TPP: profits before patients

The news yesterday that the secretive Trans-Pacific Partnership (TPP) negotiations have concluded is one that should worry Canadians, especially in regards to the relationship between intellectual property rights (IP) and pharmaceuticals (the text of the TPP includes 29 chapters, only five of which are about trade). Even the likes of Paul Krugman have changed their tune and stated, “this is not a trade agreement. It’s about intellectual property and dispute settlement; the big beneficiaries are likely to be pharma companies and firms that want to sue governments.” Nobel Laureate Joseph Stiglitz recently added that, “you will hear much about the importance of the TPP for 'free trade.' The reality is that this is an agreement to manage its members’ trade and investment relations – and to do so on behalf of each country’s most powerful business lobbies. Make no mistake: It is evident from the main outstanding issues, over which negotiators are still haggling, that the TPP is not about “free” trade.”

In many ways this deal follows the same hollow rhetoric and predacious IP changes that we have seen in CETA; it is no exaggeration to say that these deals put corporate profits far ahead at the expense of patients wellbeing, regulatory independence, and sound public health policy (for a more in depth review of CETA and healthcare see more here). It should be highlighted that if you had to pick the biggest loser in the TPP (among many), it is likely patients and providers in developing countries.  Doctors without borders  has explained that the, “TPP will still go down in history as the worst trade agreement for access to medicines in developing countries, which will be forced to change their laws to incorporate abusive intellectual property protections for pharmaceutical companies.” For example, longer exclusivity periods for drugs and changes to current practices which include generic drugs will put a huge pressure on the budgets of many countries in the deal and significantly reduce access to life saving drugs.  In Vietnam for example, the poorest country in the TPP, it is estimated that 45,000 people could stop getting drugs to fight HIV because of provisions that will boost the price of therapy (68 percent of Vietnam’s eligible HIV patients currently receive treatment, but post-TPP only 30 percent could retain access to antiretrovirals).

Piecing together what the TPP really means through leaked texts, the scant details on government websites, and quotes from self-congratulatory press conferences, a few things are starting to become clear about the secretive deal. For many countries the TPP  changes in IP rules will have a major impact on their current “patent linkage,” “data exclusivity,” “evergreening,” and “biologics” policies; it will allow pharmaceutical companies to extend their monopolies and on patented medicines while keeping cheaper generics or biosimilars off the market. It also means a likely increase in ISDS claims from companies, increased drug costs, and, for Canada, it puts up another road block for implementing a national drug plan (pharmacare). The United States had pushed for longer monopoly protections (12 years) for pharmaceutical companies to encourage ‘innovation,’ despite evidence pointing out this is spurious at best. It is believed that as a result of a two track ‘compromise’, the TPP agreement establishes eight years during which brand-name drug companies have exclusive rights know as ‘data exclusivity’ for biologics (more on that shortly), or a minimum a five-year period with up to three more years under a regulatory framework in the TPP.  In either case, the number settled on seems to be 8 years where large pharmaceutical companies have a pure monopoly on life saving drugs. It has been highlighted that, for many of the TPP parties, data exclusivity for the life-saving drugs, which results in a delay for more affordable generic variants, is completely new. Mexico, Vietnam, Malaysia and Brunei so far provide no exclusivity for biologics. Chile, Australia, New Zealand and Singapore provide five years, but for Chile it is unclear if the five extend to biologics. Only Japan and Canada provide eight.”

-Data from US Chamber of Commerce Global Intellectual Property Center (GIPC) released the third edition of its GIPC International IP Index 

 

For developing countries the transition period to meet the TPP’s protections for pharmaceutical companies will be, “very short and apply to only a few of the most harmful rules. Exceptions will be limited to very few rules or countries. Within a few years, most, if not all, harmful TPP rules will apply to all countries.”  To make matters worse, it is believed that the TPP will encourage further ‘evergreening,’ which is when drug companies seek, “extra patents on variations of the original drug – new forms of release, new dosages, new combinations or variations, or new forms. Big pharma refers to this as “lifecycle management”. Even if the patent is dubious, the company can earn more from the higher prices than it pays in legal fees to keep the dubious patent alive.” This can seen in statements that came out even before the negotiations concluded where a biotech analyst stated, “I don’t think this is a big deal for us... Biotech patents have historically been very long-lived, more durable than either 8 or 12 years of government-granted exclusivity.” This is a big deal though for countries like the Philippines and India which have implemented safeguards in their national patent laws to limit “evergreening” and protect public health.

'Evergreening' Drugs: An attack on access to medicines from MSF Access Campaign on Vimeo.

 

Much of the discussion has also centred around ‘biologics’ which deserves closer attention as the devil is in the details. Biologics are a class of medical products that include a wide range of products that are made from biological sources generally offering a high efficacy and few side effects. Most of the drugs we are familiar with are chemically synthesized and are made up of a relatively simple combination of molecules. Biologics are made of giant molecules that are many hundreds of times the size of conventional drug molecules (a molecule of aspirin consists of 21 atoms, where as biopharmaceutical molecule might contain anything from 2,000 to 25,000 atoms); they can be composed of sugars, proteins, or nucleic acids or complex combinations of these substances; and are manufactured inside animal cells or micro-organisms such as bacteria that have reprogrammed to do our bidding. For instance a, “good example is insulin, considered to be the first biologic. It’s made by bacteria, implanted with a human gene. The bacteria effectively become little factories, churning out the insulin protein diabetics can use.” Biologics also tend to be difficult to manufacture and package as they can change in unpredictable ways during manufacturing. For example, “Eprex, a well-tested biologic for anemia in kidney disease. A small change in its production methods – a switch to uncoated rubber syringe stoppers – led to some patients getting pure red cell aplasia, which causes severe anemia.”

But, the real truth to the matter is that biologics are in the TPP because they represent big money for pharmaceutical companies as new chemically synthesized drugs offer less of a chance for ‘blockbuster’ drugs than biologics. The global biopharmaceuticals market was valued at US$ 161,851.6 billion in 2014 and is expected to expand at  rate of 9.4% to reach US$ 278,232.9 Billion by 2020. Other studies believe the global market biologics will reach $386.7-billion by the end of 2019. Further, biologics are expected to account for approximately 17% of total global spending on medicines by 2016 and reach an overall market value of $200 billion to $210 billion in 2016, up from $157 billion in 2011. Biologics provided roughly 22% of the big pharma companies’ sales in 2013, will likely rise to 32% by 2023. Pharmaceutical companies are increasing shifting their R&D to biologics (the number of biotech patents applied for every year has been growing at 25 percent annually since 1995) as it has yielded better returns than the pharma-industry average. For example, the top 15 biologics have a minimum annual revenue of more than $2 billion each, with some like Humira generating sales of more than $10 billion a year.

The further entrenchment of biologic patents in the TPP is an attempt to stop Subsequent Entry Biologics (SEB) from entering the highly profitable market. SEBs (called biosimilars or follow-on biologics in other countries) are in some ways ‘generic’ versions of biologics, but biologics are more difficult to copy than conventional drugs.  The TPP agreement will prevent more affordable SEBs from entering the market for a longer period of time in places that previously had no bar to entry (this will have a disproportionate effect on the poorest nations in the TPP). Subsequently, SEBs tend to be not identical to their innovator biologic and are harder to copy than conventional drugs because their chemical characteristics cannot be precisely duplicated during the manufacturing process. This is good news for the big pharma companies and explains the heavy presence of biologics IP in the TPP; the challenges in producing SEBs allow for innovative biologic to continue to be sold at cripplingly high prices for longer periods. As the economist outlined, “the ‘patent cliff’, the slump in revenues they have been suffering as older remedies lose patent protection, is not as steep as feared.” As a result, the global market for SEBs is expected to be between $4 billion and $6 billion in 2016, representing 2% of biologics spending.

As we have seen in Canada, biologics are an increasing burden on health care budgets. In 2010, biologics comprised over 14 percent of the Canadian pharmaceutical market and cost the Canadian health care system more than $3 billion a year; biologics are expected to grow to approximately 20 percent of the market over the next decade. In 2013, the Canadian Institute for Health Information found that while public drug spending declined in many of the top drug classes, those savings were offset by increased spending on biologics. Remicade, for example, cost Ontario $84 million in 2012/13, or 4.3% of the Ontario Drug Benefit Plan’s drug budget. Across Canada, biologics are the largest cost driver in drug spending and three drugs alone accounted for $1.5 billion CAD in pharmaceutical spending in 2013. One class of biologics, TNF-alpha drugs, cost public health plans in British Columbia $130-million in 2013, with about 7,800 active beneficiaries. The next-most-expensive class of drugs, commonly used to treat schizophrenia, cost $41-million, with 87,000 beneficiaries. As is obvious, with so much money to be made it is no wonder the pharmaceutical companies lobbied so hard to increase IP protections in the TPP for biologics.

-Red denotes biologic drugs.  In 2008 only 2 biologics were in the top 10 (Enbrel and Remicade)

 

In Canada, of the SEBs currently approved for sale in Europe, only one is authorized for sale in Canada due to patent expiration dates.  SEBs are, “typically discounted between 15% and 30% from the cost of the reference drug. While Canadian prices for small-molecule generic drugs are relatively high by world standards, they can still be discounted by as much as 80% relative to the patented brands they copy.”  Due to the high start up cost and sophisticated technologies needed manufacturing biologics and SEBs, there is less of a price reduction and fewer companies enter into manufacturing SEBs.  As well, SEBs are not considered to be ‘generics’ so the Canadian provincial mandatory generic drug pricing rules do not apply to SEBs and there are number of unique regulatory challenges from Health Canada.  The picture should be clear at this point that rather than increasing competition globally and nationally for SEBs, the TPP is about protecting innovative biologics so big pharmaceutical companies can continue charging unjustifiably high rates and make huge profits.

Canada remains the only country with a universal medicare program that does not include a pharmacare (or national drug coverage) program.  Prescription drug coverage was recommended as a next step by the 1964 Royal Commission on Health Services. To this day, evidence-based studies continue to support the call for pharmacare. By pooling purchasing power and by buying drugs in bulk, it has been shown that a universal pharmacare plan would save Canada up to $11.4 billion a year and significantly improve health outcomes for Canadians. There is a growing call to implement a universal pharmacare program and two major political parties (the NDP and Green Party) have included this needed program in their election platforms. Canada also has one of the fastest rising drug costs per capita among OECD countries (which is only going to increase as more biologics enter the market) and it is estimated that changes to patent protection for pharmaceutical drugs in CETA alone could end up costing our public health care system anywhere between $850 million to $1.65 billion annually, and this will only increase with the TPP.  This is already up to 13% of the total drug costs Canadians pay annually. At approximately $900 per person, on a per capita basis, Canadian drug costs are already the 2nd highest in the OECD (after the United States). Currently, 1 in 10 Canadians are unable to fill their prescriptions due to cost, leading to inhumane health outcomes for much of the population. With over 3 million Canadians not being able to afford their prescription medication a year, it is estimated that between $7 and $9 billion in additional costs are added to the health care system as a result (1 in every 6 cases where people end up in the hospital could have been prevented if prescription drugs were used appropriately). Further, between 1997 and 2009, out of pocket expenditures for prescription drugs for the richest 20% in Canada have increased by 21%, while they increased by 64% for the poorest 20%.  Unfortunately, trade deals like the TPP only further accelerate this already untenable situation and could preclude the possibility of a universal pharmacare program through costly ISDS cases and the resulting regulatory chilling effect.

We know through the leaked chapters of the TPP that Investor State Dispute Settlement (ISDS) clauses are included in the deal. With regard to the much maligned ISDS mechanism it is “a parallel quasi-judicial arbitration system which allows foreign companies to sue national governments for measures which are deemed to unfairly undermine the profitability of their investments in that host country. Canadians are well familiar with this corporate kangaroo court because, unfortunately, we helped to invent it [in NAFTA].”  These systems effectively elevates foreign companies to the level of sovereign governments while allowing them to side step domestic laws and challenge a governments public interest policies before foreign tribunals. The extremely costly tribunals operate behind closed doors, and are comprised of judges and attorneys who unaccountable to the public. For a more in-depth look at ISDS clauses in trade deals please see this previous article. To make matters worse, Canada has also become a signatory to the International Centre for Settlement of Investment Disputes Convention (ICSID) on December 1st, 2013.  While there is sometimes a small chance domestic courts could refuse to pay ISDS that go against Canada under a public policy exemption, under the ICSID regime Canada has to pay no matter the circumstances. The only appeal mechanism of ICSID decision is to the ICSID review panel under a very restricted set of grounds, and after the panel review there are no further routes for appeal.

This all matter for a number of very important reasons. While fewer than 50 cases were filed in the first 40 years of the investor-state system, ISDS cases have more than doubled in recent years from under 300 in 2006 to 608 by the end of 2014. Researcher Scott Sinclair has pointed out in an excellent report that, “Canada has been sued far more under NAFTA’s Chapter 11 than its North American neighbours: some 35 times in total, with claims totalling many billions of dollars.  Indeed, Canada may be the nation most targeted by ISDS actions.” The ISDS provisions in TPP will lead to a proliferation of lawsuits against Canada (and other nations) and will serve to ‘chill’ the willingness of governments to make regulatory decision for pharmaceuticals in the public interest (such as a national pharmacare program).

The Canadian standard of utility established through case law differs from international standards embodied in TRIPS and the Patent Cooperation Treaty, and from practices of patent offices in the United States. We have already seen the ramifications of ISDS when Eli Lilly launched a challenge against the government of Canada for $500 million in damages over its patent-law regime after the company lost court rulings for two of its patents at all three levels of court; these decisions would allow cheaper generic versions to hit the market in Canada. It is reported that, “Lilly claims Canada’s courts have set the bar too high. But Canada argues that its courts have merely been applying a long-established principle in patent law, meant to disallow companies from unfairly shutting out competing researchers by ‘shot-gun’ patenting large groups of drugs without knowing whether they actually work. In the case of these two Lilly drugs, the Canadian government says, the company was trying to secure new patents on compounds it had already patented by promising that the drugs could be used to do something new.” So, reading between the lines, a corporation that has seen its revenue drop due to major patents expiring and does not like that our courts ruled against is using the ISDS mechanism to sue for half a billion. Law professor and Canadian Research Chair Michael Geist warned with the powerful pharmaceutical lobby there are billions and billions more at risk with ISDS cases, “If the pharmaceutical giant [Eli Lilly] succeeds, it will have effectively found a mechanism to override the Supreme Court of Canada and hold Canadian taxpayers liable for hundreds of millions in damages in the process. The cost to the health care system could be enormous as the two Eli Lilly patents may be the proverbial tip of the iceberg and claims from other pharmaceutical companies could soon follow.”


 

Under the TPP we will see powerful multinational pharmaceutical companies use ISDS to cling to over-priced drug monopolies, especially in regards to biologics. It has been shown that “greater intellectual property protections in the TPP will give these companies an even stronger quasi-legal basis to sue governments and crowd out generic competition,” including SEBs. The ISDS provisions are designed to directly target a country's ability to define its own patent law, public health policy and create a more humane threshold for when generics and SEBs can become available. Interestingly, the TPP included a ‘carve out’ for big tobacco from using the ISDS mechanism which keeps tobacco companies from filing lawsuits against governments for anti-tobacco legislation (recent examples include Australia and Uruguay being litigated for bring in policies to mitigate smoking). This highlights the fact that, “An opt out for tobacco wouldn’t be necessary if the ISDS mechanism in TPP didn’t threaten public interest regulations in general. By including it, negotiators have tipped their hand, implicitly admitting how harmful these investor rights really are.”

Internationally, the TPP’s IP provisions will clearly result in preventable deaths in the name of profit. For Canadians, the TPP is another poison pill trade deal that patients are being forced to swallow. Through ‘evergreening’, the chilling effect on public health regulations, and the ISDS mechanism, the health of Canadians is being jeopardized. Pharmaceutical corporations that see universal pharmacare as an infringement on their right to make a huge profit from life-saving medications are now further positioned to use ISDS claims to block needed expansion of our medicare system. This isn’t hyperbole or exaggeration, with so much money to be made through price gouging patients on medications, pharmaceutical companies are entrenching their position in a massive lobbying effort through trade deals.  Let’s be clear the TPP is not about trade, but rather it is about 'constitutionalizing' market neo-liberalization through an IP regime that limits countries to legislate on a host of public health related issues.  It is unbelievable and astonishing that ‘trade regulations’ can now stop public health legislation meant to improve the wellbeing and health of citizens; this is one of the main reasons why these deals are done in secret and are produced with convoluted technocratic language wrapped in obtuse legalese. By not ‘carving out’ health from the TPP and imposing onerous IP protections on biologics, important deliberations and debate about national health policy are permanently removed from the public arena and  the democratic process.  At the end of the day the TPP is a bad deal for Canadians and it undermines the health of the nation. This will be its legacy.