Extending the life of pharmaceutical patents from 14 years to 20 has cost the Australian economy billions of dollars, according to a government-commissioned review.

Moreover, in signing the Australia-US Free Trade Agreement (AUSFTA), Australia agreed to preserve a further extension to pharmaceutical patents beyond the 20 years that it had already legislated, "without careful regard to whether this was in our own economic interest," says the Pharmaceutical Patents Review Panel, in a draft report which it has put out for consultation this week. 

These patent extension measures were supposed to encourage the development of the pharmaceutical industry in Australia but, with 70% of drug patents expiring later there than elsewhere in the world, they have in fact severely restricted the development of a generic drugs industry in the country, according to the draft report, which estimates that Australian generics firms have missed out on opportunities worth around A$2 billion over the last eight years.

And because they delay the entry of cheaper generic drugs onto the Pharmaceutical Benefits Scheme (PBS), patent extensions are costing the government around $200 million a year, it adds.

Moreover, "there are signs that these past failures are being replicated in the current Trans-Pacific Partnership (TPP) negotiations because small, net importers of intellectual property, including Australia, have not developed a reform agenda for the patent system that reflects their own economic interests - and those of the world," the report warns.

Even if it were increasing investment, it is difficult to see why a pharmaceutical firm would choose to conduct R&D in Australia, merely because the government decided to offer an extension of term there, it suggests; more fundamental issues such as relative costs of R&D and skills availability should influence the location of such investments.

To support Australian-based pharma R&D, the report proposes that it may be more efficient to reduce the five-year extension of patent term and use some of the savings made to fund R&D by direct subsidy.

It also suggests that the government, as the funder of the A$9 billion-a-year PBS, should become more closely involved in pharmaceutical patent cases. "For example, there are likely benefits to the government from improving incentives for generic manufacturers to test the validity of patents," it says.

Speaking on ABC Radio news, inquiry chairman Nicholas Gruen said that Australia has incurred more costs than benefits in agreeing to extend pharmaceutical patents. 

"Similar requests have been made of countries like Canada and New Zealand and they've said no. They've said that they don't believe that simply unilaterally extending patents was in their interest. And as we look at the evidence, it looks to us that it has not been in our interest to agree to extend the patents," said Dr Gruen.

Moreover, within the TPP talks, there has been no evidence of Australian governments or officials telling the negotiations: "this isn't working out, we should be trying to fix some of these problems," he said, adding: "we have lacked a kind of strategic intent here and we've had very low aspirations."

The Review Panel is calling for public responses to its draft by April 30. It is due to submit its final report to Industry Minister Greg Combet on May 30.