The Neutering Of Pharmac – Trans Pacific Partnership

How the TPP trade deal means trouble for our drugs buying agency

by Gordon Campbell

As the baby boomers retire, governments around the world are facing possible blowouts in their budgets for essential medicines. To the pharmaceutical lobby, the risk is exactly the opposite – if they fail to achieve a purchasing regime that satisfies them, they stand to miss out on a golden profit opportunity over the next few decades. Both sides therefore, have a keen interest in the outcomes of the Trans Pacific Partnership (TPP) trade deal with respect to drug evaluation, approval and pricing – andin the related matter of extending the patent periods for therapeutic drugs and medical devices, which would in turn extend the timeline for when cheaper generic products can come to market. Judging by the TPP texts leaked so far, the trade deal could well affect how the state purchasing agencies (eg Pharmac in New Zealand) goes about its job of buying essential drugs at a reasonable price.

Scrapping Pharmac altogether is not on the table. How it operates though, is coming under sustained fire. Kevin Sheehy [pictured below] heads Medicines NZ, the local branch of the drug industry’s US lobbying organization phRMA. In its February 2011 submission to the US Trade Representative Ron Kirk, PhRma referred to “ problems” in the New Zealand market that it wanted the US government to ensure were “ quickly and effectively resolved.“ The submission noted the current lack of a mechanism under New Zealand patent law to enable drug companies to be compensated for any undue delays between the registration of a new medicine and its availability for prescription.

If this sounds arcane, the consequences are not. Currently, the European Union is seeking changes to the compensation periods involved with drug patent registration in its trade talks with Canada. Estimates are that such procedures could add between $600 million to $3 billion to Canada’s annual health bill. Going back to square one – is Sheehy’s main complaint with Pharmac that it pays too little for the drugs that it buys, or that it doesn’t buy a large enough range of them? “Its more about the range. And buying new products on a regular basis. The pricing, I think, we’re relatively accepting of… It is more about that we would like more new products to come on-stream sooner.“ His submissions through phRMA have sought to identify bottlenecks in that process. What may these be? Essentially, Big Pharma has identified three bones of contention (about drug pricing and purchasing policy) if one can extrapolate from the current trade negotiations between Canada and Europe. These are :

1. When it comes to the clinical approval and purchasing decisions made by the likes of Pharmac (and its clinical advisory panel, PTAC) the drug companies want to establish (a) more clinical inputs beforehand (b) more opportunity for appeals against clinical and funding decisions afterwards and (c) more robust avenues of compensation for any undue delays.

2. In addition, Big Pharma seeks to extend how long it can retain exclusivity for the research data associated with its clinical drug trials, thus blocking access by generics companies to the data, and thereby delaying their arrival on market. The ‘data protection’ exclusivity period is currently eight years in Canada versus 10 years in the EU. In New Zealand it is five years.

3. They also want the TPP to embrace “patent term restoration” – a measure that exists in Europe and the United States that provides pharmaceutical companies with the potential for up to five extra years of patent life for their drugs, as compensation for any “unreasonable” time lost in obtaining regulatory approval. The push is on to extend patents either formally through patent term restoration or in a de facto way, by extending data protection. As will be explained below, increasing the period of data exclusivity is a protectionist move by Big Pharma aimed at blocking the competition from generics. It is not a trade liberalizing measure.

All these issues are in play in New Zealand, both within the TPP negotiating sessions proper, and in TPP-related discussions about Pharmac. The phRMA’s main beef with Pharmac as indicated in its letter to the US Trade Representative is that it claims Pharmac routinely (a) under-invests in innovative prescription medicines (b) makes unpredictable funding decisions (c) pays insufficient heed to the clinical experts on its PTAC expert panel and (d) operates in a non-transparent way. Guilty as charged on all counts, Kevin Sheehy confirmed when that summary list of grievances was read to him.

The cure however, may well be worse than the disease – in that the solutions Sheehy has in mind create a genuine risk of Budget blowouts on health spending. Given that the EU/Canada trade talks have thrown up such scarifying figures on how much the changes could cost Canada, can Sheehy provide any assurance that the changes he is seeking to Pharmac through the TPP would be cost-neutral for New Zealand? No, not really. “If you look at the cost per product, its very unlikely to make any difference at all. So again it gets back to not the price of pharmaceuticals, but the new volumes that should come onstream. So, if you look at the overall budgets spent on pharmaceuticals, that may grow. But its because you would fund more products.”

So that’s official. If what the pharmaceutical firms are asking for in the TPP came to pass, more money would need to be spent by government on drugs, and on a wider range of them – apparently because the grounds for rejection would be exposed to challenge potentially in court, with all the real and peripheral chilling effects on decision-making that this would entail. Would there also be any finger on the till due to the extra costs associated with changes to the patenting provisions ? Sheehy doesn’t think that would be the case. The ‘patent term restoration’ clauses would only kick in, he explains, if and when there is what the TPP would define as ‘unreasonable delay’ either in granting a patent in this country, or in getting regulatory approval through Medsafe. “If there is an unreasonable delay, patent term restoration means you can ask for a further extension to your patent. Sometimes its five years at the other end.”

To repeat : if granted this would in turn, delay Pharmac‘s ability to buy the cheaper generic substitutes, and would extend the period that Pharmac had to purchase the more expensive version in the interim. According to Sheehy though, neither the granting of a patent nor the regulatory approval suffer from unreasonable delays in New Zealand – not at least, compared to some other jurisdictions.

The timeframe for data protection, he explains, could well be the more pressing issue. So, what’s the difference? “When you generate a dossier of clinical evidence for your product,” Sheehy explains, “you then submit that to the regulator – in the US to the FDA , and in NZ to Medsafe – because you as the originator need to know that another company can’t simply copy the product, and rely on your clinical evidence to become a generic on the market, until the period of data protection is over.” Data protection – especially in the emerging field of “biologics” that is generating new and very expensive drugs – appears to be a key point in the TPP negotiations. Some 12 years of data protection, Sheehy indicates, may be being sought from the TPP.

In fact, extending the period of data protection would involve the wilful blurring of two quite separate factors (a) the patent on the intellectual property, which is where the research and development effort and investment involved in developing the product is rewarded, but only for a limited period of time and (b) the related research data. Arguably, this should be made as readily available as possible to competitors wishing to enter the market. Any moves under the TPP to extend the existing five year data protection period and block generics makers from referencing that data when seeking approval for their products, would be a trade restriction. It would not be a free trade measure.

This is not a situation where generics companies are piggy backing unfairly on the prior efforts of others. As Victoria University patent law expert Susy Frankel [pictured left] stresses, Big Pharma has already had its R&D efforts and investment recognised by the term of the patent. “Why do we do that? Because we want to encourage innovative medicine. But that reward needs to be limited in time… It is not based on [there being] an indefinite profit line for the company. It is based on giving the patent for a limited period of time. If that patent is to be extended – and we live in an era of evidence-based policy- there needs to be evidence that the current patent system is inadequate to inspire the innovation. We have no evidence of that, whatsoever. In fact, we have evidence that drug companies seem to be the richest companies on the planet. Which suggests that they are over-incentivised. Which suggests we don’t need patent term extension, and we don’t need further data exclusivity. Instead of thinking of a generics company as a free rider, perhaps we should think of it as a competitor who can bring medicines at a reasonable price, to a country that is pretty much broke. ”

Earlier this year, Dr. Deborah Gleeson [pictured below] of the School of Public Health at La Trobe University outlined in this NZ Herald article some of her misgivings about what the TPP could mean for Pharmac and she repeated them to me on the phone last week from her Melbourne office. “What the pharmaceutical industry is seeking is to impose constraints on the operation of schemes that subsidise medicines and medical devices. What they’re wanting is to be able to get higher prices for their products – so they want to change how those schemes operate, and to have more influence over the decision-making process. “

Like everyone else outside the circle of business ‘stakeholders’ with greater access to the TPP process, Gleeson is reliant upon the TPP draft texts that have been leaked to date – and with health purchasing, this is a 2011 TPP text. She has heard that a revised but virtually unchanged text was presented to the 14th round of TPP negotiations held in Leesburg. Virginia in September 2012. Much of the TPP discussion relevant to Pharmac has focussed on issues of ‘transparency” – which, I suggest to her, sounds like a welcome infusion of sunlight and clarity, and one that could arguably prevent clinical decisions being skewed by commercial considerations. What’s the potential problem with “transparency” within the TPP context?

“ One [problem] is the appeals process that the US is looking for,” Gleeson says. “There is also some wording in the text that might threaten therapeutic reference pricing. There are potential problems with the specification of the criteria used to make decisions about listing and pricing. There is also a range of different transparency and disclosure requirements that might have particular implications for Pharmac’s ability to use effective purchasing strategies to negotiate low prices.”

Therapeutic reference pricing is a key concept, and a good example of how buzzwords such as “transparency” and “efficiency” take on less benign meanings within the TPP context. Pharmac uses therapeutic reference pricing to link the prices it pays for new drugs to medicines that are already being subsidized, if they happen to have similar therapeutic effects. “So that’s an important mechanism for keeping costs down,” Gleeson says, “and for making sure that if new medicines are priced higher than existing medicines that are available, that is because they have additional clinical benefit.”

On this point, the contrast in wording between the TPP draft text and the 2005 Australia /US Free Trade Agreement is instructive. Gleeson : “There were some really important words put into the FTA – about re-imbursement being based on ‘objectively demonstrated therapeutic significance.’ That enabled Australia to retain the ability to use reference pricing…. That [same] wording does appear in the TPP Annex, but not in the part of the text that’s about how the re-imbursement amount is determined. [Instead] there is some wording in the text about how the amount should be determined on the basis of ‘competitively derived market prices’, or alternative benchmarks that ‘appropriately recognize the value of patented or generic pharmaceutical products.’ But there’s no mention of therapeutic significance in that [re-imbursement] part of the text.”

It seems a telling example. Are there reasonable grounds for concern with the TPP that the drug companies are devising a new system whereby their ability to intrude on Pharmac’s decision making – and to sue if it doesn’t deliver the outcomes they prefer – will become entrenched? “Yes. And there could also be a chilling effect. If Pharmac is concerned about the possibility that the pharmaceutical industry could contest its decisions, then that could have an impact on the decisions that are made as well.”

This article is not an evaluation of Pharmac, pro and con. It is merely an attempt to grasp how the TPP – with its calls for greater transparency, extended patent and data exclusivity rules etc – could well impact on Pharmac’s operations and provide the drug companies with means to leverage more money out of the health budget.

In its defence, Pharmac has said elsewhere that its effectiveness cannot be measured simply by counting the number of drugs it funds or the dollars it spends. Its defenders argue that Pharmac’s legendary thriftiness means that New Zealand is less likely to fund “ me too” medicines that have almost the same mechanism of action as those already available. It also negotiates cheaper prices and pays less for the same drugs than Australia. As a result, it can afford to stay in the market for new medicines. In its annual report for 2011 for instance, Pharmac noted that 39 new medicines had been funded and access widened to 43 others, while prescription numbers rose by 7%, and an additional 214,603 people receiving funded medicines.

Does Sheehy believe the pharmaceutical companies are regarding the ageing population as a commercial opportunity? “ Yeah. I think we have to accept that pharmaceutical companies are here to make a profit. I don’t see any government that has developed and registered medicines. As long as you accept that a market opportunity is still in the best interests of patients. One of Pharmac’s challenges is volume growth. At the moment, their budget has grown beneath the growth in volume, and inflation. That, on its own, is not a tenable situation.”

Indeed. Especially when budgetary constraints already exist in this area. As a consequence, a measurable gap has already opened up between New Zealand and Australia in the availability of medicines. In an article in the New Zealand Medical Journal last November, that is summarised here researchers Richard Milne and Michael Wonder established that 135 new prescription medicines were listed in the Australian Schedule of Pharmaceutical Benefits, of which less than half – only 59, or 43% – were listed in the New Zealand Pharmaceutical Schedule. Moreover, “reimbursement occurred on average 33 months later in New Zealand.” The authors’ concluded : “The differences between the two countries are largely due to the differing pharmaceutical reimbursement processes.” Pharmac’s reply can be found via the same NZMJ link above, and Michael Wonder’s rejoinder to Pharmac appeared in the 16 December 2011 NZMJ issue.

That being already the case, it is hard to see how the TPP-driven measures would be affordable in New Zealand. Big Pharma however, does not seem in a mood to relent. To me, Sheehy complained that Pharmac’s use of reference pricing is “ far more broad and far more aggressive” than in most other countries. Perhaps – but that hardly seems a matter that needs to be addressed in TPP trade talks between nations. If and when there’s a problem with reference pricing, shouldn’t Pharmac’s panel of clinicians [aka PTAC] be saying whether or not this is within clinically inappropriate bounds? “Its possible [the decision] should sit with PTAC,” Sheehy replies. “But what we would like is clarify first as to where it sits – so that it is not a commercial decision, but a clinical decision. And secondly, we would support [the idea] that the process has the opportunity for clinicians across the country to have comment into it, too.”

Right. So, in other words, Sheehy is seeking to create an appeal process. Yet surely, wouldn’t letting ‘clinicians across the country’ have their five cents worth on every single decision made by PTAC lead to an eternal round of second guessing – and without any compelling evidence that PTAC has been so captured by Pharmac that its current clinical decisions are unsound in the first place? ‘Well, you have a committee that makes a call and allows verbal or written submissions. And then you make a decision. So long as there’s a clear process for that….” He shrugs. And would this mooted process mainly provide a capacity for more inputs beforehand, or for an appeals process afterwards? “Both are useful. But I think in order to prevent lots of appeals, you actually need the information upfront.” People, he feels sure, would find a ‘pragmatic’ solution. (As surely, they do already.)

So is he saying that the problem with Pharmac is its captive pool of clinicians? “I’m not sure I’d go as far as that. I respect the clinicians views on PTAC. The issue is that the information going to PTAC – firstly there are huge volumes of it. Secondly, the Pharmac secretariat involved in the commercial negotiations have the opportunity to summarise that information, [and they] put different assumptions on which that information is based….”

Clearly, the drug industry would like to be empowered by government to become more involved in all of the relevant decisions. This would seem to be transparency gone mad. “The Pharmac secretariat summarise that information and can make modifications and put [in] their own information and PTAC makes a decision based on that new version of the information – without companies and clinicians being able to see it, and to say we don’t agree with some of your assumptions. There’s a perfectly legitimate scientific debate that should be happening,” Sheehy insists, “obviously with time constraints.”

It also sounds like rather an unwieldly proposal coming from a lobby group already complaining about time delays. So is his basic concern that regardless of what PTAC says, Pharmac is, or could be, over-riding PTAC’s recommendations ? “Yes, and we’re doing research at the moment that says exactly that. PTAC’s recommendations are exactly that. Recommendations. Our concerns are not only that Pharmac doesn’t follow PTAC recommendations and fund the products, but often the commercial negotiations over-ride the clinical priority that’s been given. So you’ve got a clinical committee saying look, this is a high priority product. You’d like to think they’d get funded in that order. “

Isn’t that simply a pragmatic reflection of funding reality – that Pharmac may be looking at all kinds of clinical best outcomes, but thinking ‘Love to, guys,’ but we can’t afford it? “Well,” Sheehy says. “ your clinical committee should be in a position to make that call, and to have the information to make that call.”

Gleeson remains unimpressed by such tales of woe. In its dealings within the TPP, she believes, the state cannot allow the pharmaceutical industry lobby to use euphemisms such as ‘transparency’ to erode the ability of governments and their purchasing agencies to manage their bill for essential medicines. “I think its really important for governments to be able to retain their ability to set priorities around health expenditure. So Pharmac should be able to retain the ability to prioritise which medicines receive funding. And governments should also be able to have control of how much of the health budget they spend on pharmaceuticals and medical devices.”

Footnote : Citing TPP confidentiality requirements, Pharmac declined to be interviewed for this article, even to explain its basic role and functions.