Don't complain about TPP pharmaceuticals, we already free ride off US consumers

Trade and Investment Minister Andrew Robb, with support from the Greens and Australian public health groups, was apparently "under pressure not to cave in the US on data exclusivity on biologics" in the just completed round of Trans-Pacific Partnership trade negotiations.  In fact, according to the AFR he "stared down the US on big Pharma".

Mr Robb presented himself as fighting for the Australian public health care system by holding firm in an intellectual property battle against big greedy US pharmaceutical companies who want provisions that will cost sick Australians hundreds of millions of dollars.  The media optics are clear about who is on the side of good and who is on the side of evil in this fight.

But biologics are extraordinarily expensive, difficult and risky to make.  All the huge costs are upfront, with very small marginal costs.  The spectacular economics of a few blockbuster drugs need to be set against the enormous costs, and often losses, of the many stages of testing and developing safe and effective new biologics.

So who pays for this?

The reality is that the US healthcare consumer pays for most of this — this is why the US spends a much larger fraction of its GDP per capita on healthcare (about 17.4 per cent) than Australia (about 9.8 per cent).

Let me put that more starkly — Australian healthcare consumers are free-riding on US healthcare consumers.  Sick people in the US are paying more so that sick people in Australia can pay less.  That's the issue here.  This is about fairness and Australia doing its part to pay its share of the cost of developing life-saving drugs that benefit everyone in the world.

The Greens position is particularly hypocritical here, and seems driven by instinctual hatred of multinational companies, particularly US ones.

Yet this situation is no different to a global climate change treaty or refugee agreement, where there is a basic collective action problem in which everyone benefits if everyone cooperates, but that it is in every country's strategic private interest to defect.

By refusing to concede more than five year's exclusivity, Australia is playing defect in this global game.  That means someone else has to pay, or, worse, new drugs will never be developed because they cannot profitably rely on just the US market.

Now maybe our negotiators have appeared to "win" and we will get away with this.  But it is not a proud moment.  Letting others carry the heavy load is not what Australians do.

ADVERTISEMENT