Cheaper by the dozen.

Photographer: Kelvin Ma/Bloomberg

Free Trade Makes Cancer Drugs Cheaper

Caroline Freund is a senior fellow at the Peterson Institute for International Economics.
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Some parents of children with attention deficit disorder got a welcome surprise last month. If they went to refill a prescription of Intuniv, a popular ADD treatment, they discovered that its monthly cost had dropped by 80 percent. The reason: The patent on the drug had expired at the end of 2014, and the generic was available.

The process of using generic substitutes for expensive prescription drugs can be speeded up even more, saving U.S. consumers billions of dollars a year. This opportunity comes from an unusual source: the negotiations for the Trans-Pacific Partnership treaty.

The trade deal among Asian-Pacific countries is nearing completion, but one issue is causing an impasse: the demand by the U.S. pharmaceutical industry that America's trading partners respect a 12-year timetable giving the companies exclusive rights to their patents.

The U.S. should drop that demand and instead accommodate its trading partners by reducing the 12-year rule. The nation already has the longest data-exclusivity period in the world. Even Europe, with pharmaceutical giants such as Roche, Novartis and Bayer, allows shorter time spans.

Some countries in the trans-Pacific negotiations, including Mexico, Malaysia, Vietnam and Brunei, require no waiting period for developing generic drugs; others provide eight years or less of patent protection.

If they and the U.S. can reach a compromise of, say, seven years, it will help everyone. American consumers will gain access to cheaper drugs more quickly, while the countries that currently give their drug companies no protection at all will benefit from having time to nurture innovation. And the U.S. companies will get some protection from copycats in foreign markets.

Last year 31 drugs with total estimated sales of $19 billion went "off patent." The average price difference between a generic and brand drug is 70 percent. Using that figure, potential savings for consumers and insurance companies could have been up to $13 billion had the patents on these drugs expired one year earlier.

Biologic drugs -- which are made from living organisms -- are at the center of the current debate and the fastest-growing segment of the drug market. They include Humira and Remicade, which are used to treat rheumatoid arthritis and can cost thousands of dollars per month or per treatment. Cancer drugs such as Rituxan and Herceptin are also biologics. The U.S. and Europe are leading the way in their development, but companies in Australia, Japan and Singapore, as well as in China and India, are also investing in them.

The U.S. pharmaceutical companies argue that the revenue they earn from the longer period is needed to cover the innovation costs of the drugs. But protecting the information can end up delaying scientific progress on related drugs, because biosimilar products (the generics of biologic drugs) must either wait or repeat costly development stages and drug trials. Even if the data is available, biosimilars are more costly to create than regular generics.

For now, the office of the U.S. trade representative is sticking to the 12-year period, simply because it is required under current law. But U.S. Trade Representative Michael Froman recently called this “our initial position," noting that there is "no consensus on how long to protect the exclusivity of biologic drugs." His comment suggests the timetable is open to negotiation.

The Federal Trade Commission says the 12-year period is “excessive,” and President Barack Obama’s new budget numbers back that up: They assume $4.5 billion in federal savings over the next 10 years based on the faster development of generic biologics.

The Trans-Pacific Partnership can get the balance right through negotiation -- demands are followed by concessions in exchange for concessions from the other side. Each side may be unilaterally better off with protection, but everyone is jointly better off under free trade.

And if the period of exclusivity isn't negotiable, it should not be part of a reciprocal trade agreement at all. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Caroline Freund at cfreund@piie.com

To contact the editor on this story:
Katy Roberts at kroberts29@bloomberg.net