USTR's FTAs, and a new approach for global negotiations on medicines

Today the United States Trade Representative (USTR) begins negotiations in Washington with the Malaysian government on a proposed "free trade agreement," or FTA. This is one of three Asian FTAs now being negotiated -- Korea, Malaysia and Thailand. This letter addresses the parts of the agreements relevant to markets for medicines. We oppose the promotion of combinations of ever-higher intellectual property standards and weaker protections against abusive prices -- our current demands in the FTA negotiations. Instead, we call for a new paradigm that focuses on global norms supporting R&D for new medicines.

This is a very important issue, both from the perspective of foreign policy (our efforts to raise global prices for medicine are very unpopular, and undermine access to medicines), and our domestic policy. The USTR should not be promoting global norms that will make it very difficult for us to control drug prices in the United States. Here is the letter.

July 16, 2006 Barbara Weisel Office of the United States Trade Representative

I am writing to offer suggestions regarding the FTA negotiations involving Korea, Malaysia and Thailand, as they relate to medicines, particularly the rules on intellectual property and the pricing of medicines.

Korea

The US government seems to be seeking new supervision over Korean reimbursement policies for medicines, apparently building upon the 1999 A-7 pricing agreement. (Can you provide us with a copy of this?). According to the July 14, 2006 USTR press release, the head of the US delegation to Korea, Wendy Cutler, objected to the Korean government's recent announcement that it would only reimburse certain medicines, and not others. Other documents and statements from US government trade officials indicate the US government is demanding to have prior review of Korean decisions on very detailed issues, such as the co-payments by patients for medicines.

I assume this is driven by demands from PhRMA member companies that the US dismantle Korean mechanisms to avoid high prices on medicines. I can imagine that PhRMA member companies would love a system where governments are required to pay for medicines, and cannot effectively reject or modify the prices demanded by the sellers. What I can't imagine is why any government, including my own, would think this is a good idea, under the current intellectual property regimes.

Everything that Korea will do to avoid paying high prices will have a counterpart in the US. State governments, the Veterans Administration, private insurance companies, and eventually, the US federal government, will manipulate co-payments and reimbursement schedules to avoid paying for expensive drugs. How are we supposed to tell Korea this is wrong, when we do it?

I have private insurance in the US. Two weeks ago I filled two prescriptions. One had a $5 co-payment. The other co-payment was $25 -- presumably because my insurance company was unhappy with the price of the drug. There are some drugs (for some indications) my insurance company will reimburse, and others it won't. Patients here (in the US) who suffer from cancer and other severe illnesses often find it hard to get insurance companies to pay for "off label" uses of expensive drugs, even when doctors think they are medically useful. Nearly every country with a national system that is serious about controlling costs had to do something similar. Otherwise, drug companies could announce any price, and everyone would be obligated to pay. There isn't enough money in the world to pay for a system that works like that.

The US should stop trying to prevent Korea or any other country from taking measures to control drug prices. We are going to need to use some combination of these same measures ourselves.

Instead, the USTR should focus on a more fundamental concern. Will Korea (or other countries) shoulder a reasonable share of the global cost of R&D for new medicines? While this is related to reimbursements, it is a more general way of framing the issue, and it allows the USTR to consider better ways of addressing the problem.

One possible way to raise this issue in the context of the Korea FTA might be as follows.

1. The US and Korea should create a joint R&D committee (or better, participate in a multilateral effort), to create a basis for determining what each country is currently doing to pay the global costs of R&D for new medicines.

2. The R&D committee should agree to develop global norms that it would promote. These norms should address the core issue of what minimum fraction of GDP (or health budgets) are appropriate for a country's support for R&D on new medicines. This is, after all, the implicit objective of the current US demands on Korea, Australia and other countries.

3. The R&D committee should then identify different ways that countries could satisfy those global norms, including, but not limited to, the purchase of innovate drugs (at profitable prices). Public sector R&D spending should also be included as a legitimate way to pay for global R&D costs. So too might other, newer methods. Countries would have flexibility in how they reached the norms -- but not if they reached the norms.

In this approach, USTR could begin to rationalize the solution to a legitimate and important trade issue -- how do we best address the global free-rider issue, when it comes to development of new medicines? If USTR followed this approach, it would enjoy much greater support from consumer and public health groups, and more favorable global acceptance. The new paradigm would also generate good will toward the United States -- something that is not unimportant, in our opinion.

Malaysia and Thailand

Malaysia and Thailand are much less developed than Korea. Here the overriding issues regarding medicines are likely to be those involving intellectual property rights. Three years ago, neither of these countries was providing triple therapy for AIDS patients. Since then, Malaysia has issued compulsory licenses on patents for key AIDS drugs, and expanded AIDS treatment, and Thailand has expanded triple therapy to its large AIDS population, using inexpensive generic medicines. Neither Malaysia nor Thailand can sustain universal treatment for AIDS and other severe illnesses unless they can take advantage of (or creditably threaten to use) the full flexibilities of the TRIPS, as set out in paragraph 5 of the 2001 Doha Declaration on TRIPS and Public Health. A Singapore type IPR agreement for these countries will literally kill patients, for many years. It will be an unpopular measure that will tarnish the US reputation in this region of the world.

It would be reasonable to ask both Malaysia and Thailand to join the R&D committee discussed above. This should be the avenue that the US begins to explore.

If the US begins to look at the issue of sharing R&D costs, it can regain much respect and support from the public health community -- something that has been in decline since 2002.


Sincerely,


James Love, Director, CPTech

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