The Sticking Point that Shouldn’t Be: The Role of Pharmaceutical Patents in the TPP Negotiations

U.S. Trade Representative, Ambassador Michael Froman.

The controversy swirling around the Trans-Pacific Partnership (TPP) Trade Agreement sheds light on two critically important but divisive issues: international trade and intellectual property protection for pharmaceuticals. Few would argue that economic growth and development isn’t beneficial or that cutting-edge medical treatments and therapies aren’t tremendous milestones in scientific progress, yet the arguments surrounding the TPP demonstrate that many critics are willing to undermine the economic foundations that both lift nations out of poverty and promote medical progress.

A recent New York Times article covering the TPP negotiations reports that the “Pacific Trade Talks Fail”. The lack of progress is regrettable from so many perspectives, one of the most significant of which is the potential benefit the agreement could deliver to global public health. Decades of experience and evidence demonstrate that free trade is the most efficient and effective way to foster global economic growth and enhance global health. Strikingly, each year more than 18 million lives are lost to poverty-related causes, fully one-third of all human deaths globally. Poverty kills. Poverty is alleviated by growth and international trade delivers growth. The calculus seems quite simple and the potential benefits to this agreement tremendous.

One of the most significant sticking points in the negotiations is the issue of intellectual property protection for pharmaceuticals, specifically data exclusivity. Fundamentally, without the protection provided by the intellectual property rights (IPR) system, biopharmaceutical innovators would have little incentive to invest in new technologies that are easily replicated by their competitors. This replication constitutes free riding on the tremendous investments made by innovative firms, essentially a market failure that would stymie most innovation. Data exclusivity is a means of correcting this market failure, providing the innovative firms with a limited period of time in which data from clinical trials and other required testing cannot be used by competing firms to secure market access.

Given that U.S. regulatory approval is not contingent upon a biosimilar demonstrating identity with the pioneer biologic product it references, without an extended period of data exclusivity, a competing product could elude the innovator’s patent while relying on the innovator’s data for regulatory approval. Amgen notes that this is exacerbated by two issues. “First, because of the nature of biologic products – large molecules produced by living cells and organisms through highly specific processes – patent protection is often narrower than that of small molecule drugs. Second, the creation of an abbreviated pathway for approval of similar biological products creates new and strong incentives for competitors to exploit this patent protection gap.” [1]

[Kristina]

In an earlier contribution to IPWatchdog, I described the importance of biologic medicines, how they differ from traditional “small molecule” drugs, and why data exclusivity is necessary for protecting them and ensuring their development.   Importantly, biologic medicines are more difficult to comprehensively protect with patents than traditional pharmaceuticals, due to their size, complexity, and numerous similar effective variants.[2]   As a result, data exclusivity is a critical component in protecting biologics and incentivizing investments in the future of medicine. Estimates are that the pre-approval cost of developing a biologic approaches $1.2 billion and that the time needed to recover the pre-approval R&D costs be between 12.9 and 16.2 years.[3] In the United States, the Biologics Price Competition and Innovation Act of 2009 (“Biologics Act”) provides for 12 years of exclusivity for the drugs, a timeframe that has generated significant opposition in the TPP negotiations. To provide some perspective, while US negotiators are seeking 12 years of protection for biologics, the period of data protection for “small molecule” drugs is five years, but this exclusivity is less important because generic drugs are required to contain the identical active ingredient. In contrast, in the production of biosimilars, similar effective variants are sufficient. Without sufficient data exclusivity, the incentives for investing in biologics disappear and medical progress grinds to a halt.

A recent New York Times article reports that “[a]bout 5,600 medicines are in development in the 12 T.P.P. countries, according to the Senate Finance Committee. Of those, 3,372 are in the United States, including more than 900 biologics, which are grown from live cells. The industry contributes nearly $800 billion to the United States economy each year.” These figures indicate that pharmaceutical innovation, including biopharmaceutical innovation, is largely focused in the United States. It is no coincidence that the United States also provides strong, effective protection for intellectual property.

Anti-TPP activists argue that this protection, and pharmaceutical data exclusivity in particular, will increase costs and create a barrier to wide-reaching access to medicines. However, there are good reasons to doubt this. Access to medicines is largely continent upon the nation’s level of economic development and available infrastructure. Accordingly, there are two important reasons to believe that the TPP Agreement will not inhibit access to medicine. First, the majority of the negotiating nations are well-developed. Moreover, trade and IP protection enhance economic growth and development, which enhances access to medicines. The nations currently negotiating the Trans-Pacific Partnership Agreement are all classified as “High-income” or “Upper-middle-income” with the exception of Vietnam, which is considered “Lower-middle-income”.^[4] The protections within the TPP Agreement will only enhance the development and growth that characterize these nations.

Contrary to the critics, the TPP Agreement should enhance access to medicines, through the economic benefits of greater trade and growth. As I described in an early IPWatchdog contribution a United Nations Industrial Development Organization (UNIDO) report the role of intellectual property rights in technology transfer and economic growth are examined and the authors conclude that, for advanced nations, evidence suggests that strengthening IPRs raises growth, in part due to increased innovation and technology diffusion. More importantly, for middle-income countries, evidence shows that stronger IPR regimes encourage both domestic innovation and technology diffusion through international trade, which can positively impact growth.^[5]

The Trans-Pacific Partnership can ensure that despite the difficulty, risk and expense of pharmaceutical innovation, firms continue to invest. International trade agreements such as the TPP set global precedents, which makes it even more critical that the agreement must ensure that innovation is protected, that breakthrough therapies are incentivized and that intellectual property protection is strong and enforced. The protections set forth in the TPP Agreement shouldn’t be a sticking point. Far from it. They should be a template for global IP rights that encourage innovation and enhance global health.

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[1] Biotechnology Industry Organization (BIO). The Trans-Pacific Partnership and Innovation in the Bioeconomy: The Need for 12 years of Data Protection for Biologics online posting, 18 July 2013.

[2] Stroud, Jonathan. Power without a Patent: Twelve-year biologics data exclusivity period and a totality-of-the-evidence standard for biosimilarity, online posting, 2^nd International Conference and Exhibition on Biowaivers and Biosimilars, September 23-25, 2013, Raleigh, NC.

[3] DiMasi, J.A., and H.G. Grabowski. The Costs of Biopharmaceutical R&D: Is Biotech Different? Managerial and Decision Economics, vol.28, no.4-5, June 2007, pp.469-479.

[4] “High-income” nations include: Australia, Bunei Darussalam, Canada, Japan, New Zealand, Singapore, and the United States. “Upper-middle-income” nations include: Chile, Malaysia, Mexico and Peru. Vietnam is classified as “lower-middle-income”. (World Bank)

[5] Falvey, Rod, Neil Foster and Olga Memedovic. The Role of Intellectual Property Rights in Technology Transfer and Economic Growth: Theory and Evidence, United Nations Industrial Development Organization (UNIDO), Working Paper, Vienna, 2006.