An NGO policy brief by Prof. Brook K. Baker, Health GAP, and endorsed by
Oxfam America, FTA Watch, the Thai Drug Study Group, the European AIDS
Treatment Group, and ENGAGE (Educational Network for Global and Grassroots
January 25, 2006
January 25, 2006
Brook K. Baker (617-373-3217) email@example.com
Asia Russell (267-475-2645) firstname.lastname@example.org
10,000 Thai anti-globalization activists, small farmers, and AIDS and public health activists massed in Chiang Mai from January 9-11, 2006 to protest the 6th Round of negotiations to create a Free Trade Agreement (FTA) between Thailand and the U.S. Hundreds of protestors stormed the meeting venue, causing its temporary closure and movement to another meeting venue, while others tried to swim across a river to access the negotiations. In exchange for largely illusory promises about future trade access for Thai products, the U.S. hopes to reap many benefits, including: reduced tariffs for subsidized agricultural products and other exports, increased intellectual property rights for multinational pharmaceuticals, software, and entertainment products, right-to-sue privileges for investors, and service industry access to the financial, telecommunications, and insurance industries.
Some of the strongest opposition comes from AIDS activists, who predict that increased intellectual property rights for pharmaceutical products and registration data will prevent or delay access to more affordable generic equivalents of new life-saving medicines, undermining the success of HIV treatment in Thailand. The internationally lauded Thai program of universal subsidized access to AIDS treatment has been made possible because of cost-cutting generic competition for first-line AIDS medicines. As a result of these cost savings, Thailand is currently treating nearly 80,000 of an estimated 170,000 patients who currently need treatment (more than 600,000 Thai people are living with HIV). Although Thailand’s access program continues to scale-up where it can rely on affordable first-line generic medicines, its ability to sustain expanded treatment opportunities with newer, higher-priced second-line therapies is threatened in the current FTA negotiations.
Although the U.S. initially won significant intellectual property protections in multilateral negotiations that resulted in the formation of the World Trade Organization and the passage of the TRIPS Agreement (Trade-Related Aspects of Intellectual Property Rights), the U.S. has now turned to bilateral and regional FTAs to secure increased monopoly rights for the brand-name pharmaceutical industry.1 It seeks eased patent standards,2 extended patent terms,3 data exclusivity,4 patent/registration linkage,5 and enhanced enforcement penalties,6 all of which can delay access to generic medicines.
Reeling from the negative publicity and pro-access to medicines messaging in Thailand and internationally, the Office of the U.S. Trade Representative (USTR) has mounted a public relations campaign full of distortions and omissions.7 The U.S.’s myths should be refuted with the truth: Thailand and other developing countries have a right, indeed an obligation, to guarantee access to more affordable generic medicines in order to address their multiple public health needs.
Myth 1: The U.S.-Thai FTA will not raise the price of generic medicines in Thailand; those medicines will continue to be available at the price Thai generic companies choose; most HIV/AIDS drugs are generic.
Reality: These reassurances contain a small truth within a big lie. It is true that an FTA will not affect pricing on older, first-line medicines that are already being produced generically. However, the new rules will increasingly affect the price of newer medicines, especially as drug companies increase their patent filings in Thailand, as they seek extensions of patent terms, and as they enforce data rights for newer medicines. Consumers in Thailand will need and are entitled to affordable access to newer medicines at less than monopoly prices. By gaining longer patents and additional data exclusivity rights, big drug companies can continue to exclude, or at the very least delay, entry by generic competitors, thereby keeping the prices of medicines artificially high.
Myth 2: The U.S. is not proposing extensions of patents beyond the 20 years that is already the law in Thailand; data exclusivity does not extend patents.
Reality: The U.S. has sought extensions of patent terms for regulatory delay (both in issuing a patent and in granting marketing approval) in all of its recent FTAs. Inside sources have confirmed that the U.S. is seeking such extensions in the Thai agreement as well. The U.S. argument that data exclusivity does not extend patents is true as a matter of patent law, but in economic terms data exclusivity creates a practical right of marketing exclusivity that can delay introduction of generic products even if a patent has expired or even if there is no patent whatsoever.
Myth 3: Data exclusivity does not bar entry of generic equivalents; generic producers are free to submit their own test data to gain marketing approval.
Reality: The U.S. administration argues that it is incredibly expensive for originator drug companies to invent and prove the safety and efficacy of new drugs, but then it argues illogically that those same costs would not bar entry of a generic competitor. To the contrary, not only would it be too expensive and time-consuming for generic companies to repeat clinical trials to gain access to relatively small and poor markets like Thailand, it would also be ethically improper since the safety and efficacy of the underlying product (and its equivalents) have already been established. Nonetheless, the U.S. continues to seek global protection for safety and efficacy data (even that which has been previously disclosed) and for approvals based on that data so as to prevent registration of a follow-on generic equivalent.
Myth 4: Big pharmaceutical companies must get higher profits from even small, poor countries like Thailand in order to have incentives to invest in research and development.
Reality: Profits from sales in developing countries are insignificant in creating incentives for future research and development. The U.S. drug industry is already the most profitable industry in the world. Pharmaceutical sales in Thailand are an infinitesimal portion of total global sales ($518 billion in 2004). All of Asia, including the Indian subcontinent but excluding Japan, comprises only 3.9% of the global market; all developing countries combined (Africa, Asia, and Latin America) comprise less than 11.5% of global drug sales.8 U.S. drug companies make most of their sales (88.5%), and an even higher portion of their profits, from the rich markets of North America, Europe, and Japan. They don’t need to squeeze blood from poor consumers in Thailand and other developing countries in order to bring a new medicine to the market.
Myth 5: Because high profits are necessary for research and development, U.S. IPR-enhancement goals represent a careful balance between current access and future innovation.
Reality: As an industry, major pharmaceutical companies spend nearly three times as much on marketing and administration as they do on research and development. Even after investing in tax-deductible R&D, drug companies typically earn two times as much in profit as they spend on R&D.9 Moreover, much of the research conducted by industry is in pursuit of me-too drugs, marketing studies, and patent extensions. For example, 53% of “new drugs” marketed from 1981-91 were rated by the FDA as providing little or no therapeutic gain and only 16% offered important therapeutic gains. From 1989-2000, only 24% of “new” drugs merited priority (or expedited) review at the FDA and only 35% were for truly novel drugs containing new molecular entities.10 Much of the research conducted by industry actually piggy-backs on basic research paid for by the federal government and conducted by NIH and university researchers. Historically, this government-funded research totals nearly 40% of aggregate R&D expenditures.11
Rather than representing a true balance between innovation and access, U.S. trade policy represents a continuous assault on consumer interests, all in pursuit of super-profits for the decade’s most profitable industry. Squandering precious research dollars in pursuit of block-buster drugs, trivial product changes (to gain patent extensions), and market-share for copy-cat drugs, the pharmaceutical industry is intent on maximizing its right to sell high priced products to rich countries and rich elites in developing countries, even if that means hundreds of millions of poor people must wait decades for pharmaceutical patents to lapse and for prices finally to fall. The USTR cannot continue to prioritize drug company intellectual property interests and astronomical profits, no matter how derived, at the expense of the human right to health.
Myth 6: Increased intellectual property protections in Thailand will spur its pharmaceutical sector (U.S.T.R. cites Jordan in this regard).
Reality: The success or failure of a pharmaceutical sector in any country depends very little on the patent law in small and poor countries. Success depends on a technological infrastructure and access to patent protections and marketing opportunities in rich countries. Indian pharmaceutical companies have become increasingly innovative even before the new Indian Patent Act and most of their prospective innovation is oriented towards penetration of the First World market. Moreover, after passage of the TRIPS Agreement, which set new standards for intellectual property rights, diminished local working requirements (requirements of local production of patent products), and enhanced big pharma’s importation rights, many countries, including Peru, Chile, and South Africa, experienced a significant disinvestment in their local pharmaceutical industries.
Myth 7: Big drug companies won’t bother to register their new products in countries like Thailand unless they are given data exclusivity.
Reality: Even with small quantity sales, major drug companies still have incentive to sell drugs at a profit to middle-class and rich elites in smaller markets. Moreover, big pharma has been registering and selling its brand-name drugs in dozens of countries without data exclusivity for the past 25 years. In addition to seeking data exclusivity monopolies, drug companies typically have underlying patent-based monopoly rights to their newest medicines, which already erect strong barriers against generic competition. Even the “evidence” that the U.S. cites in support of increased product registration is weak. For example, the increase of registrations in Jordan is largely a result of government reforms in the drug regulatory bureaucracy.
Of course, the larger problem is that big pharma often neglects to register its newest products in poor country markets because the volume of sales is not worth the effort. This is a major problem in drug companies’ so-called AIDS-drugs access programs where companies make proud announcements of price reductions in low-income (not middle-income) countries and then neglect to register their products (or even to seek temporary import permissions from drug regulatory agencies). For example, Gilead has registered Viread and Truvada in only a handful of access countries (6 out of 97 and 3 out of 97 respectively). Likewise, Abbott has not sought registration of its new single-dose, non-refrigeration Kaletra formulation in any of its 68 access countries.
Myth 8: Only a few drugs are affected by data exclusivity rules, so Thai people should not be worried.
Reality: Although it is true that data exclusivity will not apply to all drugs, it does apply to the newest medicines (those involving “new chemical entities”),12 many of which represent therapeutic breakthroughs. If implemented in the manner wanted by the U.S., data exclusivity will apply to most of the important new medicines brought to market in Thailand in the future. There’s no reason that Thais should not have access to affordable versions of the newest and most effective medicines even if those drugs are relatively few in number.
Myth 9: The World Trade Organization’s TRIPS Agreement requires Thailand to adopt data exclusivity provisions.
Reality: The U.S. administration is misrepresenting the standards required by the TRIPS Agreement. The relevant portion of the TRIPS Agreement, Art. 39.3, only requires protection of undisclosed data against “unfair commercial use” – basically theft or commercial espionage. Nowhere does it state that exclusive rights must be provided for a given period. In fact, TRIPS makes clear that countries may decide for themselves what constitutes “unfair commercial use” and that there are many possible approaches to satisfy this requirement. Permitting a drug regulatory authority to do its job – assuring the quality, safety, and efficacy of medicines – is not unfair commercial use; it is a mandated public service. Prior to 1994, the U.S. tried to get its strict interpretation of data exclusivity into the TRIPS Agreement and failed – negotiators simply rejected its proposal. The TRIPS Agreement, as clarified by the Doha Declaration, ensures the primacy of public health and further ensures that intellectual property rules do not interfere with promoting “access to medicines for all.” Furthermore, the Trade Promotion Authority Act of 2002, §2102(b)(4)(C) requires the U.S. to uphold the Doha Declaration. The USTR is defying this pro-public-health requirement.
Myth 10: The proposed FTA would permit Thailand to take measures it considers necessary to protect public health, particularly with regard to the epidemics of HIV/AIDS, TB, and malaria.
Reality: The predictable language of the U.S. proposal (based on recent FTAs) creates ironclad protection for pharmaceutical test data (and patent-registration linkage) with no textual exceptions for registering medicines produced domestically or imported pursuant to compulsory licenses or government use orders. While patents that block access to medicines can be remedied through compulsory licenses and other TRIPS-compliant safeguards, there is no such explicit recourse for data exclusivity and linkage. The U.S. is using vague assurances about rights to protect public health for “epidemics such as HIV/AIDS, tuberculosis and malaria” to offset explicit language that takes away such rights. “Sign this contract, but rely on my good intentions in an unsigned postcard” doesn’t work when you buy a used car and it shouldn’t work in trade agreements either.
Myth 11: The “side letter” to FTAs on public health13 should give legally sufficient assurances about U.S. intentions and residual flexibilities to protect public health.
Reality: As in other recent free trade agreements, the U.S. probably intends to draft a “side letter,” which it promises will grant adequate flexibilities to Thailand to address its public health needs. However, there are multiple inadequacies in the proposed side letter including:
Myth 12: Letters from USTR to Congress give additional assurance about public health flexibilities in FTAs.
Reality: The U.S.T.R. sent a “clarifying” letter to Congress on July 19, 2004, about a public health side letter to the U.S.-Morocco FTA. In that letter, the General Counsel to the U.S.T.R. argued that data exclusivity provisions would not “stand in the way” of compulsory licenses necessary to protect public health and to effectively utilize the August 30 decision. This letter contains some of the same deficiencies discussed above. Saying that data exclusivity will not stand in the way of compulsory licenses is technically true, but data exclusivity could still stand in the way of marketing approval! Moreover, a letter clarifying a letter hardly creates the legal certainty necessary to embolden developing countries to issue compulsory licenses or to motivate generic companies to undertake costly and risky investments in product formulation and drug registration only to serve relatively small and poor markets. Congressional leaders should not be fooled by the “fool’s gold” of non-binding, after-the-fact, and deceptively crafted written or oral assurances.
Myth 13: USTR is willing to meet with civil society opponents to “clear up misunderstandings.”
Reality: The U.S. insists that its FTA negotiations and all negotiating positions and documents be kept secret. It did not even distribute its proposed IPR provisions to Thai negotiators until the very last moment. Moreover, civil society groups in the U.S. have met with the USTR on many occasions to raise objections to its TRIPS-plus provisions in free trade negotiations as have some members of Congress. Contrary to clearing up misunderstandings, these meetings have consistently confirmed that the USTR is more interested in imposing an ever higher standard of intellectual property protections on developing countries. Each successful negotiation becomes a new step toward even stronger IPRs.
Myth 14: The U.S. will stop its “trade” pressure once a Party agrees to an FTA.
Reality: Even after passage of FTAs, the USTR and PhRMA keep up their relentless pressure on developing countries, often seeking FTA-plus provisions in national legislation. For example, the USTR has sent a four-page letter to Guatemala enumerating “implementation deficiencies” regarding intellectual property provisions in CAFTA, seeking to impose US interpretations of the FTA text and gain additional protections, rather than allowing Guatemala to enact pro-access provisions. Similarly, post-CAFTA, the USTR has threatened withdrawal of textile import benefits from Costa Rica and rammed 14 constitutional amendments through the El Salvadoran national assembly. Even if Thai negotiators succeed in gaining ambiguous language that they might try to interpret to their favor, they will face ongoing pressure and trade threats from the U.S. (like the U.S. threats now to suspend negotiations with Thailand altogether).
The U.S. is attempting to impose its will, and the interests of its pharmaceutical industry, on weaker countries, like Thailand. Thailand is attempting to exercise its sovereign right and obligation to ensure access to newer and more effective medicines to meet its citizens’ public health needs. Rather than let Thailand exercise the legal freedom it and other WTO members had gained in the Doha Declaration to guarantee access to affordable medicines, the U.S. is instead threatening dire economic consequences to Thailand if it misses the U.S. free trade bandwagon. There may be many reasons to oppose the proposed US FTA text other than its enhanced monopoly protections for the world’s richest drug companies, but its provisions on patent extensions, data exclusivity and linkage, and increased enforcement rights are enough to justify opposition both in Thailand and the rest of the world.
1 These Agreements include: the Central America Free Trade Agreement (CAFTA), FTAs with Chile, Singapore, Morocco, Jordan, Oman and Peru, and negotiations with other Andean countries, with Thailand, and with the Southern Africa Customs Union, as well as other countries and regions.
2 U.S. typically seeks pharmaceutical patent rights for new formulations, new uses, and new minor variations.
3 U.S. typically seeks to extend the 20-year term of patent protection to compensate for regulatory delays in granting patents and in issuing market approval.
4 U.S. typically seeks at least 5 five years of data exclusivity on medicines involving new chemical entities (or even new pharmaceutical products). Data exclusivity permits drug companies to prevent a generic company from relying on previously filed clinical trial and other drug registration data to prove the safety and efficacy of the follow-on generic product. It is a right in addition to patent rights and can apply even if there is no patent or a patent has expired.
5 U.S. typically tries to link the right of marketing approval to the absence of any competing patent filing, no matter how frivolous. Because generic companies have to litigate patent invalidity (instead of the patent holder being required to institute enforcement actions if its patent claim is strong enough), linkage deters generic entry.
6 U.S. typically seeks enhanced enforcement powers for IPR violations, including criminal sanctions.
7 See USTR Fact Sheet Regarding Pharmaceuticals and the US-Thailand Free Trade Agreement; Statement of Barbara Weisel, Assistant U.S. Trade Representative, Regarding the 6th Round of the US-Thailand FTA Negotiation; and press reports including Daniel Ten Kate, “Mounting opposition to FTA drug rules” Thai Daily (13 Jan. 2006).
8 IMS MIDAS®, MAT Dec. 2004.
9 Family USA (2002), Profiting from Pain: Where Prescription Drug Dollars Go (2001 profits 18%, R&D 11%).
10 NIHCM (2002). Changing Patterns of Pharmaceutical Innovation. http://www.nihcm.org/innovations.pdf.
11 Fiscal year ’03 R&D expenditures by the Department of Health & Human Services and the National Science Foundation equaled $31 billion. PhRMA has reported 2004 R&D expenditures of $38 billion.
12 The U.S. is seeking to extend data exclusivity rights beyond these most innovative drugs, and, for example, often seeks a shorter form of data exclusivity to existing drugs with new approved uses.
13 The second paragraph of all previous US FTA side letters, “Understanding Regarding Certain Public Health Measures,” states: “The implementation of provisions of [the Patent Chapter] of the Agreement does not affect the ability of either Party to take necessary measures to protect public health by promoting access to medicines for all. This will concern, in particular, cases such as HIV/AIDS, tuberculosis, malaria and other epidemics as well as circumstances of extreme urgency or national emergency.”
14 The Paragraph 6 Implementation Decision of 30 August 2003 addressed the sourcing problem faced by countries with insufficient domestic manufacturing capacity which therefore had to rely on export/import of generic medicines to meet their public health needs. (This Implementation Decision Waiver was adopted as a proposed amended Article 31 bis to the TRIPS Agreement on December 6, 2005). Because certain provisions in TRIPS prevented large-scale export of medicines produced pursuant to an ordinarily compulsory license, poorer and smaller countries like Thailand needed to have a system permitting such production-for-export/import.
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