The excision of a key term in the pending United States-Mexico-Canada trade agreement (USMCA), which was approved Thursday by the House of Representatives, that would have assured a minimum of 10-year data exclusivity for newly approved biologic medicines abandons decades of U.S. trade policy that supports expanding intellectual property protection for American biotech and other technology-based businesses.
Data exclusivity precludes a prospective generic competitor who would otherwise launch a biosimilar medicine from referencing the proprietary clinical data developed by the innovator company until after the exclusivity period has expired, thereby increasing the burden on would be competitors and making it more likely that the reference biologic will maintain market exclusivity during the period.
The action, which was the focus of lengthy negotiations between the White House and House Democrats, reflects the current populist moment as feverish consumer frustration with high prices for prescription drugs boils over to undermine longstanding support for a vital American industry.
Admittedly, this doesn’t come as a huge surprise. If there is one thing that President Trump and members of Congress seem to agree upon, it is that the price Americans pay for many prescription pharmaceuticals is too high. Indeed, the administration created a blueprint last year that includes a range of proposals to address this issue. Some controversial ones, such as setting an international reference price for certain drugs, would require legislative action. Others, such as requiring pharmacy benefit managers to pass contractual discounts on to patients by removing the anti-kickback safe harbor, do not need legislative action and are embraced by nearly all.
Still, it is disheartening to see the Trump administration caving to an ill-informed, ill-advised demand made by Democratic House members to limit protections in our neighbor countries.
For years, U.S. government policy has sought to boost the legal and regulatory standards of our trade partners to those prevailing in the United States governing labor relations, the environment, investment protections, and intellectual property.
During the Obama administration, the Office of the U.S. Trade Representative (USTR) expounded on its negotiating perspective and approach as it was negotiating the Trans-Pacific Partnership, noting that while it strove to be flexible and recognize the particular economic circumstances of developing countries, biologic medicines were a critically important source of innovation and American jobs.
Consider this excerpt from a 2013 USTR blog post: “These new drugs offer great potential for new treatments and cures that will benefit all of humankind and the United States is doing its part to ensure that the incentives will be there not just to increase the availability of existing drugs but to ensure that there is a strong pipeline of new medicines. Biologic drugs need data protection because those drugs require enormous amounts of time and money to develop. Before entrepreneurs (in the United States and across the world) are willing to make the investment in new therapies, they want to know that they will have rights to their own research for a certain period of time in order to see a return on their investments.”
Consistent with this perspective, the Bipartisan Trade Priorities and Accountability Act of 2015 directs the president to ensure that “the provisions of any trade agreement governing intellectual property rights that is entered into by the United States reflect a standard of protection similar to that found in United States law.”
This approach is manifest in the USMCA when it comes to labor and environmental standards, but not to data protection for biologics. The distinction is especially painful, if not ironic, because Mexico and Canada agreed last year to increase statutory data protection for biologics in their countries from the current five and eight years, respectively, to a minimum of 10, and now the Trump administration has agreed to eliminate the provision from the version of the USMCA the House has approved.
The issue was first raised in correspondence from House members to the administration during the spring and early summer of this year: from members of the House Ways and Means Committee on May 3, from House Democratic freshmen on June 26, and from all House Democrats on July 11.
In essence, the letters complain that the proposed USMCA language will “lock in high U.S. drug prices” by extending the period of monopoly pricing in Mexico and Canada.
Perhaps. But why are American officials concerned about the prices charged by American biopharmaceutical companies in Mexico and Canada?
For many years, these same member of Congress have complained that Americans pay exorbitant prices for prescription drugs, essentially subsidizing consumers in Canada, Mexico, and other countries around the world who pay much less for the same medicine. But congressional Democrats want price equanimity only if the resulting equilibrium is lower than the projected prices of esoteric biologics now in development.
“This deal would have caused prices of prescription drugs in those countries to skyrocket,” said Rep. Jan Schakowsky (D-Ill.). Instead, they fear that this will lock in policies that will keep U.S. drug prices “outrageously high.”
Let’s parse this out. Three related, but distinct, concerns seem to underlie the congressional complaints.
- First, Democrats — and, to be fair, many Republicans — reflect their constituents’ view that drug companies charge excessive prices and do not need (read “deserve”) any additional protections.
- Second, re-importation of biologics and other medicines offer access to cheaper drugs and exporting our intellectual property standards “will almost certainly lead to higher costs … for Americans who have opportunities to procure their medicines in those jurisdictions,” according to the Ways and Means Committee letter. The administration recently announced a program of limited re-importation from Canada, but the volumes sold and shipped to that country are insufficient to fully supply American demand.
- Third, there is misguided fear that a treaty obligation requiring a minimum of 10 years of exclusivity for biologics will not allow Congress to reduce the current 12 years of exclusivity established under the Biologics Price Competition and Innovation Act to less than 10 years.
Former acting and deputy U.S. Trade Representative Miriam Sapiro, a Democrat who served in the Obama administration, publicly rebuked this concern. In a white paper authored for the Pass USMCA Coalition, Sapiro wrote that “USMCA would not constrain the United States in this manner … if Congress were to enact legislation lowering the domestic data exclusivity period to less than ten years, then the parties could amend the agreement … [and of course] [n]either Canada nor Mexico would appear likely to resist such an amendment. … The overriding principle is that trade agreements reflect current U.S. laws and standards at the time they were negotiated. It would be highly impractical … for trade negotiators to be asked to try to speculate about what U.S. laws might change in the future, and in which direction.”
The objection to exporting fulsome intellectual property protection that supports our life sciences industry is not based on law or even on public policy. It is simply a matter of politics. The New York Intelligencer candidly expressed progressives’ discontent with President Obama’s Trans-Pacific Partnership and the USMCA by characterizing data exclusivity and patent extension terms as an unwise “handout to pharma,” plain and simple.
American companies lead the world in innovation. For decades, American trade policy under Republicans and Democrats alike insisted that foreign governments accept the vital importance of intellectual property as a condition of American foreign investment in their countries. Now it seems that our representatives would prefer to pander to their constituents rather than support principles that foster biomedical innovation and long-term advantage from trade and investment.
John E. Osborn is a senior advisor with the Washington, D.C., office of Hogan Lovells and an affiliate professor at the University of Washington School of Law in Seattle. He formerly served with the U.S. Department of State, as a member of the U.S. Advisory Commission on Public Diplomacy, and as general counsel of Cephalon and US Oncology.