How Will New Trade Agreements Impact The Pharma Industry … And Patient Access To Medicines?

By D. G. Shah, Vision Consulting Group

The new trade regime unleashed by President Trump has not only heightened trade tensions, it has the potential to affect patient access to affordable medicines. His administration’s Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs highlighted foreign governments “freeriding” off of American investment in innovations. The president has focused on “addressing price disparities in the international market,” particularly among the countries that are part of the Organization for Economic Cooperation and Development (OECD). His blueprint states that “U.S. consumers and taxpayers generally pay more for brand drugs than do consumers and taxpayers in other OECD countries…. In effect, other countries are not paying an appropriate share of the necessary research and development to bring innovative drugs to the market and are instead freeriding off U.S. consumers and taxpayers.”¹

UN Declaration On TB

As is evident from the fate of the UN declaration on tuberculosis, the barriers to access will grow because of many countries’ reluctance to add new fronts of conflict with the U.S. The draft text of the declaration² shows that, under pressure from the U.S., it is stripped of language about the use of the Agreement on Trade Aspects of Intellectual Property Rights (TRIPs) flexibilities to reduce drug prices. Thus, even without formal bilateral treaties in place, the new U.S. trade regime is having an impact on access to medicines.

Special 301 Report

The 2018 Special 301 Report released in February 2018 by the office of the U.S. Trade Representative (USTR) had already indicated the Trump administration’s priority “to use all possible sources of leverage to encourage other countries to open their markets to U.S. exports of goods and services, and provide adequate and effective protection and enforcement of U.S. intellectual property (IP) rights.”³ The report identified a list of 12 countries, including Canada, China, Colombia, India, Indonesia, and Russia, on the Priority Watch List. Among their follies:

• China – Trade secret theft, online piracy, and counterfeiting, high-volume manufacture and export of counterfeit goods, technology transfer requirements imposed as a condition to access the Chinese market, the mandatory application of adverse terms to foreign IP licensors, and IP-ownership and research and development localization requirements.
• Canada - The only G-7 country identified in the Special 301 Report, its downgrade to Priority Watch List reflects a failure to resolve key longstanding deficiencies in protection and enforcement of IP, including counterfeit, pirated goods, weak patent protection, and pricing environment.
• India – Observations include a lack of sufficient measurable improvements to its IP framework, including practices that make it difficult for innovators to receive and maintain patents in India, and an outdated and insufficient trade secrets legal framework as well as skepticism about whether India is serious about pursuing pro-innovator and creativity growth policies.
• Colombia – Lack of meaningful progress warrants its elevation to the Priority Watch List.

The common refrain among all of the complaints against the countries on the list is “inadequate” IP protection and enforcement. The USTR’s observations by themselves are sufficient to create barriers to access in developed as well as developing economies. The U.S. has been continuously trying to distance itself from countries that rely on any reference to the TRIPs flexibilities to improve access to healthcare, be it through the Special 301 Report, UN statements, World Health Assembly, or any other forum.

It is against this backdrop that the new trade agreements are taking shape. A preview of some of the key trade agreements indicates hardening of the stance on intellectual property rights (IPRs). This article examines a few of them (CPTPP, RCEP, CETA, EU-JAPAN) to understand how access to medicines will be impacted. The examination is limited to five areas, namely, patent term extension, patent linkage, border measures, protection of undisclosed test data, and use of TRIPs flexibilities for compulsory licensing.

Trade Agreements

Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP)

The countries have agreed to suspend several IP obligations negotiated earlier under the Trans-Pacific Partnership (TPP). However, there are measures that would have a profound impact on access to medicines. These are:

• Patent Linkage: The patentee will be notified of anyone seeking to rely on that drug’s clinical trial data prior to granting marketing approval. The agreement provides for adoption of a system that precludes the issuance of marketing approval to a third person, unless consented to by the patent holder.
• Border Measures: Competent authorities are empowered to initiate border measures ex officio with respect to goods in transit that are suspected of being counterfeit trademarked goods or pirated copyrighted goods. (For greater certainty, that ex officio action does not require a formal complaint from a third party or rights holder.)
• IP – An Asset in the Investment Chapter: Private investors have the right to use the investor-state dispute settlement (ISDS) mechanism to interpret the IP chapter of the CPTPP and also the TRIPs agreement.

Regional Comprehensive Economic Partnership (RCEP)

• Patent Term Restoration: The RCEP text seeks to redefine the protection period as 20 years from the date of marketing approval. The TRIPs agreement grants protection of 20 years from the patent filing date. Thus, the RECP proposal could end up granting patent monopoly for more than 30 years.
• Data Exclusivity: The RCEP seeks inclusion of a data exclusivity provision over and above patent term restoration. This would extend monopoly periods for innovators and delay the launch of generics.
• TRIPs Plus Enforcement: It provides for disproportionate damages, including any measure of value (lost profits, sales) that the rights holder may provide to the judicial authority. It creates an obligation on an alleged infringer to provide information about the origin and distribution network of the infringing goods, putting onerous responsibility on a legitimate generic manufacturer.
• Border Measures: Border measures empower customs authorities to seize goods suspected of infringing patents or trademarks, without even the need for a complaint by the rights holder. The TRIPs agreement empowers competent judicial authorities, but not customs officials, and also provides for exceptions in the case of goods in transit.
• IP – An Asset in the Investment Chapter: The RCEP agreement may include IP as an asset in its Investment Chapter. It will enable private investors to use the ISDS mechanism to interpret the IP chapter in RCEP as well as the TRIPs agreement. There is no such provision in the TRIPs agreement.

Canada-EU Comprehensive Economic and Trade Agreement (CETA)

• Patent Term Restoration/Extension: CETA requires the parties to provide a period of “sui generis” protection to pharmaceutical patents to cover the period between the filing date of the patent application and the date on which the pharmaceutical product was granted authorization to enter the market. This sui generis protection confers the same rights as conferred by the patent and is subject to the same limitations and obligations. It is essentially a patent term extension or restoration for some of the time lost between the filing date of the patent application and the date when the pharmaceutical product was granted market authorization. Though the agreement prescribes certain limitations and exceptions, this provision will allow extended period of patent protection, denying access to affordable generics.
• Patent Linkage: CETA provides a “patent linkage” mechanism. Thus, marketing authorization for the generic version is linked to the patent status, thereby denying access to affordable generics.
• Protection of Undisclosed Test Data: The agreement provides six to eight years of protection against generic entry. The only exception is obtaining approval/authorization from the originator of the data, which rarely works. This clearly goes much beyond the TRIPs agreement and could delay entry of generics beyond expiry of patents.
• Border Measures: The CETA provides for suspension or detainment of goods in transit on mere suspicion of infringement of some form of IPRs. This could be done suo moto by the “competent authorities” or on a request by the rights holder.

EU-Japan Economic Partnership Agreement

• Extension of the Period of Protection for a Patent: The agreement provides for a “compensatory term of protection” to cover the time taken for marketing authorization. The compensatory term being limited by statute to five years, the extension will deny entry of generics by the extended protection period.
• Border Measures: A provision very similar to that in the CETA ensures suspension or detainment of goods in transit on mere suspicion of infringement of an IPR. This could be done suo moto by the “competent authorities” or by request of the rights holder.

Other Recent Developments

Among other developments that would bear on access to medicines are the outcomes of EU-Mexico negotiations and the NAFTA. The EU-Mexico Agreement under negotiation seems to suggest that it will have “high standards of protection and enforcement beyond TRIPs rules.”⁴ It has identified three areas, namely, patent term extension, data exclusivity, and protection of plants. These would have significant impact not only on the access to medicines for the people of Mexico, but also U.S. citizens, as many manufacturing plants servicing the U.S. market are located in Mexico and will be governed by the provisions of the EU-Mexico treaty. The agreement also envisages empowering the customs authorities to target alleged IPR infringements.

The other major development relates to NAFTA. At the time this article was written, the Mexican secretary of trade and his negotiating team were in Washington, D.C., as outgoing Mexican President Pena Nieto is keen to strike a deal with the U.S. on NAFTA. It is noteworthy that the USTR is negotiating the NAFTA bilaterally with Mexico, leaving Canada on the sidelines. Any further concessions by Mexico would leave Canada in a tight spot.

Summing Up

It appears that going forward, patients may have to wait longer for affordable generics, as the new trade agreements will delay access to generics. In addition, these agreements would result in higher health expenditures for both developed and developing countries. This would indeed be a misfortune for the pharmaceutical industry as a whole. An industry that saves lives of people will unwittingly provide further fodder to those who wish to tarnish its image.

References:

1. HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, Department of Health and Human Services, May 16, 2018, https://www.federalregister.gov/documents/2018/05/16/2018-10435/hhs-blueprint-to-lower-drug-prices-and-reduce-out-of-pocket-costs
2. United to End Tuberculosis: An Urgent Global Response to a Global Epidemic, United Nations Office of the President of the General Assembly, July 24, 2018, https://www.un.org/pga/72/wp-content/uploads/sites/51/2018/07/TB.pdf
3. Fiscal Year 2019 Budget, Office of the United States Trade Representative, February 2018, https://ustr.gov/sites/default/files/files/foia/FY2019_USTR_Congressional_Budget_Submission_Final.pdf
4. “Key features of the EU-Mexico trade agreement,” European Commission, April 21, 2018, http://trade.ec.europa.eu/doclib/press/index.cfm?id=1831

About The Author:

D. G. Shah is CEO of Vision Consulting Group and secretary general of the Indian Pharmaceutical Alliance. He can be reached by email at dgshah@vision-india.com.

Image credit: Donald Trump at Aston, PA September 13th (Sean Sullivan and Robert Costa, 2016, CC BY 2.0)