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Myths and realities: The impact of the US-Thai FTA on access to medicines

Myths and Realities:
The Impact of the U.S.-Thai FTA on Access to Medicines

An NGO policy brief by Prof. Brook K. Baker, Health GAP and endorsed by
Oxfam America, FTA Watch, the Thai Drug Study Group, the European AIDS
Treatment Group, and ENGAGE (Educational Network for Global and Grassroots
Exchange)

January 25, 2006
contact: Brook K. Baker (617-373-3217) b.baker@neu.edu
Asia Russell (267-475-2645) asia@healthgap.org

10,000 Thai anti-globalization activists, small farmers, and AIDS and
public health activists massed in Chiang Mai from January 9-11, 2006 to
protest the 6th Round of negotiations to create a Free Trade Agreement
(FTA) between Thailand and the U.S. Hundreds of protestors stormed the
meeting venue, causing its temporary closure and movement to another
meeting venue, while others tried to swim across a river to access the
negotiations. In exchange for largely illusory promises about future trade
access for Thai products, the U.S. hopes to reap many benefits, including:
reduced tariffs for subsidized agricultural products and other exports,
increased intellectual property rights for multinational pharmaceuticals,
software, and entertainment products, right-to-sue privileges for
investors, and service industry access to the financial,
telecommunications, and insurance industries.

Some of the strongest opposition comes from AIDS activists, who predict
that increased intellectual property rights for pharmaceutical products and
registration data will prevent or delay access to more affordable generic
equivalents of new life-saving medicines, undermining the success of HIV
treatment in Thailand. The internationally lauded Thai program of universal
subsidized access to AIDS treatment has been made possible because of
cost-cutting generic competition for first-line AIDS medicines. As a
result of these cost savings, Thailand is currently treating nearly 80,000
of an estimated 170,000 patients who currently need treatment (more than
600,000 Thai people are living with HIV). Although Thailand’s access
program continues to scale-up where it can rely on affordable first-line
generic medicines, its ability to sustain expanded treatment opportunities
with newer, higher-priced second-line therapies is threatened in the
current FTA negotiations.

Although the U.S. initially won significant intellectual property
protections in multilateral negotiations that resulted in the formation of
the World Trade Organization and the passage of the TRIPS Agreement
(Trade-Related Aspects of Intellectual Property Rights), the U.S. has now
turned to bilateral and regional FTAs to secure increased monopoly rights
for the brand-name pharmaceutical industry. [1] It seeks eased patent
standards, [2] extended patent terms, [3] data exclusivity, [4] patent/registration
linkage, [5] and enhanced enforcement penalties, [6] all of which can delay
access to generic medicines.

Reeling from the negative publicity and pro-access to medicines messaging
in Thailand and internationally, the Office of the U.S. Trade
Representative (USTR) has mounted a public relations campaign full of
distortions and omissions. [7] The U.S.’s myths should be refuted with the
truth: Thailand and other developing countries have a right, indeed an
obligation, to guarantee access to more affordable generic medicines in
order to address their multiple public health needs.

Myth 1: The U.S.-Thai FTA will not raise the price of generic medicines in
Thailand; those medicines will continue to be available at the price Thai
generic companies choose; most HIV/AIDS drugs are generic.

Reality: These reassurances contain a small truth within a big lie. It is
true that an FTA will not affect pricing on older, first-line medicines
that are already being produced generically. However, the new rules will
increasingly affect the price of newer medicines, especially as drug
companies increase their patent filings in Thailand, as they seek
extensions of patent terms, and as they enforce data rights for newer
medicines. Consumers in Thailand will need and are entitled to affordable
access to newer medicines at less than monopoly prices. By gaining longer
patents and additional data exclusivity rights, big drug companies can
continue to exclude, or at the very least delay, entry by generic
competitors, thereby keeping the prices of medicines artificially high.

Myth 2: The U.S. is not proposing extensions of patents beyond the 20
years that is already the law in Thailand; data exclusivity does not extend
patents.

Reality: The U.S. has sought extensions of patent terms for regulatory
delay (both in issuing a patent and in granting marketing approval) in all
of its recent FTAs. Inside sources have confirmed that the U.S. is seeking
such extensions in the Thai agreement as well. The U.S. argument that data
exclusivity does not extend patents is true as a matter of patent law, but
in economic terms data exclusivity creates a practical right of marketing
exclusivity that can delay introduction of generic products even if a
patent has expired or even if there is no patent whatsoever.

Myth 3: Data exclusivity does not bar entry of generic equivalents;
generic producers are free to submit their own test data to gain marketing
approval.

Reality: The U.S. administration argues that it is incredibly expensive
for originator drug companies to invent and prove the safety and efficacy
of new drugs, but then it argues illogically that those same costs would
not bar entry of a generic competitor. To the contrary, not only would it
be too expensive and time-consuming for generic companies to repeat
clinical trials to gain access to relatively small and poor markets like
Thailand, it would also be ethically improper since the safety and efficacy
of the underlying product (and its equivalents) have already been
established. Nonetheless, the U.S. continues to seek global protection for
safety and efficacy data (even that which has been previously disclosed)
and for approvals based on that data so as to prevent registration of a
follow-on generic equivalent.

Myth 4: Big pharmaceutical companies must get higher profits from even
small, poor countries like Thailand in order to have incentives to invest
in research and development.

Reality: Profits from sales in developing countries are insignificant in
creating incentives for future research and development. The U.S. drug
industry is already the most profitable industry in the world.
Pharmaceutical sales in Thailand are an infinitesimal portion of total
global sales ($518 billion in 2004). All of Asia, including the Indian
subcontinent but excluding Japan, comprises only 3.9% of the global market;
all developing countries combined (Africa, Asia, and Latin America)
comprise less than 11.5% of global drug sales. [8] U.S. drug companies make
most of their sales (88.5%), and an even higher portion of their profits,
from the rich markets of North America, Europe, and Japan. They don’t need
to squeeze blood from poor consumers in Thailand and other developing
countries in order to bring a new medicine to the market.

Myth 5: Because high profits are necessary for research and development,
U.S. IPR-enhancement goals represent a careful balance between current
access and future innovation.

Reality: As an industry, major pharmaceutical companies spend nearly three
times as much on marketing and administration as they do on research and
development. Even after investing in tax-deductible R&D, drug companies
typically earn two times as much in profit as they spend on R&D. [9]
Moreover, much of the research conducted by industry is in pursuit of
me-too drugs, marketing studies, and patent extensions. For example, 53%
of “new drugs” marketed from 1981-91 were rated by the FDA as providing
little or no therapeutic gain and only 16% offered important therapeutic
gains. From 1989-2000, only 24% of “new” drugs merited priority (or
expedited) review at the FDA and only 35% were for truly novel drugs
containing new molecular entities. [10] Much of the research conducted by
industry actually piggy-backs on basic research paid for by the federal
government and conducted by NIH and university researchers. Historically,
this government-funded research totals nearly 40% of aggregate R&D
expenditures. [11]

Rather than representing a true balance between innovation and access, U.S.
trade policy represents a continuous assault on consumer interests, all in
pursuit of super-profits for the decade’s most profitable industry.
Squandering precious research dollars in pursuit of block-buster drugs,
trivial product changes (to gain patent extensions), and market-share for
copy-cat drugs, the pharmaceutical industry is intent on maximizing its
right to sell high priced products to rich countries and rich elites in
developing countries, even if that means hundreds of millions of poor
people must wait decades for pharmaceutical patents to lapse and for prices
finally to fall. The USTR cannot continue to prioritize drug company
intellectual property interests and astronomical profits, no matter how
derived, at the expense of the human right to health.

Myth 6: Increased intellectual property protections in Thailand will spur
its pharmaceutical sector (U.S.T.R. cites Jordan in this regard).

Reality: The success or failure of a pharmaceutical sector in any country
depends very little on the patent law in small and poor countries. Success
depends on a technological infrastructure and access to patent protections
and marketing opportunities in rich countries. Indian pharmaceutical
companies have become increasingly innovative even before the new Indian
Patent Act and most of their prospective innovation is oriented towards
penetration of the First World market. Moreover, after passage of the
TRIPS Agreement, which set new standards for intellectual property rights,
diminished local working requirements (requirements of local production of
patent products), and enhanced big pharma’s importation rights, many
countries, including Peru, Chile, and South Africa, experienced a
significant disinvestment in their local pharmaceutical industries.

Myth 7: Big drug companies won’t bother to register their new products in
countries like Thailand unless they are given data exclusivity.

Reality: Even with small quantity sales, major drug companies still have
incentive to sell drugs at a profit to middle-class and rich elites in
smaller markets. Moreover, big pharma has been registering and selling its
brand-name drugs in dozens of countries without data exclusivity for the
past 25 years. In addition to seeking data exclusivity monopolies, drug
companies typically have underlying patent-based monopoly rights to their
newest medicines, which already erect strong barriers against generic
competition. Even the “evidence” that the U.S. cites in support of
increased product registration is weak. For example, the increase of
registrations in Jordan is largely a result of government reforms in the
drug regulatory bureaucracy.

Of course, the larger problem is that big pharma often neglects to register
its newest products in poor country markets because the volume of sales is
not worth the effort. This is a major problem in drug companies’ so-called
AIDS-drugs access programs where companies make proud announcements of
price reductions in low-income (not middle-income) countries and then
neglect to register their products (or even to seek temporary import
permissions from drug regulatory agencies). For example, Gilead has
registered Viread and Truvada in only a handful of access countries (6 out
of 97 and 3 out of 97 respectively). Likewise, Abbott has not sought
registration of its new single-dose, non-refrigeration Kaletra formulation
in any of its 68 access countries.

Myth 8: Only a few drugs are affected by data exclusivity rules, so Thai
people should not be worried.

Reality: Although it is true that data exclusivity will not apply to all
drugs, it does apply to the newest medicines (those involving “new chemical
entities”), [12] many of which represent therapeutic breakthroughs. If
implemented in the manner wanted by the U.S., data exclusivity will apply
to most of the important new medicines brought to market in Thailand in the
future. There’s no reason that Thais should not have access to affordable
versions of the newest and most effective medicines even if those drugs are
relatively few in number.

Myth 9: The World Trade Organization’s TRIPS Agreement requires Thailand
to adopt data exclusivity provisions.

Reality: The U.S. administration is misrepresenting the standards required
by the TRIPS Agreement. The relevant portion of the TRIPS Agreement, Art.
39.3, only requires protection of undisclosed data against “unfair
commercial use” - basically theft or commercial espionage. Nowhere does it
state that exclusive rights must be provided for a given period. In fact,
TRIPS makes clear that countries may decide for themselves what constitutes
“unfair commercial use” and that there are many possible approaches to
satisfy this requirement. Permitting a drug regulatory authority to do its
job - assuring the quality, safety, and efficacy of medicines - is not
unfair commercial use; it is a mandated public service. Prior to 1994, the
U.S. tried to get its strict interpretation of data exclusivity into the
TRIPS Agreement and failed - negotiators simply rejected its proposal. The
TRIPS Agreement, as clarified by the Doha Declaration, ensures the primacy
of public health and further ensures that intellectual property rules do
not interfere with promoting “access to medicines for all.” Furthermore,
the Trade Promotion Authority Act of 2002, §2102(b)(4)(C) requires the U.S.
to uphold the Doha Declaration. The USTR is defying this pro-public-health
requirement.

Myth 10: The proposed FTA would permit Thailand to take measures it
considers necessary to protect public health, particularly with regard to
the epidemics of HIV/AIDS, TB, and malaria.

Reality: The predictable language of the U.S. proposal (based on recent
FTAs) creates ironclad protection for pharmaceutical test data (and
patent-registration linkage) with no textual exceptions for registering
medicines produced domestically or imported pursuant to compulsory licenses
or government use orders. While patents that block access to medicines can
be remedied through compulsory licenses and other TRIPS-compliant
safeguards, there is no such explicit recourse for data exclusivity and
linkage. The U.S. is using vague assurances about rights to protect public
health for “epidemics such as HIV/AIDS, tuberculosis and malaria” to offset
explicit language that takes away such rights. “Sign this contract, but
rely on my good intentions in an unsigned postcard” doesn’t work when you
buy a used car and it shouldn’t work in trade agreements either.

Myth 11: The “side letter” to FTAs on public health [13] should give legally
sufficient assurances about U.S. intentions and residual flexibilities to
protect public health.

Reality: As in other recent free trade agreements, the U.S. probably
intends to draft a “side letter,” which it promises will grant adequate
flexibilities to Thailand to address its public health needs. However,
there are multiple inadequacies in the proposed side letter including:

- the side letter is subordinate, and it does not supercede the exact,
contradictory language in the FTA’s intellectual property proposal which
provides for absolute rules on data exclusivity and patent-registration
linkage. If the U.S. were serious about clarifying public health exceptions
to data exclusivity, it would include such language in the body of FTA
itself;
- the recent side letter to the side letter in the proposed US-Peru FTA
says that the public health side letter applies to the section on “Matters
relating to certain regulated products (data exclusivity and
patent/registration linkage provisions), but again the side-to-the-side
letter’s language is neither clarifying nor enforceable;
- the side letter references HIV/AIDS, TB, malaria, and other epidemics
and/or matters of extreme urgency or national emergency, suggesting that
other public health concerns might not be covered by the alleged public
health exception. Thailand has a serious AIDS epidemic and has adopted many
proactive measures including a promise of universal treatment. But a
carve-out for specific diseases undermines efforts to increase access to
medicines for all public health problems, and recalls relentless U.S.
efforts to restrict the scope of the Doha Declaration over the past four
years;
- the side letter suggests that Thailand would only be free to use the
August 30, 2003 Decision [14] to issue compulsory licenses when in fact
countries have additional and pre-existing flexibilities under the TRIPS
Agreement and the Doha Declaration (e.g., ordinary compulsory licenses
permitting domestic production or importation, parallel importation,
competition-based compulsory licenses, and even limited exceptions);
- the side letter’s total reliance on the August 30 Decision system
inappropriately suggests that using that system will be easy when in fact
there are multiple substantive and procedural barriers in that system;
- the side letter limits countries to take only measures that are
“necessary,” a term that is interpreted extremely rigidly in international
trade law, permitting exceptions only when there is no other alternative
whatsoever or only when such an exception is the least obtrusive option;
despite the side letter, investment clause provisions in FTA might permit
pharmaceutical companies to sue Thailand if it were to grant an exception
to data exclusivity;
- the side letter provides insufficient legal certainty to generic
companies to undertake efforts to formulate, test, and register a
bio-equivalent generic drug - those efforts are too costly and time
consuming to undertake lightly, and they will not be attempted if there is
any residual uncertainty about the legality of such efforts.

Myth 12: Letters from USTR to Congress give additional assurance about
public health flexibilities in FTAs.

Reality: The U.S.T.R. sent a “clarifying” letter to Congress on July 19,
2004, about a public health side letter to the U.S.-Morocco FTA. In that
letter, the General Counsel to the U.S.T.R. argued that data exclusivity
provisions would not “stand in the way” of compulsory licenses necessary to
protect public health and to effectively utilize the August 30 decision.
This letter contains some of the same deficiencies discussed above. Saying
that data exclusivity will not stand in the way of compulsory licenses is
technically true, but data exclusivity could still stand in the way of
marketing approval! Moreover, a letter clarifying a letter hardly creates
the legal certainty necessary to embolden developing countries to issue
compulsory licenses or to motivate generic companies to undertake costly
and risky investments in product formulation and drug registration only to
serve relatively small and poor markets. Congressional leaders should not
be fooled by the “fool’s gold” of non-binding, after-the-fact, and
deceptively crafted written or oral assurances.

Myth 13: USTR is willing to meet with civil society opponents to “clear up
misunderstandings.”

Reality: The U.S. insists that its FTA negotiations and all negotiating
positions and documents be kept secret. It did not even distribute its
proposed IPR provisions to Thai negotiators until the very last moment.
Moreover, civil society groups in the U.S. have met with the USTR on many
occasions to raise objections to its TRIPS-plus provisions in free trade
negotiations as have some members of Congress. Contrary to clearing up
misunderstandings, these meetings have consistently confirmed that the USTR
is more interested in imposing an ever higher standard of intellectual
property protections on developing countries. Each successful negotiation
becomes a new step toward even stronger IPRs.

Myth 14: The U.S. will stop its “trade” pressure once a Party agrees to an
FTA.

Reality: Even after passage of FTAs, the USTR and PhRMA keep up their
relentless pressure on developing countries, often seeking FTA-plus
provisions in national legislation. For example, the USTR has sent a
four-page letter to Guatemala enumerating “implementation deficiencies”
regarding intellectual property provisions in CAFTA, seeking to impose US
interpretations of the FTA text and gain additional protections, rather
than allowing Guatemala to enact pro-access provisions. Similarly,
post-CAFTA, the USTR has threatened withdrawal of textile import benefits
from Costa Rica and rammed 14 constitutional amendments through the El
Salvadoran national assembly. Even if Thai negotiators succeed in gaining
ambiguous language that they might try to interpret to their favor, they
will face ongoing pressure and trade threats from the U.S. (like the U.S.
threats now to suspend negotiations with Thailand altogether).

Conclusion

The U.S. is attempting to impose its will, and the interests of its
pharmaceutical industry, on weaker countries, like Thailand. Thailand is
attempting to exercise its sovereign right and obligation to ensure access
to newer and more effective medicines to meet its citizens’ public health
needs. Rather than let Thailand exercise the legal freedom it and other
WTO members had gained in the Doha Declaration to guarantee access to
affordable medicines, the U.S. is instead threatening dire economic
consequences to Thailand if it misses the U.S. free trade bandwagon. There
may be many reasons to oppose the proposed US FTA text other than its
enhanced monopoly protections for the world’s richest drug companies, but
its provisions on patent extensions, data exclusivity and linkage, and
increased enforcement rights are enough to justify opposition both in
Thailand and the rest of the world.

Notas:

[1These Agreements include: the Central America Free Trade Agreement (CAFTA), FTAs with Chile, Singapore, Morocco, Jordan, Oman and Peru, and negotiations with other Andean countries, with Thailand, and with the
Southern Africa Customs Union, as well as other countries and regions.

[2U.S. typically seeks pharmaceutical patent rights for new formulations,
new uses, and new minor variations.

[3U.S. typically seeks to extend the 20-year term of patent protection to
compensate for regulatory delays in granting patents and in issuing market
approval.

[4U.S. typically seeks at least 5 five years of data exclusivity on
medicines involving new chemical entities (or even new pharmaceutical
products). Data exclusivity permits drug companies to prevent a generic
company from relying on previously filed clinical trial and other drug
registration data to prove the safety and efficacy of the follow-on generic
product. It is a right in addition to patent rights and can apply even if
there is no patent or a patent has expired.

[5U.S. typically tries to link the right of marketing approval to the
absence of any competing patent filing, no matter how frivolous. Because
generic companies have to litigate patent invalidity (instead of the patent
holder being required to institute enforcement actions if its patent claim
is strong enough), linkage deters generic entry.

[6U.S. typically seeks enhanced enforcement powers for IPR violations,
including criminal sanctions.

[7See USTR Fact Sheet Regarding Pharmaceuticals and the US-Thailand Free
Trade Agreement; Statement of Barbara Weisel, Assistant U.S. Trade
Representative, Regarding the 6th Round of the US-Thailand FTA Negotiation;
and press reports including Daniel Ten Kate, “Mounting opposition to FTA
drug rules” Thai Daily (13 Jan. 2006).

[8IMS MIDAS®, MAT Dec. 2004.

[9Family USA (2002), Profiting from Pain: Where Prescription Drug Dollars
Go (2001 profits 18%, R&D 11%).

[10NIHCM (2002). Changing Patterns of Pharmaceutical Innovation.
http://www.nihcm.org/innovations.pdf.

[11Fiscal year ’03 R&D expenditures by the Department of Health & Human
Services and the National Science Foundation equaled $31 billion. PhRMA
has reported 2004 R&D expenditures of $38 billion.

[12The U.S. is seeking to extend data exclusivity rights beyond these most
innovative drugs, and, for example, often seeks a shorter form of data
exclusivity to existing drugs with new approved uses.

[13The second paragraph of all previous US FTA side letters, “Understanding
Regarding Certain Public Health Measures,” states: “The implementation of
provisions of [the Patent Chapter] of the Agreement does not affect the
ability of either Party to take necessary measures to protect public health
by promoting access to medicines for all. This will concern, in particular,
cases such as HIV/AIDS, tuberculosis, malaria and other epidemics as well
as circumstances of extreme urgency or national emergency.”

[14The Paragraph 6 Implementation Decision of 30 August 2003 addressed the
sourcing problem faced by countries with insufficient domestic
manufacturing capacity which therefore had to rely on export/import of
generic medicines to meet their public health needs. (This Implementation
Decision Waiver was adopted as a proposed amended Article 31 bis to the
TRIPS Agreement on December 6, 2005). Because certain provisions in TRIPS
prevented large-scale export of medicines produced pursuant to an
ordinarily compulsory license, poorer and smaller countries like Thailand
needed to have a system permitting such production-for-export/import.


 Fuente: Health GAP