Nathaniel Lipkus, W. Lee Webster
May 14, 2020
At the outset of the COVID-19 pandemic, the Canadian government implemented emergency legislation allowing the Commissioner of Patents to authorize compulsory patent licenses on application from the Minister of Health to address a public health emergency. In theory, these licenses allow the Minister to facilitate the manufacture of a safe and effective COVID-19 treatment where issued patents otherwise pose a barrier.
The first approved COVID-19 treatment, namely Gilead’s remdesivir, has now emerged, and it is questionable whether the emergency compulsory license pathway such as that implemented by the Canadian government will be an effective alternative to the acquisition of remdesivir directly from Gilead, the drug sponsor. Gilead has developed its own global access framework based on learnings from its global access programs for HIV/AIDS and Hepatitis C (HCV) medicines. The Gilead framework retains control in Gilead’s hands while also enabling broad access in countries that cannot afford to pay Gilead’s proposed price.
Gilead’s model applied in other contexts has uniquely avoided the need for compulsory licenses or other attempts to expropriate Gilead’s technology by attempting to maximize affordable generic access to the technology in the developing world while preserving full marketing control in the developed world. Through strategic licensing, Gilead expanded access to HIV/AIDS medicines from well under 100,000 patients in 2006 to well over 10 million patients today. Their model applied to HCV drugs enabled differential pricing in Canada and other developed markets without compromising access in poorer countries. With the COVID-19 spotlight on their COVID-19 drug, remdesivir, this model is poised to create a norm for compassionate global drug access that others may be forced to follow as COVID-19 therapies improve.
On May 12, Gilead announced that it has taken concrete steps to pursue its model with remdesivir for COVID-19. Gilead entered into voluntary license agreements with five generic drug companies based in India and Pakistan to manufacture and distribute remdesivir in 127 countries considered low-income or vulnerable to access barriers. The list of countries encompasses about half of the world’s population, but Canada is not on the list. Although the license agreements are not yet public, they appear to be modelled on publicly available agreements with a similar group of manufacturers for Gilead’s HCV drugs, including Sovaldi (sofosbuvir) and others.
The terms of the Gilead HCV license are instructive and should inform Canadian drug access policy because, if applied to remdesivir, they are likely to make compulsory licenses for remdesivir less feasible, with the consequence that access to remdesivir may be delayed, limited and more expensive for Canadians.
This article highlights key terms within the HCV license and considers their potential impact on Canada if applied to remdesivir access. This article will be updated if and when the remdesivir license becomes available and comes to our attention.
Key terms of the Gilead HCV license
The Gilead HCV license is tailored to enable Indian manufacture of active pharmaceutical ingredients (API) for supply in designated territories comprising low-income countries. The license includes access to patents and technology sufficient to permit successful manufacture of the API and drug products.
Multiple companies receive the license and compete in the marketplace on price, and each of the licensees is required to pay a royalty on sales of active pharmaceutical ingredient or drug products, as applicable. The royalty is set as a percentage (in the range of approximately three to 12%, depending on the circumstances) of net sales. Although the text of the remdesivir license is not available, Gilead has announced that royalties will not be payable until the World Health Organization declares the end of the COVID-19 public health emergency or until another product is approved to treat or prevent COVID-19, whichever is earlier.
The terms of the license are favourable for countries within the licensed territory, which benefit from a newly created competitive market for a necessary medical treatment. However, the design of the license restricts the ability of the voluntary licensees to supply the product in unlicensed markets, such as Canada. The licensing framework also cements Gilead’s control over the materials required for production, to ensure that the licensees are able to fairly access raw materials required to make the drug within the scope of the license.
License terms that would prevent Canada from benefiting from the voluntary license, apart from Canada’s exclusion from the license scope, are as follows:
- Tight geographic restrictions: Licensees are prohibited from selling, offering for sale, or assisting third parties to sell the product in any country outside the designated territory. They must also agree to prohibit third-party resellers and licensed product suppliers from selling product outside the designated territory. The agreement contains a clarification that it is not a breach of the agreement to supply product in a country where no product patent has been issued or where a compulsory license has been issued.
- Strict compliance required: If a licensee fails to comply with the terms and conditions of the license, their right to make API or products under the license ceases to have effect. Therefore, the penalties for non-compliance are high.
- Licensor API control: Gilead is made a party to all contracts supplying API to licensees to make products. API can only be provided to licensees if the API supplier can assure Gilead that it will be able to continue to supply Gilead’s requirements for its branded product. By this design, among itself and licensees, the licensor controls access to API.
- Anti-diversion obligations: Licensees are required to covenant that they will not divert or knowingly allow diversion of API or products outside their designated territory or sub-territory, and that they will not assist or support, directly or indirectly, any third party in such diversion activities. They must also work with Gilead to create an anti-diversion plan, with access to a country prohibited if diversion cannot be prevented. Breach of diversion obligations can lead to significant financial liability.
- Compulsory license adjustment: The license incorporates a royalty adjustment to account for any compulsory license that may be granted by a country within the territory, to ensure that the royalty payable under the voluntary license is no higher than a royalty payable under the compulsory license. Notably, because Canada is outside the territory and sale in Canada by licensees is prohibited, there is no ability for Canada to compel a benefit from licensees’ manufacture under the voluntary license.
- Patent infringement covenant: The licensee covenants that it will not infringe patents outside the scope of the granted licenses. By making this covenant, the licensee causes patent infringement issues to come within the scope of the agreement so that a London arbitrator, rather than or in addition to a domestic patent court, may adjudicate them.
- Confidentiality: The agreement contains a confidentiality provision requiring that licensees use all technology and know-how only in a manner consistent with the licenses and rights under the agreement. These obligations last until five years after expiry or termination of the agreement. Although not unusual, this provision could potentially prevent a voluntary licensee from using technology and know-how received from Gilead to scale up for the purposes of a compulsory license outside the territory, such as in Canada.
Takeaways for Canada
Canada is in an unenviable position in attempting to secure access to safe and effective COVID-19 medicines. The country’s self-sufficient domestic manufacturing capacity has dwindled over time and is best suited to small-molecule, solid, orally administered drug therapies (which remdesivir is not, as it is administered intravenously). Canadian businesses and academic institutions are not currently at the forefront of drug development in this field.
In implementing the emergency compulsory license provision, the premise was that a patentee may have been unable or unwilling to supply a treatment to the Canadian government, such that the government would need to bring in another manufacturer. However, this premise does not take into account parallel efforts being made by other countries and, in the case of the Gilead license, prior contractual commitments in place between the patentee and potential licensees.
The Gilead HCV license, which appears to be the model that Gilead is using for remdesivir, teaches that by the time a potential compulsory license opportunity emerges, there are likely to be restrictions that make a compulsory license unworkable. These include that:
- Many other countries will have already secured supply from a more geographically proximate manufacturer, rendering inaccessible the drug and its raw materials.
- A simple compulsory license may not be feasible because potential licensees may have already prioritized other markets and made non-patent commitments to the patentee that are inconsistent or difficult to reconcile with a compulsory license.
- Lack of dedicated and capable API and finished product manufacturers that prioritize Canadian access makes it necessary to issue at least two compulsory licenses – one for the making of the product abroad, and one for its use and sale in Canada. Although the Canadian government may be eager to issue a compulsory license enabling Canadian access, a foreign compulsory license is less likely, especially if demand in the country of foreign manufacture is adequately served by the voluntary license.
Remdesivir is the first of what will likely be several useful therapies for COVID-19. In the absence of a vaccine, access to these treatments will be critical to generating the confidence needed for Canadians to return to work and some semblance of normalcy. How Canada navigates remdesivir access questions will inform how drug sponsors choose to deal with Canada as the pandemic evolves. Canadian federal and provincial governments will need to be as careful as possible to maximize drug access at reasonable cost in an unfavourable environment.