[Ip-health] PIJIP Comments on the Korus FTA Pharmaceuticals and IP Chapters
Mike Palmedo
mpalmedo@wcl.american.edu
Fri May 25 16:23:01 2007
KORUS FTA Pharmaceuticals and IP Chapters
Sean Flynn and Mike Palmedo
Program on Information Justice and Intellectual Property
AU, Washington College of Law
May 25, 2007
Today, USTR released the negotiated text of the Korea-US free trade
agreement. The text can be found at:
Enclosed are some of our preliminary thoughts on the text.
I. Pharmaceuticals and Medical Devices Chapter Favors U.S. Firms
The Korus FTA's chapter on drugs and medical devices will force Korean
health authorities to favor brand name drugs when negotiating drug
reimbursement rates for the Public Health Insurance. This is the second
bilateral trade agreement to include a section on the pricing and
reimbursement of pharmaceuticals - the other was annex 2c of the
Australia-US FTA.
Annex 2(c) was viewed by many as a direct attack on the Australian
Pharmaceuticals Benefits Scheme under which reimbursement rates for
medicines are set by comparing their safety, efficacy and cost
effectiveness to that of existing medicines in the same therapeutic
class. Annex 2c included a host of procedural requirements intended to
give pharmaceutical companies opportunities to challenge listing
decisions by Australian health authorities. There is some debate
whether Annex 2c succeeded in this aim; some argue that Australian
negotiators effectively protected the most important parts of the
program and succeeded in agreeing only to relatively weak notice and
procedural requirements most of which were already in Australian law.
The Korus FTA chapter on Pharmaceuticals is based on Annex 2(c) of the
US-Australia FTA, yet it is more obstructive and burdensome to health
officials in Korea than the Annex 2 (c) is to the Australians.
"Pharmaceuticals" v. "Pharmaceuticals and Medical Devices"
While Annex 2(c) of the US-Australia FTA applies specifically to
pharmaceuticals, the scope of the corresponding chapter of the Korus FTA
applies to medical devices as well. Article 5.8 defines a
"pharmaceutical product or medical device" as "a pharmaceutical,
biologic, medical device, or diagnostic product." These types of
products can be very expensive. An example of a popular medical device
is a cochlear implant for the hearing impaired, which costs over
$20,000. Biologics (medicines derived from living organisms) often cost
many tens of thousands of dollars as well - one example is Avastin, the
$100,000 cancer treatment that saved the life of PhRMA President Billy
Tauzin.
"Innovative" v. "Patented"
The US-Australia FTA included a commitment to "promote timely and
affordable access to innovative pharmaceuticals." This wording is
intentionally vague, allowing negotiators from both sides to claim they
won a concession in the deal. The meaning of the phrase depends on the
definition of "innovative," which the Australians define as conferring a
clinically important improvement in patient outcome. When setting
reimbursements for the Pharmaceutical Benefits Scheme, they do not count
me-too drugs as especially "innovative." The US pharmaceutical industry
and American trade negotiators tend use "innovative" as a synonym for
patented.
In order to avoid further confusion on this matter, the Korus FTA
specifically requires greater access to "patented and generic"
medicines. It specifies that when a government is determining
reimbursement for a specific product, it must "appropriately recognize
the value of patented pharmaceutical products and medical devices in the
amount of reimbursement it provides." (Art. 5.2.B) This provision may
require drug price negotiators to favor expensive brand name drugs over
lower-priced generics.
Transparency
Annex 2C of the US-Australia FTA required that the system ensure
decisions within a specified period of time, disclose "procedural" rules
and guidelines used to assess a proposed listing, afford opportunities
to companies to provide comments, provide written reasons for listing
decisions, and "make available an independent review process" for the
decisions.
The Korus FTA section on transparency contains the same requirements as
Annex 2(c) and adds more requirements. Health care authorities are
required to provide pharmaceutical companies "meaningful and detailed
written information regarding the basis for recommendations or
determinations of the pricing and reimbursement of pharmaceutical
products or medical devices." Changes in procedures for determining
formulary listings be made only if the government formally solicits
comments and replies to them in writing. A confirmation letter from the
Korean Minister of Trade agrees to create an "independent review body"
that is composed of individuals completely outside of the health
ministry. Whether this body will have the authority to overturn
decisions of the health authorities is left ambiguous in the letter and
text of the agreement.
II. Korus FTA Chapter on Pharmaceuticals May Not Affect the U.S.
The chapter on Pharmaceuticals and Medical Devices is designed to hamper
the operations of the Korean National Health Insurance. Provisions of
the chapter apply to formulary-based price negotiations conducted by the
public sector. Nearly all drug prices in the US are negotiated through
the use of a formulary, but the negotiations are not carried out through
the federal government. Most Americans receive pharmaceuticals at
discounts negotiated by private insurance companies. Elderly Americans
who receive the prescription drug benefit through Medicare are actually
enrolled in private plans which are contracted by the US government -
the government is paying money, but the actual price negotiation is
carried out by a private firm.
Both the Department of Defense and the Veterans Administration run
health programs that directly purchase drugs at negotiated prices.
Another chapter of the Korus FTA places rules on government procurement,
and a footnote to Article 5.2 exempts these programs from the rules in
the pharmaceuticals chapter based on this fact:
Pharmaceutical formulary development and management
shall be considered to be an aspect of government
procurement of pharmaceutical products for healthcare
agencies that engage in government procurement. Chapter
Seventeen (Government Procurement) and not the provisions
of this Chapter shall govern government procurement of
pharmaceutical products.
This language may effectively exempt DoD and VA programs from the scope
of the pharmaceuticals chapter, although there is not explicit text or
letter conclusively demonstrating this fact. VA describes its program
as a reimbursement formulary and VA officials have privately expressed
reservations about the impact of USTR's excursions into this area.
The other major government program that negotiates drug prices in the
United States is Medicaid, which provides medical insurance for 47
million poor and disabled people. Medicaid is a health program
administered by state governments under federal guidelines. Most state
Medicaid programs negotiate drug discounts through open formularies,
called "Preferred Drug Lists." In apparent response to public opposition
by states to formulary restrictions in FTAs, the KORUS pharmaceuticals
chapter applies only to each Party's "central level of government."
Furthermore, a footnote to Article 5.8 reads:
For greater clarity, Medicaid is a regional level of
government health care program in the United States,
not a central level of government program.
This language ensures that government programs that provide drugs for
poor Americans are not bound by the same burdensome Korus FTA rules as
government programs that provide drugs for poor Koreans.
III. TRIPS-Plus Intellectual Property Provisions
The intellectual property chapter of the Korus FTA is designed to delay
generic competition in Korea and thereby keep drug prices higher for
longer periods of time. Like other bilateral FTAs, its rules on IP
exceed those mandated by the World Trade Organization's Agreement on
trade Related Aspects of Intellectual Property Rights (TRIPS). The
rules in the Korus FTA are also considerably tougher than the "New Trade
Policy for America" (NTPA) framework agreed to by the US Congress and
president last week for the FTAs with Panama, Colombia and Peru.
Summary of TRIPS-Plus Provisions
The agreement includes the following TRIPS-Plus provisions:
* Five years of data exclusivity for new chemical entities and three
years for less innovative medicines
* Linkage requirement for health authorities to block generic
registrations for patented medicines
* Mandatory extensions of patents beyond the original 20-year term in
cases of delay in the granting of the patent or registration with health
authorities
* Patents required for new uses of known products
Data Exclusivity
When a generic firm seeks approval from health authorities to sell its
product, it does not generally repeat the human trials performed by the
brand name firm to prove safety and efficacy. Repeating the trials
would be unethical, prohibitively expensive, and extremely time
consuming. Instead, a generic firm shows that its product is
bioequivalent to the brand name drug, meaning that it is chemically
identical and behaves the same way in the body.
The TRIPS Agreement requires that the data submitted to national health
authorities be protected from "unfair commercial use." In the US, this
is done by granting a period of data exclusivity during which time no
generic competitors can apply for FDA approval of their products based
on the originator's test data. It should be clear, however, that such
periods of exclusivity are not required by the TRIPS agreement. Other
models of data protection such as monetary payment to the originator in
return for use of the data have been proposed.
Korus FTA Article 20.9.1 requires five years of data exclusivity for new
chemical entities, and three years of data exclusivity for compounds
that do not include new medicinal substances. If one country allows
approval based on previous approval in another, a firm may further delay
generic competition by not registering the drug in the second country
until exclusivity is about to expire in the first.
This is stronger protection than was agreed to the "New Trade Policy for
America," which does not explicitly include exclusivity for medicines
other than new chemical entities, and which requires concurrent periods
of exclusivity in situations where one country bases approval on
approval in another country.
Linkage
Linkage provisions in free trade agreements prevent health regulatory
authorities from approving the sale of generics while the brand name
drug is still under patent. In the United States, our system of linkage
has led to widespread abuse since the Food and Drug Administration lacks
the expertise to adjudicate intellectual property disputes. Companies
are able file patents for insignificant changes to their products and
win extensions of marketing exclusivity. In many cases, patents that
would not survive legal challenge are filed, but the cost of challenging
a pharmaceutical patent is prohibitively high.
Korus FTA Article 20.9.4 requires each country to prevent the health
authorities from approving the sale of generics while the brand-name
drug is still under patent. The TRIPS Agreement makes no mention of
linkage, and the NTPA specifically excludes linkage provisions (though
it says some sort of procedural remedy for patent holders will be
necessary).
Patent Extensions
The TRIPS Agreement mandates 20 year patents. Many bilateral trade
agreements require extensions of patents to make up for delays in the
issuance of the patent or in the winning of marketing approval for a new
drug. The NTPA makes such extensions optional for the FTAs with Peru,
Panama and Colombia, but Korus FTA Article 20.8.3 requires mandatory
extensions of the patent term.
Second Use Patents
Often, medicines developed for one disease are found to be effective in
the treatment of another. Gleevec, for instance, was originally
developed for the treatment of a rare form of leukemia, and was
subsequently found to also fight another cancer called GIST. The TRIPS
Agreement requires patents for new inventions, but not for new uses of
existing products. The NTPA does not address the issue of so-called
second use patents, but the Korus FTA confirms that new uses for
existing products will be patentable.
CONCLUSION
The Korus FTA includes many provisions that ratchet up IP protection and
ratchet down government regulatory and price negotiation powers compared
to all previous FTAs. The intended and likely result is clear: drug
prices will be much higher, particularly in Korea.
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Mike Palmedo
Research Coordinator
Program on Information Justice and Intellectual Property
American University, Washington College of Law
4910 Massachutsetts Ave., NW Washington, DC 20016
T - 202-274-4442 | F 202-274-0659
mpalmedo@wcl.american.edu