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Australia's low-cost drugs threatened by US trade deal

On Friday, Parliament approved a new free-trade agreement - with caveats.

By Janaki KremmerCorrespondent of The Christian Science Monitor / August 16, 2004


A model approach that allows Australians in some cases to pay even less than Canadians for prescription drugs may be jeopardized by a new free-trade agreement with the United States.

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The Pharmaceutical Benefits Scheme (PBS), which last year collectively negotiated to supply Australia's drug needs at a price tag of only $3.7 billion, has been hailed by the World Health Organization as a benchmark by which other countries' health programs are judged.

Prime Minister John Howard insists that the popular program will not be affected by the trade agreement, passed Friday by Parliament after weeks of controversy. But critics say the deal could undercut the generic drug industry that is key to the discounts achieved by the PBS and its emulators around the world.

"Once you break up the system it stops being a model, and the Americans will be more confident about telling [other] countries what they should do," says Peter Drahos, a professor of intellectual law at the Australian National University. "Those countries will have to rework their own PBS, which is a much harder thing to do."

According to Mr. Drahos, countries like Malaysia and Thailand, which is currently negotiating a free-trade agreement (FTA) with the US, will be at risk if the trade deal goes into effect on January 1, 2005.

Under Australia's current scheme, the price of a new drug is referenced to the cheapest product of its type. If the new drug does not provide any more benefits, then it gets the same base-line price. As a rule, the greater the benefits and the fewer the side effects, the more the government is willing to subsidize higher prices.

In this equation, drug prices fall when a patent expires and a cheap generic alternative becomes available.

The new FTA, however, may slow the emergence of cheaper drugs. Under the deal, generic drugmakers must notify patent owners when they are applying to enter the market.

The provision sparked concern in Australia that US-based drug companies would use the notifications to tweak their old drug in order to extend the patent - a process called "evergreening." The trade deal would also give US firms a review mechanism to challenge a drug's rejection by the independent Pharmaceutical Benefits Advisory Committee (PBAC).

David Henry, a former PBAC official, says manufacturers want to sell drugs at higher prices even if there are no obvious benefits.

"Saying 'no' to a drug is tough, because the manufacturers will bring in medical specialist groups who often side with the industry, [and] PR companies, issue press releases, and even petition politicians to apply pressure ... to accept the drug," says Mr. Henry, who teaches Clinical Pharmacology at the University of Newcastle.

'No free lunch'

Manufacturers have long argued that Australia is not paying its fair share for drugs.

On a visit here last January, Sen. Jon Kyl (R) of Arizona delivered a strong message to the Australian people.