In bed with big PhRMA

I suspect many in the U.S. are unaware of the fact that we are currently in the process of negotiating what the Office of the United States Trade Representative (“USTR”) characterizes as an “ambitious, next-generation, Asia-Pacific trade agreement” with Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam—the Trans-Pacific Partnership (“TPP”). This past week, the parties engaged in an “intersessional” round of negotiations here in Santiago regarding the proposed intellectual property provisions. I attended a fascinating conference on Thursday at the Universidad Católica—which originally had been scheduled to take place at the Universidad de Chile, but was moved at the last minute. The panel participants generally confirmed my belief that the USTR has adopted the agendas of certain powerful interest groups—including big PhRMA—as the official U.S. position.

I should begin with the caveat that we really do not know for certain the actual U.S. position given that the TPP parties are treating the drafts being circulated and discussed as confidential—even though any agreement could require significant modifications to domestic laws if approved. The closed door process alone should give everyone pause.

As trade lawyer Gary Horlick, a former U.S. trade official with four decades in the game, recently noted at a conference on global business: “This is the least transparent trade negotiation I have ever seen.” In fact, a recent text leak revealed that the parties were required to sign a memorandum of understanding that forbids the release of negotiating documents for four years after a deal is done or abandoned.

Nevertheless, proposals put forward by the U.S. in February and October 2011 were leaked and published on the internet here and here. (The two documents must be read together.)

The draft language regarding patents would—in my view and in the estimations of many whose opinions should really matter, like Oxfam, Doctors Without Borders, and a reputable group of U.S. academics—pose real risks to the timely availability of generic medicines in developing countries like Chile.

Why does this matter? Simple: generic competition leads to lower drug prices. In a recent pharmaceutical sector inquiry, the European Commission found that generic companies entered the market at prices, on average, 25 percent lower than “originator” companies’ prices prior to the loss of exclusivity, and 40 percent lower after two years.

What specifically is the U.S. advancing behind closed doors? Among many troubling proposals are the following requirements for TPP members:

  • Expanded scope of patentability, to allow for patenting of new forms, uses, or methods of existing products, even if there is no increase in known efficacy of the product;
  • Elimination of pre-grant opposition to the issuance of patents; and
  • Patent-registration linkage, which would prevent marketing approval from being granted for any product alleged to infringe a patent.

The combined effect of these proposals would facilitate a practice known as “evergreening,” in which pharmaceutical companies seek to delay generic entry. According to the European Generic Medicines Association, “evergreening” strategies include, among other things, obtaining as many patents as possible during the development and marketing cycle, extending them for new uses of established products, or to add on to the time-lag between patent grant and public health approval.” Through this process, originators erect “picket fences” or families of dozens of patents around a single product covering numerous aspects of the product. The European Commission study cited above found that individual medicines may be protected by as many as 100 product-specific patent families.

Due to the complex science involved, patents and pending patent applications held by originators can introduce considerable risk of infringement into product development. As the European Commission found:

The denser the web created by patent clusters…, the more difficult it will be for a generic company to bring its generic version of the original pharmaceutical to the market. That is to say, even though the main patent protecting the product, e.g., the basic substance patent, may have expired, the generic version may still infringe one of the multiple patents surrounding the original pharmaceutical…. In other words patent clusters… seem to be aimed at creating legal uncertainty for generic competitors….

Thus, these “evergreening” strategies essentially force the generic manufacturer to choose between (a) waiting for all patents to expire, and (b) applying for marketing authorization anyway, running the risks—and associated costs and delays—of litigation.

As Sean Flynn et al note with respect to the proposal to expand the scope of required patentability:

Art. 8.1 could require countries to open flood gates to patent applications on minor modifications or variations of existing chemical entities; on new uses or methods of using existing medicines, or on new formulations, dosages, and combinations. Countries would be required to do so even if there is no enhancement of therapeutic efficacy – indeed there could be a decrease in therapeutic effect. Each new patent on new forms, uses, or formulation of an existing medical product will result in a new 20‐year patent running from the date of patent application, thereby “evergreening” monopoly rights on the underlying medical product.

Interestingly, this is taking place at the time when the U.S. Supreme Court, in Mayo Collaborative Serv. v. Prometheus Labs., Inc. casts doubt on subject matter that would be patentable under the U.S. proposal.

According to Public Citizen, elimination of pre-grant opposition would further exacerbate the potential for abuse by removing an important tool for “preventing patent applicants from gaining patent monopolies based on weak or erroneous information, for improving the quality and efficiency of patent office examinations, and for safeguarding access to medicines.” With respect to pharmaceutical patents in particular, the European Commission has observed that

the final outcome in 60% of opposition and appeal procedures against originator company’s patents examined… was a revocation of the disputed patent. In addition to this, the scope of the patents was reduced in another 15%. These procedures almost exclusively concerned secondary patents.

Under the U.S. proposal, challenges to these weak or invalid patents could only be made after they were granted, during which time the holder enjoys the right of exclusion. In addition, these patents would, according to the leaked text, be given a presumption of validity.

Finally (though not really finally, because there are many more troubling provisions), the U.S. would require member states to “link” the granting of marketing approval for generics with the clearance of any patent claims by originators. If an originator even claimed infringement of a patent, marketing approval could not be granted.

Two scholars who have analyzed “linkage” in Australia and Canada observe that system allows originators to dissuade direct competition by

claiming what are sometimes large numbers of complex and often highly speculative patents covering the packaging or delivery system of the drug, instead of its active product ingredient. Where a generic manufacturer has limited resources, such a threat of patent litigation is often enough to induce its managing directors to remove a drug from application.

An economic analysis performed by a generic manufacturer suggests that markets outside of the U.S. are far too small for economic incentives to lead to generic entry. The takeaway of this analysis is that “[p]atent linkage works in the US only because of the size of the US market” and that similar policies “will be problematic for every other TPP member, including Australia” because of the relative sizes of those markets. With insufficient incentives to enter and challenge weak patents, linkage policies would be “all stick and no carrot, leading generic firms to leave erroneously granted patents blocking the market.

In short, the U.S. IP proposal—broadened scope of patentability, the elimination of pre-grant opposition, and linkage, alone, and particularly together—is an invitation for abuse by big PhRMA. And this really is just the tip of the iceberg in terms of troubling proposals on the negotiating table.

As Lori Wallach, director of Public Citizen’s Global Trade Watch, has written:

Such an extreme proposal could only get this far under cover of unprecedented secrecy. Executive-branch trade officials and corporate allies are making important policy decisions that could affect us all in myriad ways, without public access to any documents or details or input from members of Congress serving on key committees whose jurisdiction is directly implicated. The involved governments have ignored a global “release the texts” campaign led by unions and civil-society groups. This is especially appalling for the Obama administration, given its stated priority of enhancing government transparency. The opaque process has contributed to a near-total absence of press coverage.

Meanwhile, more than 600 business representatives serving as official U.S. trade advisers have full access to an array of draft texts and an inside role in the process. The strategy is to squelch informed debate until a deal is signed and any alterations become difficult.

Wallach concludes:

The only good news is that past attempts to use the Trojan Horse of trade negotiation to impose and lock in massive deregulation have been foiled. Citizen activism and publicity derailed the proposed Free Trade Area of the Americas in 2005, the aborted Multilateral Agreement on Investment in 1998, and the original attempt to negotiate a free-trade area for Asia-Pacific Economic Cooperation nations, many of which are parties to the TPP. Now, as then, the public, policy-makers, and the press can help derail these deceptive attempts to undermine democracy by awakening to the threat before it is too late.

Seriously, contact the Obama administration and your Congress-critter, and be sure to get the word out about what is going on behind closed doors.

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One thought on “In bed with big PhRMA

  1. Pingback: Calls for greater TPP transparency | Abogado Mike

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