July 29, 1997 Letter from Ralph Nader, James Love and Robert Weisman to Vice President Gore regard U.S. policy toward South Africa pharmaceutical policies.

Center for Study of Responsive Law
P.O. Box 19367
Washington, DC 20036

July 29, 1997

Vice President Albert Gore
The White House
Washington, DC

Dear Vice President Gore:

It has come to our attention that several large pharmaceutical companies have asked United States trade officials to put pressure on the South Africa government to modify that country's policies with regard to the regulation of pharmaceutical drugs. We request a meeting with appropriate United States government officials to discuss the nature of the disputes between the large pharmaceutical companies and the South Africa government. In our view, the South Africa government is pursuing policies that will benefit all consumers in South Africa, including those who live in poverty. The South African government is working closely with the World Health Organization (WHO) to adopt policies which may serve as a model for other developing countries in Africa and elsewhere. We see no grounds for U.S. government intervention on behalf of the international pharmaceutical companies. Indeed, the U.S. should be supportive of the South African government's thoughtful initiatives, and use the opportunity to assert that U.S. foreign economic policy with respect to pharmaceuticals will subordinate commercial concerns to broader public health interests.

Parallel Imports

One of the issues in dispute concerns the matter of parallel imports for pharmaceutical drugs[1]. As you undoubtedly know, the South African government is seeking to lower regulatory barriers for the importation of registered pharmaceutical drugs. As a country of less than 40 million inhabitants, many of them extremely poor, South Africa does not have a domestic market as large as the United States. The South African government believes its consumers will benefit if hospitals and other health care providers can seek the procurement of pharmaceutical drugs in the broader world market.

On May 20, 1997, Aldrage B. Cooper, Jr., a vice- president of Johnson and Johnson (J&J) who is chairman of the U.S. South African Business Council, wrote U.S. Secretary of Commerce William Daley, asking that the U.S. government oppose South African legislative provisions that would permit parallel imports of pharmaceuticals. In an attachment to a letter to Secretary Daley, he notes that prices for medicines "vary greatly from country to country" and that "parallel traders will buy goods in a low-price country and re-sell at a higher price in the importing country." Mr. Cooper asserts that this would violate patent owners' intellectual property rights, although he concedes that Article 6 of the GATT's agreement on Trade Related Aspects of Intellectual Property (TRIPS), stipulates that the issue of exhaustion of rights is not subject to action before the World Trade Organization (WTO).[2]

As you may know, parallel imports are legal within the European Community. It is our understanding that in recent years parallel imports accounted for 8 percent of the UK pharmaceutical drug market, and 5 to 10 percent of the Netherlands market. A number of public health officials in Europe and the United States are supportive of the South African position on parallel imports. Indeed, by relying on competition and market forces, parallel importation seems consistent with aspects of the Clinton Administration's early efforts to control costs of pharmaceutical drugs in the United States.

If the U.S. government voices opposition to parallel imports of pharmaceutical drugs solely on the basis of the commercial interests on the large pharmaceutical companies, and denies South Africa an important opportunity to reduce the costs of pharmaceuticals, the consequence will be less available to deter the spread of disease and misery among the poor in South Africa. We urge you to rebuff the lobbying by pharmaceutical companies on this issue.

Use of Generic Drugs

Several pharmaceutical companies are asking the U.S. government to threaten trade sanctions if the South African government adopts policies designed to achieve cost savings through greater use of generic drugs. The South African government has proposed that health care personnel in the public sector use the generic names in prescriptions, and that pharmacists substitute lower priced generic drugs for brand name prescriptions, except in those cases where doctors or patients specifically request a brand name drug, or in certain other instances, including where there is no safe and effective generic substitute. Public health officials in South Africa are following the successful examples of the U.S. and other countries which encouraged use of generic drugs to lower prescription drug costs.

PhRMA and its member companies and affiliated trade organizations are arguing that the South Africa proposals would violate the trademark provisions of the GATT. Of course, since the United States is among those countries which use a variety of state statutes, government procurement and managed care programs to promote the use of generic drugs, it is hard to see what grounds the U.S. would have for objecting to very similar programs in South Africa. Moreover, as you know, the TRIPS permits nations to adopt measures to protect the public's health. This is surely a case where the South African efforts to promote generic drugs are important for the public's health.

We were pleased when the Clinton Administration announced that the U.S. government would no longer use threats of trade sanctions to promote the sale of tobacco products, on the grounds that regulatory measures to discourage smoking were justified on public health grounds. The South African generic drug measures should similarly be examined in the context of their impact on public health, rather than the commercial interests of a handful of large pharmaceutical companies.

Taxol and Health Registration Data

Bristol-Myers Squibb (BMS) is asking the U.S. government to bring pressure against South Africa, as well as Canada, the Netherlands, Australia, Indonesia, Pakistan, Taiwan, China, Turkey, Argentina, Thailand and other countries, to protect the BMS monopoly on the sale of Taxol. In each case, BMS is seeking to establish an international norm that nations should provide at least 5 years of exclusivity for clinical trial data used for regulatory approval of pharmaceutical drugs, with the period of exclusivity beginning with the date of drug approval.[3]

In our view, generic versions of Taxol should be available now to consumers worldwide. Taxol is a drug developed by the U.S. government. BMS's sole role in the development of the drug was to provide the U.S. government with 17 kilos of Taxol, which BMS acquired in bulk from Hauser Chemical (a firm that manufactured Taxol for NIH) at a cost to BMS of about $5 million. For its very modest support to the NIH's Taxol development effort, BMS has earned billions of dollars. Indeed, BMS will register more than $1 billion this year alone from Taxol sales.

The high price of Taxol is a hardship for consumers worldwide. We are attaching a bill received by an uninsured U.S. cancer patient that includes $2,324.70 to purchase enough Taxol for a single injection. This woman, who suffers from breast cancer, needs a number of these injections. Consider also that the cost of Taxol to the patient was $8.61 per milligram, while BMS was able to acquire Taxol in bulk from a contractor for only $.25 per milligram.[4]

The United States currently gives companies who register new drugs with the FDA five years of exclusive rights to use the data for regulatory approval.[5] That is to say, even though Taxol's cancer fighting properties are well know, and Taxol isn't protected by patent, the FDA agrees to prevent companies from seeking to sell generic versions of the drug for 5 years. This is the basis of the BMS monopoly on Taxol.

Generally, this is an issue only in those cases where the drug is not protected by patent. That is, when the pharmaceutical company has a claim of invention which would lead to the award of a patent, it would have 20 years of market exclusivity in most cases. For Taxol, BMS did not have a patent because BMS did not invent Taxol, nor did BMS discover Taxol's cancer fighting properties. Why then should the United States government use the threat of trade sanctions to prevent consumers world wide from benefiting from competition from generic versions of Taxol? Why support policies which will predictably lead to high prices for this life saving therapy that was developed with more than $30 million in taxpayer money?

While it is not surprising that BMS would want the United States to impose the FDA's five year exclusivity rule on the rest of the world, you should consider alternative approaches, particularly as they apply to less developed nations. After all, in South Africa about 80 percent of the population is poor.

Rather than arbitrarily imposing the FDA rule for the rest of the world, you should support a modification of the rule in the United States itself. We have serious doubts that any market exclusivity for health registration data is needed, given the fact that firms can receive patents for inventions, and drugs with limited client populations are also protected by the Orphan Drug Act. However, at the very minimum, you should consider a shorter period of exclusivity, combined with regular compulsory licensing of the clinical trial data used for drug registration.[6] Consider the cost of the FDA's present 5 year market exclusivity on U.S. consumers and taxpayers. We are attaching a report by the National Economic Research Associates[7] which examined the economic consequences of a two year extension of the current FDA market exclusivity for Taxol health registration data. According to Dr. Rozek, if the US delays the introduction of generic versions of Taxol for two additional years, the lack of competition will cost U.S. Taxol consumers $1.27 billion, including $288 million paid by Medicare. It is a national scandal that BMS has been permitted to overcharge consumers for Taxol, and the policies which have permitted this to take place should not be held out as international norms.

Concluding Comments

The United States has a stake in sound public health policies, not only in the United States, but throughout the world. The widespread availability of pharmaceuticals and other health care inventions will be increasingly important as the United States seeks to combat infectious diseases and promote development and economic growth. The international rules for intellectual property in the health care sector are extremely important, and will bind policy makers in the United States and elsewhere. These rules are simply too important to be left up to the imagination of the pharmaceutical and biotechnology industry. A balanced dialogue must include stakeholders who represent consumers and public health officials.

The USTR should expand the membership of IFAC-3 to include consumer interests. The WTO will soon begin a review of the TRIPS. We ask that the United States propose that the WTO working group which reviews the TRIPS include representation from the public health community. We ask also to meet with U.S. trade officials who are engaged in a critique of the South Africa initiatives to enhance public access to pharmaceutical drugs. In each of these matters, we ask that consumers and public health advocates be treated as important stakeholders.

Ralph Nader
James Love
Robert Weissman


[1] Parallel imports refers to the situation where the patent owner holds patents in more than one country, and a third party purchases goods in one country and imports the goods into another country without authorization from the patent owner. Patent owners typically sell the same goods at different prices in different countries. The pharmaceutical industry has lobbied against parallel imports because they want to use price discrimination based upon the degree of competition in each market. Countries that permit parallel imports benefit from opportunities to acquire pharmaceuticals at the lowest international prices.

[2] The term "exhaustion of rights," describes the termination of patent rights following the legal sale of a good. This is sometimes called the "first sale doctrine." A patent grants a party a monopoly on the sale of a good. Under the first sale doctrine, once a good is sold by the patent owner, the purchaser is free to resell the good, even if the resale of the good competes against sales offered by the patent owners.

[3] Several drug companies are also trying to establish an international norm against disclosures of information relating to claims of safety and efficacy. However, the U.S. FDA is an international leader in the disclosure of health registration data, which is released under the U.S. Freedom of Information Act (FOIA). If U.S. trade negotiations truly seek to advance U.S. policy norms in international forums, they should push for greater transparency and disclosure of health registration data, rather than more secrecy.

[4] BMS and other pharmaceutical companies have acquired Taxol in bulk from variety of sources. At one time BMS was buying Taxol from Hauser Chemical for $.25 per milligram. Today industry experts say that bulk Taxol could be acquired for as little as $.125 per milligram, if purchased in large quantities. The cost of packaging and final preparation of Taxol for distribution to doctors is estimated to be about $.15 per milligram.

[5] The FDA regulates the sale of pharmaceuticals. For a new drug, a firm must submit data to the FDA which is used to evaluate the safety and efficacy of the drug. If a drug is protected by a patent, or by exclusive marketing protections under the Orphan Drug Act, the FDA will not grant another company marketing approval. If the drug is not protected by patent, and not protected by the exclusivity marketing provisions of the Orphan Drug Act, another firm can seek marketing approval for the same drug. However, for five years, the FDA requires the any new firms present their own data which proves the safety and efficacy of the drug, even though the FDA has already determined the drug to be safe and effective. After 5 years from when the drug was approved for marketing, and after any patents or Orphan Drug marketing exclusivity expire, a firm can obtain marketing approval for a drug by showing that a product is biologically equivalent to the approved drug.

[6] The suggestion that a compulsory licensing provision would protect against abuses was made in our June 9, 1997 letter to USTR Charlene Barshefsky. This letter is on the Web at http://www.cptech.org/pharm/USTRJune91997.html (no period). We believe public health groups will make specific recommendations for an international norm for health registration data later this fall.

[7] Richard P. Rozek, Costs to the U.S. Health Care System of Extending Marketing Exclusivity for Taxol, N.E.R.A., Washington, DC, March 1997.

Return to CPT page on Health Care | CPT home page.

This page has been accessed times since November 19, 1998