The Multinational Monitor


September 2004 - VOLUME 25 - NUMBERS 9

T H E    F R O N T

Drug Price Gouging OK'd

The National Institutes of Health in August refused to exercise its authority to permit generic competition for an HIV/AIDS drug invented on a government grant that public health advocates say is wildly overpriced.

Essential Inventions, Inc., a nonprofit corporation created to distribute affordable public health and other inventions, in January petitioned the government to exercise its "march-in" rights under the federal Bayh-Dole Act and authorize generic competition for the anti-AIDS drug Norvir (generic name ritanovir).

In recent years, scientists have discovered that while Norvir is generally too toxic for safe use as a protease inhibitor (one category of anti-AIDS drugs), in lower doses it works well as a booster to increase the efficacy of other protease inhibitors. Norvir has become increasingly important in this booster role.

Invented on a government grant, Norvir is marketed by Abbott Laboratories. To offset the per patient revenue loss from the product being used in lower doses than originally intended, Abbott in December 2003 raised the price of Norvir by 400 percent.

Following the price increase, Norvir is 5 to 10 times more expensive in the United States than in other high-income countries.

"Essential Inventions is asking the Bush Administration to adopt a simple rule -- U.S. consumers should not pay more for drugs invented on government grants," said Essential Inventions President James Love.

But NIH rejected this proposal, arguing that companies that obtained licenses to government-funded inventions have a duty only to commercialize the inventions. NIH does not have authority to consider the price at which a product is sold, and the impact of the price on access, the agency ruled.

Is This Reasonable?
The U.S. Congress passed the Bayh-Dole Act in 1980. The Act changed federal policy for licensing of government-funded inventions. Where in most cases these inventions had been placed in the public domain -- where they were free for use by any person -- Bayh-Dole permitted the inventions to be licensed on an exclusive basis to a single corporation. (Bayh-Dole itself dealt with federally financed inventions developed at universities, giving universities title to the inventions and authorizing them to license the inventions on an exclusive basis to corporations; in subsequent years, the policy was expanded to include all federally funded research.)

Underlying Bayh-Dole was the idea that, if companies gained exclusive rights in federally funded inventions, they would undertake the investments necessary to commercialize them.

However, recognizing the possibility of abuse arising from the conferral of exclusive rights, the Act retained for the government the right to "march in" and issue licenses to competitors.

The Act provides several standards to determine when it is appropriate for the government to march in. These standards include whether the licensee is making the invention available to the public on reasonable terms, and if action is necessary to meet health or safety needs not reasonably satisfied by the licensee.

Essential Inventions argued in its petition that a march-in was appropriate on both of these grounds.

First, Essential Inventions claimed, Norvir is excessively priced. "With the price increase," the nonprofit corporation argued in its petition, "the cost of Norvir as a standalone protease inhibitor skyrocketed to $46,000, three to five times as high as other standalone protease inhibitors that were not invented on a government grant."

"Even stronger evidence of the unreasonable price of Norvir," Essential Inventions claimed, "is the discriminatory application of the price increase against Abbott's rivals." The Norvir price increase does not apply when the product is used as a booster with another Abbott protease inhibitor (in the combined product Kaletra). Thus the impact of the Norvir price increase is to make Kaletra far cheaper than rival combinations of Norvir and non-Abbott protease inhibitors.

Essential Inventions argued as well that Abbott's pricing practices would undermine AIDS drug research and development, thus impeding important public health objectives.

At an NIH hearing on the march-in petition, Bob Huff, editor of the Gay Men's Health Crisis Treatment Issues newsletter, explained the impact of Abbott's action on drugs not yet on the market. "There are four Norvir-dependent drugs in the pipeline that this will affect," he said. "Abbott's monopoly on Norvir means that there will be less post-marketing research and, consequently, less important real-world medical information produced on how to use these drugs, for example, in women, in people of color, in prisons, in combination with other drugs, in people with hepatitis infections or in people with liver or kidney disease. Much of this research will become too expensive. How much important, useful and desperately needed medical information will never see the light of day because of Abbott's abuse of its patent monopoly on Norvir?"

Even worse, Huff said, Abbott's pricing for Norvir meant other companies would simply not invest in research on new protease inhibitors.

The crucial main retort to the Essential Inventions argument was that the Bayh-Dole Act's march-in provision was designed only to deal with cases where a licensee did not put a product on the market.

Advocating this position was former Senator Birch Bayh, one of the original authors of the bill. "The clear intent of the [march-in] provisions is to insure that every efforts it made to bring a product to market," Bayh stated at the NIH hearing. "If there is evidence that this is not being done, the funding agency can 'march in' and require other companies be licensed."

Bayh emphasized in his testimony that he was appearing on his own behalf, and was not paid for his testimony. He did not mention that his law firm represents Abbott. Nor did he mention that he had offered a rather different perspective on the march-in provisions in 1997, in the only previous march-in case -- when he represented the company requesting a march-in.

In its August decision in the Norvir case, NIH joined with the Bayh position. The agency concluded simply that "Abbott has met the standard for achieving practical application of the applicable patents by its manufacture, practice and operation of ritanovir and the drug's availability and use by the public."

But as Representative Sherrod Brown, D-Ohio, pointed out in criticizing the NIH decision, the agency failed to address the statutory provision that licensees must make federally funded inventions available to the public on "reasonable terms." "If Secretary Thompson agrees that quadrupling the price of a life-or-death AIDS drug, rigging the market, and discriminating against U.S. consumers is 'reasonable,' you can't help but wonder what the Secretary considers unreasonable" said Brown.

NIH failed entirely to address the Essential Inventions claim that Abbott's pricing practices would undermine the AIDS drug research and development pipeline.

Whose Value Added
The only rationale for Abbott's sky-high pricing of Norvir -- apart from the notion that the company can charge whatever it likes -- is that high prices are needed to cover the costs of research and development.

While critics say drug companies routinely exaggerate the cost of R&D to justify high drug prices, the Norvir case presents an additional twist: much of the R&D funding for the drug came from the federal government.

At the NIH hearing on the march-in petition, Abbott tried to diminish the federal contribution. "Norvir was solely the invention of Abbott and Abbott scientists," stated Jeffrey Leiden, president and chief operating officer of Abbott's Pharmaceutical Products Group. NIH spent only $3.5 million on the drug, he claimed. "In contrast, Abbott spent well over $300 million to discover and develop Norvir -- about 100 times the entire amount of the NIH grant that supported our early HIV research program."

But Essential Inventions James Love argues that Abbott massively understated the government contribution to Norvir's development. "The public investment in Norvir was huge," says Love.

"Not only did the U.S. government give Abbott the $3.5 million grant that led to the invention of Norvir, but it did so at the most risky stage of development," Love contends. "The 'risk adjusted' value of the government's investment (taking into account projects that do not succeed) was more than $200 million. Moreover, the NIH spent millions more on more than 600 other Norvir grants. Abbott's actual investments in Norvir at the time of FDA approval were probably close to $30 million. In any case, Abbott has made billions off this government-funded invention, even before the company raised the price by 400 percent."

Essential Inventions said that it will appeal the NIH decision to Secretary of Health and Human Services Tommy Thompson, who will have the opportunity to take a fresh look at the case.

-- Robert Weissman, Multinational Monitor, Editor. (Robert Weissman is general counsel for Essential Inventions.)

World Bank Troubles in Timor

A labor dispute in Timor-Leste (East Timor) is putting the World Bank's "dream�[of]� a world free of poverty" to the test.

The dispute challenges the Bank to apply to itself the standards the institution claims to promote, including a commitment to rule of law, poverty elimination, fundamental labor rights and sustainable development.

On December 3, 2003, security guards and custodial workers at the World Bank headquarters in newly independent Timor-Leste went on strike after eight days of informational picketing. They were protesting a unilateral 30 percent wage reduction by their employer Chubb Protective Services, a multinational subsidiary of the conglomerate United Technologies Corporation, which had been contracted by the Bank. Chubb, which has a history of poor labor relations in a number of countries, sacked the 32 striking workers the next day.

The Timor Lorosa'e Trade Union Confederation (KSTL), which represents the striking workers, alleges that in December 2002, Chubb instructed workers to sign a new contract -- written in English, a language that many did not understand -- cutting their monthly wages from $133 to $94. Using threats of termination to coerce signatures, union representatives say Chubb offered no explanation at the time for the cut. KSTL officials say they were bounced back and forth between Chubb and the Bank in its protracted efforts to negotiate a resolution -- with each shifting blame to the other.

Since the strike, the fired workers and their families have struggled to support themselves. Some have returned to work for Chubb, where, according to KSTL, company staff has warned rehired workers not to engage in union activity. The union has also alleged that "termination without reason, termination without warning, unpaid overtime, discrimination on salary, and recruitment without contract" characterize Chubb's operations in Timor-Leste.

The union says Chubb has violated articles 50, 51 and 52 of Timor-Leste's constitution, providing for the "right to work," "right to strike and prohibition of lock-out" and "trade union freedom," and that it has also violated Timor's Labor Code.

"We condemn" Chubb's "exploitation and violation of workers' human rights," say the Chubb workers in a statement.

In a letter to United Technologies Corporation and Chubb Protective Services, the World Bank reminded the companies that it "supports the promotion of the International Labor Organization's (ILO's) Core Labor Standards and expects its contractors to follow such in accordance with the applicable national law. The World Bank recognizes the important role the core labor standards can play in advancing economic, social and human development." One of the core labor standards is the right of freedom of association and collective bargaining.

Despite this reminder, the Timor-Leste workers say the Bank has evaded responsibility for its subcontractor's treatment of workers at its own facility.

The Bank insists it "is not a party to the dispute between Chubb and its employees, and the Bank has no right to direct a settlement of this dispute, or direct Chubb to re-hire any particular person." Global pressure has forced multinational corporations like Nike to accept accountability for the actions of their subcontractors, however, and the unionists and their supporters say no less should be expected of the Bank.

Part of the dispute is rooted in the Bank's policy to promote, rather than require, respect for the ILO's core labor standards. Thus, like many of its borrowers, the Bank in Timor-Leste has voluntarily opted out of the very policies it claims to encourage.

This labor dispute also raises questions about the Bank's commitment to poverty elimination. The first of the UN Millennium Development Goals, which the Bank has actively endorsed, is to "eradicate extreme poverty and hunger," with extreme poverty defined as living on less than one dollar a day. The Bank itself contends that a dollar a day represents an absolute poverty line. At $94 per month, the new Chubb wage would support about three people at the absolute poverty line, but most of the sacked workers are the primary wage earners for larger families.

In a letter to global unions which have contacted the Bank in solidarity with the Timor-Leste workers, the Bank contends that it "requires that Chubb provide its employees with fair wages, leave and medical benefits." Chubb must "pay salary and benefits commensurate with industry averages for the area, that meet or exceed local labor codes and guidelines, and which are benchmarked against government pay scales, where applicable." However, the workers say that if a "fair wage" is interpreted as a living wage, then in Timor-Leste, the Bank is choosing an impoverishing market wage. An unskilled worker should be paid $109-$160 per month, according to an August 2003 international nongovernmental organization voluntary salary scale.

"Chubb's normal business practice is to offer employees terms and conditions that are consistent with local regulations," says the company in a statement. "Our employees in East Timor were offered a competitive market rate as well as free medical service for themselves and their families. During a dispute over pay in the last year, some workers took action, which Chubb believes to have been illegal." The company says it "is confident that its actions were both legal and fair."

Chubb also reports that it sold its Timorese business to a local manager at the start of September.

The East Timor Action Network and several labor organizations, trade unions and union federations have protested Chubb's actions to United Technologies Corporation and the World Bank. In the meantime, KSTL has taken its case against Chubb to the Dili District Court, where it is now being heard.

-- Karen Orenstein is Washington Coordinator of the East Timor Action Network