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Taming Big Pharma with a new paradigm for financing medical R&D. James Packard Love Knowledge Ecology International 9 June 2007. Main idea: Separate market for innovation from market for product. Consequences of exclusive marketing rights to finance R&D on Access.

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Taming big pharma with a new paradigm for financing medical r d l.jpg

Taming Big Pharmawith a new paradigm for financing medical R&D

James Packard Love

Knowledge Ecology International

9 June 2007

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Main idea:Separate market for innovation from market for product

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Price of Singulair as a share of per capita income in South Africa

Income decile

2004 study

Percent of income

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BMS/Sanofi prices for clopidogrel bisulfate (Plavix) Africa

  • According to the Thai Ministry of Health, BMS/Sanofi prices for the heart drug Plavix were unaffordable for 80 percent of patients

  • The BMS/Sanofi price was more than eleven times the price of an imported generic

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Novartis at the World Bank in 2004 Africa

  • We consider India to be a market of 50 million

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US: Cancer Weapons, Out of Reach AfricaRobert Wittes, June 15, 2004, Washington Post

Third-party payers will not react passively to pricing that increasingly threatens their balance sheets, especially as more drugs like these are commercialized over the next few years. They will carefully scrutinize all proposed uses of expensive new drugs. Historically, an FDA judgment of "safe and effective" -- the statutory criterion for drug approval -- has almost automatically triggered an agreement by payers to reimburse, which is the real gateway to widespread use and market success. We may now see payers deciding, for the first time, that certain novel "safe and effective" medicines are simply not worth paying for. In addition, payers will surely try to limit "off-label" uses of these drugs -- that is, uses other than the FDA-approved ones. Unlike other areas of medicine, physicians have commonly prescribed cancer drugs for a broader array of indications than specifically approved by the FDA, as clinical research routinely reveals additional uses after market introduction. A very high bar to new uses by payers is a virtual certainty.

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Economics Africa

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  • According to the market research firm IMS, global sales for pharmaceutical products were $602 billion in 2005, or 1.35 percent of global GDP.

  • The International Federation of Pharmaceutical Manufacturers Associations (IFPMA) claims global private sector investments in R&D were about $51 billion -- 8.5 percent of global sales.

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2005 Global private R&D as a percent of global sales pharmaceutical products were $602 billion in 2005, or 1.35 percent of global GDP.

Not R&D


Sources: IMS for sales, IFMPA for global private R&D

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Targets of R&D for drug sales increased 2006 drug prices by $400 to $480 billion

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US FDA Center for Drug Evaluation and Research (CDER) new drug approvals (NDAs) approved from 1990 to 2004

  • Of the 1,284 new drug approvals (NDAs) approved from 1990 to 2004, only 289, or 22.5%, were for "priority" reviews, defined as a product that has "Significant improvement compared to marketed products in the treatment, diagnosis, or prevention of a disease." Of these, only 183 (14.3 percent of the total) were new molecular entities (NMEs) classified as priority products.

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Interesting facts drug approvals (NDAs) approved from 1990 to 2004

  • The size of clinical trials for “priority” products are about half as large as for “standard” approvals

  • In the drug label section on clinical trials, FDA does not cite about half the trials the were done.

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  • Very little investment in products that serve poor populations

    • WHO Type II and III diseases

    • Products designed for resource poor settings

  • Poor incentives to develop products that are used as last resort or only in emergencies

  • Excessive investment in R&D projects on little scientific value or limited medical importance

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Developed, Low Mortality Developing (LMD) and High Mortality Developing (HMD) countries

Burden of Disease by Cause and Level of Development

Disability Adjusted Life Year (DALY), per 100,000 persons.

Source: WHO GBD 2002

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Marketing Developing (HMD) countries

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The new paradigm Developing (HMD) countries

  • Change trade system to focus on R&D, rather than IPR

    • Include public and private sector R&D

    • Greater emphasis of global sharing of the costs of public goods, such as public financing for clinical trials

  • Reform the system of incentives

    • Replace monopolies with prizes

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  • Patent system intact through product development and market approval

  • However, for approved drugs, monopoly is eliminated. Generic companies can freely compete

  • Medical Innovation Prizes reward developers of new products

    • Every new product is a “winner,” but the sizes of the prizes vary according to the benefits they deliver

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2005 Sanders proposal approval

  • Prizes equal to share of US GDP

    • .5 percent in 2005 proposal ($66 billion in 2006)

    • Some consideration of higher funding rates.

  • Payments to innovators over 10 year period are based upon incremental health care benefits

  • Organizations that develop new drugs compete against each other, on the basis of the incremental impact of inventions on health care outcomes

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Some of the fund is allocated to priority projects approval

  • Global neglected diseases

    • 4 percent

  • Orphan drugs

    • 10 percent

  • Research on AIDS, including AIDS vaccines, global infectious diseases, and medicines to treat bio-terrorism

    • 4 percent

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Financing prizes approval

  • In the US, you could easily finance the prizes out of the savings you would get from lower prices on drugs

    • Medicare Part D outlays will top $150 billion in some scenarios

    • US now pays for medicines through other parts of Medicare, Medicaid, veterans, special federal programs for specific diseases conditions or populations, and for federal employees

  • With elimination of monopoly, prices would fall by more than 80 percent, on average

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Benefits approval

  • Access

    • All product available at marginal costs

      • End of prize sensitive formularies for drugs.

      • Costs of chronic treatments for AIDS and many other severe illnesses fall to less than $1 per day.

    • U.S. no longer exports higher prices to world

  • Innovation

    • R&D efforts focused on products that actually provide improved health outcomes.

  • Efficiency

    • Much cheaper system to operate

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February 2005 approvalR&D Treaty Proposal

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Committee on Priority approval

Medical Research (CPMRD)

Assembly for Medical Innovation (AMI)

Treaty parties

Committee on Open

Public Goods (COPG)

Council Medical Innovation (CMI)

Committee on Exceptionally

Useful Projects (COEPUP)

Committee on open

Access publishing (COAP)

Report of treaty

Qualifying projects

Committee on Technology,

Transfer and Capacity (CTEC)

Committee on TraditionalKnowledge (CTK)

Country B







e.g. PPPs

Buy out



Purchase of

patented drugs



Treaty mechanisms overview

Treaty Secretariat

Country A