Alternative Access Strategies

Alternative Access Strategies Peter Maybarduk / UAEM Decal 98/198 Spring 2007

Questions: • How can society most efficiently purchase research and development, and hence create lifesaving medicines? • What is the proper balance of private incentive and public benefit?

Social Purpose of IP • To provide incentives for private parties to research, develop and market new ideas and technologies for public use. • Quid pro quo: private profits for public dissemination of innovative technologies. • How well does IP accomplish its social objectives?

Critiques of IP • Unnecessary • Monopoly pricing • Prices set to maximize financial return, rather than maximize number of patients treated (Hubbard/Love) • Limited research incentives for diseases of the poor • Anticommons effects • Concentrating power in the hands of the powerful

Alternative Access Strategies (As in, alternatives to relying solely on strict intellectual property enforcement to promote R&D and provide medicines) • Flexibilities in intellectual property rules • Pooling intellectual property • Alternatives to intellectual property

Flexibilities - Compulsory licensing • Think of compulsory licensing as: • Breaking a patent • Withdrawing a patent for limited purposes • A government order to share the rights to use a technology • Medicines: • Issuing compulsory licenses allows governments to: • Produce and distribute the medicine on its own • Allow a generics manufacturer to produce and distribute the medicine

Compulsory licensing • Creates price competition between brand-name and generic manufacturers - a victory for consumers • Thanks to generic competition, 1.5 million people have access to antiretrovirals that did not ten years ago.

International Law • World Trade Organization’s Agreement on Trade Related Aspects on Intellectual Property (WTO’s TRIPS) governs international intellectual property law • TRIPS article 31 permits compulsory licensing

Compulsory licensing as a default regime • TRIPS and other trade agreements (not yet in force in lowest-income countries) require countries to honor 20-year patents • But, the Doha declaration (2001) provides, “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.”

International Law • Doha Declaration paragraph 5(b): members “have the right to issue compulsory licenses and the freedom to determine the grounds upon which such licenses are granted.”

A Perception Problem • Belief that CLs may only be issued in cases of public emergency • Wrong: government’s discretion. Emergency simplifies requirements. • Belief that CLs require prior negotiation: • Only in certain circumstances. Government use and emergencies require no prior negotiation.

A Perception Problem • Belief that no compulsory licenses have been issued under Article 31 • Poppecock! Lies and deceit! • Zambia, Malaysia, Indonesia, Eritrea, Mozambique, Zimbabwe, South Africa, Thailand • Import and local manufacturing: drugs delivered in all but Zimbabwean case • More than AIDS, more than emergency • Thai case: efavirenz CL imports could enable treatment of 83,000 more people • USTR vs. CPTech

Challenges to compulsory licensing • USTR, pharmaceutical companies and Free Trade Agreements • Restrict CL to emergencies, broader negotiation requirements, broader royalty requirements, other restrictions

Compulsory licensing as a default regime • Countries would choose as a rule not to honor patents essential to lifesaving medicines • Issue compulsory licenses automatically • Lump-sum payments to patent holders

Compulsory licensing as a default regime • Criticisms and constraints: • If this approach spread to enough countries with sizable markets, it could hinder research incentives • Brazil, India, China • May depend on size of royalties

Flexibilities - Parallel Importation • Parallel importation allows countries to seek the best prices for medicines by shopping on the world market • When companies charge higher prices in one country than another, governments can respond by purchasing drugs at the low prices available abroad.

Parallel Importation • For example, a Namibian company or government agency might purchase HIV/AIDS drugs in France, and resell them in Namibia. • Because drug prices vary country to country, and many are prohibitively expensive, parallel importation helps countries with high drug prices provide affordable medicines to their people.

Parallel Importation • TRIPS Article 6 (“Exhaustion”) and Doha paragraph 5(d) give countries absolute right to parallel import • But U.S. and pharmaceutical companies try to restrict this right through FTAs

Parallel Importation • Criticisms: • Perhaps rich countries should not import products made available at discounts in poor countries • If drugs sold at discounts in Africa were imported into USA as a matter of policy, the companies would simply end the discounts. • Parallel importation is sound policy for poor countries, perhaps less so for wealthy countries.

Pooling Intellectual Property • Sharing intellectual property and sharing information about intellectual property • If IP is equivalent to fences in a field, pooling makes a common set of rules for accessing what’s within all fences

Pooling Intellectual Property • Patent Pools • an agreement between two or more patent owners to license patents to one another or third parties. • the aggregation of intellectual property rights which are the subject of cross-licensing • Ex: Aircraft Manufacturers, WWI

Pooling Intellectual Property • Patent pools • Reduce transaction costs • Clear blocking positions • Eliminate the holdup game

Pooling Intellectual Property • Case study: Essential Patent Pool for AIDS Treatment (Love) • Holders of patents essential to the treatment of HIV/AIDS commit their patents to a single portfolio • Third parties license the portfolio in developing and marketing new drugs

Patent pools • Norvir (Abbott) • essential component of many protease-inhibiting AIDS medicines. • Initially developed through NIH. • 2003 - Abbott issued 400 percent price increase, forcing up the prices of competitor medicines while maintaining the price of its own Norvir-based treatment, Kaletra. • Consumers were forced to pay high prices for an essential medicine their tax dollars helped invent. • EPPA would prevent this by fixing low royalty rates

Patent pools • EPPA would petition companies to commit licenses voluntarily, seek compulsory licenses when that fails • Patent holders may contribute patents voluntarily because: • Consensus on importance of treating AIDS • PR benefits may outweigh licensing revenue • Reduced transaction costs and licensing fees for all, allows for rational planning, market predictability

Pooling intellectual property • Information / IP clearinghouses: • Case study: Public Intellectual Property Resource for Agriculture (PIPRA) • Alliance of institutions sharing information and access to intellectual property rights pertaining to agriculture • “An initiative by universities, foundations and non-profit research institutions to make agricultural technologies more easily available for development and distribution of subsistence crops for humanitarian purposes in the developing world and specialty crops in the developed world.” • Socially Responsible Licensing Clearinghouse

Alternatives to Intellectual Property • If exclusive rights (patents and the risk of monopoly pricing they create) are the problem, why not investigate alternatives to such complete exclusive rights?

Alternatives to Exclusivity • “A 20-year marketing monopoly on a patented invention is only one way to finance R&D.” (Hubbard/Love) • “An enormously inefficient means of purchasing R&D…” • Approx. 10% of drug sales go to R&D • Approx. 2% of drug sales invested in R&D for medically necessary technologies (debated standard)

Alternatives to exclusivity • Medical Innovation Prize Fund • Global R&D Treaty • Compulsory licensing as a default regime • Just don’t patent • Public and private funding of research

Medical Innovation Prize Fund • Organizations compete for prizes awarded for creating successful drugs / treatments • Rewards may be issued all at once (lump sum) or over time based on evidence of use and efficacy

Medical Innovation Prize Fund • Market model (promotes competition) • Works with or without patents • In a patent regime, governments would issue compulsory licenses in exchange for the reward • Similar to APCs, could be used to stimulate R&D in targeted sectors • Greater rewards for innovators, lesser for “me-too” drugs

Medical Innovation Prize Fund • Criticisms and constraints: • Who determines how we allocate prizes? • More or less accurate than market forces? • How do we fund it?

Global R&D Treaty (Hubbard-Love) • Global treaty binding signatories to contribute a certain percentage of gross domestic product (GDP) to a research and development fund

Global R&D Treaty • Currently, most countries (both high and low-income, with some variation) spend close to 1% of GDP on drugs • Approx. 10% goes back into R&D • Countries could instead agree to devote 0.1% of GDP or more to R&D

Global R&D Treaty • Meeting this obligation = no longer “free-riding” • Countries then free to procure 0.1% from any source - they can maintain current system of honoring patents, or contribute directly through a fund

Global R&D Treaty • Public funding for treaty could be acquired by any means • Perhaps a small tax on each pharmaceutical purchase • Simply part of national health care expenditure

Global R&D Treaty • Because treaty would not require countries to honor patents, drug prices could be comparatively low - the savings from generic competition are likely to be much greater than costs of the tax • Countries have the option to trade high costs of monopoly pricing for low cost of a tax

Global R&D Treaty • Moneys collected could be contributed to R&D through either domestic or international prize or research grant system • Certain countries might not have research capacity to effectively spend R&D domestically

Global R&D Treaty • R&D fund could spur domestic R&D, where previously money was effectively invested in foreign companies • But, this could mean inefficient spending as infant or small-scale R&D programs might not produce results comparable with more developed programs

Global R&D Treaty • Criticisms and constraints: • Corruption, pilfering of funds • Inefficiency of a centrally-planned system • Enforcement • Risk of free-riding through countries foregoing patent system, but not meeting R&D commitment, either.

Global R&D Treaty Response: Competing and regulated R&D funds • Akin to pension funds • Manage R&D assets on behalf of consumers • Individuals / employers required to make minimum contributions, but can choose who would receive funds • Allows funds to compete on basis of efficiency, transparency and funding priorities

Global R&D Treaty • Criticisms and constraints: • Political will: can we make it happen?

Just don’t patent • Return to “share and share-alike” academic perspective • Options: • Don’t patent at all • Commit idea to public domain • Patent, but partially cede rights • Open use for R&D/health purposes • Patent, but not in LMI Countries • TRIPS • UAEM - Equitable Access License

Just don’t patent • Criticisms and constraints: • Inventor may have little or no control over patenting decisions • This a technology-by-technology solution, i.e., one rights holder choosing not to patent does not prevent patenting of the next life-saving technology • But, we can try to change minds by example

Direct public funding of research • Options: • Government: • NIH already a key player in drug development ($27 billion/year). Many of these innovations passed to private firms for further development (Norvir).

Direct public funding of research • Government: • Walter Reed Army Institute of Research: • Historically a funder of neglected disease research due to concerns for U.S. troops in tropical countries • “Two highly effective antimalarial drugs and vaccines to prevent hepatitis A, meningococcal meningitis, and adenovirus caused respiratory disease were developed at WRAIR.”http://wrair-www.army.mil/

Direct public funding of research • Options: • PHARMA • Initial research grants rather than prizes for successful development • Universities • Non-profits • Medicines for Malaria Venture, Global Alliance for TB Drug Development, International AIDS Vaccine Initiative, Institute for One World Health

Direct public funding of research • These options allow us to discriminate based on who we think will spend the money best. • High profit margin of private sector vs. bureaucracy of government vs. limited capacity of non-profits • Can also be used to incentivize alliances across sectors

Direct public funding of research • Gives us a say in final use of technology • Allows us to determine licensing practices, negotiate prices

Case study: California’s Stem Cell Research Fund • Administered by California Institute for Regenerative Medicine (CA govt) • Approved by California Proposition 71 • Grant-based. Moneys provided for research, and not conditioned on success. • Initial funds from $3 billion in state bond sales

Alternative Access Strategies