Ecuador this month granted its first compulsory licence for a patented pharmaceutical since declaring last year that it would utilise international rules allowing it to do so.

The move has already brought the country substantial savings due to new competition, according to the Ecuadorean intellectual property office. Other Latin American countries might be drawn to the prospect of reduced drug prices, according to advocates. The rights owner said it is disappointed with the decision.

The compulsory licence was granted for ritonavir, an antiretroviral drug, on 14 April to Eskegroup SA, the local distributor for Cipla, an Indian generic pharmaceutical producer, according to Andrés Ycaza Mantilla, head of the Ecuadorean intellectual property office (IEPI).

The owner of the patent is Abbott Laboratories, a US pharmaceutical manufacturer. Eskegroup will pay royalties to Abbott for using the licence under the term of the compulsory licence. The compulsory licence has been granted for the time that was left on the patent, until 30 November 2014.

In October 2009, Ecuadorian President Rafael Correa signed a decree allowing compulsory licences in Ecuador. Correa declared access to essential medicines of public interest to the Ecuadorean population and based his decision on Article 31 of the World Trade Organization (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, the Ecuadorean Constitution, and the WTO Doha Declaration on TRIPS and Public Health (IPW, Public Health, 23 November 2009).

On 5 January, Eskegroup, headquartered in Guayaquil, asked for a compulsory licence on the active ingredient ritonavir, according to the compulsory licence document [pdf, in Spanish].

On 15 January, the Ecuadorean Intellectual Property Institute issued instructions [pdf, in Spanish] about pharmaceutical compulsory licences.

On 19 February, Eskegroup presented the necessary documents and Abbott Laboratories was notified of the possible compulsory licence on its patented drug.

Calculation of Royalties to Rights Owner

In accordance with the TRIPS agreement, Article 31(h), Eskegroup will pay royalties to Abbott Laboratories, according to the compulsory licence document.

TRIPS Article 31(h) says “the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization.”

The method used to calculate the amount of royalties to be paid to Abbott is referred to as “Tiered Royalty Method,” (TRM). This method appears in a document titled, “Remuneration guidelines for non-voluntary use of a patent on medical technologies,” published by the United Nations Development Programme and the World Health Organization’s Technical Cooperation for Essential Drugs and Traditional Medicine. The document, published in 2005, was authored by James Love, then of the Consumer Project on Technology.

According to the Tiered Royalty Method, the “royalty rate is not based upon the price of the generic product. Instead the royalty is based upon the price of the patented product in the high-income country. The base royalty is 4 percent of the high-income country price, which is then adjusted to account for relative income per capita or, for countries facing a particular high burden of disease, relative income per person with the disease.”

According to the remuneration guidelines, the TRM “provides a more rational framework for sharing the costs of research and development and may be more sustainable for some middle- or high-income countries that are sensitive to global norms concerning the sharing of R&D costs.”

Ritonavir is often compounded with lopinavir, an ingredient that is not patented in Ecuador. According to the calculation method, Eskegroup should pay $0.041 in royalties to Abbott for each capsule of ritonavir 100 mg, $0.02 for lopinuine (ritonavir and lopinavir combination).

The compulsory licence already has yielded savings to the government. According to Ycaza Mantilla, the Ecuadorean Ministry of Health already made a purchase of lopinavir and ritonavir, which could see a US$150,000 discount on the original offer.

Second CL on the Way?

According to intellectual property lawyer Peter Maybarduk, access to medicine programme director at Public Citizen, a US advocacy group, another compulsory licence could be issued shortly in Ecuador. Another Indian company, Matrix, has requested a compulsory licence for ritonavir as well. This additional competitor could bring the prices even lower and Matrix offers several advantages such as being prequalified by WHO.

Matrix has agreed to a maximum price in a number of countries including Ecuador. The maximum price would be approximately half of Abbott’s current market price, according to Maybarduk. Maybarduk is providing technical assistance to the Ecuador government, including the IEPI.

According to Ycaza Mantilla, The IEPI is waiting for Matrix to complete their submission before granting them a compulsory licence.

Ecuador’s granting of compulsory licences might prompt other countries to follow the same road. “We certainly hope so,” said Maybarduk. “Compulsory licences are an integral component of intellectual property rules, and are key today to promoting global access to medicine,” Compulsory licences are important, they could help countries meet the United Nations Millennium Development Goals. “We are hopeful” the Ecuadorean’s initiative “will have implications for the region,” he said.

During a meeting of the South American Union of Nations (UNASUR) in November 2009, UNASUR health ministers strongly supported the Ecuador’s decision on compulsory licence to improve access to medicines, according to a story posted on the IEPI’s website.

In the past, developing countries using the TRIPS flexibility of compulsory licences have come under intense pressure from developed nation brand-name producers and their governments. Small countries have been particularly nervous about drawing the ire of the largest economies despite their right to use the flexibility.

Ecuador’s initiative was mentioned in the Office of the United States Trade Representative’s 2010 National Trade Estimate Report on Foreign Trade Barriers, and Ecuador was listed on the US watchlist in the 2009 Special 301 report. The 2010 Special 301 report is due out soon.

The Trade Estimate report on trade barriers said that “in 2009 President Correa signed two presidential decrees regarding compulsory licenses, one for patented pharmaceutical products, and the other for agriculture chemical products. No compulsory licenses had been issued by the Ecuadorian government as of December 2009. The US government will continue to monitor developments in this area.”

Abbott Laboratories Disappointed by Ecuador’s Decision

In October, a local pharmaceutical industry group issued a statement that it accepted the decision of the Ecuadorean government to issue compulsory licences but said that they were not included in the process leading to the decision.

Contacted by Intellectual Property Watch, Abbott US said it was “disappointed to receive notification of a compulsory licence for our HIV medicine ritonavir in Ecuador.”

“Abbott developed the first test for HIV more than 25 years ago and has continued to invest in the development of new treatments, tests and clinical protocols for HIV since then. Abbott’s lopinavir/ritonavir is the most broadly available antiretroviral treatment in the world and forms the cornerstone of second-line treatment in developing countries – where the majority of people with HIV live. We have also invested in sufficient manufacturing capacity and have consistently made our medicine available at prices that are competitive with those of generic manufacturers. Our HIV medicines are affordable and sold at prices that are competitive with those of generic producers,” Abbott said.

According to Abbott, compulsory licences “undermine the patent system and are a disincentive for research-based companies to invest in new treatments. The way to sustain patient access is to ensure affordability while preserving the system that enables the discovery of new medicines.”

“We believe that granting a compulsory licence for ritonavir is not in the best interest of HIV patients in Ecuador,” the company said, adding, “Abbott has been supplying lopinavir/ritonavir in Ecuador since 2003, and we remain committed to ensuring that patients in Ecuador, and around the world, have access to high-quality HIV medicines.”

According to sources, there was communication with Abbott before the licence was granted. Abbott warned IEPI about the quality of the generic product, he said, but IEPI reminded the company that quality is not the IP office’s responsibility but rather the Ministry of Health’s, which is responsible for giving commercial authorisation, after all tests have been carried out.

Francisco Rossi, from the IFARMA Foundation, a Colombia-based research institute working on access to quality medicine with a special focus on Latin America, said that the foundation was happy about Ecuador’s issuance of its first compulsory licence as this decision has been awaited by civil society since the announcement of President Correa to issue compulsory licences for essential medicines.

Another reason to rejoice, according to Rossi, is that the compulsory license has been granted on the same drug for which civil society in Colombia had asked for an open licence usable by any interested party.

“Ecuador shows the difference when there is a political will, where public health is more important than trade agreements or the intention to attract foreign investment at any cost,” Rossi said.