This story, concerned as it is with life-saving drugs, brings into stark relief the nature of the international pharmaceutical industry and the implications of the TRIPS agreement for basic public health. Conversely, the multinational pharmaceutical companies argue that without intellectual-property protection they would have no incentive to invest the millions required to discover and develop new drugs. The irony in this case is that the costs of developing the two chemicals (AZT and 3TC) used in Glaxo's Combivir were actually borne by the public sector - through work done earlier by researchers funded by the US Government's National Institute of Health. Glaxo purchased the drug before its efficacy in AIDS treatment became obvious, and once again relied on public research to establish this efficacy. However, once it was known, the company lost no time in taking out a patent on this drug and reaping monopoly profits from its sale.
 
Pharmaceutical markets differ from markets for most other commodities, since drugs are a rather special commodity. Private drug markets typically suffer from a number of forms of market failure, including (a) informational imbalances; (b) monopoly and lack of competition created by patent protection, brand loyalty and market segmentation; (c) externalities in the form of social benefits of drug consumption. In addition, of course, there are obvious welfare implications, since unregulated drug markets tend to create substantial inequity, particularly in terms of access to drugs.
 
For these reasons, there have been major concerns about the enforcement of the TRIPS agreement particularly with reference to health conditions in developing countries. Some of the most frequently expressed concerns have included the following :
 
(i) Increased patent protection will lead to higher drug prices, while the number of patented drugs of importance from a public-health point of view will increase in the coming years.
 
(ii) The access gap between developed and developing countries, and between rich and poor in all countries, will increase, especially as producers in developing countries would have to wait for 20 years before they can have access to innovations.
 
(iii) Enforcement of the WTO regulations will have an effect on local manufacturing capacity and remove a source of generic innovative quality drugs on which the poorer countries depend.
 
(iv) While technology transfer will actually be discouraged, there are no incentives or provisions to ensure that increased revenues will go towards the development of essential medical technologies.
 
Further, while the TRIPS agreement still leaves some loopholes for developing countries in the form of compulsory licensing and parallel imports, it is increasingly difficult to choose these options. This is because the industrial countries - and the US in particular - have been pressurising several developing countries to implement patent and intellectual property legislation that is more restrictive than the minimum requirements of the TRIPS Agreement.
 
These possibilities become more disturbing given the nature of the international drug market. As Chart 1 shows, the world market for drugs is a huge one, but it is dominated by only 3 countries - the United States, Japan and Germany - which make up more than two-thirds of total sales. Chart 2 shows an even more unequal distribution : only 15 per cent of the world' population accounts for 86 per cent of drug spending, while the remaining 85 per cent of the world's population get only 14 per cent share.

Chart 1 >> Click to Enlarge

Chart 2 >> Click to Enlarge