Containing the Threat of Compulsory Licenses
INTS 721: International Political Economy of Business Environments
Associate Professor Witold Jerzy Henisz
Since the late 1990’s, developing nations have become increasingly skilled at using the threat of issuing compulsory licenses to extract lower prices on patented medicines from western pharmaceutical companies. In early 2007, Thailand’s Ministry of Public Health launched a new campaign in the compulsory license debate by announcing a compulsory licence for Plavix, a hypertension drug. Thailand also threatened to issue additional compulsory licenses for expensive western medicines such as Lipitor, Pfizer’s most important drug in terms of global revenue.
For Pfizer, and the pharmaceutical industry at large, Thailand’s decision was the realization of their greatest fear: that the failure of the WTO’s 2002 “Agreement on Trade-Related Aspects of Intellectual Property Rights” (TRIPS) to describe precisely which diseases met the criteria of a national emergency would lead to a gradual broadening of drugs considered for compulsory licensing. At risk is the potential collapse of the international patent system, which is the backbone of the pharmaceutical industry’s revenue to pay for expensive investments in research and development. Pfizer managers have been deeply concerned that Thailand might establish a new precedent that would encourage more important emerging markets such as Brazil to follow the Thai’s lead.
Pfizer and Abbott Laboratories chose very different strategies to confront this issue. Abbott, which was immediately impacted by compulsory license announcements, chose a confrontational approach by announcing the withdrawal of future medicines from the Thai market. Pfizer, which was reacting to the potential of a compulsory license for its mainstay drug, Lipitor, reacted with much more caution, preferring to target powerful government ministers outside the Ministry of Health via intermediaries who would be able to tie the compulsory license debate to a set of broader concerns about the investment climate in Thailand. An analysis of the actors whom Pfizer could approach and the negative implications of a confrontational strategy indicate that Pfizer, at least in the short term, has played its hand well. On November 29, 2006, the Thailand Ministry of Public Health (MoPH) issued a compulsory license for the manufacture of Efavirenz, an AIDS medication under patent by Merck. Two months later, the MoPH announced that it would also issue compulsory licenses for Kaletra, under patent by Abbott, and Plavix, a heart disease drug under patent by Bristol Myers Squibb.1 In early February 2007, Dr. Mongkol Na Songkhla, Thailand’s Minister of Health, announced that the Thai MoPH was considering a list of eleven additional patented medicines for compulsory licenses, including the cholesterol-lowering drug Lipitor, Pfizer’s largest selling drug globally.2 By itself, the Thai market is not large enough to impact Pfizer’s global revenues significantly. However, Pfizer and its competitors are acutely aware of the risks they would face should Thailand’s actions become accepted practice and expand into other developing marketing that are increasingly seen as crucial to sustaining future growth.3 The large pharmaceutical players were surprised by the speed and manner by which the Thai military regime adopted the most recent compulsory licenses, and they struggled in the immediate aftermath to develop effective strategies to influence the new policy-making environment. Although Pfizer, unlike its competitors Merck, Sanofi-Aventis and Abbott Laboratories, has only faced the threat of potential future compulsory licenses, these threats have appeared imminent, and a compulsory license for Lipitor would be especially disturbing. At $12.8 billion in sales in 2006, Lipitor