International Rx Pricing Debate Plays Out In U.S./Australia Trade Negotiations

U.S. government agencies that purchase pharmaceuticals are understood to be exempt from drug price negotiation transparency requirements in a proposed U.S./Australia trade agreement.

The bilateral agreement is understood to gain some concessions from Australia regarding the process it uses to place prescription drugs on its Pharmaceutical Benefits Scheme, through which the government subsidizes the cost of most drugs for all Australians.

However, the agreement will not affect price negotiations at the Department of Defense, the Department of Veterans Affairs and other U.S. agencies that directly purchase drugs.

The proposed agreement is understood to comprise three pharmaceutical-related elements: adding transparency to the Australian system for determining prices; modifying how Australia conducts comparative cost analyses; and increasing consumer access to information about drugs.

Because a government commission recommends prices for drugs covered by Australia's PBS, the U.S. is seeking transparency provisions requiring the Australian government to provide written justification for pricing decisions at different stages in the process and enabling manufacturers to respond. Deadlines for pricing decisions would also be implemented.

The main mechanism in Australian pricing decisions is cost effectiveness information evaluated by a separate committee that chooses drugs to be listed on the PBS; the U.S. hopes to have the cost effectiveness methodology modified.

Direct-to-consumer drug advertising is banned in Australia, so the discussions around providing better consumer information would appear to be aimed at giving manufacturers more flexibility in promoting their products in that country.

FDA has taken the stance that DTC ads improve patient awareness of effective drug treatments (¹ (Also see "FDA Readies Report On DTC, Says Physician Survey Supports Current Policy" - Pink Sheet, 20 Jan, 2003.), p. 3).

Trade agreement negotiations are expected to wrap up during the week of Jan. 26.

The pharmaceutical element of the negotiations appear to be a forerunner to the implementation of trade-related provisions in the recently enacted Medicare prescription drug law. The law requires the Department of Commerce to study and report on drug price controls in other countries (² (Also see "Reimportation Limits Remain In Medicare Agreement; HHS Study Requested" - Pink Sheet, 24 Nov, 2003.), p. 12).

The Medicare legislation's explanatory statement adds that the U.S. Trade Representative, with HHS and DoC, will analyze whether trade negotiations represent an opportunity to address price controls and "develop a strategy to address such issues in appropriate negotiations."

The explanatory statement also specifically requests that Congressional committees be briefed on the trade negotiations with Australia as they relate to drugs.

The potential for the Australia free trade agreement to serve as a "model" for negotiations with other countries is one area of concern expressed in a Jan. 15 letter from House Democrats to President Bush.

"It is essential that this proposal be more carefully considered - with respect to both its ramifications on current U.S. programs as well as how it may constrain Congress' ability to expand access to medicines in the future - before we lock ourselves into a web of international commitments," the letter states.

The letter from House Minority Leader Nancy Pelosi (Calif.) was also signed by Steny Hoyer (Md.), Charles Rangel (N.Y.), Pete Stark (Calif.), Robert Matsui (Calif.), Sander Levin (Mich.), George Miller (Calif.), John Spratt (S.C.) and James Clyburn (S.C.).

The letter outlines four "major problems" with the proposal, including the potential for increased prices for government procurement programs in the U.S.

"A number of elements of the proposal, if applied to public and private programs in the United States, could harm American veterans and others by raising drug prices and restricting choice or access, among other potential consequences," the letter states.

"Some have suggested that the United States would be exempt from application of this proposal," the letter notes. However, "we do not know whether the Government of Australia would be willing to accept such a one-way mandate."

The letter says the agreement's provisions are "likely to raise costs both for the Australian government and its citizens." As a result, "the broad access that Australians currently enjoy would be undoubtedly threatened if prices increased."

"If the Administration proceeds along this track in the name of preventing 'free ridership' by countries and their citizens, we respectfully request to see the Administration's plan to lower prices correspondingly for American purchasers."

FDA Commissioner McClellan has articulated support for a policy similar to that in the trade proposal, suggesting other developed nations should pay their "fair share" of the cost of pharmaceutical research and development (³ (Also see "Rx Pricing Plan Offered By FDA’s McClellan; Industry Must Meet “Challenge”" - Pink Sheet, 29 Sep, 2003.), p. 3).

Representatives from the pharmaceutical industry have picked up on that theme. Pfizer CEO Henry McKinnell, PhD, has suggested that the global pricing and reimportation debate should be recast as a trade issue (⁴ (Also see "Rx Pricing Debate Must Be Framed As Trade Issue, Pfizer CEO Says" - Pink Sheet, 15 Sep, 2003.), p. 6).

McClellan is understood to have been involved in the development of the trade agreement proposal (see ⁵ (Also see "FDA Goes Global: Trade Talks Suggest Drug Prices Are Part Of Mission" - Pink Sheet, 26 Jan, 2004.) ).

The Democrats' letter maintains the proposal does not comport with the principal trade negotiating objectives of the Trade Act of 2002, which is intended to eliminate price controls that give a competitive advantage to another country's domestic producers.

"It is far from clear that the Australian system as currently structured provides any net advantages to Australian producers in competition with U.S. pharmaceutical companies - and to date, this reason has not been offered as the basis for the proposal."

The Administration is understood to be considering a response to that argument that will refer to the small price differential between generic and branded drugs in Australia.

It could be argued that the Australian government keeps generic prices high to protect its domestic generic drug manufacturers. One of Australia's largest drug manufacturers, Mayne, describes itself as "a leading developer and manufacturer of generic pharmaceuticals."

However, the small price differentiation between generics and brands may actually account for lower generic penetration in Australia, which would seem to run counter to an interest to protect the domestic industry.