[Ip-health] Re: Innovations, Trade Deals and Affordability of Medicines in Australia

[Tom Faunce]

Drug lobby preparing a bitter pill
By Thomas Faunce and David Henry
January 13, 2006
The Age

The Medicines Working Group formed under the Australia-United States
free trade agreement will meet today for the first time in Washington.
Little is known about its composition or terms of reference. Acting
Prime Minister Mark Vaile has signalled it will consider whether
Australia should bow to pharmaceutical industry lobbying and repeal its
brand-name drug patent anti-evergreening legislation.

What is not widely appreciated, however, is that the working group is
also expected to discuss how our Pharmaceutical Benefits Scheme can
become more responsive to "innovation". Annex 2C of the free trade
agreement required each government to facilitate greater recognition of
"innovation" in pharmaceuticals. This was said by our negotiators to be
a "soft" obligation with no legal force, but is now being aggressively
used by the pharmaceutical industry to drive changes to public health
policy in Australia. One common public expression of these lobbying
efforts is that the PBS system must create more "headroom" to reward
"innovation". Does this mean that Australian taxpayers must now accept
this covert transfer of public health sovereignty and prioritise reward
of unilateral industry claims for "innovation", without scientific
scrutiny?

So what are "innovative" drugs? And how should we decide how much to pay
for them? If you perform a Google search for the word "innovation", the
results take you into the world of marketing "new" and "useful" ideas.
In Annex 2C of the agreement, pharmaceutical Australian negotiators
linked "innovation" to "affordability" and "objectively demonstrated
therapeutic significance".

In drug industry lobbying, however, "innovative" refers to any product
characteristic that provides a market advantage. In the case of drugs,
examples can include relatively trivial advances in delivery, such as
smaller tablets or a film-coating facilitating swallowing, once-a-day
dosing etc. Yet, it seems irrational, and contrary to the spirit of
Annex 2C, to specially reward such changes (in addition to high monopoly
rents from patents) when they are merely inevitable and routine results
of the normal product development cycle.
If achieving a patent over new pharmaceutical technology becomes a guide
to "innovation", then our regulators need to look much more carefully at
the criteria and ease with which patent offices grant applications. They
should also draw on international experience to counter companies
building their business plans around "evergreening" of patents, or the
development and aggressive marketing of minor ("me-too") variations of
high sales volume drugs (i.e. to reduce blood pressure, cholesterol and
stomach acid).

Once governments set a reasonable level of sustainable profits, altruism
can become a driver for innovation in the pharmaceutical industry.
Recent examples include large trials of rotavirus vaccines developed by
Merck and Glaxo SmithKline to reduce morbidity and mortality from
infantile gastroenteritis in developing nations. Risking venture capital
to develop new antibiotics and anti-viral drugs, or therapies for acute
stroke or chronic neurological diseases, are possible examples of
"innovation" that deserve public encouragement. Perhaps our PBS could
adopt different criteria and cost-effectiveness thresholds in such
cases. This would involve a rigorously accountable expert estimate of a
drug's value to society and what that community is capable and willing
to pay.

A widely discussed strategy to encourage true innovation involves a
treaty in which nations create a medicines research and development fund
into which they would place approximately 0.1 per cent of GDP (10 per
cent of present government drug costs). Drug companies would compete for
these funds (but manufacture on a cost-plus basis) to attempt to develop
drugs that are actually needed, rather than the "me-too" products that
are preferentially produced under the present patent and profit-driven
R&D system.

Industry lobbyists often claim that to benefit from future innovative
medicines (including gene and biotech-based therapies), we should be
paying more for existing branded products. This can be the basis of
sensible policy development only if such companies become more revealing
about their costs of production and more willing to systematically
target their research and development efforts on areas of social need.

The industry has also maintained that PBS reforms fostering much cheaper
generic drugs will create "headroom" in the federal budget for spending
on "innovative" medicines. There are problems with this argument. First,
it is highly artificial to link success in driving generic prices down
with paying more for innovative medicines. Second, the argument is
premised on generic and brand names companies in strong competition,
when research is showing an increasing amount of cross-ownership. Third,
it requires dismantling of the valuable PBS system which references the
price of branded drugs to generics, based on measures of clinical
performance.

A coherent system to meet future challenges to the PBS should involve a
mixture of reference pricing, selective tendering and strategies to
facilitate ultra-low cost generics. The correct mix will be the one that
is most likely to achieve the goals of equity, affordability and fiscal
responsibility reflected in the Australian National Medicines Policy.
"Innovation" is merely an industry lobbying principle; it needs to be
more thoroughly tested by democratic processes before it can be allowed
to drive public health policy in this country.

Dr Thomas Faunce is a senior lecturer in the medical school and law
faculty at ANU. Dr David Henry is professor of clinical pharmacology at
the University of Newcastle. They are leading (with Professor Peter
Drahos) an Australian Research Council-funded study of the impact of
international trade agreements on Australian medicines policy.


Dr Thomas Alured Faunce
BA LLB (Hons) B Med. PhD.
Senior Lecturer ANU Law Faculty
(Bioethics, Health Law and Human Rights)
Senior Lecturer ANU Medical School
(Chair: Personal and Professional Development)
Project Director, Globalization and Health
Centre for Governance of Knowledge and Development
RegNet, ANU
Ph: (02) 61253563