Twelve Pacific Rim countries reached a deal on the Trans-Pacific Partnership (TPP) in early October. The full text was finally made public this month after years of secretive negotiations. Historically, trade deals focused narrowly on tariffs. But the TPP is a sprawling modern pact composed of 30 chapters that govern wide-ranging issues from the environment to intellectual property. It has direct consequences on the cost of medicine and the relationship between pharmaceutical companies and domestic regulatory agencies. And it seeks to harmonize law and policy across countries of vastly different circumstances, raising the question: is the TPP’s approach constructive for all of its members?
|TPP Country||GDP per capita (US$) in 2013||Health expenditure per capita (US$) in 2013|
TPP countries in order of ascending per capita health expenditure. The United States outspends Vietnam in health by more than 80 fold.
One of the key ways the TPP implicates access to medicine is through intellectual property rules that dictate when generic versions of medicines are able to compete with their more expensive branded analogs. The TPP requires participating countries to extend the standard 20-year patent term when there are “unreasonable” regulatory delays on the part of drug approval agencies. It mandates that countries link their drug approval process to patent status by either denying approval to generics while a patent is in effect, or creating a system to assist patent holders pursue remedies from generics companies when such approval is sought. Most controversial of all, in addition to patent protection, the TPP obligates countries to protect clinical trial data on a new medicine’s safety and efficacy, which is needed to obtain regulatory approval. Without this protection, generics companies could short circuit the approval process by relying on data already generated by the patent holder. With this protection in place, generics may be kept out of the market even after a patent has expired due to the cost of replicating the data. The TPP calls for a minimum of five years of data protection for most new medicines, and at least eight years (or five years plus other measures to produce a comparable market outcome) for a special class of complex medicines derived from living organisms called biologics. There is no cap on the term of data protection countries may provide.
These IP provisions are modeled after IP laws in the United States, where similar rules remain contested. Under the Biologics Price Competition and Innovation Act of 2009, the FDA cannot approve a generic based on the branded biologic’s clinical trial data until 12 years after the branded product has been approved. Yet, President Obama recently proposed reducing this exclusivity period from 12 years to seven, producing estimated savings of more than US$4.5 billion for the US government over the next decade.
Unlike the United States, many of the other countries will have to toughen their IP laws to comply with the trade deal. Brunei, for instance, currently provides no data protection for any drugs. An earlier leaked draft of the IP chapter considered an approach that wouldn’t require adoption of the IP rules for certain countries until they attain “high income” status, as defined by the International Bank of Reconstruction and Development. But the final text rejects this approach and mandates fixed transition periods ranging from zero to 10 years, irrespective of the level of development achieved in that timeframe.
IP law seeks to balance the need to incentivize innovation with the desire to maximize the benefits of new technologies by making them broadly accessible. But how to achieve that balance changes with differing circumstances. Consider several factors in low- and middle-income countries that undermine the assumption that stricter IP laws and higher drug prices will yield more innovation.
On the supply side, the global pharmaceutical market, now worth approximately US$1 trillion a year, is highly concentrated. North America generates more than 40% of those revenues. According to the World Health Organization, the ten largest pharmaceutical companies, which control over a third of the global market, are all located in the United States and Europe. Combined, the Americas, Europe, and Japan account for 85% of the global market. A 2013 United Nations report notes that research and development expenditure remains nearly non-existent in the majority of countries classified as least developed, suggesting that there is little to no protectable innovative activity occurring in much of the world.
On the demand side, the pharmaceutical industry innovates in response to the needs of the wealthy. Oxfam estimates that developing countries represent, in total, approximately 1% of global pharmaceutical demand. While patients in low- and middle-income countries can benefit from innovations produced in response to wealthy country demand, their unique needs are generally neglected and do not drive commercial research and development. In short, tighter IP laws in developing countries are likely to drive up the cost of medicine without a corresponding rise in innovation. A cross-country study of drug development efforts following increased levels of patent protection confirms this intuition, finding that patent protection is associated with increased research and development in wealthy countries but not in developing countries.
Consider also the consequences of the TPP’s demands on drug approval agencies that are chronically underfunded and understaffed. More patent extensions are likely to be required due to delays in the drug approval process, leading to longer patent terms. The requirement that drug approval departments must double as patent police will further saddle resource-strapped agencies. These agencies may default to rejecting applications for approval of generics where a patent has been filed, even if it is frivolous. Or they may expose their country to pharmaceutical companies’ complaints of violation and demands for compensation, which may be adjudicated under the TPP’s dispute settlement provisions.
There are still a number of steps before the TPP can be ratified domestically and enter into effect. But many, including non-profit organizations such as Doctors Without Borders, worry about its consequences for access to medicine. This criticism has been particularly forceful with respect to biologics—which include new and forthcoming vaccines and cancer treatments—because the branded versions are often incredibly expensive, costing tens of thousands of US dollars a year. Bear in mind, however, that the TPP may not be the only, or even the foremost, barrier keeping developing countries such as Vietnam from accessing biologics. In the US, the Biologics Price Competition and Innovation Act has been in effect for over five years, and only one generic has been approved so far, and it is now being sold at a 15% discount—a much smaller price cut than many had expected. One reason for this may be the sheer complexity and cost of manufacturing biologics even absent IP protection, implying that different IP rules may be necessary but not sufficient to make biologics available to those who cannot afford them.
The TPP is the most significant international trade deal brokered in the last few decades, and it may set a lasting precedent. The twelve countries that have already reached agreement account for almost 40% of the global economy, while Indonesia has declared its intent to join and other countries have announced a similar interest. The TPP may lock-in American-style IP laws and embed a set of norms in a region where they are ill suited.