Trade Pact Deals Setback to Big Pharma

Negotiators removed a provision that would have given the makers of ultra-expensive biologic drugs 10 years of protection from less expensive knockoffs.

This June 15, 2018, file photo shows pharmaceuticals in North Andover, Mass.
This June 15, 2018, file photo shows pharmaceuticals in North Andover, Mass.
AP Photo/Elise Amendola, File

A revamped North American trade deal nearing passage in Congress gives both the White House and Democrats a chance to claim victory and offers farmers and businesses clearer rules governing the vast flow of goods among the United States, Canada and Mexico.

But the pact leaves at least one surprising loser: the pharmaceutical industry, a near-invincible lobbying powerhouse in Washington.

To satisfy House Democrats, the Trump administration removed a provision that would have given the makers of ultra-expensive biologic drugs 10 years of protection from less expensive knockoffs. Democrats opposed what they called a giveaway to the industry that could have locked in inflated prices by stifling competition. Top examples of the injected drugs made from living cells include medications to fight cancer and immune disorders such as rheumatoid arthritis.

“This is one of the first times we've actually seen pharma lose,” said Rep. Earl Blumenauer, an Oregon Democrat who leads a subcommittee on trade. “They have a remarkable track record because they are a huge political force. They spend lots of money on lobbying, on advertising, on campaign contributions. But we held firm, and we won on all counts.”

The removal of the provision also helped illustrate just how potent a political issue sky-high drug prices have become. It was a reminder, too, that President Donald Trump repeatedly pledged to work to lower drug prices.

Last week, drug manufacturers absorbed another — though likely only temporary — defeat when House Democrats passed legislation, along party lines, that would authorize Medicare to use its influence in the marketplace to negotiate lower prices from drug companies. The bill is thought to have no chance of passage, though, in the Republican-led Senate.

Yet the revamped U.S.-Mexico-Canada Agreement, Trump’s rewrite of the 25-year-old North American Free Trade Act, seems set to clear Congress without the biologics protection that the drug industry had sought. , the House The full House voted 385-41 on Thursday to approve it. The Senate isn't likely to take it up until January.

“It’s not a mystery,’’ said Rep. Jan Schakowsky, an Illinois Democrat who helped negotiate with the administration. “If you poll the American people, the cost of pharmaceuticals is a really big deal. It’s at the top of the list.’’

The trade agreement the administration reached last year with Mexico and Canada gave biologics 10 years of protection from cheaper near-copies known as biosimilars. Among the leading biologics are the anti-cancer drug Rituxan and Humira and Enbrel, which fight immune disorders.

The industry — and the Trump administration — had argued that manufacturers of biologics require years of protection to profit from their drugs before biosimilars should be allowed to cut into sales. Otherwise, they contend, brand-name drug companies and biotech startups that rely on money from venture capital firms would have little incentive to invest in developing new medicines.

“The announcement made today puts politics over patients,” the leading drug industry trade group, PhRMA, said in a statement last week. “Eliminating the biologics provision in the USMCA removes vital protections for innovators while doing nothing to help U.S. patients afford their medicines or access future treatments and cures.’’

The industry also rejected the notion that the biologics provision would keep drug prices high and hurt consumers. Existing U.S. law, they noted, already gives makers of biologics 12 years' protection, more than the proposed 10 years in the USMCA. But the provision the Democrats succeeded in removing would have forced Mexico to expand biologics' monopoly from five years and Canada from eight, potentially hurting U.S. consumers who seek lower drug prices in those countries.

What's more, Democrats argued, if Congress had expanded the biologics' monopoly in the USMCA, it would have prevented lawmakers from ever scaling back that monopoly to, say, the seven years that the Obama administration had once proposed.

“We would have been locked in,’’ Schakowsky said.

For Big Pharma, the setback marked a sharp turnabout. Four years ago, the drug industry helped scuttle an Obama administration trade deal with 11 Pacific Rim countries, arguing that a provision establishing eight years of protection for biologics was not sufficient. Now the latest U.S. trade deal contains no biologics protections at all.

Back in 2006, the industry scored a major victory when it helped push legislation through Congress that added prescription drug coverage for Medicare recipients but barred the government from negotiating lower prices. That restriction opened a “Pandora’s box” that paved the way for unsustainable price hikes, said Steve Brozak, an analyst at WBB Securities.

Drug makers began raising prices of existing drugs several times a year, sometimes totaling more than 20% annually. They also started launching biologics with list prices topping six figures a year. In May, U.S. regulators approved a one-time gene therapy, Zolgensma, with an eye-popping price of $2.1 million per patient.

A backlash has been growing, especially after news reports and congressional hearings exposed stories of patients rationing medicine and even dying because they couldn't afford insulin or other drugs.

Drugmakers have “been on defense more than we’ve ever seen,” said David Certner, legal counsel for AARP.

Last year, Certner noted, Congress dealt the industry two losses: First, by increasing the discounts that drug makers must give to seniors with high drug costs who have landed in a Medicare coverage gap. Then, months later, lawmakers rejected industry efforts to reverse that change.

And in January, the industry lost perhaps its biggest champion in Congress when Sen. Orrin Hatch, R-Utah, retired.

Trump has long promised to address drug prices. On Wednesday, the administration moved ahead with a plan to allow Americans to safely and legally gain access to lower-priced medicines from abroad. So far, most of Trump's drug-price initiatives have gone nowhere. His trade team negotiated biologics protections into the USMCA.

Facing public anger, Democratic resistance and the fact that Canada and Mexico had no reason to support the protections for biologics, the administration yielded. When it reached a deal with House Democrats on the USMCA last week, the biologics provision was out.

“Clearly, getting rid of the biologic provision was a step backwards,” U.S. Trade Representative Robert Lighthizer said Tuesday in an interview with the Fox Business Network. "And that was a compromise. You know, there are consequences of the Democrats’ control of the House. And that was necessary. And I’m sorry about that."

Jeffrey Francer, general counsel for the Association for Accessible Medicines, which represents generic and biosimilar drug companies, put it another way: "The president decided not to fall on his sword for Big Pharma."

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