James Love Consumer Project on Technology Washington, DC

1. CREATING AN ENABLING ENVIRONMENT FOR NEGLECTED DISESASE DRUG R&D:The Role of Public Interventions andIncentives James Love Consumer Project on Technology Washington, DC Presented at MSF DNS Working Group Conference on The Crisis of Neglected Diseases: Developing Treatments and Ensuring Access 12 March 2002 New York, New York

2. Government interventions to support R&D • Creation of private rights in R&D • Tax credits and other subsidies and incentives • Direct government investment in R&D • Research mandates • Research Treaties

3. Patents as R&D incentives • Incentive depends upon benefits of exclusive rights • Many failures to appropriate benefits of R&D. • Not effective for diseases that affect the poor. • Well known problems • Exclusive rights lead to high prices • In a variety of cases, patents can inhibit research.

4. Tax Credits • Benefits • Decentralized decision making • Problems • Bias against non-profit research projects • Public does not obtain IP rights • Lack of Transparency • No means test • Anticompetitive subsidy • Proposal for Vaccines

5. Public Expenditures • Benefits • Can fund projects that enter the public domain. • Can fund projects that are high risk, or that benefit poor populations or small markets. • Public can control IP rights. • Problems • Traditions of not doing some stages of development work. • Risk of bureaucratic inefficiency and lack of support for private risk taking.

6. US Orphan Drug Act • Initially designed to encourage marketing of existing medicines with small markets, with emphasis on moral suasion. • Attention shifted to R&D, and public subsidies for research, subject to needs test. • Companies eliminated needs test, and obtained very strong exclusive rights.

7. Orphan Drug Act Incentives • Available by indication, for client population of 200,000 or less • FDA managed grant program • Tax credit for 50 percent of the cost of trials • (all US and some foreign trials). • Seven years marketing exclusivity.

8. Orphan Drug Tax Credit 1998-1999 • Total expenditures • $283 million before taxes • 141 million after taxes • 36 Orphan approvals (39 indications) • Expenditures per approval • $7.9 million per before taxes • $3.9 million after taxes

9. Some drugs that have benefited from US Orphan Drug law • Paclitaxel • Oxandrolone • Gleevec • AZT • Epogen and Neuogen • Ceredase

10. How important are orphan drugs in the US? • Varies from year to year. • In 1998, of the 30 FDA approved new molecular entities, 7 were classified as orphans, or 23 percent of the total.

11. Pediatric Exclusivity • In return for clinical trials on children, companies can obtain six months of marketing exclusivity. • Required tests can involve small numbers of children. • Very expensive in terms of cost to consumers, in return for very modest private sector costs.

12. What do we get from the companies for the 6 months Pediatric Exclusivity? “The studies required to gain six more months of marketing exclusivity are relatively small and inexpensive, costing anywhere from $200,000 to $3 million. But the extended exclusivity that results can be very valuable. It will boost drug-company sales by more than $4 billion, by the Journal's calculations, which compare six months of sales while a drug has marketing exclusivity against typical six-month sales of the drug after generic competition hits.” Drug Makers Find a Windfall Testing Adult Drugs on Kids, Rachel Zimmerman, WSJ, Feb 2001

13. WSJ estimate of Company Benefits of Pediatric Exclusivity

14. US proposals for Research Mandates • Cisplatin proposal • Taxol Proposal • Congressional proposals to increase health care R&D

15. Harare proposal • Countries adopt systems of compulsory licensing of patents • Royalties on patents paid into a health care R&D fund. • Patent owners get shares in the fund. • Fund invests in research projects which address local needs

16. R&D as a trade issue

17. Why do we have trade agreements that deal with patent rights on medicines? • Because trade agreements are shaped by commercial interests, and Pfizer, BMS, Merck, GSK and other large pharmaceutical companies push to put pharmaceutical patents on the trade agenda • Because there is a legitimate trade issue in determining who will pay for R&D

18. What is wrong with a trade agreement that focuses exclusively on property rights for R&D?

19. There are lots of market failures in R&D • Abuses of patent system • Excessive Prices on patented products • Anticompetitive patent strategies (evergreening, etc) • There is too little investment in some areas: • Severe illnesses and Vaccines • Drugs for diseases that concern the poor • Basic research • Patents can inhibit R&D • Excessive secrecy • Stem Cell Lines and other Research tools • Broad biotech patents • Blocking incremental innovations

20. Patents are only part of the picture • Patents solve some problems • But create problems of their own, • And fail to address many R&D needs

21. Doha Declaration • We agree that the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO Members' right to protect public health and, in particular, to promote access to medicines for all. In this connection, we reaffirm the right of WTO Members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose.

22. What would a trade agreement look like if designed by public health officials?

23. It would be different than the TRIPS • Focus on innovation • Greater attention to outcomes and health care priorities • More transparency of investment flows • Consider a wider range of instruments • Property rights would be a means, not an end • Public sector research would be addressed • Other tools to promote R&D would be considered • Promote access to medicines, technology transfer and capacity building for R&D • Greater attention to efficiency

24. Trade Discussions involving R&D • Regional and bilateral • Treaty establishing the European Community. • EU/Israel Scientific and Technological Cooperation Agreement • Weapons • Convention on the Prohibition of the use, Stockpiling, Production and Transfer or Anti-Personnel mines and on their destruction. Also, Comprehensive Test Ban Treaty, 1972 treaty on Biological weapons. • Kyoto Protocol to the UN Framework convention on climate change. • Health • G8 discussions of R&D on neglected diseases

25. Models for R&D trade frameworks on health care • Clinton/Blair agreement on funding sequencing of the human genome. • G8 discussions on research for neglected diseases • Several proposals for treaty on R&D on vaccines. • Possible agreements on public access to journals • Proposals to let WHO use government funded patents • Discussions on benefit sharing when R&D takes place in developing countries

26. How to begin a global dialog on trade and R&D? • Hold meetings (or at least panels in meetings) to consider possible elements of a treaty on R&D • Ask international organizations to begin discussion of alternative trade frameworks for R&D • USG has indicated interest in holding these discussions outside of WTO framework

27. Benefits of changes in trade debate • Access and R&D no longer seen as mutually exclusive alternatives in trade debate • Focus becomes how best to fund R&D, given public health objectives and ethical concerns • More cost effective and efficient

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