On November 5, the U.S. Trade Representative (USTR) released the text of the Trans-Pacific Partnership (TPP), a trade agreement between twelve Pacific Rim nations representing nearly 40% of global GDP. The complex document spans more than 6,000 pages across 30 chapters and many bilateral side agreements between Parties to the agreement. The Agreement offers opportunities to all industries, including life sciences, because of its promise of a dynamic, expanding Asia-Pacific marketplace. At the same time, the draft TPP text poses particular challenges to life sciences, because of TPP’s intellectual property rights (IPR) chapter and the changes from past U.S. FTAs to the transparency chapter’s annex on government pharmaceutical and medical device pricing and reimbursement schemes.
Not surprisingly, the negotiations over pharmaceutical IPR were some of the most difficult and controversial in TPP. The IPR chapters of U.S. free trade agreements (FTAs) are “TRIPS-plus” in that they build on the provisions of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). But some of the additional TRIPS-plus obligations sought by USTR proved enormously contentious.
The U.S. industry’s main goal in TPP was 12 years of data exclusivity for biologic medicines, consistent with U.S. law. But U.S. proposals for an extended term of biologics protection were fiercely opposed by several TPP countries, particularly Australia, which sought to limit any additional period of exclusivity to five years and rejected any changes to its existing law. The U.S. proposals were also criticized by anti-drug industry and anti-trade activists. In the closing negotiations in Atlanta, the U.S. compromised, conceding that TPP countries would have an option to choose either a five-year or eight-year term. Not surprisingly, PhRMA and BIO expressed “disappointment” with the final outcome, while Senate Finance Committee Chairman Hatch (R-UT) called it “woefully short.” While the TPP text recognizes that “market circumstances also contribute to effective market protection to deliver a comparable outcome in the market,” this is not a binding obligation and only recognizes that marketing approvals for generic biologics typically take longer than small molecule drugs, because of the greater difficulty of evaluating bio-equivalency. Complicating the text, countries from Mexico to Malaysia negotiated country-specific annexes, which delay their effective dates for implementing additional biologics protection.
In the U.S.-Australia and U.S.-South Korea FTAs, the pharmaceutical and medical device industries secured new rules designed to curb the abuses of government drug price controls.These FTAs sought to promote greater transparency of government drug pricing and reimbursement procedures, due process rights (e.g. an opportunity to meet with pricing authorities, file submissions, and see the reasons for a decision) for U.S. applicants to enable them to meaningfully participate in such processes, and an opportunity for U.S. applicants to seek an independent review of an adverse pricing or reimbursement decision. These transparency protections can be particularly useful in government-run, single-payer health care systems, where the government is effectively a U.S. company’s only customer, and refusal by a government body to list a drug or a low reimbursement price has major commercial and health care consequences. The transparency chapter annex requires TPP Parties to provide procedures and opportunities to comment on pricing and reimbursement for pharmaceutical products and medical devices under national health care programs. However, TPP significantly pares back important transparency and independent review provisions from past U.S. FTAs. In addition, the annex excludes pricing and reimbursement determinations for pharmaceutical products and medical devices from dispute settlement under TPP, making the transparency rules for drug price controls effectively unenforceable. Adding to this is a side letter between the U.S. and Japan, in which Japan, a major medical device market for U.S. companies and a longstanding source of contention between U.S. and Japanese trade negotiators, effectively reserves the right to continue making device pricing and reimbursement decisions as-is, notwithstanding the additional protections in the annex. Finally, the text also takes a more expansive interpretation than past FTAs of the so-called “Doha Declaration,” which allows compulsory licensing of certain drugs in health emergencies, e.g. HIV/AIDS.
The industry did succeed in clawing back some elements of the so-called “May 10 agreement” between the Bush Administration and the Democratic congressional leadership, which limited the application of certain special FTA IPR rules regarding patented pharmaceuticals to developing countries. Instead, TPP substitutes extensions of time—typically five years—for developing countries to comply, an improvement over the unlimited exceptions in May 10. However, the TPP negotiators also narrowed the scope of certain special pharmaceutical IPR rules so the final outcome is a mixed bag. The annexes also limit their application to certain developing countries.
In general, TPP represents a setback for innovative U.S. life sciences industries. U.S. firms account for the overwhelming share of new innovative drug and device launches in the Asia-Pacific and globally; biologics are a vital source of new therapeutic breakthroughs for companies and patients. If TPP’s five years becomes the new de facto international standard for biologics protection, this has negative implications, particularly as other Asian economies line up to join TPP, e.g., Taiwan, Philippines, Thailand, Indonesia, and possibly even China at some point down the road. It also could put at risk the longer terms of biologic protection that currently exist in the U.S., EU, and Japan, particularly as shorter terms would lead to huge savings in beleaguered health care budgets. Finally, the erosion of the pricing and reimbursement transparency from past U.S. FTAs could invite a resurgence of abusive price controls in certain markets.
Under the U.S. Constitution, U.S. FTAs must be approved by the Congress before entering into effect. Congress is likely to debate TPP’s life sciences provisions extensively as it considers whether to pass any legislation to implement TPP. Senate Finance Committee Chairman Hatch (R-UT), whose committee will consider and mark up any TPP legislation, supported a twelve-year exclusivity term for biologics in TPP and has long-championed life sciences innovation. Senator Hatch is a formidable obstacle to the White House’s desire to have Congress approve TPP while President Obama is still in office, as opposed to seeing his main trade legacy pass to the next Administration; as a result the Administration may need to take steps to address his concerns, even though it would be enormously difficult.
The Obama Administration only released the 6,000-page TPP text on November 5 and U.S. and foreign stakeholders are still trying to digest it. The White House has urged Congress to take up TPP implementing legislation as early as April 2016. This is an optimistic scenario, given the scope and complexity of the agreement and the ensuing controversies over certain provisions, including pharmaceuticals and devices. The Administration could also decide to wait until after the presidential election for a lame duck session of Congress in November or December 2016, if putting TPP to a vote next year starts to look like rolling the dice. If USTR and the White House cannot build support in the Congress for TPP passage in 2016, the challenge of securing congressional approval would likely pass to the next U.S. Administration.