United States-Mexico-Canada Agreement (USMCA)

On Sunday, the US, Canada, and Mexico replaced NAFTA with the United States-Mexico-Canada Agreement (USMCA) after over a year of talks. President Trump had promised to renegotiate the agreement, and so the new agreement includes major changes. These changes range from auto manufacturing tariffs, new labor policies, environmental standards, intellectual property protections, and some digital trade protections.

Relevant to the healthcare market is the extension of exclusivity rights of pharmaceutical drug companies, specifically biologics. Biologics are complex drugs made from living cells, they enjoy a twelve-year exclusivity in the US. Biosimilars are entrants into the biomedical pharmaceutical market who use Mexico and Canada as staging grounds to prepare for later entry in the US (after the 12 year US exclusivity has run). The exclusivity rights in the renegotiated agreement were extended to a minimum of 10 years. After efforts by the Obama Administration to reduce this period to 7 years, this treaty would bind Congress’s hands to a minimum of 10, insulating biomedical exclusivity in the US from Congressional action. While the new terms do not increase the twelve-year minimum in the United States, they limit the ability of biosimilar competitors to enter the US market at a competitive scale.

To justify this move, the Trump Administration has entertained the idea that by rewarding pharmaceutical companies for their products abroad, they will lower prices in the United States. The problem with this logic is that there still is no incentive for them to lower prices in the United States. The only change in the market condition of biomedical drugs is that entrants have higher costs and therefore we can expect the cost of biosimilars to rise and competitors to leave the market. With less competition, it is natural to foresee the already burdensome cost of biomedical drugs will continue to rise and the number alternatives will fall.

Now that the agreement has been struck between President Trump, Prime Minister Trudeau, and President Peña Neito, they must sign the agreement before Peña Nieto leaves office at the end of November. Then the deal still needs to be ratified by the legislature of each country. In the face of rising drug prices, it is imperative that Americans take action and appeal to their representatives to stop the ratification of the renegotiated agreement.