Big Pharma’s protectionist trade agreements

Eli Lilly to Australia's health authorities: Subsidize our drugs, now!

Topics: Globalization, How the World Works,

The pharmaceutical company Eli Lilly markets an osteoporosis drug in Australia that costs $850 a month. Not many people can afford it, which is why Lilly is understandably anxious that Australia’s government health program list it as one of the drugs whose price tag it subsidizes for the public benefit. But on four separate occasions, Australia’s Pharmaceutical Benefits Advisory Commission has declined to do so, citing a cost-benefit analysis that finds that the drug, Forteo, simply isn’t good enough to justify its expense.

You might think the story would end there. A government should be able to decide what drugs its health plans cover, right? Actually, no. Under the conditions set forth in a free trade agreement between the United States and Australia that went into effect in 2005, pharmaceutical companies can appeal PBAC decisions to an “independent review commission.”

On May 3, Lilly announced that it was going to do just that.

“Lilly acknowledges and respects the challenging task undertaken by PBAC. However, Lilly also stands by the strength of the clinical evidence in support of this product. Following four PBAC submissions and subsequent meetings with the PBAC and Pharmaceutical Benefits Branch (PBB) there remain fundamental differences between Lilly and the PBAC regarding the strength and interpretation of the relevant data.”

On the surface, Lilly’s press release language is innocuous. But in the context of the global campaign by Big Pharma to eliminate the power of any government, anywhere, to restrict its market power, the Lilly move is anything but. It is a crucial skirmish in a global battle that dates back to the creation of the World Trade Organization.

Here’s the back story: As part of the negotiations that led to the formation of the WTO, developed nations forced through the inclusion of industrial-strength intellectual property protection — the so-called Trade Related Aspects of Intellectual Property agreeement. But developing nations quickly realized that they’d been screwed — particularly in the area of public health. In their view, rich country I.P. protection wasn’t always appropriate for poor country problems. Ensuing negotiations led to two important amendments to TRIPs: the right to parallel importation, in which generic versions of patented drugs could be imported from other countries; and the right to “compulsory licensing” — in which a country can unilaterally give itself permission to manufacture and market a patented drug.

Unhappy with these loopholes, Big Pharma, with the willing assistance of the U.S. government, focused its attention on bilateral trade agreements — one-on-one agreements between the United States and individual nations. As noted here before, the terms of such agreements typically include substantially stronger I.P. protection than what has been agreed to in WTO negotiations.

You can make a good case that these so-called free trade agreements are actually protectionist. They are designed specifically to protect the special interests of politically powerful U.S. and European corporations. In Australia, critics of the AUSFTA warned that the likely result of its passage would be higher drug prices. Lilly’s decision to seek independent review of the PBAC ruling is the first step in ensuring that their prediction comes to pass.

The standard industry argument is that Big Pharma needs the reward of big profits to subsidize the huge expense of research and development. There is some merit to this argument. Without the incentive of any profit at all, the Pfizers and Lillys and Mercks simply wouldn’t exist. But the question is not whether it is immoral for pharmaceutical companies to make a buck; the question should always be how does one best balance the public interest with the private? How much I.P. protection is too much?

There’s no easy answer to that question, and reasonable people can disagree on such questions as how long the term of a patent should extend. But reasonable people can also expect that profit-seeking enterprises do not control the governmental policymaking process — that’s a complete perversion of the purpose of government, and that is exactly what is currently standard practice in the United States. It’s bad enough that in the Medicare Drug Prescription Benefit Act, Medicare was explicitly forbidden from using its purchasing power leverage to negotiate price discounts. It’s positively ludicrous that Big Pharma should then proceed to attempt to prevent any government, anywhere, from using its power to operate in the public health interest.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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