‘Big Pharma’ is the big winner of the USMCA

The longstanding debate in the United States on its sky-high prescription drug prices and access to health care is raging where you might least expect it — within the pages of President Trump’s new trade deal: the U.S.-Mexico-Canada Agreement (USMCA).  

Critics of the USMCA are very concerned that it would increase medicine prices in North America and strengthen the hand of one of the world’s most powerful industries.     

At Boston University’s Global Development Policy Center and School of Public Health, we have been studying the impact of trade treaties on access to medicines and can confirm that there is real truth to these concerns. They require policy action.

At issue is is a section of the USMCA that would protect pharmaceutical companies with new biologics from generic competition, so-called “biosimilars.” 

Biologic medicines come from living cells that contain proteins and other materials that can treat diseases and conditions like cancer, rheumatoid arthritis and multiple sclerosis.

“Biosimilar” medicines are similarly composed drugs that are approved for marketing when presenting data demonstrating that there is no clinically meaningful difference in their safety, quality and efficacy from the original biologic.

Biologics have been found to be the most significant driver of prescription medicine prices. Citing a report by IQVIA Institute, Forbes magazine reported that “biologic drugs represented 2 percent of all U.S. prescriptions, but 37 percent of net drug spending. Since 2014, biologic drugs account for nearly all of the growth in net drug spending: 93 percent of it, in fact.”

For this reason, many have argued to lower the number of years for biologic exclusivity, not increase them.

Even though only 2 percent of patients in the U.S. use biologic medicines, they represent 40 percent of total prescribing drug expenditure. It has been estimated that biosimilar medicine costs on average 30-percent less than the originator biologic medicine.

Promotion of biosimilar medicines in the U.S. could save consumers billions of dollars. According to Federal Drug Administration Commissioner Scott Gottlieb, the anticompetitive tactics used by manufacturers of biologic medicines are one reason market entry of biosimilar medicines is so slow.  

A new tactic is the USMCA, which under Article 20 F. 14 would grant at least a 10-year “test data” exclusivity period for new biologics. Currently, Canada has an eight-year test data exclusivity period and Mexico has a five-year limit, so the USMCA would force both countries to increase this period. 

Granting exclusivity essentially gives a pharmaceutical company monopoly rights that free the firm from competition and allows it to charge higher prices than it would under competitive conditions. 

In a comprehensive review of the literature, we find that, generally, exclusivity rules like these in past trade agreements have tended to raise the prices of medicines.

In fact, in a study we did specific to biologics, we found that provisions that protect biologics in the U.S.-Chile Free Trade Agreement increased the unit price of biologics in Chile.

In many ways, these measures are a form of mercantilism for the interests of firms in leading economic sectors, rather than “free trade” that would create more competition and lower prices.

Indeed, the pharmaceutical industry is the most active lobby group when it comes to trade agreements. One analysis of the Trans-Pacific Partnership (TPP) — a deal that was scrapped — stated that it ended up having many of the same provisions for pharmaceuticals and biologics that the USMCA has.

That analysis by Sunlight Foundation found that pharmaceutical companies and their associations mentioned the TPP in 251 separate lobbying reports — two-and-a-half times more than the next-most active industry, the auto sector.

Pharmaceutical companies argue that since test data is so expensive to produce, it is an unfair advantage to let other companies rely on that data without cost. Biologics research and development is supposedly a higher-risk endeavor, with:

• higher capital costs,
• higher material costs,
• greater manufacturing costs and uncertainties,
• longer development times, and
• lower late-stage success rates compared to biosimilar drugs.   

According to pharma, a failure to include substantial data exclusivity as part of a statutory framework for “biosimilars” would undermine incentives to invest in biomedical innovation and thus would slow progress in the development of breakthrough therapies for patients suffering from currently untreatable conditions.

Recent research published in Nature Biotechnology calls this rationale into question. The authors found no evidence that developing biologic drugs was more time-intensive than traditional small-molecule (biosimilar) medicines.

The study’s lead author wrote: “Our study shows that biologic and small molecule drugs take a similar amount of time to develop through clinical trials. Policies intended to extend exclusivity periods for biologics, as Canada is now doing due to the USMCA trade deal, should not be justified by pointing to longer pre-market development times for biologic drugs.”

Given the new evidence that developing biologic drugs is not more time-intensive, it is necessary to reconsider the period of market exclusivity for such innovation that would not unduly favor one type over others.

Whatever reward for innovation the policymakers choose, it should not impede access to such innovation for those who most need it.

Veronika J. Wirtz and Warren A. Kaplan are professors at the Boston University School of Public Health and research fellows at Boston University’s Global Development Policy Center. Kevin P. Gallagher is a professor at Boston University’s Pardee School for Global Studies and director of the Global Development Policy Center. 

Note: This op-ed is derived from the authors’ work on trade, intellectual property rights and access to medicines.