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President Bush's Trade Agenda

February 16, 2006

Written Comments to the House Ways and Means Committee
Kathleen Jaeger, GPhA President and CEO
February 16, 2006

As the U.S embarks on negotiations with the Republic of Korea, our nations have an opportunity to reverse an alarming trend developing among recent Free Trade Agreements (FTAs). The pharmaceutical provisions in recent FTAs negotiated by the United States Trade Representative (USTR) are contrary to or exceed U.S. law. Specifically, recent FTAs allow brand pharmaceutical companies to garner greater intellectual property rights than those afforded under U.S. law by removing limits on patent extensions and expanding provisions that protect intellectual property beyond the legal parameters of the U.S. patent system. At the same time, FTAs lack sufficient generic drug access provisions essential to the vitality of the U.S. generic pharmaceutical industry.

The Generic Pharmaceutical Association (GPhA) strongly supports a balance between fostering innovation and ensuring access to affordable medicine here at home and abroad through our agreements with other nations. The effectiveness and sustainability of the U.S. health care system depend increasingly on such a balance. Accordingly, FTAs that fail to promote these interests equitably will result in a less productive global pharmaceutical industry, and will damage the U.S. health care system in turn.

One important goal of President Bush’s administration is to increase global sharing of pharmaceutical research and development (R&D) costs through eliminating price controls and fostering a robust generic pharmaceutical sector. Thus, GPhA strongly supports such initiatives and sufficient protection of intellectual property, and views the reduction of price controls and greater sharing of R&D costs as beneficial to the entire pharmaceutical industry -- a win-win for all involved. Yet, recent FTAs are in direct conflict with this policy, as they neglect to ensure the proper balance between innovation and access.

Simply put, the FTAs increase protection of innovation, but blatantly exclude provisions to ensure access to affordable medicine. Over 53% of U.S. prescriptions are filled with generic medicines, yet they account for only 12% of the total cost of prescriptions in the U.S. Without a robust generic industry to complement the brand industry, neither the U.S. health care system, nor that of any foreign nation would be sustainable. FTAs should export the U.S. balance of pharmaceutical innovation and access to affordable medicine in order to ensure the same prosperity.

Furthermore, trends among FTAs could begin to establish an international standard for governing pharmaceuticals that clashes with U.S. law. In the near future, U.S. law makers may be pressured to conform to such a standard through harmonization efforts. Even now, for instance, the vast majority of the FTAs do not contain a “best mode” provision and the recent Patent Reform bill H.R. 2795 proposes to eliminate the “best mode” requirement under the premise of international harmonization. The USTR should not be promoting agreements with trading partners that will stifle generic competition or make U.S. law anomalous.

I. Free Trade Agreements Conflict with International and U.S. Law

Numerous FTA provisions regarding IP and other measures involving pharmaceuticals contradict, both explicitly and in spirit, commitments made by the United States in the World Trade Organization (WTO) in both the November 2001 Declaration on the TRIPS Agreement and Public Health (the Doha Declaration) and the September 2003 Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health (the Paragraph 6 Decision). Moreover, several of these provisions are contrary to or exceed U.S. law. GPhA is concerned that such measures will block generic drug exports abroad, substantially delay timely access to affordable pharmaceuticals in those territories, and create a means to delay generic competition here at home, such as through international harmonization measures. USTR should make efforts to ensure that any FTA negotiated is fully consistent with both the letter and spirit of our country’s WTO commitments and U.S. law.

II. Patent Extensions For Pharmaceutical Products

The patent term extensions available in existing FTAs allow extensions beyond those permitted under U.S. law (Hatch/Waxman patent extensions, 35 U.S.C. § 156). Among other things, the FTAs are not clear that the patent extensions apply only to “new chemical entities.” The FTAs also require Parties to adopt an overly vague standard for restoring patent terms for pharmaceutical products in instances of “unreasonable curtailment” of the effective patent term resulting from the marketing approval process. These provisions thus fail to take into account the limitations on extensions contained in current U.S. law, which include the five year cap and the fourteen year limit on the total length of the restoration period.

FTA patent term extensions should be subject to the same limitations found in U.S. statutory and corresponding case law. Those limitations are as follows: (1) the product must contain a new chemical entity (NCE), i.e., a truly novel medicine; (2) the product must be subject to a regulatory review period; (3) the approval for marketing or use of the product upon which the patent extension application is based must be the first permitted commercial marketing or use of the product; (4) only a single patent can be extended; (5) the applicant must have acted with due diligence; (6) the patent restoration period may not exceed five years; and (7) the restored patent may never exceed 14 years. Without these limitations, patent extensions could be available for almost every pharmaceutical product marketed in the territories of the Parties, including the United States, for periods far exceeding what our domestic law currently permits.

III. Market Exclusivity

The FTAs allow marketing exclusivity for pharmaceutical products in excess of five years and do not make clear that the exclusivity is limited to “new chemical entities.” The FTAs prohibit marketing approval for third parties relying on data submitted by another for at least five years from approval granted to the original party in the territory of the Party. Moreover, where approval is based on approval in another country, some FTAs (e.g., Singapore, Australia) state that marketing may be delayed for at least five years after approval in the Party or approval in the other country, whichever is later. There are no requirements in most cases to register a product in the Party within a short defined period of time after receiving approvals in other countries (except for the FTAs with Chile and CAFTA which provide for a protracted 5-year registration period), further enabling delays in marketing approvals for generic products.

The practical effect of these provisions is that they could permit brand companies, without penalty, to deny access to innovative pharmaceuticals for approximately seven years and block the marketing of affordable generics in those countries for a period of about 12 years. Marketing approval for the brand company would take about two years* and the company would have marketing exclusivity for another five years after that. If a brand company waits until the end of its five-year market exclusivity period in one country before filing in another, the introduction of generics could take 12 years.

Permitting brand companies to wait up to five years after receiving approval in one country before filing for approval in another country, with no erosion of market exclusivity, would limit one of the flexibilities identified in the Doha Declaration for increasing access to medicines, and accordingly, it appears to contradict the direction in section 2102(b)(4)(c) of the Trade Act of 2002 (“Trade Promotion Authority” or “TPA”). Specifically, the Doha Declaration reaffirmed that the TRIPS Agreement provides flexibility for WTO Members to take measures to protect public health, including “promot[ing] access to medicines for all.” In keeping with the spirit of the Doha Declaration and the TPA, the FTAs should encourage signatories to take action requiring companies to expeditiously seek approval of life-saving medicines for use in their countries.

U.S. law provides for a total of five years of exclusivity for products containing “new chemical entities,” and five years appears to be the global standard. Anything more than that is injurious to the U.S. economy and will drive up already skyrocketing health care costs here at home and abroad. No FTA should be interpreted to suggest that U.S. law can, or should be changed to extend the carefully balanced five-year NCE exclusivity period. USTR should modify its negotiations template to only proffer a five-year NCE exclusivity period for products containing new chemical entities.

Certain of the FTAs (e.g., Singapore, Bahrain) also prevent marketing of the “same or similar product” for a period of three years.** This language appears to permit marketing to be delayed based on information not tied to the product for which marketing is sought, and for attributes of the product that have been previously approved. This overly broad protection is contrary to U.S. law in that refers to “same or similar product” rather than narrowing the three-year protection to the new “conditions of use.” USTR should remove this expansive language from the text of any FTAs.

IV. Linkage Without Exceptions (Hatch/Waxman)

The FTAs that the United States has been negotiating require that our trading partners establish a generic approval process that “links” generic approvals with the expiration of brand patents, an approval process similar to that in the U.S. However, the FTAs incorporate only those provisions that give protection to the patent owner while failing to provide for the corresponding provisions that ensure access to generic products. With no measures to ensure timely resolution of patent disputes, brand companies will enjoy de facto patent extensions in this country and in others. In other words, linkage without generic access provisions, blocks generic competition indefinitely.

The FTAs require signatories to prohibit, without exceptions, the marketing of generic pharmaceutical products during the term of the patent by persons other than the person who originally submitted safety and efficacy data for approval of the product without the consent or acquiescence of the patent owner. In contrast, in the United States, where a generic applicant files a Paragraph IV Certification challenging a drug patent and is not sued by the patent owner within 45 days of its Paragraph IV Notification, FDA approval and marketing may occur immediately notwithstanding the existence of an unexpired patent.*** In such cases, the failure of the patent owner to file an infringement action could be construed as consent. However, U.S. law also permits FDA approval and marketing at the expiration of the 30-month stay (30 months after a patent infringement lawsuit is filed) even if the lawsuit is still pending and the patent has not expired.**** If the filing and continued prosecution of such suit were construed to mean that the patent holder does not consent to third-party marketing, this provision could nullify existing U.S. law by requiring the conversion of the 30-month stay into an indefinite stay of generic approval. Ultimately, this would discourage timely resolution of patent disputes and result in de facto patent extensions for the brand companies -- a result that would have substantial financial implications for this nation’s health care system.

The FTAs consistently fail to require the inclusion of U.S. counterbalancing access measures that allow challenges to questionable patents that stand as barriers to market entry, patents that are frequently found un-infringed or invalid in the United States. Access measures should include provisions that are identical to the U.S. system related to: scope of patent listability (to prevent improperly listed patents that block generic product approvals); the mechanism to delist patents that fail to meet the eligibility for listing; the 45-day window to facilitate patent dispute resolution and corresponding means to permit FDA approval despite patent litigation, such as the 30-month stay period; and measures to ensure that brand companies do not receive de facto patent extensions by sitting idly by, such as declaratory judgment actions. If USTR requires our trading partners to duplicate two-thirds of the U.S. Hatch/Waxman system to the benefit of brand pharmaceutical industry, USTR also must seek to include the generic access provisions. To do otherwise forces FTA countries to accept a lopsided system that protects innovation, yet fails to promote access.

The United States recently passed measures in the Medicare Modernization Act of 2003 (MMA) to restore the balance between pharmaceutical innovation and access by closing unintended loopholes in the U.S. system that needlessly blocked generic competition. In so doing, the United States has set and maintained the gold standard in balancing pharmaceutical innovation and access. We should not reverse this accomplishment by being a party to agreements that upset that balance in favor of innovation to the detriment of American generic manufacturers and consumers. Accordingly, FTAs that require the implementation of a drug approval system linking generic drug approvals to patent protections of brand products must also expressly require generic access measures.

V. Omission or Weakening of Best Mode Provision

The monopoly afforded by a patent is given in consideration of full disclosure of the invention so that the public can enjoy the full use of that invention upon expiration of the term of the patent. In the United States, full disclosure includes (a) disclosure of the invention (the “written description”), (b) a clear, concise, and exact enabling description of how to practice the invention (“enablement”), and (c) disclosure of the best mode of practicing the invention known to the inventor (“best mode”). FTAs (e.g., CAFTA, Australia, Bahrain, Morocco, Jordan) do not require disclosure of the best mode, and thus patents under these FTAs can disclose less than the minimum required in the United States. The “best mode” requirement is that the inventor shall disclose in the patent application the most efficient method known to him (or her) to reduce the invention to practice. Failure to disclose the “best mode” would result, upon patent expiry, in a less than efficient means of producing the invention, potentially giving the patent owner a further monopoly. FTAs should require at least the same disclosure standard for each Party as that which the U.S. requires in exchange for granting a monopoly.

VI. Mandatory Access Provisions: “Bolar”

The United States should support mandatory access provisions in all FTAs so that access to affordable medicine cannot be circumvented through implementing legislation. Recently negotiated FTAs do not mandate a “Bolar”-type provision, which is a critical element in the U.S. generic drug approval process. Such provisions allow for the testing, manufacture and use of the subject matter of a patent for purposes related to the development and submission of information to support generic drug marketing approval. Under U.S. law, actions relating to the development and submission of a generic drug application do not constitute an infringement of patent rights. Permissive adoption of this provision in FTAs, however, leaves FTA countries open to pressure by special interests not to adopt provisions that are consistent with U.S. law. Unfortunately, this situation has already occurred in Guatemala. To prevent special interests from undermining the purposes of the Doha Declaration in the future and to facilitate access to affordable medicine, USTR must encourage our trading partners to adopt mandatory Bolar and other access provisions.

VII. Conclusion

The United States has achieved excellence in health care by properly balancing pharmaceutical innovation and access. USTR, therefore, should be holistically promoting both of these features of U.S. law in trade negotiations with the Republic of Korea and other countries. To do otherwise is damaging to the U.S. generic pharmaceutical industry, and adversely impacts both the U.S. economy and our overtaxed health care system. Rather than act in a manner detrimental to affordable health care both at home and abroad, USTR should seek to export the U.S. balance of innovation and access to ensure the availability of affordable medicine around the globe. This is especially critical in light of the Administration’s stated objective to secure global R&D support by the elimination of price controls.

* In contrast, NAFTA Art. 1711:7 provides that “[w]here a Party relies on a marketing approval granted by another Party, the reasonable period of exclusive use of the data submitted in connection with obtaining the approval shall begin with the date of the first marketing approval relied on.”
** The FTA with Australia also contains similar language “[Party] will not permit marketing of the same or similar product for at least five years from the date of marketing approval by the Party.” Art.17.10:1(c). Art.17.10:2 also requires at least 3 years of additional exclusivity if the Party requires submission of new clinical information (other than information related to bioequivalency) essential to the approval of the product.
*** 21 U.S.C. § 355(j)(5)(B)(iii).
**** Id.