FTA undermines principle of affordable drugs for all

FTA undermines principle of affordable drugs for all
May 24, 2004
Asia Intelligence Wire

THE AUSTRALIAN Senate should delay implementing legislation for the Free Trade Agreement with the US. Countries such as Brazil and Thailand, with large generic pharmaceutical industries, are looking to Australia for leadership in countering this US bilateral push for global uniformly of high pharmaceutical prices through aggressive intellectual property (IP) protection. Our farmers, particularly in areas such as sugar, receive little from this deal, so will the elderly. Conservative estimates by the Productivity Commission (in its 2001 study of 150 drugs accounting for 83 per cent of PBS expenditure) and public health expert Buddhi Lokuge (in a paper evalulting high- expenditure drugs about to come off patent and published by the Australia Institute in 2003) confirm that if any of the strategies in this Free Trade Agreement succeed in increasing patent life and inhibiting the rapid entry of multiple cheap generic substitutes, yearly costs under our Pharmaceutical Benefits Scheme (PBS) will increase from $5 billion to $6.5 billion in five years alone. The lessons from the North American free Trade Agreement are instructive. In November 1993, Congress passed NAFTA, despite widespread community opposition. The US Administration made many promises to groups likely to be disadvantaged. Yet, assurances, for example, to Florida fruit and vegetable growers of increased food quarantine and inspections for pesticide contamination, were never honoured. Similarly, although the volume of Mexican tomato imports rose 70 per cent under NAFTA and the Florida tomato industry lost $750 million, guaranteed government relief evaporated. US promises to protect labour standards in Mexico likewise were never adequately implemented.

Australia’s PBS is a great residual legacy of Ben Chifley’s ’light on the hill’ egalitarian vision. It is world renowned as a fair mechanism for restraining drug prices. Its cost-community benefit, reference pricing techniques and documentation are being used as benchmarks by many US state legislatures. The PBS is the main reason why drug prices here are one fourth those in the US (Productivity Commission 2001). Surely the presumption should be against change to the PBS without detailed research to the contrary. No such studies exist.

The Pharmaceutical Research and Manufacturers of America (PhRMA) has lobbied for this FTA on the myth that its members are inadequately reimbursed here for the high research and development costs of manufacturing innovative products. The FTA is consequently riddled with provisions seeking to satisfy this aim. Yet, the largest price differences between the countries relate to ’me-too’ drugs with minor modifications aggressively marketed in developed world niche markets. Further, our Pharmaceutical Industry Investment Program (PIIP) already over-generously rewards US pharmaceutical manufacturers for even tenuous claims to be undertaking R&D in Australia. From July 1, 2004, a Pharmaceuticals Partnerships Program, will provide an additional $150 million over 5 years. Studies of all the major pharmaceutical companies prove they routinely spend 10-15 per cent more on marketing, advertising and lobbying activities, than R&D.

PhRMA’s FTA/PBS strategy involves potentially collusive IP provisions delaying the introduction of more cost- effective generics. Some FTA articles allow for extension of patent terms where marketing approval has been delayed. Others require the Australian authorities to notify a US manufacturer if a generic company is seeking to apply during the patent period. Still others inhibit generic companies from using marketing approval in other countries as the basis for seeking similar status in Australia.

The overall change effected is to alter the basic principle of our PBS from ensuring ’universal access to affordable essential medicines,’ to ’reward of drug innovation’, a task already adequately performed by patent law.

The inadequately researched, deleterious effects on our PBS alone require the Senate to refuse passage of the amending legislation necessary to implement this FTA. The following represent the bare minimum of PBS protections that must be added to this agreement. First, the proposed ’independent review process’ for PBAC decisions must explicitly not allow overturning and be permitted to consider both ’no’ and ’yes’ decisions (the latter where, for example, leakage of effectiveness or affordability has been established).

Second, the ’Medicines Working Group’ must involve representation by independent public health and interest experts. Third, to ensure uniform and not selective transparency in PBAC processes, all documentation submitted by a pharmaceutical applicant should be made available to the public on the web. Fourth, the interpretive principles used to examine Annex 2-C in the event of a dispute must include an unqualified reference to ’universal access to affordable, essential medicines.’ Fifth, various clarifications must be made to the IP chapter, particularly to preserve the capacity of Australian- owned generic manufacturers to rapidly ’springboard’ their cheaper products from existing data, upon the expiry of a patent. Sixth, the capacity of the US to threaten cross retaliation against us in manufacturing or agriculture, if it fails to achieve its IP aims, must be restrained. If the Australian Government fails to achieve these clarifications by a further exchange of letters with the US, then our Senate has an obligation to subsequent generations of Australians not to pass the required legislative amendments.


Thomas A. Faunce is a Senior Lecturer at the Australian National University’s Medical School and a lecturer at the ANU Law Faculty.