There are roughly 44 million people in the Central American countries
of Guatemala, Honduras, Nicaragua, El Salvador and Costa Rica, plus the
Dominican Republic. Their per capita income ranges from $370 a year in
Nicaragua to $1,750 in Guatemala to more than $4,000 in Costa Rica.
The corporate members of the U.S. Pharmaceuticals Research and Manufacturers
of America (PhRMA) look at Central America and see a market to conquer.
U.S. drug companies presently export about $50 million worth of drugs
a year to the Central America and the Dominican Republic.
With adoption of the U.S.-Central America Free Trade Agreement (CAFTA),
which includes the five Central American countries, plus a U.S.-Dominican
Republic deal that is being "docked" on to CAFTA, the drug companies think
they can make more.
According to Renard Aron, assistant vice president for Latin America
and Canada at PhRMA, that's due in part to the tariff provisions of the
agreement, which would bring down tariffs on imported pharmaceuticals
-- and enable the brand-name drug companies to raise their prices commensurately.
But most important to PhRMA is the intellectual property provisions of
CAFTA.
"A higher level of intellectual property protection � is important to
the research-based pharmaceutical industry," Aron told the U.S. International
Trade Commission at an April hearing.
"We look forward to every government in the region to implement the Agreement
in a transparent and timely fashion, ensuring the applicability of strong
and enforceable rights established by the Agreement."
Things look different to public health groups.
They say PhRMA should leave the poor Central American countries alone,
without demanding the imposition of heightened intellectual property rules
to extend and expand brand-name drug company monopolies.
CAFTA's patent and other intellectual property rules will, they say,
delay generic competition and artificially raise the price of drugs, with
the result that Central Americans will be denied medicines they need to
treat illnesses, including life-threatening diseases.
"CAFTA negotiators have given in to U.S. pressure and failed their people
by agreeing to measures that place profits above people's lives," says
Rachel Cohen, U.S. director of the Campaign for Access to Essential Medicines
of the international medical humanitarian organization Doctors Without
Borders/M�decins Sans Fronti�res (MSF).
Generics: The Price Benefit
It is beyond dispute that the introduction of generic competition lowers
price dramatically and enables broadened access to needed medicine. The
very purpose of patent monopolies is to enable patent holders to collect
supracompetitive profits, as a reward and incentive for innovation. There
is now several decades experience in the United States illustrating the
price reductions from generic competition.
And, several years into the international campaign for access to essential
medicines, generic competition has brought down the price of lifesaving
antiretrovirals used to treat people with HIV/AIDS by more than 98 percent.
Generic firms from India now offer triple-drug AIDS cocktails for as little
as $140 a year. A few years ago, the brand-name companies sold the same
products for $10,000 a year or more in poor countries. Prodded by generic
competition and activist campaigns, the brand-name companies have dropped
their prices significantly, but the lowest brand-name prices for AIDS
drugs remain roughly four times the cost of the cheapest generic option.
(Both the generics and brand-name companies decline to make their biggest
discount prices available in Central America, which is not as poor as
sub-Saharan Africa.)
Under the rules of the World Trade Organization's Agreement on Trade-Related
Aspects of Intellectual Property Rights (WTO's TRIPS), countries are required
to provide 20-year patent protections for all products, including pharmaceuticals.
This global standard has forced many developing countries that previously
did not offer patent protection for pharmaceuticals, or offered only limited
protection, to adopt U.S.-style patent rules covering medicines.
Every CAFTA country is a member of the WTO, and thus already bound by
its rules.
Although it imposed on countries the requirement to adopt 20-year patents
for drugs, the TRIPS Agreement also contained certain safeguards. Most
important among them is the right to undertake compulsory licensing.
Compulsory licensing enables a government to authorize a third party
-- whether a company, government agency or other party -- to use a patent
held by another. Honduras, for example, could issue a license to generic
company Z for an HIV/AIDS drug manufactured by brand-name company X. Generic
firm Z would then manufacture or import the drug for sale in Honduras
under a generic name, and pay a reasonable royalty to brand-name company
X on each sale.
Compulsory licensing can lower prices to consumers by creating competition
in the market for the patented good. The key benefit of compulsory licensing
is that it creates competition for a pharmaceutical product while it is
still covered by patent. Just as the prices of drugs may decline dramatically
when patent protection runs out, compulsory licensing can introduce these
price reductions while a drug remains on patent.
Few developing countries have exercised their rights to issue compulsory
licenses. Yet, the mere prospect that compulsory licenses might be issued
may lead patent holders to lower prices. By threatening to issue compulsory
licenses, Brazil, for example, has been able to negotiate dramatic price
reductions for AIDS drugs.
The controversy over CAFTA's intellectual property rules relates to requirements
that go beyond the Central American countries' WTO obligations.
PhRMA's Aron says the brand-name drug companies need enhanced protections
to "provide economic incentives for the industry to invest in-country,
leading to improved public health and economic performance by encouraging
the development of new and better medicines."
Public health advocates counter that TRIPS rules already provide more
than enough incentive. Rather than enhancing public health, they say,
CAFTA-created monopolies will cost lives. The situation is perhaps most
poignant for AIDS -- a deadly disease for which there is effective, life-saving
treatment only from drugs that are still on patent.
More than two million people in Central America and the Caribbean are
now living with HIV/AIDS.
"HIV/AIDS kills one person in Honduras every two hours because the vast
majority of people with HIV/AIDS cannot afford life-saving AIDS medicines,"
says Dr. Manuel Munoz, who runs MSF's AIDS treatment program in Honduras.
"Right now," says Munoz, "Honduras is not purchasing the least expensive
generic medicines which could allow it to provide AIDS drugs to every
Honduran who is in urgent clinical need of antiretroviral therapy and
will die without it. It would not surprise me if the government were buying
more expensive medicines out of fear of U.S. retaliation for buying generics.
If CAFTA makes intellectual property protection of pharmaceuticals even
more stringent, lives will be lost."
New Monopolies for Big Pharma
The most controversial measures in the U.S.-Central America Free Trade
Agreement involve requirements that countries establish special monopoly
protections for pharmaceutical regulatory data. The impact of these measures
will be, at least, to greatly delay countries from undertaking compulsory
licensing.
As a condition of selling pharmaceuticals, countries require pharmaceutical
sellers to submit data showing their drugs are safe and effective. This
data, which is submitted in the United States to the Food and Drug Administration
and to comparable agencies in other countries, is commonly referred to
as registration, test or marketing approval data.
Generating the data, based on animal and human testing, can be relatively
expensive, costing in some cases tens of millions of dollars.
To gain regulatory approval to sell generic versions of drugs already
approved for market, generic companies generally do not repeat these studies,
which are very time consuming and, from the perspective of the relatively
low-capitalized generic industry, costly. Instead, they typically show
their product is chemically equivalent and bioequivalent (meaning it will
work the same in the body as the brand-name drug). Then the generic companies
simply rely on the drug regulatory agency's approval of the patented product
to earn approval for the generic version of the product.
If the generics cannot rely on approvals granted based on the brand-name
data, in most cases they simply will not enter the market. This is especially
true in smaller size markets, as in Central America, where prospective
revenues are limited.
CAFTA includes a number of provisions that establish an array of special
monopoly protections for regulatory data.
The meaning of these provisions is that generics will effectively be
barred from entering the market -- even if patent terms have expired, and
even if countries have issued compulsory licenses that would otherwise
enable them to sell on the market while a product is on patent -- until
the monopolies on use of the data expire.
These CAFTA provisions go far beyond the requirements of TRIPS.
Under the TRIPS Agreement, countries must protect "undisclosed" pharmaceutical
test data from "unfair commercial use." The meaning of this vague language
is uncertain and subject to debate. There is a strong argument that this
TRIPS provision is intended only to cover the misappropriation of test
data -- along the lines of literal theft of the data from files kept by
drug regulatory agencies.
Whatever else it means, the extremely vague language of the TRIPS provision
makes clear that countries have considerable discretion in implementing
it. They have freedom to determine what kinds of use of test data is "unfair"
-- and therefore when protections must be afforded. And they have discretion
in deciding what kinds of protection they provide for the data -- they
are not obligated to exclude other parties from using the data.
These flexibilities in the TRIPS Agreement would be completely overridden
by the CAFTA provisions.
Under CAFTA:
- Countries would be required to provide five years of data protection
from the moment a product was given regulatory approval in their country.
This amounts to an effective five-year bar on compulsory licensing from
the time of marketing approval.
- CAFTA members must grant five years data exclusivity protections to
brand-name companies if their product has received marketing approval
anywhere in the world -- even if the brand-name company has not introduced
the product in their country. In other words, if Pfizer puts a new drug
on the market in the United States, but does not introduce it in Honduras,
Honduras is effectively denied the right to authorize generic versions
of the product for five years.
- Pharmaceutical companies could maneuver in this system to extend the
period of monopoly control over the data to 10 years. Under CAFTA, countries
must grant a fresh period of five years data protection from the moment
a product receives marketing approval in their country -- even if they
have already granted up to five years protection while the product had
been approved elsewhere but not put on the market in their country.
Thus, if Pfizer waits five years after introducing its new product in
the United States before introducing it in Honduras, Honduras must provide
for data exclusivity both during the five-year period when the product
was not on sale in the country, and for the five-year period after Honduras
has granted marketing approval. This outcome would be required even
as the United States, which benefited from the initial product introduction,
is only required to grant five years of data protection.
- Regulatory data monopolies must be granted for the marketing approval
data submitted for all "new pharmaceutical products." Under TRIPS, the
requirement of data protection applies only to data submitted for new
chemical entities. Under CAFTA, data protection must be granted for
any new product containing a chemical entity not previously approved
in the country -- even if it is not actually new.
The brand-name drug companies say these expanded monopoly protections
are necessary to ensure that they have an incentive to develop new products
and get a fair return on the money they spend on clinical tests.
But public health groups point out that the drug companies already receive
the benefit of patent monopolies. And while patents are supposed to reward
the genius of innovation with exclusive marketing rights, through data
protection the drug companies are seeking monopoly protections simply
for the resources invested in conducting tests.
Such monopolies come at a high price.
"People with HIV/AIDS in Central America do not have five years or more
to wait for affordable AIDS drugs to become available," says Antonio Girona,
head of mission for MSF's AIDS treatment program in Honduras. "Thousands
are dying now, and many will die within one or two years of first developing
symptoms of AIDS."
Currently, of the CAFTA countries, only Guatemala provides five years
of data protection.
A link to Disaster
CAFTA's farthest reaching drug company monopoly protection would effectively
make compulsory licensing impossible in Central American countries.
Through the concept of "linkage," the United States has sought through
trade agreements to link the ability of FDA-like drug regulatory agencies
to approve a drug with the drug's patent status. If a drug is covered
by patent, U.S.-favored rules would prohibit a country's regulators from
approving it for marketing.
In the United States, drug companies have manipulated such provisions
to delay the introductions of generics. The Federal Trade Commission has
filed a number of lawsuits to stop such abuses.
Nonetheless, at the behest of Big Pharma, U.S. trade negotiators have
sought to export the concept of linkage.
"Health authorities [in Central America] have consistently failed to
coordinate with patent officials and inappropriately issue sanitary registrations
for products already under patent, whose patent application is pending,
or whose period of data exclusivity has not expired," claims PhRMA's Aron.
"The adoption of �linkage' regulations (i.e., establishing a formal link
between health and patent authorities) would help to ameliorate this situation,
requiring that �second applicants' (i.e., generic, or in some cases, infringing
applicants) demonstrate that the product for which they are requesting
market approval is not the subject of a valid patent or pending application.
The [CAFTA] Agreement as is would remedy this situation."
It's easy to understand why Aron is so happy.
CAFTA's linkage provision appears to prohibit any generic firm from relying
on the data submitted by a patent holder at any point during the term
of the patent unless the generic firm has the permission of the patent
holder.
In other words, generic firms would not be able to rely on marketing
approval data for a product for the entire term of the product's patent,
even if a compulsory license is issued. Because of the cost, and the small
size of the markets in Central America, generic firms will probably never
be able or willing to re-perform safety and efficacy tests to obtain marketing
approval in Central American countries. Thus, even if they were issued
a compulsory license, they could not enter the market -- apparently making
the linkage provision an effective bar to compulsory licensing.
Because this provision appears so draconian, Members of Congress and
public health groups have asked the U.S. Trade Representative to clarify
the precise meaning of the provision. No response has yet been forthcoming.
The Cafta Precedent
There are still other means by which CAFTA extends monopoly protections
for Big Pharma.
The agreement requires countries to extend patents to offset delays in
granting patents, and in granting regulatory approval for drugs.
Rules on patent filings give companies an incentive to file bad and overbroad
patent applications.
And CAFTA's powerful investor protections apply to intellectual property.
That means that if a country violates the terms of CAFTA's intellectual
property rules, the country could find itself being sued by a drug company
(or other intellectual property holder) which claimed that the diminishment
in value of the company's patent or other intellectual property is a "taking."
If the company were to prevail, the government would have to pay the corporation
the purported lost value of its property. Such rules will be a strong
incentive for governments not to exercise the flexibilities in the TRIPS
agreement -- they will understand that if they get it wrong, they may have
to write a big check to patent holders.
Does PhRMA really care so much about poor Central America as to demand
the region's government's enforce rules that public health advocates charge
will cost lives?
Yes and no.
The industry is devoted to extracting rents from even tiny and desperately
poor countries. So it really does care about intellectual property protections
in Central America.
But the industry and its public health adversaries alike are concerned
not just with Central America, but with the precedent that CAFTA may set.
U.S. Congressional deliberations over CAFTA are expected to be very contentious.
If CAFTA is approved with its array of drug company monopoly protections,
it will be established as the standard for what the United States seeks
to extract in trade agreements (subject to possible alteration if the
Bush administration is replaced in November).
If CAFTA is defeated, and if some Members of Congress identify the public
health consequences of CAFTA's pro-Big Pharma rules as a reason for their
opposition to the agreement, then the tide may turn on Big Pharma's effort,
conducted in collaboration with the U.S. government, to force countries
to pay ever higher prices for drugs, the health consequences be damned.
Multinational Monitor editor Robert Weissman is
co-director of Essential Action, a corporate accountability group which
works on access to medicines issues.
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