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January 17, 2020

What the US' new trade deal with China means for health care

Daily Briefing

    President Trump and China's Vice Premier Liu He on Wednesday signed phase one of a U.S.-China trade deal that includes provisions that directly impact U.S. pharmaceutical and medical device industries.

    Your cheat sheets for understanding health care's legal landscape

    New patent protections for pharmaceutical industry

    For example, China under the trade deal committed to improving the country's protection of intellectual property by strengthening criminal penalties and outlining procedures for copyright theft. The deal explicitly calls for "effective protection and enforcement" specific to "pharmaceutical-related intellectual property rights, including patents and undisclosed test or other data submitted as a condition of marketing approval."

    The trade deal states that the changes could "promote innovation and cooperation in the pharmaceutical sector."

    The trade deal also includes a "patent term extension" for drugmakers that experience "unreasonable delays" in receiving the patent or during marketing approvals.

    According to Axios, the changes are "good news" for major pharmaceutical companies, which now could sell branded pharmaceutical products in the Chinese market knowing their patents are protected and their brand-name drugs are less likely to face early generic competition. However, the trade deal does not include increased protections for biologics or a patent exclusivity period.

    China to purchase more U.S. products

    Another potential bump for pharmaceutical companies is that, under the deal, China from 2020 through 2021 will buy a minimum of $200 billion in additional U.S. products and services when compared with 2017 levels. China agreed to purchase a minimum of $77.7 billion more in manufactured goods, including pharmaceutical products, from the United States over the two year period.

    25% tariff on some manufactured health care products

    The trade deal also includes some provisions that might harm some health care industry stakeholders. For example, the deal maintains a tariff on $120 billion worth of imported Chinese consumer goods, though that tariff will be rolled back from 15% to 7.5%. In addition, the United States under the deal will keep in place 25% tariffs on thousands of Chinese-manufactured products.

    The products subject to the 25% tariff include a slew of raw ingredients U.S. pharmaceutical companies use to make prescription drugs such as insulin and the allergic reaction-reversing drug epinephrine, as well as several health care products, including:

    • Antidepressants;
    • Medical devices and diagnostic equipment, such as artificial joints, defibrillators, malaria diagnostic test kits, MRI machines, pacemakers, and syringes; and
    • Vaccines.

    According to FDA, China is a "major provider" of certain raw ingredients and medical devices for the United States. As such, advocacy and industry groups have raised concerns that the tariffs could lead to higher prices for prescription drugs and medical devices.

    The Medical Imaging and Technology Alliance has estimated that the 25% tariff cost U.S. medical device makers more than $100 million in 2018.

    Patient advocates and drugmakers said the tariffs could force generic drug manufacturers to raise prices to help offset higher costs for raw materials—an outcome that would run counter to the Trump administration's goal of reducing prescription drug costs and increasing generic competition in the U.S. market. Raw ingredients form a more significant component of the cost of generic drugs than brand-name drugs, because brand-name drug's relatively high list prices typically help cover the costs of drug development and marketing.

    Next steps

    The new agreement is expected to take effect within 30 days of its signing, CNN reports. However, the agreement includes a clause that allows the countries to withdraw from the deal in the instance of a dispute over its terms that cannot be resolved.

    Officials from the United States and China still are working on a second phase of the agreement. According to CNN, Trump said the United States will continue negotiations with China on the next phase of the deal "soon" (U.S.-China trade agreement, 1/15; Owens, Axios, 1/16; Palmer, Politico, 1/15; Borak, CNN, 1/15; Davis, Healthcare IT News, 7/9/18).

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