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EMEA Thought Leadership
Developing IQVIA’s positions on key trends in the pharma and life sciences industries, with a focus on EMEA.
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EMEA Thought Leadership
Developing IQVIA’s positions on key trends in the pharma and life sciences industries, with a focus on EMEA.
Learn more
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EMEA Thought Leadership
Developing IQVIA’s positions on key trends in the pharma and life sciences industries, with a focus on EMEA.
Learn more -
Middle East & Africa
EMEA Thought Leadership
Developing IQVIA’s positions on key trends in the pharma and life sciences industries, with a focus on EMEA.
Learn more
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The Impact of Pharmaceutical IP Provisions in EU Free Trade Agreements
Nov 12, 2021
Report Summary
Global trade is increasingly composed of free trade agreements (FTAs) between large trading blocs as well as between smaller, non-aligned countries. These involve tariff-free or -reduced trade in desirable products balanced with concessions for other products or policy changes. The larger, more developed trading blocs like the U.S. or EU also include novel intellectual property provisions in their FTAs with partner countries. On the surface, longer periods of IP protection might be expected to drive up drug costs and would warrant a trade-off in concessions from another industrial sector. This assumption has been debated by researchers and stakeholders and deserves further study.
This report examines the impact of past EU FTAs on drug spending, timing of countries’ access to new medicines after global launch, investments overall and in pharmaceuticals, and clinical trial participation. These are all areas with both economic and societal importance, as well as perceived value to be traded during FTA negotiations. Past studies have studied the impact on U.S. FTAs, and this study brings important new evidence relating to EU FTAs at both a macro and a detailed level.
Key findings
- The pharmaceutical sector is the most R&D intensive industry in the world, with R&D spending averaging over 15% of revenue compared to other sectors that are often only in the low single digits.
- Strong IP provisions in EU FTAs have a positive impact on investments across industries in the EU and its FTA partner countries.
- While expanded IP protections could in theory generate higher drug spending, past EU free trade agreements (FTAs) that included pharmaceutical IP protection have shown that drugs’ share of healthcare spending tends to stay flat or fall after an FTA, and that prices for medicines rise more slowly than the level of inflation.
- A strong IP index is correlated with increased clinical trial activity in a country, which can bring both clinical and economic benefits.
Other Key Findings
- For EU FTAs, the current analysis indicates that pharmaceutical expenditures drop from the year before the FTA by 12.8% on average compared to 2018, when they fell from 13.3% to 11.6%. This drop in drug spending applies to both middle- and high-income countries.
- This type of analysis was also carried out by NDP Analytics for U.S. FTA partners, with the finding of an average reduction of 3.8% across the 16 countries between the year prior to an FTA with the U.S. and 2018.
- For most countries, price inflation for pharmaceuticals was less than or similar to (less than 15% difference) the increase in the prices of all goods in that market. This was more pronounced for countries with an EU FTA implementation in the studied time period.
- The compound annual growth rate (CAGR) of the price per standard unit of all prescription medicines (patent protected, generic and others) compared to the CAGR of the Consumer Price Index in each country suggest there are no significant increases in the average unit cost of medicines correlated with EU FTAs.
- Alternatively, stronger IP protections for some products may have been offset by greater price control effects on others. Therefore, despite variable factors in the pharmaceutical market — such as the introduction of new products or the implementation of IP protection measures — health agencies have sufficient tools to control domestic pharmaceutical expenditure, irrespective of the specific IP provisions of an FTA with the EU.
- The stronger the RDP and PTR provisions in EU FTAs, the larger the growth in clinical research activities after the FTA is (provisionally) applied.
- The combination of RDP and PTR provisions together has the strongest impact on clinical research. This suggests that for EU FTAs to make a meaningful contribution to R&D and clinical research, with associated benefits for patients and the healthcare systems, they need to include both RDP and PTR provisions.
Negotiated FTA provisions can have significant implications for the economies and societies of partner
countries for decades to come. The evidence from past agreements raises important considerations for
ongoing negotiations between the EU and partners such as Australia and New Zealand. Based on this study, there are multiple considerations for stakeholders:
- Significant periods of patent life are consumed during the development, regulatory and reimbursement negotiation processes (10+ years) and can be mitigated by patent term restoration (PTR) and regulatory data protection (RDP), which extend an otherwise shortened patent life by an average of 40 months.
- Stronger IP provisions in EU FTAs have a marked positive effect on investments for all sectors in the EU and its FTA country partners. Total bilateral FDI levels are 10.1% higher when all three IP elements (i.e., IP chapter, RDP, and PTR) are included, adding €6.9 billion in inward FDI, and €10.2 billion per year in outward FDI for the EU each year.
- Stronger RDP and PTR provisions in EU FTAs lead to significant increases in clinical trial research as soon as the FTA is in effect: Five years of PTR corresponds to 80% more clinical trials while (6+2) years of RDP correlates to 70% more clinical trials.
- The drug share of total healthcare expenditures dropped by 3% from 13.2% to 12.8% from 2010 to 2018 in the sub-set of countries that have FTAs with the EU.
- There is a positive correlation between strength of the IP protection (e.g., the period of exclusivity) and its impact on the access to innovative products (e.g., time from the patent filing to first sales in each market), engendering a faster availability of novel medicines for patients.
- In the 2003-2019 period, pharmaceutical investments rose sharply in the five-year period following the signing of an EU FTA with substantive IP provisions when compared to the five-year period prior to the FTAs, as illustrated by fDi markets data-based analysis on the pharmaceutical sector’s greenfield investments.