The Pharma Compromise on TPP Is Good for US Consumers
The Trans-Pacific Partnership (TPP) trade agreement announced October 5 had been held up until the final hour by protections sought by the US pharmaceutical industry. Specifically, the US industry was demanding that America's trading partners respect a 12-year period giving the companies exclusive rights to data associated with their patents, effectively extending protection from lower-price competition. The Australians held firm on reducing the 12-year period sharply, on the ground that each additional year granted, above their current five-year period, would cost the Australian government more than AUS$100 million a year.
The longer waiting period extends protection to biosimilar drugs (basically generics), increasing profits for pharma companies, while consumers and insurers (especially large government programs) have to pay more for life-saving drugs. The Australian budget would not be the only winner from shortening this waiting period. The US administration estimates the budgetary gain from shortening it would be $4.5 billion over the next 10 years.
In February, I argued that the United States should drop that demand and instead accommodate its trade partners to cut the 12-year timetable. The United States already has the longest data-exclusivity period in the world. Some countries in TPP negotiations, including Mexico, Malaysia, Vietnam, and Brunei, require no waiting period at all for developing generic drugs; others provide eight years or less of patent protection.
I proposed a seven-year waiting period as a sensible compromise that would be good for consumers and acceptable to the pharmaceutical industry. News reports claim the agreement is five to eight years. American consumers will now gain access to cheaper drugs more quickly, while the countries that currently give their drug companies no protection at all will benefit from having time to nurture innovation. And US companies will get some protection from copycats in foreign markets.
Last year 31 drugs with total estimated sales of $19 billion went "off patent." The average price difference between a generic and brand drug is 70 percent. Using that figure, potential savings for consumers and insurance companies could have been up to $13 billion had the protection on these drugs expired one year earlier.
Biologic drugs—which are made from living organisms—are the fastest-growing segment of the drug market. They include Humira and Remicade, which are used to treat rheumatoid arthritis and which cost thousands of dollars per treatment. Cancer drugs such as Rituxan and Herceptin are also biologics. The United States and Europe are leading the way in developing them, but companies in Australia, Japan, and Singapore, as well as in China and India, are investing in them.
The US pharmaceutical companies argued that the revenue they earn from the longer period is needed to cover the innovation costs of the drugs. But protecting data comes at the cost of delaying scientific progress on related drugs, because biosimilar products (the generics of biologic drugs) must either wait or repeat costly development and drug trials. Even with the data available, biosimilars are more costly to develop than regular generics.
It is no doubt important to grant some protection to encourage innovation, but there is no evidence that such a long duration is required. Even Europe, with pharmaceutical giants such as Roche, Novartis, and Bayer, has shorter time spans. Determining the right length is tricky because the pharma industry has a strong incentive to push for a long period to expand profits.
Balancing consumers and industry would have been hard to address unilaterally because of existing laws. TPP worked to improve the balance in favor of US consumers and the government. By definition, trade negotiations involve demands that are followed by concessions in exchange for concessions from the other side. The Australians and their relatively stronger consumer protection on this issue helped us reach a better balance.