Amid scarcity and soaring prices, China could issue compulsory license for Paxlovid
By Zhenyan Zhu, Yuanqiong Hu, and Guangjian Xue
After three years of its “Zero COVID” policy, the Chinese government allowed a return to relative normalcy for its citizens in early December 2022. Due to the ongoing transmission of Omicron and its numerous COVID subvariants in China, the sudden policy shift was accompanied by rapid community transmission across the country and high numbers of severe COVID cases.
The resulting surge contributed to severe shortages of COVID medicines across the country, particularly Pfizer’s WHO-recommended oral antiviral treatment nirmatrelvir/ritonavir — known by its brand name Paxlovid — for high-risk populations.
It is unlikely that Pfizer will voluntarily drop its price, making the Chinese government’s most viable option, should it decide to seize it, the issuance of compulsory licences for the domestic marketing of Paxlovid to companies with available manufacturing capacity.
Five Chinese companies are already positioned to manufacture Paxlovid for export to low- and middle-income countries (LMICs) through the existing voluntary licence agreement.
Scarcity of supply and a failed price negotiation
Paxlovid was added to China’s National Guidelines for Diagnosis and Treatment of COVID-19 in March 2022. Paxlovid was initially covered by a national healthcare reimbursement scheme at CNY 2,300 (US$340) per treatment. This price point was recently updated to CNY 1,890 (US$282).
In early January, Paxlovid was included in the annual price negotiation for medicines in the catalogue of China’s national healthcare reimbursement scheme. After long hours of negotiation between China’s National Health Security Administration (NHSA) and Pfizer, no price agreement was reached.
While the actual terms of the negotiations remain unknown, it was widely reported that the price Pfizer offered was rejected by NHSA. A response from NHSA stated they had negotiated in good faith with Pfizer, but a wide gap in positions on pricing remained.
NHSA added that negotiations on the inclusion of any particular drug in the catalogue is done only once a year, meaning they will not engage with Pfizer on a separate negotiation on Paxlovid again this year. The current coverage of Paxlovid by the healthcare reimbursement scheme is set to expire at the end of March 2023.
Paxlovid shortages have reportedly driven prices on the black market as high as US$7,200 per treatment. In the absence of any approval for generic versions of nirmatrelvir/ritonavir by China’s drug regulatory authority, people have turned to purchasing more affordable generics produced in India, where companies offer prices as low as US$36 per treatment to some low-income countries.
Why is China — a middle-income developing country with a well-established pharmaceutical industry of more than 4,000 manufacturers, and a major exporter of active pharmaceutical ingredients (API) for the global market — so restricted in accessing affordable generic Paxlovid for people who need it now?
To understand the root causes of this access crisis, a breakdown of Pfizer’s IP strategy is necessary.
Paxlovid’s patent status in China
Paxlovid is a co-packaged product containing two separate compounds — nirmatrelvir and ritonavir. Ritonavir has been off-patent since 2020, after AbbVie withdrew its remaining secondary patents on ritonavir worldwide (which were near expiration) following a compulsory license issued by the government of Israel on lopinavir-ritonavir (LPV/RTV) that had been considered as an antiviral treatment against COVID earlier.
Nirmatrelvir is a new compound for which Pfizer has been actively seeking patent protection globally. Pfizer has filed two patent applications on the nirmatrelvir compound in China, both of which remain pending.
In short, Pfizer currently holds no granted patent on nirmatrelvir nor Paxlovid as a whole in China. Yet it remains unclear if generic companies in China can freely produce and supply generic alternative versions of Paxlovid domestically.
Restrictive voluntary licensing terms hinder local production
Controlling who has access to Paxlovid even before Pfizer has secured patent protection on the product is central to the company’s IP strategy. In November 2021, Pfizer entered a voluntary license (VL) agreement with the Medicines Patent Pool (MPP) to facilitate generic supply of Paxlovid in 95 low- and middle-income countries (LMICs).
As of March 2022, 36 generic companies from 13 countries had signed the sublicense agreement, including five Chinese companies (Desano, Apeloa, Huahai, Fosun and Jiuzhou), for the production of API and/or finished product.
However, several issues with the terms of the Pfizer/MPP VL continue to limit the options for access to generic supply in China. First, China is excluded from the territories specified in the terms of the VL agreement, meaning the five Chinese companies that signed the VL cannot supply the local market.
The exclusion of China and other major middle-income countries (MICs) like Brazil and other Latin American countries from the license territory is a long-standing practice of major pharmaceutical companies in VL negotiations with MPP. MSF has criticized this practice for its unethical consequence of blocking supply for local health needs.
Second, the terms of the VL say that exceptions can be made for local supply in excluded territories by licensed companies if their activities do not infringe on Pfizer’s “patents” as defined under the licence (Section 1.24). This includes cases of governments issuing compulsory licences according to their national law.
This means the definition of “patents” under the terms of the VL includes both granted patents and any pending patent applications. In the absence of a valid patent on Paxlovid in China, Pfizer can still prevent the five Chinese generic companies, of which several have completed the development of their generics and are ready to file for regulatory approval, from immediately supplying the Chinese domestic market to meet urgent health needs.
But if the Chinese government decided to issue a compulsory license allowing generic production and supply in the country, this could allow the five licensed companies as well as other generic supplies within China to immediately produce and supply the local market.
Finally, the VL terms require sublicensed companies to pass WHO prequalification (PQ) or stringent regulatory authority (SRA) approval before commercialization in ANY market (Section 3.5). This includes the local market where the generic companies are based.
There is no flexibility in the terms to reflect exceptional circumstances where urgent supply is mandated by national regulatory approval while WHO PQ or SRA approval is not yet complete. It is unclear how this requirement would be met if one of the Chinese generic companies included in the Pfizer/MPP VL licence were to launch a generic product locally under a compulsory licence issued by the Chinese government.
Notably, the other two VLs that MPP has signed on COVID therapeutics with Merck and Shinogi include flexibilities allowing national regulatory approval to be the basis for local supply in emergency situations.
Possible actions to overcome challenges
There are several possible solutions to the present challenges of access to affordable Paxlovid courses in China.
As Pfizer failed to offer an acceptable price to the Chinese government to support better coverage of the drug under the national healthcare reimbursement scheme, it is not feasible to rely on a price reduction by the company. The unwillingness to negotiate comes in addition to the overall lack of transparency on different prices charged by Pfizer to countries and health agencies around the world.
Generic companies that signed the Pfizer/MPP VL may get the leverage to supply for local health needs if the territory of the licence is revised to include China in its scope. But based on past experience, such an amendment appears unlikely.
The CEO of Pfizer has reportedly denounced the willingness of the company to facilitate generic supply in China, and would rather resort to its own contracted manufacturing company in China to supply the drug. This means Pfizer will remain in total control of overall production, supply and price.
Generic companies that signed the Pfizer/MPP VL could supply to the domestic market if the Chinese government issues a compulsory licence for generic production and supply. This is both a fast and optimal solution, particularly in view of the fact that some of these generic companies have finished product development and are ready for regulatory approval.
Generic companies that did not sign the Pfizer/MPP VL may be less restricted and could catch up in seeking regulatory approval and launch their generic versions domestically. However, potential legal risks due to TRIPS-plus provisions, such as data exclusivity, may need to be lifted explicitly by the government. This could be done through a compulsory licence to provide certainty for independent generic suppliers.
China could also emulate the US approach, where the government directly authorized the use of patented health technologies in at least 166 government contracts without the consent of the rights holder to combat the COVID pandemic.
Grey areas under China’s TRIPS-plus provisions
Beyond the issues outlined with Pfizer’s VL strategy, certain TRIPS-plus provisions create some grey areas for the rapid entry of generic Paxlovid production when Chinese patent law and drug regulatory rules are considered.
Chinese patent law contains several important public health safeguarding provisions. These include provisions on compulsory licensing, including for government use and public health needs, and an exception to facilitate research and development by generic companies in preparation for regulatory approval.
However, recent revisions of Chinese patent law and related regulations introduced stringent rules on data exclusivity, patent linkage and patent term extension that go beyond the obligations under the TRIPS agreement.
These revisions make it possible for a company holding only a pending patent application to threaten potential competitors with future lawsuits. Since Chinese law allows provisional protection based on pending applications, retrospective claims on infringement are valid under its patent laws.
These TRIPS-plus provisions increase the legal risks for rapid generic entry, alongside the restrictive VL terms outlined above.
Broader national and global solutions for the future
China’s current Paxlovid access challenges show once again how relying solely on the voluntary actions and goodwill of pharmaceutical corporations is insufficient to ensure medicines reach people in need. It is also a telling example of how the exercise of IP rights by a dominant company can stand in the way of COVID therapeutics access, despite claims by the pharmaceutical industry that IP is not an issue.
These challenges were anticipated on a global level at the beginning of the COVID pandemic by a decision to allow countries to temporarily waive certain IP protections on COVID medical tools called for at the World Trade Organization (WTO), known as the TRIPS Waiver.
Unfortunately, the final outcome decision at the 12th Ministerial Conference of WTO was insufficient and narrow in its scope, applying only to COVID-19 vaccines.
In view of the present IP barriers erected against access to COVID treatments like Paxlovid, it is regrettable that the negotiations to include COVID therapeutics and diagnostics, not just vaccines, remain at a standstill at WTO.
The frustrating proceedings at WTO are a reminder of the importance of prioritizing national and regional actions that can provide direct and long-lasting impacts on access to medicines for all.
To address issues and limitations with voluntary licensing practices, governments should establish adequate mechanisms to allow public scrutiny and oversight over terms and conditions requested by the patent holders that restrict access options.
Requirements for full transparency on licensing terms, cost and pricing are crucial to ensure accountability for the private sector concerning the impact its IP protection practices have on public health. Terms restricting local production supply in developing countries and those restricting access to certain populations should be available for scrutiny.
All countries should review and improve national IP law and regulations to ensure implementation of the full range of public health safeguards, and refrain from introducing TRIPS-plus provisions that could have an unfavourable impact on access to medicines for those in need.
Zhenyan Zhu, China Advisor of Médecins Sans Frontières (MSF) Access Campaign
Yuanqiong Hu, Senior Legal and Policy Advisor, MSF Access Campaign
Guangjian Xue, MSF China Representative
This piece first appeared in Health Policy Watch and appears with HPW’s permission.
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