Australia amends its free trade deal with US to lessen effect on drug costs

The Australian government has agreed to adopt amendments aimed at offering greater protection to makers of generic drugs. The move will lift a possible amendment to legislation currently passing through the Australian parliament which would have jeopardised the passage of a free trade agreement covering a wide range of goods with the United States (News Extra, 7 August).

The opposition Labor Party had proposed amendments that, it argued, would prevent “evergreening,” a practice whereby drug manufacturers apply for new patents for minor changes to drugs that are coming off patent. This practice prevents generic drugs entering the market.

Under Australia's pharmaceutical benefits scheme (PBS), the prices of drugs proposed for the scheme are benchmarked against the cost of generic equivalents. Therefore the introduction of new generic drugs results in significant cost savings to the government subsidised scheme.

The amendments require that a company initiating a patent infringement proceeding against a generic manufacturer submit a certificate stating that the proceeding was begun “in good faith” and “will be conducted without unreasonable delay.” The amendments provide for penalties of up to $A10m (£3.9m; $7.2m; €5.8m) and enable manufacturers of generic drugs, the Australian government, the state governments, and public hospitals to seek damages.

The Labor Party's shadow minister for trade, Senator Stephen Conroy, told the Senate that if a company was found to have a sham patent and “has been deliberately keeping generics off the market” it could forfeit all its profits made on the drug.

But other people are less optimistic about the effect of the ruling.

“Will they be effective as a tool to prevent evergreening? Absolutely not,” said Professor Peter Drahos, a specialist in intellectual property at Australian National University, Canberra. “The evidentiary burdens are all on a generic company; I just can't see anybody succeeding in an action. A $10m fine is pretty trivial on a drug that is worth $8bn annually,” he said.

“The main reason the American drug companies dislike the PBS is its effect on the global market. Firstly, it exists as a model for developing countries, which are growing markets … Secondly, because as prices paid in Australia become known [it adds] pressure for lower prices,” Professor Drahos said.

After accepting the amendments Prime Minister John Howard warned that the changes “could be construed by the Americans as inconsistent with the free trade agreement.”

Richard Mills, a spokesman for Robert Zoellick, the US trade representative (the president's principal adviser on trade policy), said the United States would review the text to assess whether it complies with the negotiated agreement. Subject to US approval the agreement will come into effect on 1 January 2005.

Dr Thomas Faunce, a senior lecturer at the Australian National University Medical School, hopes that other countries negotiating trade agreements will learn from Australia's experience.

He said, “At least by the Labor Party raising the issue the Americans are going to find it a lot harder when they roll on to the next country to push the evergreening agenda. At least they will be warned and think, ‘Let's have a much more serious look at what you are trying to do by linking patents and marketing approval.’”