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MARCH | 2011

Nagoya Protocol and Its Implications on Pharmaceutical Industry Copyright Š Beroe Inc, 2011. All Rights Reserved

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Introduction This white paper focuses on the treaty on biodiversity which was written in October 2010 in Nagoya, Japan. The paper highlights how the Nagoya Protocol is expected to affect the pharmaceutical industry in the future. It also highlights the potential impact of the protocol on the procurement strategies of pharmaceutical companies from biodiversity-rich countries.

The clauses on benefit sharing between parties are vague in the 1992 Convention on Biological Diversity. No legally binding clause was included in this treaty.

To provide more clarity on issues pertaining to genetic resources

To ensure universal acceptance of the ABS model

Demand for a legally binding protocol from developing nations and biodiverse rich nations

Factors That Led to the Nagoya Protocol To ensure ABS is implemented in a timely and fair manner

Drug makers have to disclose the origin of genetic resources during patent applications. The benefit and sharing model is applicable for all plant and animal resources that can be used in the development of drugs.

To eliminate biopiracy

To detect illegal exports of genetic materials

The Nagoya Protocol and Biodiversity The Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits is a landmark treaty that was devised keeping in mind the increasing loss of biodiversity on Earth. It is a supplementary agreement to the earlier convention on biological diversity and provides a legal framework for the objectives of the convention.

Formation of a strategic plan that strives to conserve biological diversity until the year 2020.

Identification of new mechanisms to finance the conservation of nature.

Creation of a protocol on the equitable sharing of the benefits that arise from the use of genetic resources.

Ensure benefit sharing when Establish a more genetic resources stable and singular are provided by focal point to aid the host country organizations in to the sourcing accessing genetic organization. resources.

The Nagoya Protocol and Biodiversity The Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits is a landmark treaty that was devised keeping in mind the increasing loss of biodiversity on Earth. It is a supplementary agreement to the earlier convention on biological diversity and provides a legal framework for the objectives of the convention. Copyright Š Beroe Inc, 2011. All Rights Reserved

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Access and Benefit Sharing Model The implementation of the access and benefit sharing model involves three stages: Prior Informed Consent for Access to Genetic Resources: The access and benefit sharing model requires that every organization sourcing genetic resources from a biodiversityrich country obtain prior consent from the host country before collecting resources. Consent is provided by a single focal point representing the country, which acts as the intermediary between the organization and the indigenous community that owns the resource. Mutually Agreed Terms for Access and the Use of Genetic Resources: Mutually agreed terms that contain the conditions and provisions for access and benefit sharing between the user, the provider, and other relevant stakeholders is drawn up. Both parties must agree to the terms before resources are collected by the user. Benefit Sharing from the Use of Genetic Resources: Benefit sharing may involve monetary or non-monetary benefits that arise from access to genetic resources or associated traditional knowledge. If the source of a genetic resource is unknown, a single common trust fund is created in collaboration with all the owners of the genetic resource. The payment of benefits is made from this global fund if the origin of the species is unknown or if a transboundary exists. Funds obtained must be used to support the conservation and sustainable use of biodiversity.

Access and Benefit Sharing Timeline 2002: Bonn Guidelines on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising out of Their Utilization

Events Leading Up to Nagoya

2002:World Summit on Sustainable Development and practices 2000:WIPO Intergovernmental Committee on Intellectual Property and Genetic Resources,Traditional Knowledge, and Folklore

1992: Convention on Biological Diversity

2001: Doha Declaration Commitment on sustainable practices used by multi lateral trading systems

2010: Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from Their Utilization Sharing of Benefits Arising from Their Utilization

1994:TRIPS Agreement harmonized national systems with regard to intellectual property rights. Time

Type of Benefit Monetary Benefits: Monetary benefits are a percentage of the revenue earned from the sales of a final product derived from the genetic resource collected by the user from the provider. These benefits also include the lump sum amount initially paid to gain access to the material. Copyright Š Beroe Inc, 2011. All Rights Reserved

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Non-monetary Benefits: Non-monetary benefits include benefits arising from the process of research and development, such as capacity building and technology transfer through infrastructure, expertise and know-how building, and training through joint research. Process benefits that arise from the sustainable use of genetic resources also fall under non-monetary benefits.

Biodiversity-rich Regions of the World

High biodiversity

Medium High biodiversity

Medium biodiversity

Low biodiversity

The following biodiversity-rich countries are likely to gain the most from the Nagoya Protocol. Latin America Brazil Colombia Ecuador Mexico Peru Venezuela

Asia Philippines Indonesia Malaysia India China

Africa Madagascar Democratic Republic of Congo South Africa

Australia & Oceania Australia Papua New Guinea

Importance of Biodiversity to the Pharmaceutical Industry The pharmaceutical industry has had a long and fruitful relationship with biodiversity. Large pharmaceutical companies generate close to USD 250 billion annually from drugs directly derived from biodiversity. Taxol, a blockbuster drug that was discovered by scientists of the US government and developed by Bristol Myers Squibb Co. in 1992, contributed close to USD 9 billion between 1992 and 2000. This drug is derived from the bark of yew trees. Name of Drug Derived from Properties and Functions Gila Monster Lizard Exenatide Used as a substitute for insulin and to promote weight loss. Spit Artemesinin Artemisia annua Used to treat malaria. Captopril Brazilian Viper Used to lower blood pressure. Calcimar and Miacalcin Coho Salmon Used to treat osteoporosis. Observed to attack malignant brain tumours (known as IND TM 601 Israeli Yellow Scorpion glioma tumours) that are responsible for two-thirds of brain cancer cases, without harming healthy cells. Being tested for the treatment of colon, breast, and prostate Methanolic Extracts Ruta Graveolens cancer.

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In 2010, just over 100 natural product based molecules were in clinical trials, a 30% drop compared to 2000 levels. Approximately 80% of pharmaceutical drugs were derived from natural product origins in 1990; by 2005, however, this figure fell to around 50%. In 2010, the natural products mix in the pharmaceutical industry was estimated to be 40%. Currently, 62% of cancer drugs approved by the US Food and Drug Administration come from, or are modelled based on, natural products. For example, Taxol is used to treat breast and ovarian cancer. Pharmaceutical Drugs – Natural Products vs. Synthetic Products

40%

60% 50%

50% 20%

80%

2002-2005

Before 1990s

2010

Changing Dynamics of New Chemical Entities

4%

1% 14%

Natural 23%

Derived from a Natural Source Biological 50%

5%

Natural

Synthetic

26%

Derived from a Natural Source Biological Synthetic

54%

Others

14%

Others

9%

Natural Products Used in Clinical Trials

Cancer

17%

11%

3% Plants

Anti-infective 38%

8%

48%

Cardiovascular/ Gastrointestinal Inflammation

9%

10%

bacterial animal fungal

27%

others 18%

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semi-synthetic

11%

Neuropharmocological

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In 2010, more than 40% of all the new chemical entities Implementation Issues: were obtained from natural sources. Plants are the major • Presently, there are no coherent biodiversity indicators source for drugs of natural origin in the clinical phase. that can be used to measure the corporate impact on Nearly 48% of drugs in the clinical phase are derived biodiversity. from plants. • It is difficult to measure the performance of small- to Drugs currently in the pipeline that are derived from mid-sized companies with regard to ecosystems usage. natural sources are mostly cancer and anti-infective medicines. These two therapeutic areas account for 56% • The corporate sector has not yet embarked on the large scale incorporation of sustainable biodiversity of all drugs of natural origin in clinical trials. practices.

Impact of the Nagoya Protocol on the Pharmaceutical Market

Religious Significance of the Location

The Nagoya Protocol, especially the Access and Benefit Sharing clause, calls for systems to be put in place. These systems are expected to drive the costs incurred by pharmaceutical companies during the drug discovery phase.

Cultural Services

Soil Formation

Goods (such as timber)

Water Filtration Nutrient Recycling Eco Tourism

• The Nagoya Protocol could have an adverse impact on the pharmaceutical industry. Many companies feel that the Access and Benefit Sharing clause will increase product development costs and complicate the drug discovery phase. According to the protocol, organizations will have to pay a significant amount of their revenue and royalties to indigenous communities and host countries for the drug they develop from genetic resources.

Examples of Biodiversity Indicators Note: It has been suggested that close to 20 biodiversity factors should be taken into account while establishing biodiversity indicators for each company.

• The revised patent system will also add to the cost of drug development. Due to the rules and regulations laid down by the Nagoya Protocol, organizations would have to execute joint patents with the communities from whom they source resources. For multiple ownership cases, the patenting policy is even more obscure.

Present Status of the Nagoya Protocol Each country must ratify the Nagoya Protocol; in addition, the treaty must be passed by a country’s legislative body. According to the Nagoya Protocol, certain restrictions have to be followed by all organizations that use genetic resources from other countries. For example, each organization is required to set up biodiversity indicators. These biodiversity indicators should consist of a combination of various biodiversity resources that are Signatories of the Nagoya Protocol used by organizations and measure the company’s impact The Nagoya Protocol is not retroactive and does not affect on the environment. already existing products. The protocol will apply only for products in the pipeline. Algeria, Brazil, Colombia, Yemen, Netherlands, Denmark, Sweden, Japan, Mexico, and Rwanda have already signed the Nagoya Protocol. It will be open to new signatories from March 7, 2011 to March 6, 2012 and will come into effect within 90 days of the fiftieth ratification of the Nagoya Protocol.

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Access and Benefit Sharing Industry Practices PRE-ACCESS • The user (i.e. the enterprise or researcher) interested in using the natural resource requests access to the country that provides the genetic resource through prior informed consent (PIC). • The request should be made to a central focal point designated by the country • The provider of the resource and all local communities must give prior consent with full knowledge of the targeted use of the genetic resource. • Mutually agreed terms (MAT) are established between the two parties that define how the benefits will be shared with the exporting country/ community. • Authorization is issued by a national authority of the exporting country. • Information on access and benefit sharing is communicated to the clearing house. • A legally binding ABS contract is made between the provider and user of the genetic resource.

USER OF NATURAL RESOURCE

PROVIDER OF NATURAL RESOURCE

BENEFIT SHARING • The user of the genetic resource has to abide by the MAT and conditions. • The user party has to establish and maintain appropriate communication with all stakeholders at different levels. • All communities and indigenous people have to be involved in the research. • The user must provide all appropriate information and document it according to PIC/MAT and conditions. It must also ensure compliance with PIC/MAT and other expectations, including benefit sharing. • The user must ensure timely provision of benefits according to the schedule outlined in the PIC/MAT contract. • Compliance with ABS standards is necessary for many companies to secure finance, certify products, and access markets, as well as to be recognized for ethical and sustainable practices. • The user must verify with stakeholders that obligations and expectations are met. • A breach of regulations can lead to fines or the loss of future concessionary rights.

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Parties Tropical Botanic Garden and Research Institute (TRGRI) and the Kani tribe in India

SAN tribe, CSIR of South Africa, Phytopharma, Pfizer, and Unilever

Time Period 1997

1996 to 2008

Details of the MTA

A mutual agreement was made between the two parties The model failed due to: for the cultivation of Trichopus zeylanicus, which •Unrelenting bureaucracy contains anti-fatigue and energetic properties. •Policy vacuum ABS Specifications: •Lack of appropriate legal •2% license fee to be paid to TBGRI by the phyto obligations between the medical company. parties. •Benefits to be equally distributed between the Kani tribe and TBGRI. •The remainder of the license fee will be put into the Kani tribe’s trust fund (Kerala Kani Samudaya Kshema Trust). The parties agreed to conduct research on Hoodia gordonii, traditionally used by the San tribe as an antiappetizer. ABS Specifications: •The San tribe will receive 8% of all milestone payments CSIR receives from Phytopharma. •CSIR will receive 6% of all royalties once the drug is commercially developed by Phytopharma. •The San trust will receive USD 75,000 as an initial benefit-sharing payment.

The Kenya Wildlife Service (KWS), The International Centre for Insect Physiology and Ecology (ICIPE), and Novozymes and Diversa (Verenium) Corporation

2007

Impact

This deal was made for a period of five years for the cultivation of the enzyme Pulpzyme, which is developed by the microorganisms protected by KWS. ABS Specifications: •Royalties will be paid to KWS. •The royalties paid will be in the range of 0.5-10%. •Novozymes will transfer technology and provide training to Kenyan students throughout the agreement period. •All intellectual property rights and patents are to be co-owned by both parties. •Benefits will be equally shared by ICIPE and KWS.

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The arrangement failed because: •The drug’s side effects were dangerous. •Unilever lost more than £20 million in four years doing research on Hoodia. •There was a huge rise in drug prices due to the hype created for the development of the drug. This arrangement was successful because: •KWS acted as the national focal point for Kenya. By going through KWS, Novozymes successfully conducted the agreement. •Prior informed consent was obtained from KWS, which represented the Kenyan government. •The microbial discoveries were done by KWS researchers trained by Novozymes employees.


Conclusion

Royalties

Another major challenge pharmaceutical companies will face in the future is patent rights. Companies are likely to The effect of the Nagoya Protocol will take 2-4 years to be incur costs with regard to royalties as companies might felt as the protocol cannot be implemented retroactively. have to pay 2-10% to the community that possess the Increase in Costs during the Drug Development genetic material. Stage Types of ABS The costs incurred by drug companies, especially during Companies prefer to provide technology transfer and the drug development phase, will increase due to the advanced training rather than monetary benefits when Access and Benefit Sharing clause. adopting ABS. Corruption Time Period

The implementation of ABS in countries like India, Indonesia, and Brazil might lead to difficulties in procuring biological material for R&D operations as corruption and red-tapism are already major concerns in these nations. Biodiversity Indicators & Bioprospecting As companies implement biodiversity indicators, which would limit the use of biodiversity, organizations will have to restrict their supply chain and production processes to adhere to the protocol. The Nagoya Protocol could facilitate bioprospecting as the governments that own the resource can provide companies with clear guidelines for bioprospecting.

Impact of the Nagoya Protocol on Focus Areas Increased risk of corruption and red-tapism in developing countries

Increase in the time required for bioprospecting and sourcing

R&D Increase in the cost of sourcing genetic resources

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More complications to patent the final drug due to multiple players and numerous stages.

Patenting Sharing the royalties of patents for the final drug would increase costs.

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Increase in production costs due to excess costs incurred during the procurement of resources.

Production Lack of uniformity among various countries over ABS arrangements.


Source: RiS.org, Food and Agricultural Organization of the United Nations, business-biodiversity.eu, Union for Ethical Bio Trade, cbd.int

Author: Kurian Kurien | Senior Research Analyst Aloke Das | Research Analyst

Disclaimer: Strictly no photocopying or redistribution is allowed without prior written consent from Beroe Inc. The information contained in this publication was derived from carefully selected sources. Any opinions expressed reflect the current judgment of the author and are subject to change without notice. Beroe Inc accepts no responsibility for any liability arising from use of this document or its contents.

For more information, please contact info@beroe-inc.com.

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White paper on nagoya protocol and its implications on pharmaceutical industry