Sunday, August 13, 2006

US ROK FTA - Pharma Compromise?

Depending who you talk to and how you read the tea leaves, a compromise is in store for the US objections to Korea's "positive list" scheme for prescription medications. Now based on some comments, there seems to be some confusion on what the "positive list" is and why the US objects to it. Let me explain it as I understand it (like most Korean regulations its difficult to know who knows less about them, the Korean government or the Korean press). 

Basically the KFDA (Korean Food and Drug Administration) will submit a list to the MHW (Ministry of Health and Welfare)  on what drugs are truly effective, and those are the only drugs the MHW will pay for as part of the national health care system. And its that simple. It does not mean (explicitly) that Korea will not pay for US drugs. It does not mean that Korea will be forced to buy high priced US drugs. It does not bar the importation of US drugs. The devil, as always, is how this tool will be used by Korean regulators.

To get at this better, I need to explain a hole in Korea IP law that allows generic drugs to proliferate. In Korea you cannot patent a molecule. The logic is any molecule is purely natural (no matter how unnatural the manufacturing process), and you cannot patent a naturally existing object. This means that for any drug to be patented in Korea, you need to patent the effect on person. To do so you need a lot of clinical documentation proving the drug has this effect. Thats the loophole. It is not a violation of Korean patent law to make or sell the drug in question as long as it is not sold for effect that drug has. This means a generic can enter the Korean health system if it can prove to KFDA that the drug has other medicinal effects not mentioned in the patent. (This is more common than you think, two famous drugs Viagra for ED and Rogaine for baldness both started their lives as blood pressure medications).

Now legally in the context of the "positive list" system this is not much of loophole. For example US drug company XYZ Co. patents the drug Utopiax for depression in Korea. Now Kim Pharma Co. finds that Utopax is also good for the common cold (not mentioned in the patent data). They both get KFDA approval to sell the drug for there respective ailments. Now under the system (hopefully) the KFDA will say that XYZ Co's. Utopiax is an allowable treatment for depression while Kim Pharma's Utopiax generic is an allowable treatment for colds (because of the patent Kim's production cannot be sold for depression).

Now for the details and the US problems with the scheme. They mostly derive from Korea's history of barring or erecting barriers to foreign companies wanting to do business, both general and in the Pharma industry. It was only about 5 years ago that the KFDA quietly pushed a "buy Korea" plan  (note: PDF link) on doctors and pharmacists. With this in mind the following problems with the "positive list" system are derived:

1. The KFDA possibly denying inclusion of a US drug on the "positive list" is a de facto trade barrier to the US (the US firm can import, but limits market access). To put this another way, the fear is that the KFDA will include a less effective Korean drug as acceptable treatment out of economic nationalism. Such trade barriers are the antithesis of Free Trade Agreement.

2. Because of #1 a fear that Korean patients will not get access to best treatment possible (one reason the average Korean citizen should be concerned).

3. The KFDA approves a Korean generic for treatment. Doctors then circumvent the treatment rules to supply the drug out of either cost or economic nationalism (to use the example above the doc says " got Depression, you happen to have a cold as well.") Now the problem here is the both the KFDA and the MHW have economic and nationalistic reasons to either look the other way or quietly approve of these actions. So again, this is a possible de-facto trade barrier.

4. Because of #3 a fear that Korean patients may not get drugs of the same safety or consistency (another reason for the average Korean should be concerned)

5. Even worse than in #3, the KFDA excluded the US drug while includes the generic (another likely outcome based on past history) with even worse results.

6. Same as #4

7. With cases #3 and #5 if Korean regulators look the other way, or even unofficially encourage, this amounts to state sponsored intellectual property theft, which is defiantly against the spirt of FTA, according to the US.

Now the Korean position is that all the above outcomes are not assured. I said before nothing necessarily bars US drugs from being imported or sold, as long as they are approved by the KFDA (that approval another can of worms by the way I am not even going to touch here). According to Korean law it is illegal to sell a drug for a purpose it is not approved for. Finally it is the KFDA's stated mission to guard public health, so they would not jeopardize health and safety, meaning of course they would approve the US drugs for the list.

The US response to this all is the history, if not current actions, of the KFDA show otherwise. 

That in shortest way I can explain it fully is the nub of the debate (admittedly I glossed a few things for simplicity). Its complex, and not as easy as marginalizing it as "those evil greedy US drug companies".  The US complaint is that the "positive list" system represents a possible trade barrier harming both America and Korea, and such should not be allowed in an FTA. The Korean side is its only "possible", and they would never do such a thing. The US says back, "Do I look I just fell off a turnip truck?". Then the translator scratches his head at the idiom and freezes and the talks end.

Now it seems the idiom has been translated, and talks have moved on.  Seoul claims a victory:

 Negotiations between Seoul and Washington on a free trade agreement received a lift yesterday, as Washington notified Seoul it is willing to accept South Korea's new drug policy, a government official said yesterday. 

However the US wants some compromises:

While giving ground on the South Korean drug policy issue, Washington wants to extend the time it takes for patents for newly developed drugs to remain in effect. In addition, it wants to establish a mechanism where U.S. drug firms can register their objections to drug prices here. Furthermore, Washington wants Seoul also to acknowledge that if a domestic drug firm reproduces a drug for which a U.S. drug firm has the original license, the U.S. firm retains exclusive rights to all related data. 

I wonder what the details of the settlement are, particular the line "the U.S. firm retains exclusive rights to all related data". This could go a long way in stamping out the generic problem here in Korea. However, I wonder how effective the program will be once initiated. The program, it seems to me, places a good deal of responsibility on the KFDA and such. One must wonder given Korea's history on the problem how effective they will be.

Meanwhile, an interesting aside here is where the Pharma compromise talks will be held. The Korean Times reports that it will be in Singapore. Could this be that the USTR negotiating team is shifting focus to FTA's in SE Asia (Thailand and Malaysia), and Singapore is a more convenient place for the necessary US parties. If so, the clock is defiantly ticking on these negotiations.


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