Exploring New Interregional Opportuni­ties for Pharmaceutical Supply Chains

Intellectual property rights

The EU-Mercosur draft agreement makes it explicit that public health is a safeguarded policy objective that cannot be limited by the commitments to IP rights under the agreement. Unlike in other EU FTAs, Merco­sur countries managed to leave the TRIPS-plus provisions out of the text. These pro­visions refer to the TRIPS Agreement (Agree­ment on Trade-Related Aspects of Intellectual Property Rights) and usually extent patent life of, for example, pharmaceutical products which are not necessarily inno­vative. Regarding patenting, this will be the second FTA signed by the EU that does not contain obligations related to the extension of patent life. Also, Mercosur countries have not accepted any additional enforcement mechanisms for the protection of patents than those currently provided by their domestic legislation. Finally, the agree­ment so far does not incorporate – like other EU FTAs – data exclusivity rules. These provisions allow for the use of data – from clinical tests submitted by an origi­na­tor company, to health regulatory author­ities for the approval of generic pharmaceutical products. Since clinical trials tend to be time-consuming and costly, the absence of these provisions favours the production of generics by Mercosur countries.

Government procurement rules

According to the current version of the FTA, EU companies would participate in tenders for public-sector purchases under the same conditions as local companies. However, as Brazil and Argentina are struggling to devel­op their national pharmaceutical in­dustries, they allege that this rule would harm domestic production. Both countries have adopted policies to use public budgets to support local production. Under the agree­ment, these programmes could be questioned by EU partners, restricting the policy space of Mercosur governments.

Technical regulations

The chapter on “technical barriers to trade” (TBT) of the agreement goes beyond the one stipulated by the World Trade Organization, setting “TBT-plus” standards with the incorporation of “good regulatory practices”. In this case, the concerns by Mercosur countries go beyond the wording of the agree­ment, as these provisions can both protect consumers but also create unnecessary obstacles to trade. In addition, the EU has incorporated the “precautionary prin­ciple”, which means that public authorities have a legal right to act to protect human, animal or plant health, or the environment, in the face of a perceived risk, even when scientific analysis is not conclusive. Al­though these provisions are set to ensure rapid in­ter­vention in emergencies related to agri­culture and food trade, they might also affect other biocomponents. Besides, the EU has recently changed the course of the nego­tiations by unilaterally defining new requirements for deforestation-free supply chains. It is not clear yet how the reform of the EU pharmaceutical legislation will also create new due diligence obligations affect­ing trade between the two regions.

Redesign supply and value chains

As the EU intends to reorganise its supply and value chains, Mercosur countries offer the potential for new investments, but this will require a new strategic approach from both sides. In 2021, CELAC approved a plan for self-sufficiency in health matters, with the aim to strengthen the pharmaceutical sector by attracting foreign direct investment, facilitating R&D and supporting local production chains.

Under this framework, Mercosur countries are promoting international investment and public–private partnerships to carry out joint projects that could enhance local capacity. Central to this strategy is the need to foster technology transfer and the integration of regional global value chains. It will be imperative to redesign the three main stages of the pharmaceutical supply chain, which involves R&D, product manufacturing and marketing. Whereas the first stage is mostly concentrated in large pharmaceutical firms in the United States and Europe, the subsequent stages are most frequently outsourced to large-scale production in competitive countries, especially China and India. Therefore, if the EU wants to reduce its dependency on these two suppliers, it will require long-term col­laboration between the states and corporations in order to build the capacities of new partners. Until now, most of the foreign direct investments steered to Latin America have targeted production and marketing, while fewer than 1 per cent focus on R&D.

It is urgent to leverage and expand exist­ing innovation capacities to attract quality investments in the pharmaceutical sector so that the region can reduce its external vul­nerabilities and potentially become a new source of APIs. The EU can directly support R&D via Horizon Europe with research grants tailored towards promoting inter­regional research cooperation. The poten­tial of research cooperation agreements through co-funding mechanisms in the field of health should be explored further. As part of its activities to build and strength­en partnerships within industry in the field of health, exploring new constellations of EU-Mercosur pharmaceutical supply chains could offer mutual benefits.

However, given the oligopolistic structure of the pharmaceutical sector, the argu­ment for orchestrating the modular re­con­figu­ration of pharmaceutical supply chains should not solely be made based on rising geopolitical tensions that spill over to health issues. Rather, pharmaceutical com­panies’ economic interests are incentive enough to bring these actors on board for opening up new supply and value chains through financial commitments. To support this, the EU and its Member States will have to design new institutions and incentives to support companies as they aim towards stra­tegic diversification involving technological transfer and capacity-building, in­cluding not just knowledge but also human resources and infrastructure.

Strengthen bilateral cooperation

Within the Global Gateway initiative, the EU follows the self-proclaimed aim to foster health care capacities worldwide to combat diseases. One priority area lies in strengthening or developing local production capac­ities to boost self-sufficiency across the globe. To that end, in 2021 a partnership between CELAC and the EU was founded to support the efforts of enhancing the region’s health resilience. The “European Union – Latin America and Caribbean Partnership on local manufacturing of vaccines, medicines and other health technologies, and strengthening health systems resilience” ultimately should also serve the goal of further devel­oping the bond between the EU and the Latin American and Caribbean region. In 2023 the initiative facilitated the exchange between pharmaceutical companies from both regions, with the end goal of attracting investment into the region’s sector.

The CELAC plan provides important momentum to help countries in the region develop and evolve their capacities in all stages of pharmaceutical production. Merco­sur countries should use the plan as a basis to develop national initiatives and regional agendas to foster the pharmaceutical mar­ket across Latin America and the Caribbean. For the EU, the Global Gateway strategy could be a major tool used to ad­vance co­operation with Mercosur countries to de­vel­op the regional pharmaceutical market.

So far, much of the existing bilateral cooperation has focussed on environmental pro­tection, especially in the Amazon region. Yet, as the intersection of health and en­viron­ment has increasingly become politi­cally prominent – for example through the growing importance of concepts such as “One Health” – there is the potential to expand this collaboration to related areas, like biodiversity and even biosecurity.

Recently, Brazil and Germany signed a cooperation agreement for the implementation of the “NB4”, a maximum biological containment laboratory, which will allow for the study of pathogens capable of caus­ing serious diseases with a high degree of transmissibility. Initiatives such as these should be strengthened to expand bilateral cooperation in the field of health.

Enabling new innovations

With Mercosur countries still lagging behind in R&D, fostering access to new tech­nologies and patent information through research cooperation with com­panies is crucial to the development of the technological capacities in the region. As evidenced by multiple empirical studies, the facilitated and voluntary transfer of technology and patents through new busi­ness operations would also have important effects on access to medicines.

The Covid-19 pandemic has substantially provided traction to the debate on a more flexible approach to IP rights. The central question here is whether the potential gains from protecting innovations are outweighed by the need for the rapid production and distribution of vaccines. Irrespective of the answer to this highly contentious question, the debate has opened a critical juncture concerning new framings for fostering the voluntary transfer of technology and facili­tat­ing market entry for generics. The pro­duc­tion of generic medicines has played an im­portant role in the region in the last de­cades, providing access to fairly priced drugs.

According to certain projections, the num­ber of drugs with patents set to expire will double in the coming years, offering opportunities for the local manufacturing of existing drugs, including the launch of new formats and dosages. The lower the barriers to the voluntary transfer of tech­nology, the faster the local capacity to increase production, including of APIs. As APIs require large-scale production capacity and generate relatively limited marginal gains, the region could leverage the devel­op­ment of other market segments (such as generics and quality medicines) to improve the sector’s downstream integration, while developing the production capacity for the complex APIs needed to develop new gen­eration drugs. In this scenario, the EU could take advantage of these opportunities and also create new ones by making certain IP rules more flexible. This would require addi­tional financial incentives for the trans­fer of technology.

Support local public procurement

Public procurement has been largely used as an instrument to support local production. In Brazil, the Ministry of Health has implemented a specific procurement tool to promote local production called Productive Development Partnerships. Under these partnerships, the Ministry of Health agrees to purchase a product for a fixed term of up to 10 years. In turn, private companies agree to transfer the production technology for this product to a national public labora­tory for the same period. During the tech­nology transfer process, private companies supply the product to the health system. This instrument is currently under revision by the Brazilian Federal Court of Auditors. There are many areas for improvement of this instrument, which includes the par­tici­pation of domestic private laboratories and its connection with the regional supply chain.

Initiatives such as these could be an op­portunity for the EU to advance its interests of supply chain diversification and market-opening without harming local produc­tion in South America. Through product development partnerships, access to the Mercosur market – under long-term public con­tracts – would compensate for possible pri­vate losses inherent to the transfer of tech­­nology. However, the EU-Mercosur agree­ment could make such “buy national” schemes illegal under the FTA.

Foster regulatory cooperation

Another way in which Mercosur countries and the EU could explore synergies is through closer regulatory cooperation in the field of health. This can be done with­out a need to rely upon the FTA. Instead, closer regulatory cooperation can be achieved through internal reforms in Mercosur countries, legally non-binding agreements between Mercosur and the EU as well as encouraging EU-based companies to invest in Mercosur countries.

One example of internal reforms, following the case of Brazil, is to give special treat­ment to companies using domestic APIs with accelerated approval regimes. There is, however, no regulatory approval of new medi­cal products at the Mercosur level. Instead, regulatory approval must be made through the national procedures of each country. Therefore, new partnerships be­tween the EU and Mercosur countries could be founded in order to streamline approval processes. Regulatory cooperation of this kind would help reduce the duration and costs involved in new applications, either for wholly new medicinal products or for generics, by way of so-called equivalence procedures. It could be an expansion of the existing confidentiality agreement between the EMA and the Brazilian Health Regulatory Agency, through which both institutions exchange confidential information on medi­cal products that they can later use in their assessments. Deepening this collaboration to include regulatory approvals in both Brazil and the other Mercosur coun­tries could make business decisions more predictable and would lower technical bar­riers for EU companies.

Such an example of closer regulatory cooperation in the marketing authorisation of medicines would require institutional trust. But it also risks becoming a unilateral exercise. However, there are alternatives for unilateral regulatory cooperation. Instead of fully relying upon the recommendations of the EMA, the exchange of information be­tween the EU and Mercosur in the field of medicines could allow for a faster evaluation of data submitted for the approval of new medical products, whereas the final approval would lie within each national agency.