHO has long promoted public and private sector use of generic
drugs of assured quality. Experience from countries with
"generic-friendly" policies clearly demonstrates that the resulting
market competition greatly increases affordability of medicines for the
population, stimulates genuine innovation within the research-based
industry, and encourages increased production efficiency by the
generic industry.
Logically, WHO is in favour of "early workings" of patented drugs by
generic manufacturers, to encourage competition, which is also a
major motivation in the research for improved products. This includes
the use of patented drugs for research and testing needed for early
registration and prompt production of generic drugs. Countries with
variations of early workings provisions include Argentina, Australia,
Canada, Hungary, Israel and the USA.
Fifth key message: Health regulations should not create technical
barriers to trade
The WTO Agreement on Technical Barriers to Trade - the so-called
"TBT Agreement" - has as its objective that unnecessary obstacles to
international trade are not created. One important principle in this
agreement is that technical regulations and procedures should be
based on scientifically developed, international standards, guidelines
and recommendations. In the area of pharmaceuticals, WHO norms,
standards, and guidelines represent international consensus. In
addition, there are a number of regional and cross-regional efforts
aimed at harmonization of regulatory requirements. These efforts are
instructive and often achieve technologically demanding standards.
One example is the International Conference on Harmonization (ICH).
It is important, however, that such initiatives, involving smaller
groupings of countries be used to serve public health interests, but
without creating trade barriers.
Turning to the third question, what is WHO's broader role with respect
to international trade agreements and public health?
When the World Trade Organization began its operation, it was argued
that the new trade agreements would work to the benefit of all. Patent
protection would promote research and development of needed new
drugs, and it would ensure a vigorous and dynam
ic pharmaceutical
industry. At the same time patent protection would encourage transfer
of technology which would strengthen pharmaceutical production in
developing countries thereby contributing to enhancing access.
Varying levels of national development would be acknowledged
through the granting of periods of transition, and other provisions
would protect public health. Trade in services would increase
availability and quality of health care services in countries. Measures
provided in other WTO agreements would protect public health and
prevent barriers to trade in pharmaceuticals and other health care
services.
Now, five years after WTO came into being, we need to ask to what
extent progress is being made toward these goals. This question has
been posed at recent regional meetings of health officials in
Washington, in Bangkok, in Cairo and in Baragwanath, South Africa. It
is being asked by professional associations, relief organizations, public
interest NGOs and by other stakeholders in WHO and WTO.
WHO has in the past facilitated, supported and participated in such
discussions and continues to do so. But what are WHO's roles in this
broader debate? There are five key roles.
First, WHO has an advocacy role to ensure that trade liberalization
contributes towards a more equitable distribution of economic benefits
and a just society. This requires the Organization to provide input to
governments, not just health ministers, linking trade policies to sound
social policies that recognize health as a global public good.
Commercial and public health concerns have to be balanced. In the
pharmaceutical arena, for example, there is a need to provide
sufficient incentives and patent protection to ensure development of
needed new drugs, while ensuring affordability and access to existing
drugs and to new essential drugs. This cannot be seen as an either/or
situation or as one objective overwhelming another. We must balance
the two aims.
Second, as part of this role, WHO is monitoring and analysing the
impact of trade agreements on the availability and affordability of
health services, including essential drugs. For example, the WHO
Collaborating Centre for Health Economics in Thailand just last month
published a study on the implications of the WTO TRIPS agreement for
the pharmaceutical industry in Thailand. This study evaluated the
effects of Thailand's 1992 patent law revision, which in essence
followed TRIPS standards.
The findings of the Thai study include the observations that (1) there
had been no significant increase in transfer of technology or foreign
direct investment, (2) pharmaceutical spending increased at a higher
rate than overall health care spending, and (3) originator firms had
done better than domestic generic firms. But the authors also
recognized that Thailand depends and benefits to a significant degree
on the export of goods other than pharmaceuticals.
WHO is supporting similar studies in other regions. These studies
should help to develop a common methodology for monitoring and
evaluating the effects of TRIPS and related trade agreements.
WHO is also initiating a study to evaluate options to manage
knowledge and innovation in the areas of high priority diseases,
funded with public funds and carried out by governmental agencies.
The third role for WHO, especially in developing countries, is that of
helping to strengthen the hands of ministers of health when
governments debate trade, finance and health issues. Several weeks
ago, in a presentation to the WTO, Joseph Stiglitz, Chief Economist of
the World Bank, commented that, "The basic notions of equity and a
sense of fair play require that the next round of trade negotiations be
more balanced; that is, more reflective of the interests and concerns
of the developing world than has been the case in earlier rounds.
Unless we achieve greater balance we will place at peril the success
of future trade negotiations."
Fourth, WHO supports countries in invoking the safeguards in WTO
agreements which permit developing countries a graduated
implementation of these agreements. Historically, industrialized
countries have strengthened their patent laws as they have developed
industrially and economically. Developing countries have until the end
of this year to be WTO-compliant. Yet several argue that they have
neither the human and nor the financial resources to benefit from
TRIPS or fear a negative effect on public health in their countries.
They argue that an additional period of transition is needed. Provisions
for extensions of the transition period are made in the agreement. In
this context, WHO will collaborate with Member States in evaluating
the justification for applying the provisions of Article 66, which
enables least developed countries to extend the transitional period for
implementation of TRIPS. Countries must balance the potential
benefits with the potential drawbacks in respect of access to
pharmaceuticals and define their strategy based on that evaluation.
As its fifth role, WHO is advising countries on the new economic
international environment, within the framework of national drug
policies. Guidance is being developed in response to Member States'
questions regarding the relationship between international agreements
and drug prices, innovation and local production, the use of
exceptions, technology transfer, licensing arrangements, and the
transition period for the least developed countries. An updated
bibliography on globalization, patents and drugs has been prepared to
enable countries to research such issues themselves.
Cooperative work is also underway with UNAIDS and UNICEF with
regard to trade agreements and access to HIV-related drugs. Access
to drugs is part of the round table process between WHO and NGOs
and WHO and industry. Joint working groups addressing research and
development needs and incentives related to "neglected disease", as
well as counterfeit and substandard drugs, are in progress with the
research-based, generic and self-medication industries. A contact
group with interested parties from WHO, WTO, WIPO, and UNCTAD
has been established This group is formulating concrete projects of
collaboration following meetings of Dr Brundtland with other heads of
agency, and recently with Mr Mike Moore of WTO.
In conclusion, WHO has in the past actively been reaching out to
many important partners, including those of you represented at this
meeting. We look forward to progressing and enhancing this
collaboration with you in the future as we strive together to improve
universal and equitable access to essential drugs to the world's
population. Trade and health must go hand in hand to reduce poverty
and disease burden.
I want to end my address by congratulating M�decins sans Fronti�res
on their very well deserved award of the Nobel Peace Prize. This is
international recognition for many years of outstanding commitment
and support to countries and people in crisis. It demonstrates the
important political and technical role of NGOs in today's globalized
society. And it is only through collaboration that we can hope to bring
about a more equitable world and access to basic health care for all.
Thank you for your attention.
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