E-DRUG: R&D mandates, and R&D proposal in Norvir March-In request
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[How should we generate money for R&D for new drugs? The existing model with
patent monopolies seems to be failing (pipeline drying up). Can we learn
from other paradigms? WB]
Note on R&D mandates, and R&D proposal in Norvir March-In request
One of the proposals in the Essential Inventions, Inc. March-in request
is that the Secretary require producers of generic ritonavir to
contribute to a fund for R&D on AIDS treatments. While there is a lot
of discussion of the 400 percent price hike for ritonavir (US only, and
only when used in connection with non-Abbott products), there has not
been much discussion of the R&D proposal. Micky Davis expressed concern
that this was sending the wrong message, and that prices above marginal
costs are not an appropriate way to fund R&D. In our mind, it is quite
important for politicians, NGO's and patient advocates to be more
proactive on how R&D is to be funded. If one proposes to reduce
consumer prices, are we always reducing R&D on new products?
cisplatin
I first became aware of the R&D mandate proposal in connection with
cisplatin, a cancer drug invented at Michigan State University. In
1983, when generic producers wanted to sell cisplatin, Bristol-Myers
(before Squibb merger) claimed competition and lower prices would reduce
R&D. One generic producer�s response to this claim was a proposal for
an R&D mandate on generic producers. This was eventually implemented,
not in connection with the entry by generic producers, but in connection
with a negotiation which gave Bristol-Myers a 5 year extension on its
monopoly, in return for a 30 percent price decrease in prices, and a
$35+ million obligation to fund third party cancer R&D (supervised by
the NIH). Later BMS would return to this idea in 1997, and propose a
5-year extension of its Taxol monopoly in return for a 6 percent R&D
mandate on Taxol sales (with half going to the NIH and half invested by
BMS).
HR 4270, 104th Congress
Also notable was Representative Sanders' proposal in the 104th Congress
(HR 4270) to require more transparency of R&D, and to impose minimum
R&D requirements on companies that sell drugs in the United States
--the contribution levels would depend on patent protection, orphan drug
status, and the magnitude of sales. The 1996 Sanders' proposal
demonstrated how one could make the overall level of private R&D
investment a matter of public policy, and also that policy makers could
do all sorts of things to protect consumer interests, and not worry
about overall R&D levels, since there would be another mechanism (other
than high prices) to increase private R&D investments.
Cheaper way to get more R&D
I believe R&D mandates can be used in a variety of settings to preserve
or increase R&D funding in cases where consumers benefit from lower
prices. For example, suppose that the US licensed parallel trade in
medicines between the US, Europe and Canada, but required the parallel
traders to contribute 10 or 15 percent of the price difference into an
R&D fund. This would allow the US to lower prices, but ensure that R&D
funding was not reduced. Indeed, this could be implemented much more
aggressively than for parallel trade, including for example, for
compulsory licensing, not only for Bayh-Dole cases, but for any over
priced drug. The advantage of the R&D mandate approach is that it is a
cheaper mechanism than high consumer prices to finance R&D. Left to
their own devices, the US pharma industry now only plows about 10
percent of sales into R&D on new products, according to the US IRS.
Governments can mandate that firms invest as much into R&D as policy
makers specify.
First best mechanism?
Is this the first best solution for funding R&D? No, it is not. A
system that separates the R&D and product markets is better. (See
http://www.plosbiology.org/plosonline/?request=get-document&doi=10.1371%2Fjo
urnal.pbio.0020052
) But it is a useful and constructive mechanism to balance some other
second best measures on the access side, to ensure that we better
address the twin objectives of providing access and R&D for new products.
Below are two proposals for R&D mandates. The first is the proposal in
the Norvir petition. The second is the 1996 Sanders proposal. Jamie
From the Norvir March-In:
http://www.essentialinventions.org/legal/norvir/norvir-29jan04petition.pdf
7.2. Special obligation to finance R&D for new treatments for
AIDS.
We anticipate and share concerns that efforts to reduce prices
for this government-funded invention will reduce profits to
Abbott and consequently may reduce somewhat private sector
incentives to invest in research and development. We also
recognize that large research and development investments in
advanced industrialized countries, and in the United States in
particular, are needed to ensure access to new and better
medicines for the entire world.
Therefore, in addition to a royalty payment to the patent
holder, there should also be a requirement that producers of
ritonavir under the open license contribute to research and
development for new treatments for HIV/AIDS.
7.3. Cisplatin case as a model for funding AIDS R&D
The proposal that the open license contain a provision that
requires every manufacturer of generic ritonavir to make an
investment to a special fund for research for HIV/AIDS is
modeled after an earlier case involving cisplantin, a cancer
drug invented at Michigan State University and marketed by
Bristol-Myers.19 After Bristol-Myers enjoyed five years of
exclusive rights to market cisplatin, the federal government
was asked to permit competition. Bristol-Myers said that
competition would result in lower profits and less R&D. One
generic manufacturer proposed that every generic manufacturer
contribute to an R&D fund, either managed by NIH or a private
non-profit party. While the ultimate resolution of the
cisplatin case was a negotiated reduction in the price of
cisplatin and an agreement that Bristol-Myers transparently
fund approximately $35 million in third party R&D on cancer,
the proposal is revisited, as a logical mechanism to permit
competition and lower prices while ensuring that R&D
objectives are met.
The Secretary can decide if such an R&D requirement is
appropriate, and if so, how large the R&D contributions would
be, who would manage the fund, and how the intellectual
property rights would be allocated. Here we offer suggestions
for alternatives the Secretary may consider, which of course
are subject to discussion and further negotiation.
7.4. Mission of the fund
The mission of the fund should be to support drug discovery
based on novel scientific ideas that may not receive adequate
investment but for the presence of the fund.
7.5. Required contribution to fund
We recommend that each manufacturer of ritonavir under the
open license should contribute to the fund a minimum amount as
follows:
1. For the US and other countries designated by the World
Bank as High Income, $.004 per milligram.
2. For countries designed by the World Bank as Low Income,
the minimum contribution is zero.
3. For countries designed by the World Bank as middle
income, the minimum contribution should be $.004, multiplied
by the ratio of the country per capita income divided by the
average per capita income of the countries designed by the
World Bank as high income.
7.6. Management of the Fund
There are a variety of approaches that could be used to manage
the Fund, including but not limited the following options:
1. The NIH could manage the R&D Fund
2. A private non-profit foundation could be identified or
created to manage the R&D Fund.
3. A for-profit investment Fund could be created, with
shares allocated on the basis of contributions to the fund.
7.7. Advisory board
Essential Inventions, Inc. recommends the Secretary create an
Advisory Board that would review how the R&D funds were
invested. This board should include representatives from the
AIDS affected community and experts in medical research.
7.8. Ownership of intellectual property rights
The Secretary could choose different approaches to the
allocation of intellectual property rights. Essential
Inventions, Inc. recommends that commercial discoveries be
treated in one of the following manners.
1. The inventions could be owned by the Federal Government.
This approach might be particularly appropriate if the Fund is
managed by the NIH.
2. The inventions could be owned by the investors in the
fund.
3. The inventions could be owned by the original patent
owners.
4. The commercial rights in the inventions could be split
evenly between the original patent owners and the investors in
the Fund.
Essential Inventions preferred approach is (4).
7.9. Reach Through March-In Clause
Essential Inventions, Inc. recommends that if options (2), (3)
or (4) or used, there also be a reach-through clause that
attaches the same rights the government now has under the Bayh-
Dole Act for March-In rights.
7.10. Transparency of R&D
Essential Inventions, Inc. strongly recommends that all
contributions to the fund and all distributions from the fund
should be made transparent to the public through appropriate
means.
From the 1996 Sanders' proposal
HR 4270 , 104th CONGRESS, 2d Session
To require reporting on research and development
expenditures for drugs approved for marketing, and for other
purposes.
IN THE HOUSE OF REPRESENTATIVES
September 27, 1996
[snip]
SEC. 7. PROMOTION OF RESEARCH AND DEVELOPMENT.
(a) ACCOUNT- Any person engaged in the
manufacture of drugs for introduction into interstate
commerce shall, in accordance with subsection (b), establish
for each drug an account for funds to be reinvested in
research and development for health care technologies.
(b) REINVESTMENT IN RESEARCH AND DEVELOPMENT- To
insure that adequate funds are being made available for
research and development of new health care technologies,
the Secretary of Health and Human Services shall establish
for persons engaged in the manufacture of drugs for
introduction into interstate commerce the minimum amount
such person should make available for research and
development of its new health care technologies based upon a
percentage of sales revenue for that drug. The Secretary may
require different percentages for minimum reinvestment for
different classes of drugs based upon patient protection,
orphan drug status, or magnitude of sales.
(c) ADDITIONAL RULES- The Secretary shall adopt
regulations concerning qualifying research and development
expenditures and the reporting requirements for persons who
are subject to subsections
(a) and (b).
SEC. 8. REPORTS ON SALES.
Any person engaged in the manufacture and sale
of drugs approved under section 505, 507, or 512 of the
Federal Food, Drug, and Cosmetic Act shall report to the
Health Care Financing Administration the total number of
each drug it has sold and the total revenue it has received
from such sales, including sales made outside the United
States.
SEC. 9. GOVERNMENT EXPENDITURE ON PRESCRIPTION
DRUGS.
The Secretary of Health and Human Services shall
report to the Congress annually on the estimate of the
amount of money the Federal government expends, directly or
through reimbursement, for the purchase of prescription
drugs, including an estimate of the amount of money expended
each year on drugs which were developed with significant
Federal support.
--
James Love, Director, Consumer Project on Technology
http://www.cptech.org, mailto:james.love@cptech.org
tel. +1.202.387.8030, mobile +1.202.361.3040
--
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