San José, Costa Rica, since 1956

Will U.S. Trade Pact Drive Up Drug Prices? The Answer Depends on Whom You Ask

WILL the Central American Free-Trade Agreement (CAFTA) with theUnited States drive up the price of pharmaceuticalproducts in the region?The answer depends on whom you ask.The trade pact has an uncertain futurein Costa Rica, where it has not yet beenformally introduced to the LegislativeAssembly because of President AbelPacheco’s insistence that tax reform bepassed before the pact is discussed. There’seven talk of holding a referendum to let thepeople decide (see separate article).However, the country currently posingthe most serious threat to CAFTA’s ratificationis not Costa Rica, according to officials, but Guatemala.The issue at hand: CAFTA’s intellectual-property rights clauses, which havecaused controversy in many signatorycountries but which Guatemala’s Congresshas placed in the spotlight with anew law.LAW 34-2004, approved by Congressin December 2004, limits pharmaceuticaltest-data protections for foreign companiesto new drugs not previously approved inGuatemala or any other country.Since most U.S. drugs are approveddomestically before reaching foreign markets,Guatemala’s new law effectivelyeliminates data protection for U.S. companies,thereby conflicting with CAFTA,according to the Web site of the U.S.Embassy in Guatemala City.CAFTA, which Guatemala’s legislaturethis week approved in the first of threerequired votes, stipulates that countriesprovide five years of data protection forcompanies’ clinical trial information fornew drugs. Manufacturers of generic drugsmust either wait five years to register theircopies or pay for their own tests – requirementsthat CAFTA opponents argue wouldimpede access to affordable medicines inCentral America.“We are very disappointed thatGuatemala has enacted a measure thatviolates its promises under CAFTA,” saida U.S. Trade Representative statement onthe site, adding “we cannot send CAFTAto the U.S. Congress” unless all signingcountries are in compliance with itsobligations.“We understand that (Guatemalan)President (Oscar) Berger will correct theproblem in January,” the statement went on.BERGER did take some pro-CAFTAaction in January by sending the text of theagreement to Congress for ratification, buthe has not directly addressed the problemsposed by the data-protection law, congressionalspokesman Omar Vásquez told TheTico Times.Should CAFTA be passed inGuatemala, Law 34-2004 will stay on thebooks, Vásquez said. To overturn the law,a case would have to be filed before theConstitutional Court, but “for the moment,they are not touching (the law),” he added.The issue highlights a long-standingbone of contention between CAFTA’s proponentsand detractors, although the controversyoften plays second fiddle to themore often-cited issues of job security,labor laws and environmental protections.Is there truth to the claim that CAFTAwill drive up drug prices in CentralAmerica, or are these fears unjustified?ACCORDING to Dr. Arturo Robles,president of the Costa Rican Doctors’ andSurgeons’ Association, the treaty, if ratified,would make crucial drugs prohibitivelyexpensive in Costa Rica. Priceswould skyrocket to 20-30 times the currentrates, he said.CAFTA proponents argue the new protectionfor drugs under the trade agreementwill not have a significant impact on drugprices, since the World Trade Organization(WTO) already allows for 20-year patentsfor new drugs. Any drug with five to 20years left on its patent will simply use upits five data-protection years concurrently.In other words, only products with fiveyears or less left to go on their patentswould enjoy extended protections underCAFTA.Robles said this argument does nothold water, since drug companies wouldwait to register their drugs in Costa Rica –a process overseen by the Ministry ofPublic Health – until their patents have almost expired, so they can enjoy the maximumnumber of protected years possible.For example, a company selling a drugwith 10 years left on its WTO patent that isnot yet registered in Costa Rica would waitto register the drug until the patent isalmost expired, giving the drug company atotal of 15 years of protection, according toRobles. The company would still be ableto sell the drug here during the interveningyears, because drugs that have not beenregistered can still be sold here if doctorsrequest that the Social Security System(Caja) secure special permissions for crucialdrugs.EVA Berkowitz, head of CorporateAffairs for drug company Pfizer’s CostaRican branch, dismissed this notion.“That doesn’t make any commercialsense,” Berkowitz said of the strategyRobles described. “The process (ofinscription in Costa Rica, or another country)is so costly and so long” that a companywould want to begin it immediately, shesaid.She added that because it generallytakes the Social Security System (Caja) anumber of years to register a drug, the five-yearprotection wouldn’t end up affordingcompanies with many years to make aprofit.“The impact won’t be felt in a significantway,” she said. She added that in previousU.S. trade agreements that includedsimilar chapters – with Chile and Jordan,for example – “there was no dramaticeffect.”Besides, because CAFTA allowsgeneric drug companies to conduct theirown clinical trials, the pact “doesn’t prohibitgenerics from marketing themselves.Quite the opposite.”However, the length and cost of clinicaltrials are prohibitive, Robles said.Even if a generic company took on themonumental task, it would end up havingto charge the same prices as a companyselling a patent drug.THOSE who defend CAFTA’s drugprovisions point out that very few drugsare introduced to Central American marketseach year, so the five-year protectionswould affect a relatively tiny percentage ofthe total selection of drugs available.The provisions “only affect new medicines,which are not many,” Berkowitzsaid. “We’re talking about around 17 newmedicines, for example, registered with theTrade Ministry in 2003.”“Only 25 of the 13,000 medicines registeredfor use in Guatemala are actuallyprotected under the old law (decree 9-2003, which 34-2004 repealed),” U.S.Ambassador to Guatemala John R.Hamilton said in a column in the DiarioSiglo Veintiuno, Jan. 9. “And CAFTA doesnot apply data-protection rules to anygeneric medicine that is already in the market,so that the large majority of medicineswill never be affected.”However, opponents argue the relativelylow number of new drugs is disproportionatelyimportant, since they representthe cutting edge of medicine.“This is about the latest generation ofproducts… for treating cancer, drugs fororgan transplants, AIDS,” Robles said.IN her April 2004 testimony before theInternational Trade Commission inWashington, D.C., Joy Spencer, of theU.S.-based Consumer Project onTechnology (CPTech), asked commissionmembers to watch a video called “Dyingfor Drugs,” about a young child inHonduras who died from AIDS-relatedthrush.“(The child’s) parents could notafford fluconazole, a Pfizer product thatwas priced at $27 per pill in Honduras,but which costs pennies to make,” shesaid. “Watch this film with your children,and then explain why the United Statesneeds the IP (intellectual-property rights)provisions on medicines in the CAFTA.”Spencer and CPTech propose a formof protection known as compensatory liability,in which generic firms can freelyrely upon third-party evidence of thesafety and efficacy of products, but haveto pay the owners of the data for the privilege.In Spencer’s testimony, she suggeststhat a generic firm using data for adrug with expected sales of $1 million ina given country, pay .1% of the costs ofthe trials.HOWEVER, CAFTA proponents anddrug company representatives argue thatforcing companies to share their datawould destroy any incentive that exists forinnovation and excellence.“Without protection, innovative companieswould not invest the hundreds ofmillions of dollars needed to generate thedrug or the clinical test data. There wouldbe no new drugs, and certainly no genericcopies of them,” says a statement on theWeb site of the U.S. Embassy inGuatemala.The statement also points to the factthat a special side letter to CAFTA reiteratesthe World Trade Organization’s compulsorylicense regulations.The regulations, adapted by consensusin 2003, allow “poor countries withoutdomestic drug production capacity to issuecompulsory licenses to import drugs neededto combat diseases such as HIV-AIDS,malaria, tuberculosis and other infectiousepidemics,” according to a February statementfrom the U.S. Trade Representativeon“CAFTA expressly states that nothingin the IP chapter affects that country’sability to take measures necessary to protectpublic health,” the statement continued.The statement also said that in the caseof the U.S.-Jordan Free Trade Agreement,signed in 2000 with an intellectual-propertyrights chapter including data protection,Jordan has enjoyed “a substantial increasein the rate of approval of innovativedrugs,” and the Jordanian drug industryhas begun to develop its own new medicines.HOWEVER, Robles discountedCAFTA proponents’ arguments that theintellectual-property rights clause wouldhave a minimal effect on the drug market, orpositive effects that would not overwhelminglybenefit big drug manufacturers.“Just ask yourself: if it’s not a big (benefit),why do they put it in a treaty of suchimportance?” Robles said. “If they put itin, they hope to use it.”

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