Contact:

Brook K. Baker (617-373-3217) b.baker@neu.edu
Asia Russell (267-475-2645) asia@healthgap.org

10,000 Thai anti-globalization activists, small farmers, and AIDS and public health activists massed in Chiang Mai from January 9-11, 2006 to protest the 6th Round of negotiations to create a Free Trade Agreement (FTA) between Thailand and the U.S. Hundreds of protestors stormed the meeting venue, causing its temporary closure and movement to another meeting venue, while others tried to swim across a river to access the negotiations. In exchange for largely illusory promises about future trade access for Thai products, the U.S. hopes to reap many benefits, including: reduced tariffs for subsidized agricultural products and other exports, increased intellectual property rights for multinational pharmaceuticals, software, and entertainment products, right-to-sue privileges for investors, and service industry access to the financial, telecommunications, and insurance industries.

Some of the strongest opposition comes from AIDS activists, who predict that increased intellectual property rights for pharmaceutical products and registration data will prevent or delay access to more affordable generic equivalents of new life-saving medicines, undermining the success of HIV treatment in Thailand. The internationally lauded Thai program of universal subsidized access to AIDS treatment has been made possible because of cost-cutting generic competition for first-line AIDS medicines. As a result of these cost savings, Thailand is currently treating nearly 80,000 of an estimated 170,000 patients who currently need treatment (more than 600,000 Thai people are living with HIV). Although Thailand’s access program continues to scale-up where it can rely on affordable first-line generic medicines, its ability to sustain expanded treatment opportunities with newer, higher-priced second-line therapies is threatened in the current FTA negotiations.

Although the U.S. initially won significant intellectual property protections in multilateral negotiations that resulted in the formation of the World Trade Organization and the passage of the TRIPS Agreement (Trade-Related Aspects of Intellectual Property Rights), the U.S. has now turned to bilateral and regional FTAs to secure increased monopoly rights for the brand-name pharmaceutical industry.¹ It seeks eased patent standards,² extended patent terms,³ data exclusivity,⁴ patent/registration linkage,⁵ and enhanced enforcement penalties,⁶ all of which can delay access to generic medicines.

Reeling from the negative publicity and pro-access to medicines messaging in Thailand and internationally, the Office of the U.S. Trade Representative (USTR) has mounted a public relations campaign full of distortions and omissions.⁷ The U.S.’s myths should be refuted with the truth: Thailand and other developing countries have a right, indeed an obligation, to guarantee access to more affordable generic medicines in order to address their multiple public health needs.

Myth 1: The U.S.-Thai FTA will not raise the price of generic medicines in Thailand; those medicines will continue to be available at the price Thai generic companies choose; most HIV/AIDS drugs are generic.

Reality: These reassurances contain a small truth within a big lie. It is true that an FTA will not affect pricing on older, first-line medicines that are already being produced generically. However, the new rules will increasingly affect the price of newer medicines, especially as drug companies increase their patent filings in Thailand, as they seek extensions of patent terms, and as they enforce data rights for newer medicines. Consumers in Thailand will need and are entitled to affordable access to newer medicines at less than monopoly prices. By gaining longer patents and additional data exclusivity rights, big drug companies can continue to exclude, or at the very least delay, entry by generic competitors, thereby keeping the prices of medicines artificially high.

Myth 2: The U.S. is not proposing extensions of patents beyond the 20 years that is already the law in Thailand; data exclusivity does not extend patents.

Reality: The U.S. has sought extensions of patent terms for regulatory delay (both in issuing a patent and in granting marketing approval) in all of its recent FTAs. Inside sources have confirmed that the U.S. is seeking such extensions in the Thai agreement as well. The U.S. argument that data exclusivity does not extend patents is true as a matter of patent law, but in economic terms data exclusivity creates a practical right of marketing exclusivity that can delay introduction of generic products even if a patent has expired or even if there is no patent whatsoever.

Myth 3: Data exclusivity does not bar entry of generic equivalents; generic producers are free to submit their own test data to gain marketing approval.

Reality: The U.S. administration argues that it is incredibly expensive for originator drug companies to invent and prove the safety and efficacy of new drugs, but then it argues illogically that those same costs would not bar entry of a generic competitor. To the contrary, not only would it be too expensive and time-consuming for generic companies to repeat clinical trials to gain access to relatively small and poor markets like Thailand, it would also be ethically improper since the safety and efficacy of the underlying product (and its equivalents) have already been established. Nonetheless, the U.S. continues to seek global protection for safety and efficacy data (even that which has been previously disclosed) and for approvals based on that data so as to prevent registration of a follow-on generic equivalent.

Myth 4: Big pharmaceutical companies must get higher profits from even small, poor countries like Thailand in order to have incentives to invest in research and development.

Reality: Profits from sales in developing countries are insignificant in creating incentives for future research and development. The U.S. drug industry is already the most profitable industry in the world. Pharmaceutical sales in Thailand are an infinitesimal portion of total global sales ($518 billion in 2004). All of Asia, including the Indian subcontinent but excluding Japan, comprises only 3.9% of the global market; all developing countries combined (Africa, Asia, and Latin America) comprise less than 11.5% of global drug sales.⁸ U.S. drug companies make most of their sales (88.5%), and an even higher portion of their profits, from the rich markets of North America, Europe, and Japan. They don’t need to squeeze blood from poor consumers in Thailand and other developing countries in order to bring a new medicine to the market.

Myth 5: Because high profits are necessary for research and development, U.S. IPR-enhancement goals represent a careful balance between current access and future innovation.

Reality: As an industry, major pharmaceutical companies spend nearly three times as much on marketing and administration as they do on research and development. Even after investing in tax-deductible R&D, drug companies typically earn two times as much in profit as they spend on R&D.⁹ Moreover, much of the research conducted by industry is in pursuit of me-too drugs, marketing studies, and patent extensions. For example, 53% of “new drugs” marketed from 1981-91 were rated by the FDA as providing little or no therapeutic gain and only 16% offered important therapeutic gains. From 1989-2000, only 24% of “new” drugs merited priority (or expedited) review at the FDA and only 35% were for truly novel drugs containing new molecular entities.¹⁰ Much of the research conducted by industry actually piggy-backs on basic research paid for by the federal government and conducted by NIH and university researchers. Historically, this government-funded research totals nearly 40% of aggregate R&D expenditures.¹¹

Rather than representing a true balance between innovation and access, U.S. trade policy represents a continuous assault on consumer interests, all in pursuit of super-profits for the decade’s most profitable industry. Squandering precious research dollars in pursuit of block-buster drugs, trivial product changes (to gain patent extensions), and market-share for copy-cat drugs, the pharmaceutical industry is intent on maximizing its right to sell high priced products to rich countries and rich elites in developing countries, even if that means hundreds of millions of poor people must wait decades for pharmaceutical patents to lapse and for prices finally to fall. The USTR cannot continue to prioritize drug company intellectual property interests and astronomical profits, no matter how derived, at the expense of the human right to health.

Myth 6: Increased intellectual property protections in Thailand will spur its pharmaceutical sector (U.S.T.R. cites Jordan in this regard).

Reality: The success or failure of a pharmaceutical sector in any country depends very little on the patent law in small and poor countries. Success depends on a technological infrastructure and access to patent protections and marketing opportunities in rich countries. Indian pharmaceutical companies have become increasingly innovative even before the new Indian Patent Act and most of their prospective innovation is oriented towards penetration of the First World market. Moreover, after passage of the TRIPS Agreement, which set new standards for intellectual property rights, diminished local working requirements (requirements of local production of patent products), and enhanced big pharma’s importation rights, many countries, including Peru, Chile, and South Africa, experienced a significant disinvestment in their local pharmaceutical industries.

Myth 7: Big drug companies won’t bother to register their new products in countries like Thailand unless they are given data exclusivity.

Reality: Even with small quantity sales, major drug companies still have incentive to sell drugs at a profit to middle-class and rich elites in smaller markets. Moreover, big pharma has been registering and selling its brand-name drugs in dozens of countries without data exclusivity for the past 25 years. In addition to seeking data exclusivity monopolies, drug companies typically have underlying patent-based monopoly rights to their newest medicines, which already erect strong barriers against generic competition. Even the “evidence” that the U.S. cites in support of increased product registration is weak. For example, the increase of registrations in Jordan is largely a result of government reforms in the drug regulatory bureaucracy.

Of course, the larger problem is that big pharma often neglects to register its newest products in poor country markets because the volume of sales is not worth the effort. This is a major problem in drug companies’ so-called AIDS-drugs access programs where companies make proud announcements of price reductions in low-income (not middle-income) countries and then neglect to register their products (or even to seek temporary import permissions from drug regulatory agencies). For example, Gilead has registered Viread and Truvada in only a handful of access countries (6 out of 97 and 3 out of 97 respectively). Likewise, Abbott has not sought registration of its new single-dose, non-refrigeration Kaletra formulation in any of its 68 access countries.

Myth 8: Only a few drugs are affected by data exclusivity rules, so Thai people should not be worried.

Reality: Although it is true that data exclusivity will not apply to all drugs, it does apply to the newest medicines (those involving “new chemical entities”),¹² many of which represent therapeutic breakthroughs. If implemented in the manner wanted by the U.S., data exclusivity will apply to most of the important new medicines brought to market in Thailand in the future. There’s no reason that Thais should not have access to affordable versions of the newest and most effective medicines even if those drugs are relatively few in number.

Myth 9: The World Trade Organization’s TRIPS Agreement requires Thailand to adopt data exclusivity provisions.

Reality: The U.S. administration is misrepresenting the standards required by the TRIPS Agreement. The relevant portion of the TRIPS Agreement, Art. 39.3, only requires protection of undisclosed data against “unfair commercial use” – basically theft or commercial espionage. Nowhere does it state that exclusive rights must be provided for a given period. In fact, TRIPS makes clear that countries may decide for themselves what constitutes “unfair commercial use” and that there are many possible approaches to satisfy this requirement. Permitting a drug regulatory authority to do its job – assuring the quality, safety, and efficacy of medicines – is not unfair commercial use; it is a mandated public service. Prior to 1994, the U.S. tried to get its strict interpretation of data exclusivity into the TRIPS Agreement and failed – negotiators simply rejected its proposal. The TRIPS Agreement, as clarified by the Doha Declaration, ensures the primacy of public health and further ensures that intellectual property rules do not interfere with promoting “access to medicines for all.” Furthermore, the Trade Promotion Authority Act of 2002, §2102(b)(4)(C) requires the U.S. to uphold the Doha Declaration. The USTR is defying this pro-public-health requirement.

Myth 10: The proposed FTA would permit Thailand to take measures it considers necessary to protect public health, particularly with regard to the epidemics of HIV/AIDS, TB, and malaria.

Reality: The predictable language of the U.S. proposal (based on recent FTAs) creates ironclad protection for pharmaceutical test data (and patent-registration linkage) with no textual exceptions for registering medicines produced domestically or imported pursuant to compulsory licenses or government use orders. While patents that block access to medicines can be remedied through compulsory licenses and other TRIPS-compliant safeguards, there is no such explicit recourse for data exclusivity and linkage. The U.S. is using vague assurances about rights to protect public health for “epidemics such as HIV/AIDS, tuberculosis and malaria” to offset explicit language that takes away such rights. “Sign this contract, but rely on my good intentions in an unsigned postcard” doesn’t work when you buy a used car and it shouldn’t work in trade agreements either.

Myth 11: The “side letter” to FTAs on public health¹³ should give legally sufficient assurances about U.S. intentions and residual flexibilities to protect public health.

Reality: As in other recent free trade agreements, the U.S. probably intends to draft a “side letter,” which it promises will grant adequate flexibilities to Thailand to address its public health needs. However, there are multiple inadequacies in the proposed side letter including:

• the side letter is subordinate, and it does not supercede the exact, contradictory language in the FTA’s intellectual property proposal which provides for absolute rules on data exclusivity and patent-registration linkage. If the U.S. were serious about clarifying public health exceptions to data exclusivity, it would include such language in the body of FTA itself;
• the recent side letter to the side letter in the proposed US-Peru FTA says that the public health side letter applies to the section on “Matters relating to certain regulated products (data exclusivity and patent/registration linkage provisions), but again the side-to-the-side letter’s language is neither clarifying nor enforceable;
• the side letter references HIV/AIDS, TB, malaria, and other epidemics and/or matters of extreme urgency or national emergency, suggesting that other public health concerns might not be covered by the alleged public health exception. Thailand has a serious AIDS epidemic and has adopted many proactive measures including a promise of universal treatment. But a carve-out for specific diseases undermines efforts to increase access to medicines for all public health problems, and recalls relentless U.S. efforts to restrict the scope of the Doha Declaration over the past four years;
• the side letter suggests that Thailand would only be free to use the August 30, 2003 Decision¹⁴ to issue compulsory licenses when in fact countries have additional and pre-existing flexibilities under the TRIPS Agreement and the Doha Declaration (e.g., ordinary compulsory licenses permitting domestic production or importation, parallel importation, competition-based compulsory licenses, and even limited exceptions);
• the side letter’s total reliance on the August 30 Decision system inappropriately suggests that using that system will be easy when in fact there are multiple substantive and procedural barriers in that system;
• the side letter limits countries to take only measures that are “necessary,” a term that is interpreted extremely rigidly in international trade law, permitting exceptions only when there is no other alternative whatsoever or only when such an exception is the least obtrusive option; despite the side letter, investment clause provisions in FTA might permit pharmaceutical companies to sue Thailand if it were to grant an exception to data exclusivity;
• the side letter provides insufficient legal certainty to generic companies to undertake efforts to formulate, test, and register a bio-equivalent generic drug – those efforts are too costly and time consuming to undertake lightly, and they will not be attempted if there is any residual uncertainty about the legality of such efforts.