FRANCE - SPECIAL 301 2008 ANNUAL REVIEW

UNCLAS SECTION 01 OF 02 PARIS 000409 SIPDIS SENSITIVE SIPDIS STATE FOR EB/TPP/IPE, Jennifer Boger STATE PASS USTR COMMERCE FOR ITA E.O. 12958: N/A TAGS: ECON EINV ETRD EUN FR SUBJECT: FRANCE - SPECIAL 301 2008 ANNUAL REVIEW NOT FOR INTERNET DISTRIBUTION REF: A) STATE 9475 B) 07 PARIS 834 ¶1. (SBU) Summary: Post has reviewed PhRMA's Special 301 submission on France and recommends against inclusion of France on the 2008 Special 301 Watch List. Cost containment efforts on the part of the national healthcare system create a challenging environment for the pharmaceutical industry, but also reflect broader industry dynamics that are not unique to France. On narrower issues of IP protection, Post understands that a French judge authorized the marketing of a generic prior to patent expiration sometime prior to 2007. The GOF subsequently established a consultative mechanism (in early 2007 Q ref B) to ensure that appropriate protections are provided to on-patent drugs. Industry representatives say this is a Qmajor improvementQ to the IPR environment. End summary. Intellectual Property -------------- ¶2. (SBU) An Addendum to the Framework Agreement between the French State and the pharmaceutical industry, established in January 2007 (ref B),introduces a procedure to improve pharmaceutical patent protection. Pharmaceutical companies provide patent expiration and other information to FranceQs Economic Committee on Health Products (CEPS),which in turn shares the information (at the request of the patent holders) with pharmaceutical laboratories. Per the Addendum, a generic product cannot go to market more than six months before patent expiration if it has been notified to the CEPS. If a laboratory believes it can commercialize a generic product without breaking patent law, it may advise the CEPS, which in turn informs the originator of the patent. ¶2. (SBU) Claude Bouge, Director for Economic Affairs at the French Pharmaceutical Association LEEM (60% of whose membership consists of foreign companies),told econoff on February 29 that industry sees the new preventive system as Qa major improvement.Q Bouge noted that in a case involving a U.S. firm prior to the 2007 Addendum, a French judge had authorized the marketing of a generic product prior to the patentQs expiration. Calling the incident "unfortunate," Bouge said the Addendum had succeeded in creating a Qclimate of trustQ and that there had been no recurrences since its implementation. Healthcare Budget Constraints -------------- ¶3. (SBU) The share of healthcare in FranceQs overall 2007 social security deficit was 6.2 billion euros. It is expected to grow to 7.1 billion euros in 2008 unless more cost-cutting measures are taken. LEEMQs Bouge estimates that nearly 60% of overall healthcare costs currently go towards care for patients who suffer from long-term illnesses and related prescription drugs. Spending in this category grew by nine percent in 2007, he claims. LEEM announced on January 11, 2008 that overall sales of reimbursable products grew by 4.5 percent in 2007 to some 19.5 billion euros, a major jump from industry expectations of a one to two percent increase. ¶4. (SBU) The 2008 Social Security Law includes some 118 articles containing measures designed to address the social security deficit, ranging from the introduction of co- payments to efforts to cut fraud related to work accidents. The GOF notes that currently 90% of doctor office visits in France end with the patient receiving a prescription, twice the rate of some EU partners. Pressure on pricing and aggressive promotion of generics are clearly part of the GOF strategy to manage the costs of the state reimbursement program. But it is part of a broader strategy to rationalize what many observers believe is a serious prescription drug over-consumption problem. ¶5. (SBU) LEEMQs Bouge admits there are no easy policy fixes to current healthcare deficits and says the real challenge is not so much FranceQs regulatory environment, but rather a worldwide evolution in the industryQs business model. Bouge says LEEM favors deep-seated structural reform of the current French system -- particularly as relates to medicines for long-term illnesses -- even if that ultimately reduces turnover. This would be preferable to increases in taxes or further price pressure, he says. Whatever the solution, Bouge says industry should not be PARIS 00000409 002 OF 002 considered as a short-term "adjustment variable of social security deficits." Long-term measures that create a more predictable operating environment are far preferable to QexceptionalQ GOF measures that attempt to address near- term shortfalls. ¶6. (SBU) LEEM intends to renew discussions with French authorities over pricing at the end of 2008. As PhRMA explained in its submission, medicines receiving the ASMR I, II, III (and even a quarter of category IV) designations (which reflect decreasing levels of innovation) benefit from a fast-track approval procedure introduced last year. The first three categories obtain a European average price for reimbursement. Industry wants to extend ASMR designations beyond the current five year validity period to "get return on investment in innovative products." The GOF had originally proposed a three year period but compromised on five. In the end LEEM believes industry is able to buy extra time by starting discussions on ASMR re- designation -- during which time the product continues to benefit from the previous designation -- at the end of the five years. LEEM estimates this will provide an additional six months of coverage under the initial innovation rating. ¶7. (SBU) LEEM believes that 2008 will be an important year for moving forward on a number of issues raised by PhRMA. In April government and industry will meet as part of a yearly exercise to give "new impetus to therapeutic innovation." Industry will be able to put its issues on the table. GOF officials and the French pharmaceutical industry also want to promote the attractiveness of France as a major European destination for U.S. laboratories. They believe U.S. firms are not carrying out enough clinical studies in France and intend to make concrete proposals to boost R&D in France. U.S. labs will take part in these discussions. ¶8. (SBU) Comment: France remains one of the largest pharmaceutical markets in Europe, ranking second only to the United States in per capita drug expenditures according to OECD data. In a tight budgetary environment it is not surprising the GOF is looking to rein in high levels of reimbursable spending. We will remain vigilant to the evolution of GOF social security spending and its impact on the U.S. pharmaceutical sector. But as the pharmaceutical sector worldwide adapts to evolving business conditions, we do not/not believe the state reimbursement program here warrants Special 301 Watch List mention. Stapleton