Trump’s Executive Order on Drug Prices Might Be More in Favour of Drug Companies

The order will likely be a far cry from the president’s previous remarks about the pharmaceutical industry.

Emily Kopp has a big scoop for Kaiser Health News. She has obtained a six-page document outlining the draft provisions or objectives of a proposed presidential executive order on drug prices. She has shared some of the details, but only a few highlight; so the public still has limited information.

The first of the “principles” and “talking points” she reported is as follows:

Extending the patent life of drugs in foreign markets to “provide for protection and enforcement of intellectual property rights.” This will ensure “that American consumers do not unfairly subsidise research and development for people throughout the globe.”

We don’t know which foreign markets this involves, but one can guess.

Who does not already have patent extensions in national law?

If the order is aiming only at promoting US style patent extensions, it will have to aim pretty low, since virtually all higher income industrialised countries already are granting them or plan to do so.

The European Union has a directive on “supplementary protection certificates” (SPCs), which extend patent exclusivity for up to five years. This is codified as REGULATION (EC) No 469/2009 of May 6, 2009, concerning the supplementary protection certificate for medicinal productsand applies to 28 countries in the EU, and similar provisions have been effectively exported by the EU to Switzerland, Macedonia, Albania, Norway and other countries.

Canada, which recently negotiated a trade agreement with the EU, adopted a SPC regime in 2016. Australia, Japan and Korea have adopted laws providing for patent extensions up to five years. Article 18.46 of the Trans Pacific Partnership Agreement requires patent extensions as well.

The US has negotiated a large number of bilateral agreements, such as the CAFTA-DR agreement with the Dominican Republic, or the US Morocco agreement, and nearly all of these include patent extension requirements.

Korea and Japan are seeking patent extensions in the Regional Comprehensive Economic Partnersh, a trade agreement being negotiated between 16 members in the Asia Pacific region, including for example, Japan, Korea, Australia, New Zealand, China, India, Indonesia, the Philippines, Thailand and Malaysia, as well as very poor countries like Vietnam, Myanmar and Laos.

There are handful of middle income developing countries, like Brazil, Argentina, Turkey and many low income countries, particularly in Africa and Central America, which don’t grant patent extensions and are likely to be targets.

But the Trump executive order will probably not stop at patent extensions and will also continue to press countries to lower standards for granting patents (so more patents can be granted on the same drug), restrict the use of compulsory licenses, press for extended test data protection, including 12 years for biologic drugs, and attack the efforts of countries to negotiate lower prices.

In fairness to Trump, all of these measures were pursued vigorously, originally to a somewhat lesser extent, but ratcheted up every year by every US President since Ronald Reagan, including presidents Bill Clinton and Barack Obama, as documented by the US trade representative in its annual Special 301 Report.

What’s wrong with this picture?

Anything that expands or extends monopolies on drugs and vaccines makes access more unequal. Let’s start with low income countries. From 2010 to 2016, the US FDA approved 56 novel cancer drugs, an astonishing wave of innovation, including game changing drugs like T-DM1, for HER2+ breast cancer and radically better treatments for melanoma and many other cancers. Of these, zero are included in the WHO list of essential medicines because they are too expensive for countries with limited resources.

Now consider Europe. A recent study by EY Poland of 30 important cancer drugs found that only two of the 30 were routinely available for reimbursement in Poland and the Czech Republic, while 30 of 30 were routinely reimbursed in the Netherlands, and 28 of 30 were reimbursed in Switzerland. In the UK, just half were routinely reimbursed. The 2016 ESMO European Consortium Study on the availability, out-of-pocket costs and accessibility of antineoplastic medicines in Europe provides additional evidence of the vast disparities in access among 48 countries in greater Europe and Central Asia.

These disparities of access (which are no fault of the patients) are the predictable consequence of policies that deliberately raise drug prices and strengthen monopolies, to the point where health programs let people die or suffer, in order to save enough money to fund other health program needs.

Where is the US’s self interest?

Okay, suppose you think unfairness and unnecessary suffering and death is not a problem when it happens to foreigners. (This is the apparent mindset of people like Trump and drug company adviser Robert Shapiro).

Even if one was completely indifferent to the plight of patients in foreign countries, the US suffers when it promotes strong drug monopolies. Here is why:

  1. Trade policies that promote strong monopolies in foreign markets also lock-in strong monopolies in the US market. It’s not impossible, but it’s hard to have it both ways. If the US puts 12 years of monopoly rights in biologic drug test data in a trade agreement, with no exceptions, then it’s harder for the US Congress to change our law. The Pharmaceutical Research and Manufacturers of America (PhRMA) knows that. We know that too.
  2. Countries that are asked to provide broader, stronger and extended monopolies on drugs will ask for something in return. This is a trade. We ask a country to let their breast cancer patients suffer and have premature deaths, and they may say yes, but also ask the US for market access agreements that will hurt businesses and workers in the country. When you ask for something very painful, you will end up with some pain in return. Quid pro quo means, something for something, so its important to ask, what’s that something we give up on our end, and what is the effective exchange rate in terms of good jobs?
  3. US patients won’t have the option of travelling abroad to get an affordable treatment, such as for hepatitis C drugs, if the foreign markets for affordable drugs, including but not limited to India, are all shut down. Given the prospect of less and less insurance coverage, this isn’t a trivial issue. Note that today high income countries like Italy and Switzerland are encouraging patients to obtain cheaper generic drugs from abroad, when prices are excessive at home. This won’t work when prices are high everywhere.
  4. The White House has to realise that many drugs are owned by foreign companies, like Roche, Novartis, GSK, AstraZeneca, Bayer, Astellas, and Sanofi  – companies heavily subsidised by the NIH, BARDA, CDC, WRAIR, the Department of Veterans Affairs and other US taxpayer supported agencies, that often charge US residents more than patients in their home countries. In the process of fattening the wallets of foreign owned companies, higher prices will lead to US residents sending more money out of the country.

Do high prices in foreign countries lead to lower prices in the US?

On the contrary, every time the global, regional or bilateral norms for IPR protection on drugs go up, so do drug prices. Why would drug companies lower them? There are fewer places to obtain cheaper versions of drugs. The Department of Veterans Affairs reference pricing schemes are undermined. As the monopolies get stronger internationally, they get stronger here too.

What is the better way?

The Trump administration should distance themselves from the crowd of big pharma lobbyists and enablers, stop trying to copy or extend the Obama administration policies on trade, and try something new, something that would actually benefit the people living in the US.

The focus on global negotiations should be to get foreign governments to do more to fund R&D, not just via high drug prices, which is an incredibly inefficient mechanism when you compare global R&D outlays to global revenues (even less efficient when you adjust declared R&D outlays for such items as asset acquisition costs, which are themselves inflated by expected prices for products).

There are many areas of low hanging fruit to address the free riding issue. Let’s start with the Orphan Drug Tax Credit, a 50% subsidy for clinical trials.

Seventy-five percent of the 56 new cancer drugs approved by the FDA from 2010 to 2016 qualified as orphan products. Only the US incurs the cost of this tax credit. Germany pays nothings. Japan pays nothing. Canada pays nothing. China pays nothing. Why not expand the tax credit to a wide class of qualifying trials, but also have other countries share in the cost? If trials were subsidised more widely, then company net R&D costs would be lower, and countries could actually lower drug prices without hurting innovation.

What about engaging in negotiations for R&D funding agreements, and leverage our investments in public goods through the National Institutes of Health (NIH), with more public goods spending in foreign countries? The US is paying for the R&D and training the workforce for all of Europe and Japan’s leading pharma companies. Why not insist on more public sector funding of R&D from our trading partners? Obama opposed these negotiations because he was in the pocket of big pharma. Be different from Obama on this, don’t copy him.

How about going further, and exploring the feasibility of progressively de-linking R&D funding, including incentives from drug prices, so everyone can get access to the drugs that are medically effective and appropriate for them? Why not embrace the ideas of the future instead of doubling down on the drug company lobby wish lists that have created a dysfunctional and health threatening business model that pits innovation and access against each other?

Finally, look ahead, and in particular, look at the demographic changes facing the US and other countries. This is a recent estimate by the US Administration on Aging:

The older population –  persons 65 years or older –  numbered 46.2 million in 2014 (the latest year for which data is available). They represented 14.5% of the US population, about one in every seven Americans. By 2060, there will be about 98 million older persons, more than twice their number in 2014. People 65+ represented 14.5% of the population in the year 2014 but are expected to grow to be 21.7% of the population by 2040.

Cancer and many other illnesses are correlated with age and older people often don’t participate in the workforce. Other countries are confronting the same demographic shifts, due in part of the benefits of better health care and diet, and a safer world. However problematic high drug prices are today, they are becoming even less acceptable and sustainable.

James Love is Director, Knowledge Ecology International, an NGO working on knowledge governance.

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