[Ip-health] Articles wanted (Bollyky in Foreign Affairs & Dean Baker rebuttal)

Peter Maybarduk pmaybarduk at citizen.org
Tue Apr 12 11:01:24 PDT 2016


Text of the first article, Bollyky's in Foreign Affairs, below, followed by a response from Dean Baker, which is also available here: http://cepr.net/blogs/beat-the-press/prescription-drugs-and-the-trans-pacific-partnership-big-pharma-hit-by-skills-shortage

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Foreign Affairs
A Dose of the TPP's Medicine
Why U.S. Trade Deals Haven't Exported U.S. Drug Prices
By Thomas J. Bollyky

Pharmaceuticals are at the center of the debate over the Trans-Pacific Partnership (TPP), as they have been for every recent U.S. trade deal. Democrat Hillary Clinton, former secretary of state and current presidential candidate, has highlighted overly generous terms for drug companies as one of the main reasons she opposes the TPP. Republican Orrin Hatch, chairman of the Senate Finance Committee, has said that the TPP does not match the incentives for drug research that exist in U.S. law, which may justify waiting for a new president to negotiate a better deal. Meanwhile, both health activists and drug companies oppose the TPP, as they have three of the last four U.S. trade deals.

Underlying the fight over trade and medicines is an assumption held by both sides of the debate: that the drug patents and other guarantees of exclusivity in recent U.S. trade deals will operate in practice as those rules do in the United States. If so, one would expect to see higher prices on patented and branded medicines, resulting from the delayed competition with low-cost generics. In short, the pharmaceutical markets in countries with recent U.S. trade deals should become more like that in the United States.

As indicated by new evidence from 15 of the 17 countries with recent U.S. trade deals with pharmaceutical terms that go beyond World Trade Organization (WTO) requirements, however, these markets have not become more like that in the United States. Some of these deals are more than a decade old, but there has not been a discernible shift in pharmaceutical spending in these countries away from cheap generic drugs.

More substantial effects might arise over time, but the current evidence suggests that it may be time to move beyond the large pricing and spending claims made for and against the pharmaceutical provisions in U.S. trade deals and to focus the trade and medicines debate elsewhere.

One factor that has perpetuated the long fight over trade and medicines has been limited data. The United States has trade deals with pharmaceutical protections that go beyond those in the WTO with 17 countries. But just two small studies (on Jordan and Guatemala) have assessed how those deals affected drug prices in practice. Most claims made for and against drug patents and other guarantees of exclusivity are based on projections grounded in how those rules operate in the United States.

With the help of the IMS Institute for Healthcare Informatics, the leading source for pharmaceutical sales data worldwide, it is possible to begin to assess how these projections have played out in practice. The data, which cover a decade, show that national drug spending has remained flat as a share of overall health expenditure in reviewed countries since the U.S. trade agreements entered into force.
 
The growth in per capita pharmaceutical spending is in line with that for nations of similar income with no U.S. trade deals and no exclusivity requirements, such as Brazil, Thailand, and South Africa.
 
Meanwhile, the volume of pharmaceuticals consumed has grown, and there has been no discernible trend toward on-patent or branded medicines and away from cheap generic drugs.

There are, of course, important caveats. First, aggregate pharmaceutical sales might not capture the disproportionate impact that U.S. trade deals have on certain drugs and classes of medicines. This is especially true for the six Central American countries for which IMS Health has only combined sales data. 

Second, the full effects of expanded pharmaceutical patents or market exclusivity may take longer than a decade to manifest. Third, the IMS Health data do not necessarily comprehensively cover all drug distribution channels, particularly in low- and middle-income countries, although it is the same data set Oxfam used to study drug prices after Jordan's trade deal with the United States.

Still, even with these caveats in mind, if U.S. trade deals spurred the large drug price increases and shifts away from lower-cost generics that many predicted, some sign of those changes should be evident even in the aggregate pharmaceutical sales data. The limited results are also consistent with the recent testimony of Peru's ambassador to the United States that Peru's prescription drug prices rose less than three percent since its U.S. trade deal.

PRICEY PRESCRIPTIONS

There are four reasons why trade deals might not have set off increased spending on medicines or shifts away from lower-cost generics.
First, pharmaceutical patents and market exclusivity rules have a significant impact on drug prices in the United States but less dramatic effects in countries with price controls and health providers that are willing to exclude expensive medicines from formularies. For these reasons, European Union countries, which also have strong pharmaceutical patent and market exclusivity guarantees, still pay much lower average drug prices than the United States. The adoption of stringent price controls since the launch of the WTO is likely also why there has been an apparent decline in patented drug prices in poorer nations.

Second, the manner in which countries implement trade agreements matters and may differ from outside analysts' readings of the text. A decade ago, India adopted drug patents in accordance with WTO rules, and many health activists forecast disaster. Yet a recent World Bank study found that the price of drugs that got patents in India increased just three to six percent. There was also little change in the quantities of medicines sold or number of drug firms operating in India. The reason? India adopted price controls and strict standards on the patentability of drugs. The pharmaceutical terms of recent U.S. trade deals are far more prescriptive than in the WTO, but countries still interpret and implement those terms in accordance with their domestic interests, which generally blunts their effects.
 
Third, the pricing practices that led to past crises in treatment access may be becoming less common. Two decades ago, drug companies, concerned about undercutting sales in rich-country markets, adopted internationally consistent prices for their antiretroviral medicines amid an exploding HIV/AIDS epidemic. 

The high price of these lifesaving drugs in South Africa incited protests, court battles, and a public relations disaster for the pharmaceutical industry. In recent years, drug companies have more widely employed the strategies that helped defuse that HIV/AIDS treatment access crisis-deep price cuts for poorer nations and licensing some production to local generic companies. Health advocates are understandably wary that these measures depend on drug industry largesse, but their broader use might help explain why U.S. trade deals have not led to more drug spending or shifts to patented medicines.
Fourth, U.S. trade agreements do not apply retroactively to medicines that are already on the market. The share of medicines launched after a U.S. trade deal that are eligible for patents or exclusivity increases over time-originator medicines launched in the decade since Australia's trade deal with the United States represent 13 percent of that market-but slowly. Only a subset of those drugs will gain patents or exclusivity, owing to the expanded terms in U.S. trade deals.

Looking only at the medicines most likely to be affected by U.S. trade deals does not produce a different result. U.S. trade deals require countries to grant exclusivity to newly approved medicines and their uses, delaying otherwise off-patent "originator" drugs from having to compete with low-cost generics. For four of the countries with recent U.S. trade deals, IMS Health has data on the off-patent originator medicines launched before and after those agreements. These data show no upward trend in the prices of drugs launched in the three years after these agreements entered into force. Different results might emerge with larger sample sizes and data from more countries with recent U.S. trade deals.
 
TPP AND BEYOND
There are reasons to believe that these general trends may also hold with the TPP. Most of the TPP countries have previously entered into U.S. trade deals and already have variants of the pharmaceutical patent and exclusivity terms required by the TPP. In the areas where the agreement mandates a significant change, the less wealthy countries in the TPP get more time to adopt it. The TPP provides Vietnam, for example, up to 18 years to adopt data exclusivity for new biologics. Most TPP countries, including less wealthy ones such as Mexico and Vietnam, already regulate drug prices; Peru is pursuing a bill to do so.

So is the treatment access debate overblown? If the concern is drug prices and spending, evidence suggests that the pharmaceutical provisions in U.S. trade deals may not justify the large claims made for or against their inclusion. More substantial price effects might arise over time, but it is hard to find empirical data suggesting this is starting to occur.

If the fundamental concern is less about prices and more about drug development, there may be more to the trade and medicines debate. The goal of U.S. trade negotiations on intellectual property is congressionally mandated: ensuring "a standard of protection similar to that found in U.S. law." For health activists who believe the patent-based model of drug development is unsustainable and inequitable, the use of trade agreements to spread and entrench that system internationally is deeply concerning. In a country where television viewers are routinely bombarded with expensive pharmaceutical ads for constipation, irritable bowel syndrome, and toenail fungus, these concerns may resonate.

But having the fight over U.S. trade deals focus on their effect on international drug prices (where the evidence is thin) ensures that those concerns go unaddressed. And so, the pharmaceutical terms of each U.S. trade agreement are usually more expansive and prescriptive than the last but include phase-ins and other concessions to mitigate price effects in other countries that may never arise.

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Prescription Drugs and the Trans-Pacific Partnership: Big Pharma Hit by Skills Shortage
Published: 26 March 2016

According to a Foreign Affairs piece by Council on Foreign Relations Fellow Thomas Bollyky, the major pharmaceutical companies are being run by people who don't know what they are doing. While they have devoted a large amount of time and resources to putting strong language on patent and related protections in U.S. trade agreements, including the recently concluded Trans-Pacific Partnership (TPP), Bollyky claims that these deals really don't have much impact on drug prices in the partner countries. If Bollyky is right, the executives of Pfizer, Merck, and other major drug companies are just wasting energy that could be better devoted to other pursuits.

Unfortunately, Bollyky's piece seems more designed to push the TPP than to seriously examine the extent to which drug prices in the member countries are likely to be affected by the deal. His main method for establishing his case is to look at past trade agreements that imposed tighter patent and related protections for prescription drugs and show that there was no sharp jump in drug prices immediately following the signing of an agreement. This is not a surprise.

In most cases, the rules in these agreements will only apply to new drugs, and even then to a subset of new drugs, for example patent protection for a drug that is a combination of already approved drugs. They may also allow for the extension of patent terms beyond the date where they would have expired under pre-trade deal rules, but here again the impact will only be felt gradually over time.

Furthermore, the date of a trade deal with the United States may not be the key factor in pushing up drug prices. The United States signed a deal with South Korea in 2012 that required stronger patent and related protections, but most of these conditions were already law as of 2009 due to a trade agreement Korea signed with the European Union. Apparently the executives of European drug companies also waste their time trying to impose these rules in trade deals.

If Bollyky was interested in actually examining evidence of the impact of trade deals on drug prices it is not hard to find. An analysis of the impact of the rules in the 2001 trade agreement between the United States and Jordan found that it had increased annual spending on drugs by $18 million by 2004. This is slightly less than 0.16 percent of Jordan's GDP in that year, the equivalent of $28 billion annually in the U.S. economy today.

There is a similar story of sharply higher drug spending in Morocco, which signed a pact with the United States in 2006. In Morocco, spending on drugs went from $662 million in 2009 (0.7 percent of GDP) to $1.4 billion (1.4 percent of GDP) in 2015.

It's true that there have not been notable price increases everywhere. For example, Australia has a well-developed public health system where they set reimbursement rates based on a drug's effectiveness. Australia did its best to try to protect this system in negotiating its trade deal in 2004. There is a similar story with the Chile trade deal negotiated the same year. The country insisted on limiting the scope of the stronger rules on data exclusivity, so that the impact on drug prices would be limited.[1]

While there may be cases where a trade agreement quickly leads to a rapid increase in prices, as appears to have been the case with both Jordan and Morocco, this is more a story of gradually increasing protections both across and within countries. The drug companies want stronger and longer patent and related protections everywhere. Every victory is a stepping off point for further demands for even stronger protections. And every country that imposes stronger protections puts more pressure on the ones that have not.

To take the most basic case, the TRIPS agreement that was attached to the Uruguay Round of the WTO in 1994 required that developing countries adopt U.S. style patent protection. However, the deal also allowed fairly liberal terms for compulsory licensing, a government imposed requirement that drug companies license the use of a patented drug. Since that time, the United States government has worked hard to sharply limit the conditions under which countries could issue compulsory licenses through bilateral trade deals and other efforts at coercion.

The TPP is a major part of this process. It is about imposing tighter rules on the countries in the pact, and since it is quite explicitly designed to be expandable, the goal is to gradually have these rules apply to more countries over time. The pharmaceutical industry's dream is to eventually include India in this pact, largely shutting down the world's leading producer of generic drugs.

Bollyky does more or less get the story right near the end of his piece when he comments:

"For health activists who believe the patent-based model of drug development is unsustainable and inequitable, the use of trade agreements to spread and entrench that system internationally is deeply concerning."

Except that it is not just "health activists" who have this view. There are also many economists who think that a 16th century system of patent monopolies derived from the feudal guild system is not an especially good way to finance the development of drugs in the 21st century. After all, most economists would agree that imposing a 10,000 percent tariff on a product is really bad policy. And having a drug patent that raises the price of a prescription drug to 100 times the generic price has the same distorting and corrupting impact as a 10,000 percent tariff. The market doesn't care that we call the government intervention a "patent" rather than a tariff.

Even people in the drug industry are coming to recognize that the model must change. Andrew Witty, the outgoing CEO of GlaxoSmithKline recently called for delinking the price of drugs from their research costs. He suggests that governments reimburse drug companies on a cost-plus basis for their research and allow new drugs to be sold as generics.

So Bollyky is absolutely right that the real battle is about sustaining and extending an incredibly inefficient and corrupt system of financing drug research or moving to a more modern method. From the standpoint of protecting industry profits, the drug company executives are probably not wasting their time lobbying for the former.

[1] Data exclusivity prevents a generic company from relying on the clinical test results of a brand drug company. In some ways it is a stronger restriction than a patent, since it is often possible to invent around a patent. The restriction on test data would require a company to needlessly due clinical trials on a drug that has already been shown to be effective. Such tests would violate medical norms, since they needlessly expose patients to trial protocols when there is no plausible medical benefit.

-----Original Message-----
From: Ip-health [mailto:ip-health-bounces at lists.keionline.org] On Behalf Of joan
Sent: Tuesday, April 12, 2016 1:42 PM
To: ip-health at lists.keionline.org
Subject: [Ip-health] Articles wanted

Hello

Anyone who may have access to these articles can please share with the list?

https://www.foreignaffairs.com/articles/2016-03-23/dose-tpps-medicine

https://www.aeaweb.org/articles?id=10.1257/aer.20141482


Thanks

Joan Tallada

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