On September 30, 2018, the Trump Administration published the proposed text of the United StatesMexico-Canada Agreement (USMCA), the trade agreement intended to replace the North American Free Trade Agreement (NAFTA).
The G20 Buenos Aires Summit is anticipated to be the forum for the signing of the USMCA on November 30, 2018. While the trade pact includes chapters geared towards “strong protection and enforcement of intellectual property rights,” provisions related to biologic data protection and digital trade, in particular, have the potential to affect the healthcare industry. These provisions and their potential impact are discussed in more detail below with adjoining perspectives from our healthcare teams in the US, Mexico and Canada.
Biologics: What does it means for data exclusivity terms and drug innovation?
The USMCA presents an enhanced data protection term for biologics of ten years that exceeds the available protection under both Canada and Mexico’s domestic regimes. Biologics are a particular class of pharmaceutical drugs and defined in the USMCA as "a product that is produced using biotechnology processes and that is, or, alternatively, contains, a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, protein, or analogous product, for use in human beings for the prevention, treatment, or cure of a disease or condition." Data protection refers to the period after market approval is granted to an innovative product, during which a subsequent entry manufacturer is barred from receiving approval for its subsequent entry product (which may include an initial period whereby the innovative product’s safety and efficacy data is unavailable for reliance by the subsequent entry manufacturer).
Unlike traditional small molecule drugs, biologics are large, complex proteins derived from living organisms. Biologics are largely defined by their manufacturing processes since small changes in the manufacturing process can have a significant impact on their safety, efficacy or toxicity. Accordingly, the scope of their corresponding intellectual property, especially patent rights, is limited beyond the initial composition patent. As a result, data protection has become an important means for maintaining exclusivity and an alternative to traditional IP protection for biologics.
In the United States, the law currently includes a 12-year data protection term for biologics. Pharmaceutical companies previously lobbied for a data protection term of 14 to 16 years, while the Obama administration sought a 7-year protection term in an attempt to reduce drug prices. The 12- year term was ultimately agreed upon to obtain congressional approval for the Affordable Care Act. Critics of longer data protection terms, such as the US-based Association for Accessible Medicine, have voiced concerns that longer protection terms create “a windfall for brand-name drug manufacturers and raise prescription drug prices for patients in the United States.” On the other hand, proponents of longer data protection terms argue that biologics are among the most promising medications but also the most costly to produce; thus the increased protection term incentivizes pharmaceutical companies to innovate and allows them to recover the costs associated with bringing a biologic to market. Although public policy debate surrounding data exclusivity remains, the USMCA provision could create a barrier against future legislative attempts to reduce the data protection term for biologics in the U.S.
There is currently no local law or secondary regulation providing data exclusivity specifically for biologics in Mexico. In fact NAFTA (Article 1711) granted such protection for a period of no less than 5 years from the regulatory approval of drugs containing new chemical entities. This provision was not implemented by the Mexican authorities. This protection for both small molecule drugs and biologics could only be obtained through litigation. This situation changed slightly when Mexico wanted to join the Trans-Pacific Partnership (TPP) negotiations. As a precondition to join, Mexico was required to issue internal guidelines granting such protection, but even then, those protections extend to small molecule drugs only. Protection for biologics still require enforcement through litigation. USMCA would provide clarity and legal certainty for the data protection of biologics in a manner not previously provided by NAFTA or domestic legislation in Mexico. Under Article 20.F.14, Mexico would be required to grant at least 10 years of data protection for biologics. This has generated criticism from local manufacturers of subsequent entry products, who argue that this will delay the entry of biosimilars into the market, which could delay reductions of price.
Similar to Mexico, there is no local law or secondary regulation in Canada providing data exclusivity specifically for biologics. Canada currently has an 8-year data protection term for pharmaceutical products that contain new chemical entities, which includes biologics. A "new chemical entity" refers to a medicinal ingredient not previously approved and that is not a variation of a previously approved medicinal ingredient such as a salt, ester, enantiomer, solvate or polymorph. Data protection is currently comprised of an initial 6-year term by which a subsequent entry manufacturer cannot submit its dossier to Health Canada seeking market approval ("no file" period), followed by an additional 2- year term by which the subsequent entry manufacturer is prohibited from receiving its marketing authorization ("no approval" period). This 8-year term may be extended by 6 months if the manufacturer submits pediatric clinical data within the first 5 years after issuance of market approval. Upon implementation of the USMCA, Canada's 8-year term would be extended to 10 years for biologics. Canada would have 5 years to implement this provision, and this extended period of exclusivity is specific to biologics. This means that, similar to the U.S., there would be two data protection regimes: (1) an 8-year period for small molecule drugs; and (2) a 10-year period for large molecule biologics.
In addition to extending the term of data protection, Canada would have 4.5 years after the USMCA comes into force to implement another potentially impactful USMCA provision — patent term extensions pursuant to Article 20.F.9. While this type of term extension is already incorporated into U.S. patent law, Canada would have to provide an adjustment to a patent term to accommodate unnecessary or unreasonable patent office delays. An unnecessary or unreasonable delay will include a delay in the issuance of a patent of more than 5 years from the date of filing of the application, or 3 years after a request for examination of the application has been made, whichever is later.
While the mechanics of such a patent term adjustment remain to be seen, especially how it would operate alongside the recently implemented process to obtain a Certificate for Supplementary Protection (CSP) as a result of the trade agreement between Canada and Europe (CETA), it is not difficult to see how this may impact biologic patents. Given their complexity, it is not unusual for the prosecution of patents covering biologics to require more time than patents covering small molecules.
Digital trade: What synergies and implications does the USMCA have with existing laws and restrictions?
The USMCA also includes chapters on data storage and transfer. The agreement would prohibit the imposition of customs duties on digital products and require parties to adopt relevant consumer protection laws. Chapter 19 of the USMCA would also restrict data localization rules that require local computing facilities as a condition for doing business in a territory.
USMCA provisions related to data processing are likely to have a low impact to the healthcare sector in the U.S., Canada, and Mexico, including with respect to patient data or the use of medical devicerelated software/apps. Chapter 13 of the USMCA specifically addresses government information, and notes that the chapter does not prohibit localization of data relating to "sensitive government information," which may include patient or other medical data. No definition of what constitutes "sensitive information" is provided by the USMCA and no specific provisions have been incorporated as to the processing of electronic data, including patient data. This means that the status quo may prevail and no changes to the rules relating to the electronic transmission of certain data may be required with respect to government information.
Additionally, USMCA provisions related to custom duties in Chapter 19 were included to restrict duties on the importation or exportation of digital products transmitted electronically. If the USMCA is implemented, the restriction will not represent a material change since no customs duties are currently required by the U.S., Mexican, or Canadian governments.
Under the USMCA, the U.S. would agree to prevent restrictions on data transfers across borders, including personal information, if it is for the conduct of the business of a covered person. However,
the USMCA notes that this provision does not prevent a party from adopting measures necessary to achieve a legitimate public policy objective. It is likely that ensuring the privacy of patient data would constitute a legitimate public policy objective. Thus, under USMCA the healthcare industry will still be subject to other guidelines for protecting patient data, such as the Health Insurance Portability and Accountability Act (HIPAA) and the Guidelines for Good Clinical Practice set forth by the International Conference for Harmonization of Technical Requirements for Pharmaceuticals for Human Use (ICH).
Pursuant to USMCA and under current Mexican privacy laws, cross-border transfer of information by electronic means is allowed to the extent the transfer is set forth in the privacy notice, and applicable data transfer/processing agreements are in place. These transfers may be nationally or internationally conducted by obtaining a data subject's consent, when applicable. Even with the global reaction and concern as a result of the recent implementation of Europe's General Data Protection Regulation (GDPR), Mexico’s privacy regime already covers many of the novelties introduced by the GDPR. This includes the right of portability1, which is crucial in the healthcare sector in relation to electronic health records. Thus rather than disrupting the local system, both the GDPR and USMCA represent a synergetic step forward into maturity for the Mexican legal framework.
Under USMCA, Canada would agree that it will not prohibit or restrict the cross-border transfer of, including personal information, by electronic means if the activity is for the conduct of the business. Neither would Canada require that such personal information be housed in a computing facility located in Canada. This would help to ensure the continued ease of electronic transmission of data, such as clinical data, across the US-Canada border. However, Canada would be able to maintain a degree of localization, in that, the international electronic transmission of information may be restricted where “necessary to achieve a legitimate public policy objective” (provided that the protective measure is not arbitrary or does not do more than is necessary to achieve the result). This is entirely consistent with Canada's current privacy laws.
The USMCA has provisions impacting a number of sectors, healthcare being just one of many. The key takeaways of the potential impact the trilateral agreement has for healthcare are as follows:
- New protections for biologics include a minimum of ten year’s data protection from the date of first marketing approval of the product. This ten year period of exclusivity represents a compromise which exceeds the periods currently in effect in Canada and Mexico, but which is shorter than the current period in the United States.
- Enforced digital trade guidelines in terms of privacy and cross-border data transfer laws (but an overall low impact to the healthcare sector where the status quo may prevail). In particular, the restrictions on data localization requirements may not extend to “sensitive government information,” which may include patient and other medical data.
Should you have further queries, please do not hesitate to contact our contributing lawyers.
1 See Carlos Vela-Treviño and Christian Lopez-Silva. Mexican privacy health- related framework: a regime in good shape that is likely to become more fit for healthcare companies. IBA Healthcare and Life Sciences Law Committee Update September 2018.