Trump’s Drug Pricing Executive Order is Likely to be an Unfettered Giveaway to Big Pharma: Insights from 2017 Special 301 Report

BY: Professor Brook K. Baker, Northeastern University School of Law; Health GAP, Senior Policy Analyst  

An Executive Order (EO) on drug pricing anticipated from President Trump will advance intellectual property standards and protections that support unrestricted monopoly pricing by multinational biologic and pharmaceutical companies overseas. Far from reducing prices for US consumers, these efforts will obstruct access to essential medicines in foreign countries while maintaining price-gouging practices in the US. The EO will do so based on claims that foreign countries provide insufficient protection for US pharmaceutical companies’ monopoly interests and thus that US consumers and payers pay more than their fair share towards research and development.  According to a leaked memorandum addressing President Trump’s expected Executive Order on drug prices and trade policy:  

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

The unstated assumption of insisting on higher drug prices abroad, including in low- and middle-income countries, is that Big Pharma will thereafter give price breaks in the US.  There is, of course, no past evidence of this despite 20-plus years of heightened global standards for pharmaceutical intellectual property post passage of the 1994 WTO Agreement on Trade Related Aspects of Intellectual Property.  Furthermore, there is no enforceable commitment – indeed no discernable signal – that Big Pharma intends to de-escalate its relentless pursuit of maximal profits by regularly inflating products on existing medicines and by hyper-pricing new medicines. It would be naïve in the extreme to assume Big Pharma would voluntarily reduce US prices alongside extracting price increases in poorer countries. 

The Trump EO is expected to draw particular attention to “priority watch list” countries identified in the USTR’s 2017 Special 301 Report: Algeria, Argentina, Chile, China, India, Indonesia, Kuwait, Russia, Thailand, Ukraine, and Venezuela.  Based on biased claims submitted by industry, the Special 301 Report, and thus the Executive Order, attempt to justify US trade and diplomatic pressure on countries about policies and practices that in industry’s perspective do not adequately protect their interests in longer, stronger, and broader IP exclusivities and highly punitive enforcement powers.  Executive power to pressure countries to adopt and enforce US-style drug monopolies was strengthened in section 601 of the 2016 Trade Facilitation and Traded Enforcement Act.  Under the Act, the USTR must develop an action plan with benchmarks for each foreign country that the USTR has placed on the Priority Watch List for at least one year.  If priority watch list countries do not adequately respond to the USTR’s proposed benchmarks, the President may take “appropriate action,” which based on past precedent might include reduced federal procurements, suspension of certain financing opportunities, and suspension of preferential trade benefits.

In its details, the Special 301 Report focuses on counterfeit medicine enforcement measures, stringent patentability criteria, lack of monopoly protections on regulatory data submitted to drug regulatory authorities, patent examination backlogs, technology transfer and local working requirements, price control measures, and other alleged market entry barriers.

An entire subsection of the 2017 Special 301 Report is devoted to presenting industry’s perspective. 

Pharmaceutical and Medical Device Innovation and Market Access 

In order to facilitate both affordable health care today and the innovation that assures improved health care tomorrow, USTR has sought to reduce market access barriers to pharmaceutical and medical devices, including measures that discriminate against U.S. companies, are not adequately transparent, or do not offer sufficient opportunity for meaningful stakeholder engagement. This year’s Report highlights concerns regarding market access barriers affecting U.S. entities that rely on IP protection, including those in the pharmaceutical and medical device industries, particularly in Algeria, India, and Indonesia.

Measures, including those that are discriminatory, nontransparent, or otherwise trade-restrictive, have the potential to hinder market access in the pharmaceutical and medical device sector, and potentially result in higher healthcare costs. For example, taxes or tariffs may be levied—often in a non-transparent manner—on imported medicines, and the increased expense associated with those levies is then passed directly to healthcare institutions and patients. By some estimates, federal and state taxes can add 38 percent to the cost of medicines in Brazil, and according to an October 2012 WTO report titled “More Trade for Better Health? International Trade and Tariffs on Health Products,” India maintains some of the highest tariffs on medicines, pharmaceutical inputs, and medical devices among the WTO members identified in the report. These tariffs, combined with domestic charges or measures, particularly those that lack transparency or opportunities for meaningful stakeholder engagement or that appear to exempt domestically developed and manufactured medicines, can hinder government efforts to promote increased access to health-care products. 

Moreover, unreasonable regulatory approval delays and non-transparent reimbursement policies can impede a company’s ability to enter the market, and thereby discourage the development and marketing of new drugs and other medical products. The criteria, rationale, and operation of such measures are often nontransparent or not fully disclosed to patients or to pharmaceutical and medical device companies seeking to market their products. The United States encourages trading partners to provide appropriate mechanisms for transparency, procedural and due process protections, and opportunities for public engagement in the context of their relevant health care systems.  

The IP-intensive U.S. pharmaceutical and medical device industry has expressed concerns regarding the policies of several trading partners, including Algeria, Austria, Belgium, China, Colombia, Czech Republic, Ecuador, Hungary, Italy, Lithuania, New Zealand, Portugal, Romania, South Korea, Taiwan, and Turkey, on issues related to pharmaceutical innovation and market access. Examples of these concerns include the following:

    • A ban in Algeria on a significant number of imported pharmaceutical products and medical devices in favor of local products is a trade matter of paramount concern and is the primary reason why Algeria remains on the Priority Watch List. The United States urges Algeria to remove this market access barrier that is also reportedly adversely affecting access to legitimate medicines.
    • The lack of efficiency, transparency, and fairness in the pharmaceutical manufacturing inspection process in Turkey.
    • A series of measures in several EU Member States, including Austria, Belgium, Czech Republic, Finland, Hungary, Italy, Lithuania, Portugal, and Romania that raise concerns with respect to transparency and the opportunity for meaningful stakeholder engagement in policies related to pricing and reimbursement, and reportedly create uncertainty and unpredictability that adversely impact market access and incentives for further innovation.
    • Proposals in Colombia and Ecuador that could adversely affect market entry and investment and, in effect, limit access by consumers to the latest generation of medicines.
    • Policies and the operation of New Zealand’s Pharmaceutical Management Agency (PHARMAC), which include, among other things, the lack of transparency, fairness, and predictability of the PHARMAC pricing and reimbursement regime, as well as negative aspects of the overall climate for innovative medicines in New Zealand.

The United States seeks to establish, or continue, dialogues with trading partners to address these and other concerns and to encourage a common understanding on questions related to innovation in the pharmaceutical and medical device sectors. The United States also looks forward to continuing its engagement with our trading partners to promote fair and transparent policies in this sector.

 

With respect to alleged counterfeiting problems, the Report alleges:

Many countries, however, do not provide penalties that deter criminal enterprises engaged in global trademark counterfeiting operations. Even when such enterprises are investigated and prosecuted, the penalties imposed often are low. Rather than deter further infringements, such penalties merely add to the cost of doing business.

The United States continues to urge trading partners to undertake more effective criminal and border enforcement against the manufacture, import, export, transit, and distribution of counterfeit goods. USTR engages with its trading partners through bilateral consultations, trade agreements, and international organizations to help ensure that penalties, such as significant monetary fines and meaningful sentences of imprisonment, are available and applied to deter counterfeiting. In addition, trading partners should ensure that competent authorities seize and destroy counterfeit goods, as well as the materials and implements used for their production, thereby removing such goods from the channels of commerce. … Trading partners should also provide enforcement officials with the authority to seize suspect goods and destroy counterfeit goods in country and at the border during import or export, or in transit movement, ex officio, without the need for a formal complaint from a right holder.

In particular, the manufacture and distribution of pharmaceutical and biopharmaceutical (“pharmaceutical”) products and active pharmaceutical ingredients bearing counterfeit trademarks is a growing problem that has important consequences for consumer health and safety. Counterfeiting contributes to the proliferation of substandard (medicines that do not conform to established quality standards), unsafe medicines that do not conform to established quality standards. The United States notes its particular concern with the proliferation of counterfeit pharmaceuticals that are manufactured, sold, and/or distributed in numerous trading partners, including China, Guatemala, India, Indonesia, Lebanon, Peru, and Russia.

 

Concerning patentability criteria and regulatory data monopolies, the Report states:

U.S. innovators face challenges including restrictive patentability criteria, that undermine opportunities for export growth in countries such as Argentina, Canada, India, and Indonesia. Innovators also face—for example in China, India, Indonesia, Thailand, and Russia—a lack of adequate and effective protection for regulatory test or other data submitted by pharmaceutical and agricultural chemical producers.

Following its focus on particular IP-related concerns, Special 301 Report has country reports, most relevantly with respect to priority countries.  The Executive Order and Special 301’s veiled threats against India are of special concern because it is the “pharmacy of the developing world” and currently supplies 90+% of antiretrovirals to treat HIV in low- and middle-income countries.

India has yet to take steps to address longstanding patent issues that are affecting innovative industries. These include the application of narrow patentability criteria, challenges faced by the pharmaceutical industry due to Section 3(d) of the India Patents Act … . Innovative companies remain concerned about the potential threat posed to their IP through the possible use of compulsory licensing and patent revocation, as well as overly broad criteria for issuing such licenses and revocations under the India Patents Act. Across all industries, patent applicants face costly and time-consuming patent opposition hurdles, long timelines for receiving patents, and excessive reporting requirements. In the pharmaceutical and agricultural chemical sectors, India continues to lack an effective system for protecting against the unfair commercial use, as well as the unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for such products. In the pharmaceutical sector, India lacks an effective system for notifying interested parties of marketing approvals for follow-on pharmaceuticals in a manner that would allow for the early resolution of potential patent disputes. Innovative industries also face pressure to localize the manufacture of their products, including due to the Drug Price Control Order and to high customs duties directed to IP-intensive products, such as medical devices, pharmaceuticals, … .

 

The Special 301 Report also picks on Indonesia since it adopted several pro-generic amendments to its patent legislation:

USTR identifies Indonesia on the Priority Watch List due to the lack of adequate and effective IP protection and enforcement. For example, revisions to Indonesia’s patent law has raised serious concerns, including with respect to the patentability criteria for incremental innovations and computer implemented inventions and local manufacturing and use requirements. …  In Indonesia, new amendments to its Patent Law appear to require that the manufacture of patented products and use of patented processes take place in Indonesia. Also, it is reported that foreign companies’ approvals to market pharmaceuticals in Indonesia are conditioned upon the transfer of technology to Indonesian entities or upon partial manufacture in Indonesia. … Indonesia also lacks an effective system for protecting against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products.

China is targeted in multiple areas, but IP protections for pharmaceuticals are highlighted in several areas: 

Serious challenges in China continue to confront U.S. intellectual property (IP) right holders with respect to adequate and effective protection of IP, as well as fair and equitable market access for U.S. persons that rely upon IP protection. China must enact new measures and policies that provide stronger and more effective protection for IP; allow market access for IP-intensive products, services, and technologies; and enhance the effectiveness of civil enforcement in Chinese courts.

The extent of manufacturing and sale in China, and export from China, of counterfeit goods also continues to be a major concern. These counterfeits include those sold in markets that are identified in the annual Out-of-Cycle Review of Notorious Markets, and those that pose health and safety risks. … Special measures should address counterfeit products that present health and safety risks, including pharmaceuticals, medical devices … .

China’s promotion of self-sufficient, indigenous innovation through policies on patents and in related areas, including standards and competition law, implicates a cross-cutting set of concerns. China must ensure that present and future Information and Communications Technology (ICT) policies (and other policies) do not disadvantage foreign IP-intensive industries by, inter alia, conditioning market access on the disclosure of IP and proprietary information, the localization of research and development, or by invoking “secure and controllable” standards, risk criteria, product reviews, or similar requirements that are disadvantageous to foreign firms. Also critical is that China eliminate discriminatory requirements and incentives to transfer technology to, or develop technology in, China. These policies affect U.S. IP holders across a range of sectors including ICT, medical devices, biotechnology … .

Additional concerns in this area include the extent to which China provides, as set forth in China’s World Trade Organization (WTO) Working Party Report commitments, effective protection against unfair commercial use of, unauthorized disclosure of, and reliance on, undisclosed test or other data generated to obtain marketing approval for pharmaceutical products. The extent of protection has turned, in part, on the definition of terms such as “new chemical entity” and “new drugs” as they appear in a number of draft and final measures. In particular, in March 2016, China put into effect a Work Plan for the Reform of Chemical Drug Registration Categories, which limits the definition of “new drugs” to those for which initial marketing approval is first sought in China. In March 2017, CFDA issued the Draft Decision of Import Drugs Registration Management Adjustment, which also makes reference to China’s problematic definition for new drugs. This definition is inconsistent with harmonized practice, reflected in the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use, and represents a failure to implement China’s related commitment of the 2012 Joint Commission on Commerce and Trade (JCCT).

Other concerns include the lack of an effective mechanism for notifying interested parties of marketing requests or approvals for follow-on pharmaceuticals in a manner that would allow for the early resolution of potential patent disputes. China also needs to implement commitments to address regulatory approval backlogs, streamline procedures, and to close gaps in its regulation of active pharmaceutical ingredients to curb the production and export of substandard pharmaceuticals (including some counterfeits).

Thailand, Algeria, Argentina, and Chile are targeted with respect to patents and data exclusivity:

The United States also continues to encourage Thailand to provide an effective system for protecting against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products. In addition, the United States urges Thailand to engage in a meaningful and transparent manner with all relevant stakeholders, including IP owners, as it considers ways to address the country’s public health challenges while maintaining a patent system that promotes innovation.

Significant challenges continue with respect to fair and equitable market access for U.S. IP right holders in Algeria, notably for pharmaceutical and medical device manufacturers. Algeria’s ban on a vast number of imported pharmaceutical products and medical devices in favor of local products is a trade matter of serious concern. Further, Algeria continues to struggle to provide adequate and effective IP protection and enforcement. Algeria fails … to provide adequate judicial remedies in cases of patent infringement. Algeria does not provide an effective system for protecting against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products.

Argentina continues to present long standing and well-known deficiencies in IP protection and enforcement, and is a challenging market for IP-intensive industries. … There are also a number of ongoing challenges to innovation in the agricultural chemical, biotechnology, and pharmaceutical sectors, including with respect to patent pendency, scope and term of patent protection, and meaningful enforcement options. There is a substantial backlog of patent applications resulting in long delays to obtain protection and register rights, and Argentina does not provide provisional protection for pending patents. Pursuant to a highly problematic 2012 Joint Resolution establishing guidelines for the examination of patents, Argentina summarily rejects patent applications for categories of pharmaceutical inventions that are eligible for patentability in other jurisdictions, including in the United States. Additionally, to be patentable, Argentina requires that processes for the manufacture of active compounds disclosed in a specification be reproducible and applicable on an industrial scale. Industry asserts that Resolution 283/2015, introduced in September 2015, also limits the ability to patent biotechnological innovations based on living matter and natural substances. These measures have interfered with the ability of companies investing in Argentina to protect their IP and may be inconsistent with international norms. The United States also remains concerned that Argentina does not appear to provide adequate protection against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical or agricultural chemical products.

The United States also urges Chile to implement an effective system for addressing patent issues expeditiously in connection with applications to market pharmaceutical products and to provide adequate protection against unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products. 

Venezuela’s Autonomous Intellectual Property Service (SAPI) has not issued a new patent since 2007, and has substantially increased patent filing and maintenance fees. …  Venezuela also fails to provide an effective system for protecting against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products.

Addressing Russia, the Report focuses on counterfeits and data exclusivity:

Russia is a thriving market for counterfeit hard goods sourced from China, entering the country through Kazakhstan, Kyrgyzstan, and Azerbaijan. Stakeholders report nominal customs seizures in 2016. Similarly, there is little enforcement against the trafficking in counterfeits online, including … pharmaceutical products … .  The United States also is concerned about Russia’s implementation of the commitments it made in the WTO Working Party Report related to the protection against unfair commercial use of, unauthorized disclosure of, and reliance on, undisclosed test or other data generated to obtain marketing approval for pharmaceutical products. Stakeholders report that Russia is eroding protections for undisclosed data, and the United States urges Russia to adopt a system that meets international norms of transparency and fairness.

 

Conclusion:

Presented as fulfilling a promise to US voters that drug prices will decline, President Trump has instead given the pharmaceutical industry yet another pathway to amass super-monopoly profits.  Under the guise of protecting US pharmaceutical intellectual property rights, the Administration has failed to secure any actual commitment to moderate price increases in the US and has instead proposed expanded exclusivities and market power in other countries, including low- and middle-income countries already reeling under IP-enhanced pricing power gained by industry in the aftermath of the TRIPS Agreement.  Unless restrained, Big Pharma gouges – to the extent that the market will bear, and that’s quite an extent when health and lives are at stake.  Congress and trade and health activists must reject false siren call of protecting Big Pharma and instead explore policies that actually reduce rather than accelerate monopoly pricing. 

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