Intellectual Property Protection

PhRMA considers it essential for an adequate patent life to be afforded to pharmaceuticals in Australia, as in the rest of the world. Many members of PhRMA's International Section maintain affiliates in Australia, and consider Australia an important country in their overall global business and investment planning. PhRMA welcomes recognition by the Australian Government of the importance of patent protection to the pharmaceutical industry, particularly to encourage research, development and investment in Australia.

Last year, the Australian Government enacted patent term extension for pharmaceuticals by up to five years, in order to bring Australia into line with international practice. The new policy will apply to patents which are still viable as of July 1, 1999. They will be eligible for an extension of up to five years, in order to gain an effective patent life of 15 years. Where patent extensions are granted, "springboarding" or Bolar-type provisions will apply, so that generic manufacturers will be able to do all necessary testing of their products before the expiration of the innovator's patent rights.

While PhRMA understands that this is now part of Australian Law, it continues to believe that the Australian Government overlooks at least two issues in this regard:

(1) that the market launch of pharmaceuticals in Australia is delayed beyond marketing approval by the complex and lengthy requirements in a strict cost containment environment, including the submission of "cost effectiveness" data in accordance with prescribed criteria that do not give equal weight to indirect benefits; and

(2) that economic returns from currently marketed products in Australia provide the funding for future research and development (R&D), so patent term restoration applied to current products on the market in Australia will provide the foundation for investment to support future R&D in that country. Low average pricing by world standards also significantly devalues the benefit of effective intellectual property rights.

Protection of Proprietary Data: PhRMA applauds the recent enactment by the Australian Government of a law governing data protection that commits Australia to abide by the provisions of the TRIPs principles of the World Trade Organization (WTO).

Article 39 of the TRIPs Agreement provides that WTO member states must provide meaningful protection for undisclosed information . The Article incorporates and expands on Article 10bis of the Paris Convention, which calls for the protection against "unfair competition," defined as "any act of competition contrary to honest commercial practices in industrial or commercial matters." Article 39 of the TRIPs Agreement covers two different types of undisclosed information: "trade secrets" and "test data." Article 39:3 of the TRIPs Agreement, which applies to test data, generally requires that test data submitted to regulatory authorities of a WTO Member for the purposes of obtaining marketing approval be protected against unfair commercial use.

More specifically, PhRMA's understanding is that Article 39:3 provides that if a WTO member mandates the submission of test data to obtain marketing approval for pharmaceutical or agricultural chemical products, it must protect such data against (1) disclosure and (2) unfair commercial use. With regard to the first requirement, test data must be protected against disclosure to the public (or even within the government) unless such disclosure is necessary for public safety or unless steps are taken to ensure that the data are protected against unfair commercial use.

With regard to the second requirement, the term "unfair commercial use" is not defined in Article 39. However, it is PhRMA's understanding, after discussions with officials of the United States Trade Representative (USTR), that TRIPs Agreement negotiators understood it to mean that the data would not be used to support, clear or otherwise review other applications for marketing approval for a set amount of time unless authorized by the original submitter of the data.

Clearly, the unauthorized use of test data by governments for commercial gain has not been a problem, but the ability of competitors to use such data to obtain marketing approval for their products has been a problem. As a result, to have a meaningful purpose, PhRMA believes this provision must be interpreted to require the protection of data against use by competitors.

Consequently, PhRMA believes that TRIPs Article 39:3 must be interpreted to provide protection against the use of data by competitors for some period of time. The U.S. Government understood this to be the basis of this provision throughout the negotiations on the TRIPs Agreement.

Protection of test data is crucial from an equitable standpoint, as well as from the perspective of health and safety policies. Equity demands that protection be provided for data, since the costs of developing a single new pharmaceutical product can amount to nearly US$500 million, and a company may have to wait 10 to 12 years to attain final marketing approval from the regulatory authority in the United States.

Disclosing these data to the public or allowing their use by another applicant unfairly denies the compiler of the data the value of his or her efforts and grants an economic advantage to later applicants for marketing approval, enabling them to avoid the cost of developing test data for their own products.

Countries that allow such unfair advantage to later applicants discourage developers of new, and often more effective, pharmaceuticals from seeking to introduce their new products in the country's market. So, not only is such protection required by the TRIPs Agreement, it is both equitable and wise from a public and health policy standpoint.

Two issues are critical to achieving an appropriate level of protection: the term of protection and the scope of protection. In the United States, data in an application for marketing approval for pharmaceuticals and agricultural chemicals are submitted to the Food and Drug Administration (FDA) and the Environmental Protection Agency (EPA), respectively. That information is protected by both organizations from the disclosure to the public or elsewhere in the government consistent with Article 39:3 of TRIPs. It also may not be used by later applicants, depending on certain circumstances, to support their applications for marketing approval for a number of years. The U.S. FDA, for example, protects test data for up to seven years and the U.S. EPA protects test data for up to 15 years.

PhRMA hopes that the Australian Government would provide such protection to all chemical entities, to the extent a particular use for which approval is sought has not been granted approval for that particular entity. This should include new indications for entities already approved, in addition to the first approved usage.

Furthermore, while the Australian Government has moved to provide five years of data protection for new chemical entities in the first instance, PhRMA believes that this period of protection should be ten years from the date of marketing approval, to allow for the additional time that it takes for a product to be listed on Australia's Pharmaceutical Benefits Scheme (PBS), which is the list of products eligible for reimbursement by the Australia Government. If the period of data protection begins before this date, the effectiveness of such protection would be eroded through the lengthy time needed for regulatory and listing approval.


Pricing and Cost Containment Policies' Impact on IPR and Market Access

The Australian Government operates effectively as a monopsony purchaser of prescription pharmaceuticals through its operation of the Pharmaceutical Benefits Scheme (PBS). The PBS system accounts for approximately 80% of total prescription drug sales. The PBS aims to provide reliable and affordable access to medicines for the Australian community. Under the PBS, the cost of pharmaceuticals to consumers is limited by capped co-payments and safety net provisions, with the Government paying the remainder.

The Industry Commission Inquiry into the Pharmaceutical Industry (May 1996) found that "the Government's use of market power saves taxpayers up to $A860 million a year." In effect, the industry thus subsidizes taxpayers to this extent.

In recognition of this price suppression, in April 1997, the Australian Government announced the Pharmaceutical Industry Investment Program (PIIP), under which the Government will allocate A$300 million over the next 5 years to eligible companies in return for activity.

One month later, in May 1997, the Australian Government announced its intention to introduce Therapeutic Group Premiums (reference pricing) from February 1, 1998, for certain classes of drugs which have "similar clinical activity." For each of these classes, a base or benchmark price was established. The Government reimburses drugs in the class to the level of the base/benchmark price product. For other drugs in the class, patients have to pay any additional premium.

Originally, six classes of drugs were proposed for the TGP; however, strong opposition by industry and medical groups to the inclusion of beta blockers and SSRIs resulted in their exemption from the TGP. The four remaining classes affected by the TGP include: ACE inhibitors and calcium channel blockers used to treat high blood pressure and heart disease; the HMG class of drugs for treating high cholesterol; and H2 receptor antagonists for the treatment of ulcers.

The Government hopes to achieve PBS savings of A$460 million over 4 years, through the introduction of TGPs. The TGP proposal is expected to return to Government revenue almost double the average A$60 million per year foreshadowed in the PIIP.

The TGP proposal should be considered in the context of Australia's mandatory cost effectiveness criteria, under which manufacturers must already justify the price of their drug through economic and therapeutic evidence, in order to gain reimbursement.

The research-based pharmaceutical industry maintains the position that there are several reasons why TGPs are not appropriate in the Australian reimbursement system. More specifically, TGPs:


Impact on intellectual property

The TGP system effectively negates the economic value of the entire remaining patent life of a patented medicine in the affected classes. This occurs through a combination of the way in which the proposal operates and the culture of the Australian health care system. The system involves the grouping of newer patent-protected products with generic versions of older molecules within a therapeutic class (e.g. generic captopril is grouped with patented enalapril; generic cimetidine is grouped with patented famotidine).

The benchmark product/price for each class is likely to be set by a generic product - in effect, this generic product becomes the 'de facto' generic for all other patented products in the class, regardless of patent life. The Government will reduce the level of reimbursement it currently provides to all products in the class to that of the benchmark product. The Government claims that the TGP system allows manufacturers to charge whatever price they wish - a claim which is theoretically correct.

However, the PBS, which has operated for almost 50 years, has created a climate in which free medicine (apart from the co-payment to Government) is seen as the norm (emphasis added). Market experience has shown that consumers are unwilling to pay more than a A$2 premium for any medicine (in addition to any co-payment).

Given this environment, manufacturers have the choice of maintaining their current prices and losing substantial volume, or reducing their price and revenue. In either case, the economic return is substantially less than would otherwise have occurred in the absence of TGPs. The reduced return is sustained throughout the remaining life of any patent, devaluing the value of the intellectual property.


Impact on market access

In the Australian context, market access effectively equates to reimbursement. This is because the PBS system accounts for approximately 80% of total prescription drug sales.

The 1996 Industry Commission inquiry found evidence that community access to some drugs was adversely affected by the PBS; and that while Australia has not suffered too much in this area, the position is unlikely to be sustainable because when low prices are taken into account, the overall impact of the PBS has been to reduce sales revenues of some companies, increasing the risk of non-supply.

The introduction to TGPs inevitably will lead to increased risk of non-supply. As Paul Gross, a consultant to the research-based industry, concludes in his report, "There is serious concern amongst pharmaceutical manufacturers that a second stage of TGP pricing in Australia might attempt to use the price relativities established in prior economic appraisals of different drugs (cost effectiveness analysis) to readjust the first year relative prices between reference priced and non reference priced drugs. Such an adjustment would debase both future and past economic appraisals of drugs on the PBS and places manufacturers in double jeopardy when an arbitrary price control scheme (i.e., TGP) is superimposed on the more objective world recognized economic appraisal guidelines."

A concise example of Gross' conclusion is where a new proton pump inhibitor would have to prove cost effectiveness against generic cimetidine. Given the low price of cimetidine, it will be hard to justify cost effectiveness to a level sufficient to make it economically worthwhile for a manufacturer to gain reimbursement of the PPI. The likely outcome is that the PPI will not be reimbursed because the subsidy offered by the Government is too low, and the product will not be made widely available to the Australian community. Market access is effectively denied.


Potential Exports/Foreign Sales

It is not possible to provide a good estimate of the sales that would accrue to PhRMA member company affiliates in Australia, were the aforementioned problems to be rectified today.



Australia's cost containment policies, particularly the recent TGP initiative, are undermining the intellectual property rights of pharmaceutical manufacturers, by devaluing the value of patents and effectively denying market access to new medicines.

For all the aforementioned reasons, PhRMA believes that Australia should be listed as a Watch Country under Special 301 in 1999.