Global Policy Forum

Pharmaceutical companies are using free-trade deals like CAFTA to eliminate
global competition - and deny poor patients access to cheaper generic drugs

By Adam Graham-Silverman

In November 2004, Guatemala's Congress repealed a law that gave brand-name prescription drugs protection from generic competition. The law had allowed brand-name companies to conceal data that generic companies would use to bring their own versions to market, and public health activists hailed the move as a step toward greater access to essential medicines. But four months later, legislators reversed themselves and put those protections back in place. The protests that followed led to many injuries and one death. Why did this small nation, where cheap generic drugs have been key to treating one of Latin America's largest HIV-positive populations, change course?

In a word: CAFTA. Guatemala changed its laws in order to become part of the Central American Free Trade Agreement, which encompasses five Central American countries and the Dominican Republic. CAFTA, which President Bush signed last week after coaxing it through Congress, requires its members to adopt strict rules on intellectual property rights, including those protecting prescription drugs. These drugs cost up to 22 times what Doctors Without Borders, which runs several AIDS clinics in Guatemala, pays for generic equivalents. Some economists say similarly high drug costs would cause the unique universal healthcare system of nearby Costa Rica to collapse.

Though protections for the environment and workers' rights are often the most contentious issues surrounding trade deals such as CAFTA and NAFTA, pharmaceutical giants, aided by the U.S. government, are increasingly using these pacts to assert their power over markets in developing countries. Activists and public-health groups working on the ground say these companies put profits above public health by keeping generic medicines off the shelves, which keeps prices high and drugs out of reach to all but the most wealthy. These deals apply to all prescription drugs, but generics have been particularly effective at driving down the prices of drugs used to treat AIDS - in some cases by 98 percent - even as AIDS rates have skyrocketed. CAFTA is signed and delivered, and the United States is now preparing trade pacts with Thailand, South America and other parts of the developing world.

Even the Bush administration cites the falling price of drugs as a key reason it's possible to treat AIDS patients in developing countries. Generic competition is the only proven way to drive down those prices and thus broaden access. For example, Doctors Without Borders paid $216 a year to treat a patient in Guatemala while the Guatemalan government, buying brand-name equivalents, paid $4,818.

Costa Rica's free, universal system depends on cheap drugs to keep costs down. Roman Macaya, executive director of the National Chamber of Generic Products of Costa Rica, says that if CAFTA-like protections had been in place, buying drugs would have put the system in financial jeopardy. Along with the Dominican Republic and Nicaragua, Costa Rica has yet to sign on to CAFTA and drug-pricing promises to be a big issue in the country's upcoming presidential election. "Costa Rica will most likely have to adopt a policy where older drugs are prescribed rather than the latest drugs even if HIV strains have evolved to be resistant to those older drugs," Macaya says. "Most of the drug prices for the new drugs are going to be out of reach under CAFTA."

That, he and others say, is because CAFTA contains several provisions designed to limit generic access. For example, drug companies get 20-year patent protection for their drugs from the moment they begin research and development, but they can apply to extend that time period. (A drug usually takes about 15 years to come to market.) In the United States, that time is limited, but under CAFTA, there's no upper limit on the extension the companies could obtain.

A more dire consequence lies in the short term. Generic companies seeking approval of their drugs usually use safety data from clinical tests that the name-brand companies conducted, obviating the need to repeat expensive and time-consuming work. CAFTA allows the original manufacturers to keep that data secret for five years after a company registers a drug. Generic companies need that data to market their drugs because it's not financially feasible to repeat those studies. And according to Rachel Cohen of Doctors Without Borders' Campaign for Access to Essential Medicines, "The requirement to retest a drug already proven to be safe and effective is medically unethical, because it forces a number of patients to take part in clinical trials which are not necessary and requires some to take placebos in order to compare outcomes with the actual drug and therefore forgo a proven treatment."

The five-year clock starts ticking in a given country only when a drug is registered there, meaning that a company can prolong its monopoly by registering in countries sequentially. The result is up to 10 years of market protection from generics for a brand-name drug. (Drug companies are pushing for more time in other markets.) Guatemala had removed these data-protection requirements and then, at the behest of the United States and in order to comply with CAFTA, it reinstated them in March.

Technically, a developing country can grant a compulsory license, which allows a generic company to break a patent in exchange for royalties paid back to the patent holder. Several small countries have invoked these compulsory licenses, and Brazil has used the threat of doing so to get brand-name drug makers to lower their prices. But without access to the name-brand companies' data, generic companies can't get their drugs approved for market regardless of whether the drug is under patent. If a generic company can't market its drugs, it makes compulsory licensing meaningless and creates a climate in which Brazil's threats, for example, would be empty.

The United States supported compulsory licensing at World Trade Organization talks in 2001, and then endorsed the concept again in 2002. But in trade negotiations, it's another story. "The Bush Administration's trade negotiators have repeatedly pressured the developing countries to forgo their rights ... and to adopt intellectual property standards that impede access to essential medications," according to a report from the office of Rep. Henry A. Waxman, D-Calif. "In effect, the President's trade representatives have elevated the protection of pharmaceutical patents above the pressing health needs of developing countries."

Last week, a group of 11 Latin American nations, including giants Mexico and Brazil but none of the CAFTA countries, cut a deal with more than 20 brand-name companies on region-wide prices. Brian Henry, a spokesman for Bristol-Myers Squibb, says the company negotiates prices with countries depending on their wealth and infection rate. "We do openly work with governments around the world to make sure medicines are appropriately priced," he says. "Compulsory licensing is not necessarily an answer to something like HIV-AIDS" because it's name-brand companies, not generics, that develop new drugs.

The deal should cut prices in the short term, but the long-term effects will be a prolonged name-brand monopoly, according to Robert Weissman, director of the activist group Essential Action. "The strategy of negotiating with the brand-name companies is a dead-end strategy," he says. "The only thing that's surprising is how unwilling the [brand-name] companies have been to offer meaningful discounts given what's at stake. You're not going to get progressively diminishing costs unless you have generic medicine."

Latin America's AIDS burden is relatively small compared to that in other parts of the world. About 1.7 million people there have AIDS - less than half of 1 percent of the population - compared with more than 25 million in sub-Saharan Africa. Central America represents about half of 1 percent of worldwide drug sales. So why do the pharmaceutical companies expend so much effort to protect themselves when there's little profit to be made? "If they can get the Central American countries signed off on this deal, then that provides them leverage for extracting the same kind of agreement" in negotiations with other countries, Weissman says. Brand-name companies can use the terms of smaller deals to build larger ones and use those agreements persuasively when they make deals with more powerful nations such as Brazil or South Africa, he added.

Generic-drug advocates fear these restrictions will come back to bite U.S. consumers, and not just on drugs to treat AIDS. For example, the United States has limits on patent extensions and on how long companies can keep secret their test data. But if the United States' neighbors adopt different requirements, like those in CAFTA, pressure will build at home to "harmonize," or get on board with what everyone else is doing. "People are starting to realize, yes, indeed, this is a part of grand strategy," said Kathleen Jaeger, president of the Generic Pharmaceutical Association.

Brand-name companies, and the office of the U.S. Trade Representative, which negotiates these deals, say their goal is to protect intellectual property rights. "It's important for us to have patent protection and to be able to recoup our costs so we can reinvest that into research and development," says Henry, of Bristol-Myers Squibb. Brand-name companies run tests not only to prove their drugs are safe but also to develop information on dosages and side effects, he added. And unless there's a possibility of profit, there's no incentive to do research in the first place. "Generics aren't going to be forced off the market," says Jim Mendenhall, acting general counsel at the USTR. "The [deal] doesn't have any retroactive effect. The provisions including data protection in CAFTA will actually enhance access to medicines by encouraging the early launch of innovative drugs in these countries."

Next up on the U.S. trade agenda are Thailand and an Andean free-trade agreement, which would cover Colombia, Peru, Ecuador and Bolivia. Thailand has a robust generic industry and a national program to fight HIV, and activists fear a trade deal will undermine both. Unlike the CAFTA negotiations, the Andean talks have brought in health ministers, who offered a cost-sharing proposal that would give generics access to the market in exchange for royalties. "That's the kind of compromise that meets the substantive basis for Big Pharma and [the U.S.] demand for data protection without locking in a model that blocks generic competition," Weissman says. The United States has not yet responded to the offer, but the U.S. proposal would limit the ability of countries to grant compulsory licenses and block countries from importing brand-name drugs if they're cheaper abroad.

Advocates differ about an appropriate response to those deals, but most want an exemption from patents if public health is in danger. A December WTO summit in Hong Kong will provide an opportunity to cement the rights of countries to such exceptions. Some say rights to research data should be preserved only in countries rich enough to afford the drugs, which can still provide the industry with plenty of profit. Weissman says countries should be able to issue compulsory licenses whenever they want, while Jaeger, of the Generic Pharmaceutical Association, says a limited amount of protection for brand-name companies provides an important incentive for new drug development. Whatever the solution, advocates agree there's an imbalance in these negotiations that protects innovation while doing little to guarantee access. The protections in CAFTA and upcoming deals go beyond those in U.S. law and NAFTA, allowing the pharmaceutical industry benefits through trade agreements it cannot obtain through the legislative process.

And the Bush administration continues to present two faces, claiming it supports global health and investing in the battle against AIDS in the developing world while pushing trade deals that undermine the same principles. "The administration is very concerned about global public health on the one hand, but that's not being carried over to free-trade agreements," Jaeger says. "This is not acceptable."