Novartis Battle Against Colombian Government Highlights the Threats to Public Health Posed By the Outrageous Investor-State Dispute Settlement Regime and Bad “Trade” Deals
By: Haytham Hashem, GTW Intern
Swiss pharmaceutical giant Novartis appears to have used trade and investment agreements to launch a legal and political pressure campaign against the government of Colombia’s efforts to make a Novartis leukemia drug accessible to cancer patients.
The drug, imatinib, also known as Gleevec in the United States, is a chemotherapy medication used to treat several forms of leukemia. A preferred choice for many leukemia patients and their doctors, imatinib is designated an “essential medicine” by the World Health Organization due to its record of effectiveness and safety. The drug must be taken daily, with the duration of treatment typically a minimum of 36 months, although courses commonly continue for five or more years.
Imatinib has led global sales for Novartis, generating $4.6 billion in 2015.
Currently, the medicine costs $15,000 per patient per year in Colombia, a country with a per capita GDP of just $6,105. Colombian civil society groups asked their government to issue a compulsory license for the medicine. This would end Novartis’ current monopoly rights to produce the drug and authorize generic competition, the most effective means of reducing price. A Colombian legislative committee urged the Minister of Health to declare a matter of public interest, a key procedural step toward allowing competition from generics.
Novartis and U.S. government representatives pressured Colombia not to issue the compulsory license. Colombia instead followed a more conservative course toward modest price controls. The Colombian Ministry of Health issued the public interest declaration, but indicated that a compulsory licensing would only be employed in case of acute shortage.
Nevertheless, last year Novartis provided formal notice of a dispute against the Colombian government using the controversial Investor-State Dispute Settlement (ISDS) system under the Swiss-Colombia Bilateral Investment Treaty. That agreement includes ISDS provisions similar to those found in the North American Free Trade Agreement (NAFTA). The period for trying to resolve the dispute expired in the end of 2016. In late December 2016, the Health Ministry announced that, in accordance with the public interest, price would go down by some 44 percent. Due to the secretive nature of ISDS cases, Novartis’ next steps in the ISDS case — and the specific charges against Colombia — are unknown.
Novartis isn’t the first drug company to use the extraordinary rights in trade and investment treaties to challenge governments’ medicine pricing policies: Eli Lilly attempted to use NAFTA to demand $450 million from Canadian taxpayers over Canadian courts’ decisions that the firm’s monopoly patent rights for two drugs did not satisfy the country’s standards to obtain a patent.
ISDS empowers multinational corporations to sue governments before panels of three corporate lawyers. These corporations need only convince the corporate lawyers that a law or safety regulation violates their new investor rights. The corporate lawyers can award the corporations unlimited sums to be paid by taxpayers, including for the loss of expected future profits the corporations claim they would have earned if the domestic policy was never enacted. The corporate lawyers’ decisions are not subject to appeal and the amount they can order taxpayers to give corporations has no limit.
Public backlash against ISDS was one of the primary reasons that the Trans-Pacific Partnership (TPP) could not obtain majority support in the U.S. Congress and negotiations for a Transatlantic Trade and Investment Partnership have been sidelined.
Novartis’ threatened ISDS claim appears to be just one element of its extreme pressure tactics to strong-arm the Colombian government. A shocking, leaked letter from last year (English available here) from the Colombian Embassy in Washington, D.C., to the Colombian Minister of Foreign Affairs discusses mounting political pressure from U.S. Senate staff, the Office of the U.S. Trade Representative (USTR), and unnamed pharmaceutical companies to dissuade Colombia from moving forward to make the leukemia drug more accessible to those who needed it.
The leaked diplomatic communication warns that Colombia’s actions to lower the drug’s price could risk U.S.-Colombia relations, Colombian membership in the TPP, and trigger consequences under the 2012 Colombia-U.S. Free Trade Agreement. Threatening Colombia’s potential membership in the TPP over an access to medicines effort was particularly perverse, given that Doctors Without Borders called the TPP “the worst trade agreement for access to medicines in developing countries.”
Perhaps most disturbingly, the Colombian Embassy was sufficiently alarmed by the pressure from the United States to twice remark that it was concerned that proceeding with the compulsory license would put at risk the $450 million committed for President Obama's support for Paz Colombia, the peace initiative working to end the devastating 50 year-long Colombian conflict that has claimed nearly a quarter of a million lives — mostly civilian.
In response, Senators Bernie Sanders (I-VT) and Sherrod Brown (D-OH) wrote to then-USTR Michael Froman, describing the situation and condemning “any efforts to intimidate and discourage Colombia’s government from taking measures to protect the public health in a way that is appropriate, effective, and consistent with the country’s trade and public health obligations.” They pointed out that “compulsory licenses are consistent with Colombia’s International trade obligations and are a legitimate means to ensuring access to medicines.”
Access to medicine experts believe that Novartis is most focused on setting a precedent in the Colombia case, rather than focused on direct financial losses with respect to the drug’s sale in Colombia. The Colombian patent for imatinib is set to expire in 2018. There are an estimated 2,000 Colombian users of imatinib. Factoring the initial 2016 Ministry proposed price cut of 50 percent (to about $7,500 per year), would yield a total difference of about $27 million over two years.
That is not an insubstantial amount of money. But in 2014, Novartis’ total revenue was $53.6 billion, twice as much as Colombia’s public and private healthcare expenditures combined (GDP for reference).
Of course, the favored refrain from pharmaceutical companies — from Mylan’s EpiPen price-gouging CEO to the infamous Martin “Pharma Bro” Shkreli — is that high profits are necessary to fund research on new drugs. However, we know that is not true across the industry. In 2014, Novartis spent nearly 50 percent more on sales and marketing than it did on research and development.
Furthermore, Novartis’s development costs for imatinib were relatively low. And Novartis did not develop imatinib on its own. Imatinib is the product of collaborations and shared funding arrangements between charities, public agencies and Novartis, which benefited from regulatory exemptions and now government-granted monopoly patents to produce the drug that facilitates billions in corporate earnings.
Novartis’ ISDS threat against Colombia is just one more example of why the expansion of corporate power via ISDS is one of the most dangerous components of our broken trade model.
Fortunately, the TPP, which would have drastically expanded ISDS liability by empowering tens of thousands of additional corporations to use the process, was defeated by thousands of diverse organizations representing working people united across borders.
But we must stop all ongoing negotiations that would expand ISDS, such as for a U.S.-China Bilateral Investment Treaty, and replace past trade and investment deals, such as NAFTA and the U.S.-Colombia pact.
The U.S. national consumer, environmental, faith, and labor coalition, Citizens Trade Campaign, lists the removal of ISDS as one of its primary demands for NAFTA replacement.
For more on ISDS, see Public Citizen’s selection of case studies of ISDS attacks against public interest protections here, and summaries of all ISDS cases under U.S. free trade agreements here.