In its 2018 Special 301 submission, PhRMA targets a number of countries for pricing and reimbursement policies deemed hostile to the pharmaceutical industry. Among these, PhRMA strategically lobbies for the strongest classifications for Canada and Korea — countries dealing with the renegotiations of NAFTA and KORUS, respectively.
One of the most noteworthy targets this year is Canada, which PhRMA requests be designated a Priority Foreign Country — the worst designation possible, and a steep increase in scrutiny. Canada has been on the watch list since 2013, a downgrade from four years of being on the priority watch list (2009-2012).
The Trade Act defines Priority Foreign Countries at 19 U.S.C. 2242(b)(1) as:
…those foreign countries
(A) that have the most onerous or egregious acts, policies, or practices that
- (i) deny adequate and effective intellectual property rights, or
- (ii) deny fair and equitable market access to United States persons that rely upon intellectual property protection,
(B) whose acts, policies, or practices described in subparagraph (A) have the greatest adverse impact (actual or potential) on the relevant United States products, and
(C) that are not
- (i) entering into good faith negotiations, or
- (ii) making significant progress in bilateral or multilateral negotiations to provide adequate and effective protection of intellectual property rights.
PhRMA’s main grievance with Canada is regarding proposed changes to the Patented Medicines Prices Review Board (PMPRB), including changes to the current mandate of the PMPRB from ensuring “non-excessive” prices to ensuring “affordable” prices. The proposal would also change the basket of reference prices by removing the United States and Switzerland, and create a new list of reference countries that includes other high income countries Australia, Belgium, France, Germany, Italy, Japan, the Netherlands, Norway, South Korea, Spain, Sweden and the United Kingdom.
PhRMA’s reaction: “Despite being at the forefront of OECD economies, Canada would amend its list of referenced countries to replace the U.S. with countries which are poorer and/or have onerous price control policies. The U.S. is Canada’s largest trading partner and the pharmaceutical markets in both countries share many common features. Any pricing determinations in Canada based on reference to other countries should include the U.S. and other countries with pro-innovation pharmaceutical policies.”
Additional changes to the PMPRB would include adding several other factors to be included in a determination of “excessive” pricing, such as a pharmacoeconomic evaluation, market size, and Canadian GDP.
PhRMA: “Such cost-effectiveness thresholds could impact the future viability of many drugs for rare diseases and oncology treatments in Canada. While cost-effectiveness thresholds are used downstream in other nations, their utilization as part of a binding regulatory price ceiling would be unique in the world.”
PhRMA also calls for Korea to be designated a priority foreign country, claiming that the country’s recent pricing reforms, which include recommendations for listing based upon pharmaco-economic analysis and for pricing based upon single-payer negotiations, would violate KORUS and “trample on the rights of U.S. innovators”:
“First, Korea restricts the prices of innovative medicines by valuing them according to the prices of older medicines or prices in poorer countries. Given the vast amount of medical research that occurs in the United States, Korea seeks to benefit from this research without paying its fair share. This incredibly short-sighted approach, however, and harms not just the U.S. industry but patients overall. It is also inconsistent with Korea’s commitments under KORUS to value U.S. innovation appropriately, to ensure that patent owners can reap economic rewards, and to guarantee market access free from price distortions. In addition, Korea’s pricing policies overtly favor the domestic pharmaceutical industry and are formulated without the degree of stakeholder input required by KORUS. The U.S. should seek to enforce KORUS’ innovation, IP, and market access provisions immediately, to prevent continued mistreatment of the U.S. pharmaceutical industry, and to demonstrate more broadly that developed countries cannot free-ride on U.S. innovation.”
PhRMA asserts specifically that Korea’s pricing policies constitute a failure to “appropriately recognize the value of the patented pharmaceutical product” under KORUS Article 5.2(b) by linking patented drug prices to the prices of off-patent products, and then amplifying the price reduction via single-payer negotiation, and constitute violations of KORUS Art. 18.8(3) and TRIPS Articles 28 and 30 by exceeding the “limited exception” under the three-step test.
PhRMA calls for Japan to be placed on the priority watch list for what it considers to be discriminatory pricing policies. In 2017, Japan was not listed in the USTR Special 301 report.
PhRMA’s submission highlights Japan’s recent changes to the country’s Price Maintenance Premium System (PMP), and other government price reforms designed to control high prices. The PMP, as the name suggests, adds a premium to the price for certain benefits such as novelty, improved safety and efficacy, orphan indications, pediatric use, and others. The country’s recent changes would limit the mandatory premium in certain ways, such as by only providing premiums to second-in-class or third-in-class within a defined period of time, and by limiting the number of companies eligible for premiums based upon factors including the number of clinical trials done in Japan, number of new products launched in Japan within the last five years, and more.
PhRMA calls these reforms “inappropriate and discriminatory,” and argues that they are contrary to WTO national treatment obligations that imported goods be treated no less favorably than similar goods of national origin, and that the reforms impose unreasonable restrictions on the exclusive rights conferred by a patent under TRIPS Article 28, and violate the three-step test under TRIPS Article 30. PhRMA furthermore asserts that the reforms create unnecessary obstacles to trade, in violation of Article 2.2 of the WTO Agreement on Technical Barriers to Trade.
PhRMA calls for Australia to be placed on the watch list, citing difficulties in listing new medicines on the country’s Pharmaceutical Benefits Scheme (PBS):
“The PBAC’s approach of comparing new products to the “lowest cost” comparator creates an increasingly difficult barrier to patient access, due to these comparisons being made to cheaper, off-patent medicines that have undergone several rounds of competitive price reductions through price disclosure. As the price-disclosure measure has expanded and matured, creating downward pressure on prices in the multi-brand, competitive market for off-patent medicines, comparators are increasingly being drawn from very low cost drugs. This is an additional disincentive to bringing innovative medicines to Australia.”