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JOINT STANDING COMMITTEE ON FOREIGN AFFAIRS, DEFENCE AND TRADE Trade Subcommittee
22/05/2009
Australia's trade and investment relations with Asia, the Pacific and Latin America

ACTING CHAIR —Thank you for coming along this morning to this inquiry of the Trade Subcommittee on Australia’s trade and investment relations with Asia, the Pacific and Latin America. We may have received a submission from you. I should indicate the usual preliminaries, that is, that we prefer all evidence to be given in public but if there are any matters that you wish to discuss in private make a request at that time and we will consider it. We do not require you to give evidence on oath but these proceedings are treated in the same way as proceedings in the House of Representatives or the Senate. I now invite you to make an opening statement. Do you all wish to make an opening statement? I will leave it to you to work out who will do so. We have available to us about 45 minutes.

Mr Thomas —Thank you for having us here and for the initial informal chat that we had in Canberra back in February. I commence by saying that the issue we are dealing with now has culminated in almost 18 months of negotiation between industry and the federal and state governments at all levels, that is, the generic pharmaceutical sector, the biotech sector, the unions represented here, on an issue that has large and significant export potential for Australia. This has culminated at a time when we are faced with difficult economic circumstances, but there are large opportunities. We have an industry and a company that are at the forefront of being able to take advantage of that opportunity. The employee representatives have great potential for what they can achieve over the next 10 to 15 years, as you will hear from these guys. I will let Tim Oldham kick off first and perhaps we will then hear from the others later. Thank you very much.

ACTING CHAIR —Thank you.

Dr Oldham —I thank the subcommittee for the opportunity to speak with you today. As you have seen in the paper before you we have previously briefed several members of this committee. Today we will briefly outline what this multi-sector coalition is recommending, how it fits with government policy objectives, and what are the benefits to Australia. Today we will spend most of our time talking about how to mitigate potential risks and objections to what appears to be a policy that is recognised as being good trade policy across all levels of government and many sectors.

Our recommendations are as follows. Generic manufacturers in Australia have proven that they can compete globally. Manufacture for Export is the ability for generic manufacturers to produce medicines for export markets only before the expiry of the relevant Australian patent term extension. Manufacture for Export can be implemented by amending section 78 of the Patents Act 1990 to allow Manufacture for Export purposes only as a limited exception to infringement during the period of patent term extensions. Numerous methods of crafting that amendment are possible, depending on the specific outcomes, objections, or risks that are being sought to be overcome.

As an immediate first step we propose or encourage engaging with government and an agreed independent adviser to see how this could be done rather than whether it could be done. We have provided legal advice, trade advice and a business case to government. We know that the proposal is contrary to historical advice from various departments, but we do not know the specific objections that stand in the way of implementing this policy and, therefore, we cannot choose the specific variations of Manufacture for Export to meet those objections. This discussion should happen soon.

In Hospira’s case, for example, our next product is weeks away from been committed to India. The industry makes decisions every month on where it will manufacture its new products. Every month is a further loss of potential exports for Australia. Why is MfE consistent with government policy? In November 2008 Prime Minister Rudd said:

I said before I became Prime Minister that I did not want to be a Prime Minister of a country that did not manufacture any more. I meant it then, I meant it now and I mean it for the future.

Consistent with this theme, the government has spent considerable time and billions of dollars securing jobs in the automotive industry. Pharmaceutical manufacturing represents Australia’s second largest manufacturing exporter, employing 15,000 jobs in high-paid manufacturing jobs. The generic industry alone employs almost 2,000 in manufacturing. Recently we have seen our manufacturing base eroded in pharmaceuticals, with major originator pharmaceutical companies such as Merck Sharp and Dohme, Johnson and Johnson and GlaxoSmithKline all reducing their manufacturing operations in Australia.

Manufacture for Export removes a self-imposed, behind the border barrier to our own manufacturers from growing the export base represented by pharmaceuticals today, and it comes at no financial cost to government. Manufacture for Export has spill over effects in the form of skills and capabilities for our biotech industry, increased opportunities for collaboration between industry and academia, and a pathway to commercialised local R and D in Australia.

Let me turn briefly now to the benefits of MfE to Australia. Before I go through some specific statistics, I will hand over to Tim Kennedy to provide some general observations from the perspective of the pharmaceutical workforce on the benefits of MfE.

Mr Kennedy —Thank you, Tim. The union represents workers in this industry in a range of companies, not only Hospira but also Sigma pharmaceuticals and Alphapharm come to mind. We are a large union in this area and we see these jobs and the types of jobs that these companies produce in Australia as premium jobs. Highly skilled and high-paid workforces work for these companies. For example, Hospira in Mulgrave is a plant of 500 people. It has been there for many years and it generates highly skilled high-paid jobs.

We think that public policy and governments such as this one need to encourage investment in this type of industry and secure those jobs. We think that the Manufacture for Export proposal that is before us today is a simple way in which the government can make a clear policy decision and take action that states, ‘We want to make certain that companies such as these have an incentive to invest in this country.’

We have a comparative advantage in this area as opposed, in some respects, to the members we represent in the automotive industry, in that we have a good education system here in Australia, we have a good regulation, we have a good clean environment, and we have a good competency or skills base. It is an area in which Australia can complete very well.

I know that this committee would be more than aware that in this current economic crisis countries around the world—especially countries that we like to say are in our peer group—will be looking for measures in their own areas to secure employment. The pharmaceutical industry, especially the generics aspect of it, is growing at a significant rate. Tim will go into that later. We think that, from a union perspective—we have spoken to our members about this—a smart decision would be to find ways to ensure that we can do the manufacturing here for export. These generics will be manufactured and these companies will manufacture them.

The decision they need to make is, ‘Will we manufacture it here, in India, or in Mexico for the markets that we already have?’ We need to find ways to say, ‘You should invest here and you should manufacture them here.’ Clearly, it is not for us to provide much comment about the solution, but if you look at section 78 of the Patents Act you find that the proposal being put is very targeted. If we amend that provision to make Manufacture for Export of generics only an exemption to the infringement in that section, on the face of it companies such as Hospira will have the confidence to invest here and to manufacture these generics, for example, the ones to which Tim referred earlier. They need to make a decision in the short term.

The solution will not cost the government any money; you do not have to stump up money and say, ‘We will have a training program’, or what have you. That can flow from that. It will not prejudice the originator companies. I think that Tim will speak a bit more about that later. It sends a clear message to companies such as Hospira and also a clear message from the government to the Australian public that we are determined to make decisions that can generate high-skilled jobs in this country—stuff over which we have a comparative advantage—not baseline stuff. I have represented workers in the automotive sector, especially in tyre manufacturing.

Tyre manufacturing is now a base commodity. You can do that anywhere, it is cheap to set up and you do not need a lot of skills. As a result we have no more tyre manufacturers in Australia. That is a product of globalisation. This is an area where we have a comparative advantage and that is why we are supporting this proposal today. Hopefully, this committee will put in a strong recommendation to the appropriate ministers and we can get this change in the act. I will leave it there, Tim.

Dr Oldham —Thank you, Tim. Let me put some size around the opportunity. The generic pharmaceuticals market worldwide is projected to grow at 14 per cent a year in the foreseeable future, compared with high, single digit growth rates for the industry overall. It is the fastest growing segment of pharmaceuticals today. We have proven capability to manufacture generics for global markets. My own company, Hospira, manufactures in Australia and exports to 65 countries around the world, including the United States of America, Europe, Korea, China and parts of the subcontinent. There are products worth $US150 billion today for whom patents will expire in the next six years.

Today, Australian manufacturers will be chosen as the manufacturing location for very few of those. Why is that? Very simply, patent extensions in Australia expire, on average, one to one and a half years later in Australia than in the United States or the European Union. Some markets do not offer patent extensions at all. Companies in the generic sector choose a single manufacturing site for their global supply and it is therefore essential that they choose a plant in a location that can meet market formation or patent expiry in every market around the world. That will be Australia in less than 10 per cent of cases for us at Hospira.

More broadly, as early as 2002 the Intellectual Property Research Institute of Australia estimated that at least two-thirds of patents expire later in Australia than in any other country in the world. As a result, Hospira has already moved some production offshore. In 2004 we constructed a new oncology facility in India, primarily because of patent extension limitations that prevented our facility in Melbourne from being a global launch location.

As Tim has mentioned, Manufacture for Export provides security for existing facilities that today generate 24 per cent of Australia’s fully formulated manufacturing exports. It enables those facilities to compete to be that global manufacturing location for these newly forming generic markets. If successful, we could potentially increase Australia’s pharmaceutical exports across the sector by 10 per cent—from $3.9 billion today. MfE also provides much-needed local manufacturing capacity for biotechs and/or it increases the range of projects for which they can compete.

We know of one company in Queensland that has benefited from government support to build its capabilities and manufacturing infrastructure that would welcome MfE because of the increased range of products for which it could bid. MfE could even benefit patentees. For example, Pfizer operates two manufacturing plants in Australia. At the beginning of this year, Pfizer established or created an established products division—its version of generics. In the past four months Pfizer has in-licensed 128 generic molecules from two Indian companies. It would be surprising if Pfizer’s Australian facilities would not like to bid for some of the volumes coming out of Pfizer’s generic strategy.

Let me turn now to the potential risks and/or objections that have been raised against MfE. Medicines Australia’s response to MfE was encapsulated in the Pharmaceutical Research and Manufacturers Association’s special 301 submission to the United States trade representative this year. They said:

We are also aware of a possibility that the Australian Patents Act will be amended to allow the manufacture of medicines that are generic copies of innovative medicines that currently benefit from Australian patent term extensions for export to international markets where relevant patents had expired. If implemented, this measure would:

  • undermine the legitimate and exclusive rights of patentees in Australia to exploit their inventions;
  • contravene Australia’s obligations under TRIPS and the FDA
  • create a dangerous precedent for other nations which may, in the first instance, provoke a chain reaction of retaliatory trade policy measures and ultimately undermine international efforts to implement global standards of IP protection; and
  • hamper efforts to improve access to innovative medicines.

We submit to the committee that everyone of those arguments is fundamentally flawed and we will step through each of them in turn. First, we believe that Manufacture for Export preserves the legitimate and exclusive rights of patentees in Australia to exploit their inventions. Kate Lynch will provide the view of the Generic Medicines Industry Association on that aspect of the potential objections to MfE.

Ms Lynch —If intellectual property is to recoup investment on the invention, thereby providing a reason or incentive to invest, it is not true that more intellectual property is always better. Return on those investments is not about funding future investments; it is about rewarding that particular invention. If we get into a state of play where a particular invention continues to have ongoing protection, there is no incentive for anyone to make the next invention. It is a bit like continuing to fund the golden goose.

There is some good work around to show that if, by nature of the patent expiring, that stimulation of competition promotes further innovation. This has been borne out in the United States experience where research and development investment rose sharply after establishing more intense competition from equivalent generic medicines in the late 1980s. We saw a market in the late 1980s increase the amount of generic competition. What followed then in the 1990s was one of the most productive times of new introductions of molecules.

New molecules coming out of the United States were two to one compared to the rest of the world, in a market where there was the most active generic competition. Permanent monopolies on pharmaceutical products provide little incentive to discover new medicines. If the patent life does not expire you remove the incentive to make the next invention.

Dr Oldham —Thank you, Kate.

ACTING CHAIR —Dr Oldham, I do not wish to truncate your opening comments because I think it is pertinent to your argument or submission, but I draw your attention to the fact that we need to leave some time for questions at about 12.30 pm.

Dr Oldham —Yes, of course. Thank you for the reminder.

ACTING CHAIR —We do not have much longer to go but I think it is important for us to hear everything that you have to say.

Dr Oldham —We probably have another five minutes.

ACTING CHAIR —That is fine.

Dr Oldham —Building on what Kate just said, the Manufacture for Export proposal ensures that patent holders enjoy exactly the same period of commercial production in Australia that they enjoy today. It makes no change to protection enjoyed during the TRIPS’ mandated 20 years of patent protection. Patent extensions are already only a limited bundle of monopoly rights that are not globally harmonised, are uncertain in duration, and apply only to part of an original patent. The value of patent extensions is the extra period of selling the product in the market—not manufacturing it—and that period of selling the product in the market is preserved under Manufacture for Export.

There is no value in the exclusive right to manufacture currently granted by patent extensions. Retaining the right to sell is sufficient in the local market and in export markets where the patent has already expired. As Tim mentioned earlier, generics will enter from somewhere. The second objection relates to TRIPS and the United States free trade agreement obligations. Manufacture for Export is consistent with those obligations. Our legal advice is from former United States trade representatives and it has been reviewed by local external intellectual property lawyers. It has been provided to the government in confidence.

In summary, TRIPS does not require patent extensions, and since Manufacture for Export only impacts extensions beyond the mandated 20-year term, TRIPS does not require a WTO member to do more. I note that several countries with trade agreements with the United States do not offer patent extensions. The United States’ FTA requires Australia to grant patent extensions, but it is absolutely silent on how Australia must implement them. It is strange that we in Australia feel we cannot correct an implementation that disadvantages Australian generic manufactures, not against patent holders but against manufacturers who are simply located in another country. That hardly feels like a trade agreement to us.

The free trade agreement also permits, in article 17.9.3, limited exceptions to the rights conferred during a patent extension. The test is a balancing of the interests and rights of a patent owner against those of others seeking to exploit the invention after a reasonable monopoly period. The free trade agreement prohibits export for other than registration purposes during the springboarding exception that permits R&D during the period of the patent. This is enshrined in this—

ACTING CHAIR —I was going to ask you that. Can you elaborate on what springboarding permits? You referred to R&D but what does it mean?

Dr Oldham —It means that generic manufacturers seeking to develop a generic product are able to undertake the necessary research identifying and qualifying active ingredients determining a suitable formulation, and preparing the necessary studies for submission before the patent expires. Without that exception it would be an infringement of the exclusive right to make, use, sell and manufacture the invention.

Mr Kennedy —So you hit the ground running when the patent expires.

Mr Thomas —So you have given us the car, not the keys.

ACTING CHAIR —Okay.

Dr Oldham —Exactly. If we cannot manufacture we cannot go into those other markets around the world.

ACTING CHAIR —I understand.

Dr Oldham —Australia had springboarding before the free trade agreement was introduced. That is why article 17.9.6 exists, which preserves springboarding. There was also a side letter to the free trade agreement that preserved Australia’s right to export for springboarding purposes. This is often held up as being the only permitted export during the period of patent extensions. The advice we received is that that is a limited exception and that the prohibition on export during the springboarding period does not create a general export prohibition. It does not prevent us allowing other limited exceptions, like Manufacture for Export.

As I mentioned earlier, the contrary interpretation—at least the way we have implemented patent extensions—results in anything but a free trade agreement because it requires Australia to maintain a set of rules that disadvantages Australian manufacturing vis-a-vis United States manufacturers in access to the United States and other global markets. Manufacture for Export will also not create a dangerous precedent and set retaliatory actions in train should the United States or any other country object. Manufacture for Export is about creating a level playing field for generic manufacturers; it is not about tipping the balance in favour of generics over patent holders.

What country would not be expected to stand up and correct unintended consequences of treaty implementations? There are many other nations with more favourable implementations of IP protection than Australia and we reiterate that there is no shortening of practical protection in Australia as a result of Manufacture for Export. TRIPS seeks only to harmonies the 20-year period of protection. There is no harmonisation around patent extensions and any objections that could be raised could be further mitigated by other changes in a package of reforms that perhaps enable patent owners to more easily take enforcement action.

Implementing Manufacture for Export is possible without reopening the free trade agreement. At worst, the United States would object to Australia’s interpretation. Australia could simply change its laws back as a last resort, but the United States would be unlikely to object. It would not look good for the United States to assert a position that created no economic benefit for its country and protected no downside for United States companies. It would be a very high risk for the United States to take what at worst is an arguable case in Australia’s favour to the WTO and have a precedent set against it. Further, action would not come from the United States until Australia was placed on the priority foreign country list in the United States TR special 301 report.

We are not even mentioned at the lowest level—a special mention—despite the pharmaceutical industry asking for Australia to be put on the priority watch list and specifically mentioning Manufacture for Export. Even if Australia were eventually found to be in breach of the free trade agreement, umbrella TRIPS and WTO obligations prevent retaliatory tariff action. Finally, Manufacture for Export will not hamper access to innovative medicines and, if anything, will enhance it. Practical, effective patent protection in Australia is not affected by Manufacture for Export.

Hospira and other AusBiotech members actually benefit from patent extensions and still support Manufacture for Export. Canada offers no patent extensions and over the past 10 to 15 years has grown a world class generic manufacturer in Apotex and, at the same time, has seen its pharmaceutical R&D intensity triple. During the same period, Australia’s pharmaceutical R&D intensity has remained stagnant at the same level as Canada’s was a decade ago. We have seen no genuine evidence that jobs will be lost as a result of implementing Manufacture for Export in Australia.

I close by making the observation that we are aware that the government’s advice seems to be that Manufacture for Export cannot be done. But the government’s advisers appear to have been consistently conservative on IP issues. Kim Weatherall, Associate Director of the Intellectual Property Research Institute of Australia wrote last month:

I have observed in discussions of copyright in Australia that the people at the Attorney-General’s Department who are involved in copyright often take a very conservative view of the obligations in various copyright-related treaties.

She goes on to state:

Is this, Manufacture for Export, another potential case of Australia being the overly conscientious, stick to the full letter and spirit of the treaty law, don’t rock the boat goody two shoes adopting a conservative interpretation of treaty language that prevents it taking full advantage of the flexibilities available?

In the view of the generic industry the situation we face today is not conducive to having the government’s advice tested. There needs to be some open discussion between government advisers and industry on the merits of the various legal and international relations issues. While the industry appreciates that the government sees itself in a difficult position, the only way that we will feel that the government has really done its best to get the right outcome, whatever that ultimately is, is if it ensures there is a vigorous discussion between experts which the government will arbitrate.

We have a proven industry that can compete globally and we continue to develop products here, but we have, by our own actions, locked ourselves out of the ability to convert that situation into manufacturing jobs and exports. We urge the government to implement Manufacture for Export. I would be delighted to take your questions.

Senator O’BRIEN —I would like to ask a very simple question. Are you telling us that you can with springboarding develop a generic product and at end of the patent you cannot manufacture it here but you can go to India and manufacture the same product?

Dr Oldham —We can manufacture product at the end of the patent here, absolutely.

Senator O’BRIEN —Yes.

Dr Oldham —The problem is that the US market formed the year before that.

Senator O’BRIEN —Right.

Dr Oldham —To access that market, we have to be first into that market as well. That is where the majority of generic industry returns come from. So we have to take that production somewhere else. Products we make in India are developed here and we transfer them over there to make them.

Senator O’BRIEN —Is the only reason you are manufacturing in India the current law? Nevertheless, the manufacture will take place because of the availability of a market at the end of a patent in another country.

Dr Oldham —Australia represents one per cent of the world pharmaceutical market. So, 99 per cent of our markets are outside Australia. We choose a manufacturing site specifically to access those markets.

Senator O’BRIEN —In essence, what I am trying to establish is whether it is the case that no damage is caused because the production will occur in any case in another country?

Dr Oldham —That is correct.

Mr Thomas —Yes.

Mr Kennedy —That product will be manufactured because markets are opening up everywhere. What we want to do is manufacture it here and then export it so it does not hurt the originator. Otherwise Hospira will manufacture at their joint venture in India. They are going to fill that market, whether it is in Europe, Canada or wherever.

Senator O’BRIEN —Does the current legislative situation advantage the patent holder where the patent holder wants to participate in generic manufacture?

Dr Oldham —We cannot see how it will, not in this country. They are in exactly the same position as we are.

Senator O’BRIEN —Do they argue that it does?

Dr Oldham —No.

Mr MURPHY —I want to pick up on what Mr Kennedy said in his opening remarks about Australia having a competitive advantage in tyre manufacturing.

Mr Kennedy —Not in tyre manufacturing.

Mr MURPHY —I thought you said—

Mr Kennedy —The point I am making—

ACTING CHAIR —One at a time. The poor Hansard reporters cannot keep track otherwise.

Mr Kennedy —The point I was making is that in manufacturing pharmaceuticals in Australia we believe we have a competitive advantage because we have a good regulatory environment, a good education system and a highly skilled workforce. We also have a good, clean environment. We say we make a better, safer product here than in India. We say that is a competitive advantage that Australia could have and we should invest in it to maintain it, because those countries will close that gap over time. The analogy I made with tyre manufacturing is that many years ago we may have had that. It is a basic commodity now and you can do that anywhere. It is easy to set up a tyre manufacturing plant in China and pump them out and send them here on cars.

ACTING CHAIR —Which is why we do not make them.

Mr Kennedy —That is right. That is why they do not make them back in Ohio anymore. That is why Goodyear has been shutting their plants and you can see where they are taking them. We are saying that the public policy focus should not be at that basic commodity level where we cannot compete anymore. It has to be here; this is where we can help.

Mr MURPHY —I visited Hankook in Korea some years ago. That is what prompted my question, because I wondered how the hell we could compete with the Koreans. I appreciate the clarification.

Mr HAWKER —I think you covered it very well. It is rather difficult to understand why there is such opposition. You have demolished—

ACTING CHAIR —Let’s go to that. You have been lobbying and arguing about this for some time, with both the previous government and the current government. You indicated what the objections are from Medicines Australia. Have you been given any indication or encouragement that there might be some change of view? Where do you believe the problem lies? Is it in the Department of Health or the Attorney-General’s Department, which you said have conservative attitudes about these things?

Dr Oldham —They are good questions and in a sense we do not know the answer.

ACTING CHAIR —The other challenge is—and it is the other point I want to make—that there is an acceptance now that generics should be available, and increasingly so. There is clearly recognition that the companies have made the investment and they should be given the opportunity to get a return on that investment. But over recent years there has been more encouragement about Australians themselves having access to generics. The jump from there to manufacture does not seem to me to be that significant. Apparently there is a major blockage somewhere.

Mr Thomas —There is a mind block here. It resides within the departments. I suspect that the individuals who have been asked to look at this case now are the same people who provided the advice originally.

ACTING CHAIR —Which department?

Mr Thomas —The Department of Foreign Affairs and Trade. They are the police on this.

ACTING CHAIR —I was going to ask you what the view of trade is.

Mr Thomas —They are police on this issue. Rather than looking at what are the potential avenues through this, their constant advice to ministers is that this simply cannot happen. That is irrespective of the time that has transpired since the free trade deal was signed, irrespective of the relaxing of the United States’ approach and policing of this, and irrespective of the opening up of Australia’s ability to do what they are doing here. There needs to be paradigm shift in how the departments are looking at this.

Finally, every member we have come cross—government or opposition—has said that this is a no-brainer. That is also the view of industry and economists. We are struggling even to get to the table with the government to work out how this can be augmented, what are the potential risks and what the industry can do to mitigate them.

ACTING CHAIR —I will pick up on a couple of those issues. As you know, I have had the benefit of having briefings and meetings with people in the past.

Mr Thomas —Sure.

ACTING CHAIR —I think a lot of members have. You mentioned Pfizer a moment ago. Just to get this clear, you have the generic manufacturing companies—and you are here speaking on their behalf—then you have other companies, which are the Medicines Australia group, who manufacture pharmaceuticals. Do they go on and manufacture generics as well in any great quantity after their patent has expired?

Dr Oldham —Traditionally they have not; traditionally they have manufactured their own product after it has gone off patent. What we have seen in recent years is proprietary pharmaceutical companies adding full line generic divisions. Novartis has been doing that for years with the Sandoz unit. Sanofi-Aventis relaunched their Winthrop brand as a generic arm two or three years ago. Pfizer has established its products division within the last six months and has rapidly gone to scale on that. Manufacturing full line generics is new territory for proprietary pharmaceuticals companies.

ACTING CHAIR —They would be your direct competitor within Australia if they did that in any substantial way.

Dr Oldham —They would become a competitor with the other six members of the Generic Medicines Industry Association.

I would like to make two other points. There is a third industry group in the pharmaceutical industry here. As you know from our original submission, AusBiotech supports Manufacture for Export. I have had members of Medicines Australia say to me privately that they cannot see a downside with Manufacture for Export for them. They will not say it publicly, but they will say it to me privately.

ACTING CHAIR —They can manufacture their own—

Dr Oldham —Product, yes, because they own the patent.

ACTING CHAIR —Can they then go on and manufacture a generic version here afterwards?

Dr Oldham —Only of a product for which they own the patent.

ACTING CHAIR —Right.

Ms Lynch —I think the quickest way to summarise the Medicines Australia position is to say that it is a philosophical one. Medicines Australia must be seen to be supporting intellectual property and that transpires to more is better, even more is even better. I think anyone looking at this objectively would agree that this is not impinging on their rights. However, it comes back to their philosophy that they must retain that position. It is philosophy, not a practical—

ACTING CHAIR —I understand how you are representing their position. I have heard it quite often that they have made this investment up front, and part of all of that is the intellectual property. They retain some ownership of that, even beyond patent.

Mr HAWKER —What would this be worth to the economy if the legislative change were made and you were able to move to manufacturing here?

Dr Oldham —To start with, there is $150 billion worth of products coming of patent in the next five to six years. Assume that Australian manufacturers would access a small number of those—around 30 per cent—and that they get a shot at that and a reasonable share. That could increase Australia’s pharmaceutical exports by 10 per cent. They are $3.9 billion today and that could increase by another $400 million. In Hospira’s case, we have one project—that is, the project destined for India under the current regime—and if we could retain it here it would alone generate $1.5 billion worth of exports over the next 10 years.

Putting any firmer numbers around the potential is difficult because companies configure and their research and development and manufacturing strategies around the current environment. That environment means they do not plan for manufacturing here today. But you would see more opportunities to retain products that are developed in Australia for manufacturing here. You would see biotech companies able to take their developments, many of which are contract manufacturing—for example, biologicals—into the new field of biogenerics. That alone will be worth $50 billion in the next 10 years.

It would enable those biotech companies that are working on new, enhanced drug delivery systems—often wrapping them around established proven molecules—to take them further and manufacture commercial product here rather than having to go offshore because the base molecule is protected here. The benefits are quite—

Mr Kennedy —The gross figure of the global generic in the market is growing by 14 per cent per annum from now. Generics is big. As you indicated before, Senator, generics has a good social outcome. On those figures alone, 14 per cent growth—

Ms Lynch —The 14 per cent growth is important to note. That is in comparison to pharmaceuticals generally across the Asia-Pacific growing at less than half of that—at 6.6. per cent. The other thing to look at is the industry surveys of employment numbers of our membership base. The fact that they are stable and perhaps declining does not make a sense in a market that is growing globally at 14 per cent. Our Australian employment numbers are stable and potentially declining.

ACTING CHAIR —You made very comprehensive comments and, as Mr Hawker said, you did not really leave us too many questions. That is good. The argument from Medicines Australia is that this is a breach of international trade obligations, WTO agreements, FTAs and whatever and you have responded to that. Have you done any assessment of that, particularly internationally? What are the views of other countries, if they have any?

Dr Oldham —Let me answer that with a couple of comments. The legal advice we sought was from US lawyers.

ACTING CHAIR —Right. You did mention the trade commissioner.

Dr Oldham —That has been validated by local Australian intellectual property and trade lawyers. We have provided that information to the government already. We sought advice from the same people as to what the US reaction would be. They provided us with a very comprehensive view of practical options open to the US even if it were to object.

I think that is a really important thing that often gets missed. This is not an area where there is a black and white answer. Therefore, it is a matter of being open to a degree of interpretation. That is what gives us a high degree of flexibility in what we choose to do. From there it becomes very important to think practically about what people are going to do. Everybody when faced with a grey legal interpretation weighs up the benefits, risks and alternatives that they could be spending their time on in terms of enforcement. This is not going to get on the radar screen in terms of enforcement.

We know that a number of smaller countries, like Canada and Israel—who are on the US TRs watch list and at some of the lower levels because of the way they have addressed their intellectual property in different areas—have taken conscious decisions to say, ‘No, we don’t want to go the full way that the US has wanted.’ They are on the US TRs watch list at low levels and they have taken their slap on the wrist, as light as it is, and they are getting on with business.

It is highly unlikely that any country would take a stronger view than the US. India is not going to because it is based on the generic industry. I have never heard of Switzerland being active in trying to increase intellectual property protection, despite the large number of patentee pharmaceutical companies based there. This is driven by the US.

ACTING CHAIR —What about the EU?

Dr Oldham —The EU is very pro-generic. They have a thriving generic industry and they are looking to drive a very fine balance between patent protection and generics.

ACTING CHAIR —It would probably be contrary to a lot of their own regulations now if these sorts of restrictions existed. Thank you very much for your appearance, and particularly for your comprehensive summary at the start, which was of great benefit to us. You will receive a copy of the transcript and you can check that for any corrections and advise accordingly.

Mr Thomas —What happens from this period on?

ACTING CHAIR —The subcommittee will prepare a report at the end of the hearings and that will be considered by the full committee. In due course it will be tabled in the Parliament. Then it is a matter for the government to respond.

Mr Thomas —Thank you very much.

ACTING CHAIR —I think we will be doing that in the next couple of months, or some time soon.

[12.38 pm]