Delinkage Of R&D Costs From Product Prices

By James Love, Knowledge Ecology International

Presented at the 2016 AIDS conference in Durban, South Africa, on July 16, 2016

It is essential that policy makers reform the systems for financing R&D, and de-link the costs of R&D from the prices of products.

First, let’s reflect on why we have high drug prices.  When we grant monopolies on products, through patents or other measures, the company that has the monopoly exploits the monopoly, fairly predictably, to maximize profits, and increasingly, this means aggressive pricing.

Why do we have public policies to create monopolies?  Because that is part of our system of funding R&D.  That is really the only reason to create the monopolies in the first place.

But, there is an alternative that would do a better job of funding R&D, with low drug prices, and that is a system that is based on delinkage.

One motivation for delinkage is to move prices closer to the marginal costs of production — the costs of making a copy of a drug.

There will never be universal access to new drugs unless we switch to delinkage models.  Never.  That is one reason why the delinkage debate is so important.

Unless we move toward delinkage, even where access is possible, we will see restrictive formularies, burdensome and access limiting co-payments, and other barriers for patients.

Incentives based upon the ability of a company to charge high prices for new drugs not only lead to inequality of access between countries of higher and lower incomes, but also significant restrictions on access in high and middle income countries.

Drugs like TDM-1 or Ibrance for breast cancer, or Xtandi for prostate cancer, or really any new cancer drug, are difficult to obtain for many patients in high income countries, and access is very limited in developing countries.

The newest drugs for HIV and HCV also face restrictive formularies or no reimbursements in high income countries, and major challenges for patients who need access.

Where do we stand now, and how can delinkage be implemented?

There are two primary tasks to implement delinkage.

1. The first is to shift the global norms designed to finance R&D, through trade agreements on IPR, to agreements on funding R&D. This corrects the asymmetry that exists now in the global framework.  We have trade agreements that mandate patents and other intellectual property rights, and which otherwise promote high drug prices, and back up the mandates with sanctions. .

The norms for government funding of R&D are subject to much weaker norms, or no norms at all.

Only the USA finances the Orphan Drug Tax Credit, an important subsidy for clinical trials for drugs that treat rare diseases, that was relevant to 47 percent of new USA drug approvals in 2015.  Government funding of medical research is quite unequal, even after adjusting for country incomes.   Countries can underperform on funding research grants or subsidies, so long as they have patents, patent extensions and other IPR.

Beginning in 1994, there have been a series of proposals to shift the focus of trade agreements from IPR to R&D.  These include most recently efforts to move forward negotiations on an agreement on R&D funding at the WHO, as well as global discussions on funding innovation for Ebola, new antibiotics and other areas.  What is important is that such negotiations be seen as a new way to deal with the cross border issues related to R&D.   At present, we rely almost exclusively on the privatization of knowledge and the grant of temporary monopolies to address the cross border issues.  We need to shift the obligations to funding R&D, allowing direct grants, subsidies and delinked incentives to satisfy obligations.

2. The second task is to reform the systems of incentives, including all of those that rely upon the grant of a temporary monopoly. The most elegant proposals for doing so have been set out in a series of bills proposed in the US Congress by Senator Bernie Sanders. This includes but is not limited to the Sanders proposal for a Prize Fund for HIV/AIDS. The market for HIV/AIDS drugs is about $15 billion per year in the United States, far higher than the costs of making the drugs.  For these huge outlays, inside and outside of the USA, the world gets about 1 New Molecular Entity ARV per year.

Sanders proposed placing more than $3 billion per year into a fund that would reward the developers of new HIV/AIDS drugs, but also eliminate the monopoly on the products.  Drug developers would receive money from the innovation fund for 10 years after a product is registered, regardless of who the manufacturer of the drug was.  The monopoly would be divided among drug developers based in part upon the impact of the product on health outcomes, benchmarked against existing drugs.   The Sanders legislation would set aside 5 percent of the $3 billion for an open source dividend, to exclusively reward scientists and drug developers that open sourced data, inventions, materials and knowledge that was useful in bring the drugs to market.

There have been proposals to implement the prize fund model in developing countries, for HIV/AIDS, for drugs for cancer, and for a variety of other contexts, including for rare diseases, for neglected diseases, for antibiotics and for diagnostic tests. These are efforts to find ways to provide experience with the delinkage approach in funding R&D.

What is the strategy for moving forward?

The first stage of the delinkage campaign is to open minds, and to ask people to examine the current system as one of a set of options, rather than the only option.

Today, there are an increasing number of persons, organizations and institutions that see the system of monopolies as not only unfair and ridiculously expensive and inefficient, but replaceable, and inferior to the new delinkage models.  MSF, Oxfam, the Treatment Access Campaign (TAC), the European Public Health Alliance, my group KEI and dozens of other development and health groups have called upon government officials to move toward the new delinkage models.

In the United States, Senator Bernie Sanders is championing the new approach, as is the Nobel prize winning economist Joe Stiglitz.   The US Senate voted to ask the U.S. National Academies to study the delinkage approach.    In Europe, several members of the European Parliament have expressed interest in the delinkage model.   At the WTO TRIPS Council, India has endorsed delinkage and has requested the WTO to organize a symposium on Innovation Inducement Prizes and Open Development Models. The Human Rights Council recently adopted a resolution calling upon States to apply and support the principle of delinkage.

The World Health Assembly has endorsed delinkage in the context of the development of drugs, vaccines and diagnostics for address health needs in developing countries.

The CEO of GSK has called for implementing delinkage in the context of expensive drugs for rare diseases, and several companies have endorsed delinkage in the context of developing new antibiotic drugs.  UNITAID has published a paper that compared delinkage to tiered pricing, and is considering additional feasibility studies.  The UN’s World Intellectual Property Organization (WIPO) has published a study comparing innovation inducement prizes to patent monopolies.

Can it be done?        

I would begin with two observations.

First, for the current system to prevail, it will require people to continue to accept inequality, and to bear ever growing demands from the drug companies for high prices.  Today a new cancer drug priced at $100k per year might be considered a bargain- $200k is just around the corner.  New HIV regimes are more than $30k per year, and don’t offer a cure.  How is this a sustainable situation?

Second, business models can change. Look at pricing in telecommunications, which have been revolutionized by the Internet.  How many people use Skype, WhatsApp or other programs to communicate for free?  This required a change in the business model.

Drugs are expensive to develop, but cheap to copy.  We need to implement new ways of funding directly or through rewards the trials and other drug development costs.   If we don’t even consider the alternative to the grant of a monopoly, we are endorsing the consequences of the monopoly, which are high prices, enormous political power associated with the monopoly, and very unequal and restricted access to new products.   I cannot endorse or accept the current system. It is not okay to wait 15 or 20 years to have equal access to new products.  It is not okay for poor people to wait, for patients to be denied access to the best drugs available.

For us to make the change, we have to accept that delinkage approaches are not free, we will have to pay for R&D, if not through high drug prices, through other parts of the government or health care budget.  But just as we have accepted paying for telecommunications in new ways, we can also learn to pay for new drugs without measures that kill the patients, and create inequality.

If you believe equality and universal access is in the future, then delinkage is the future. Now we have to move the future forward.

Notes

[1]  February 28, 2016.  James Love (KEI), Judit Rius (MSF) and several endorsements. Contribution To The United Nations Secretary-General’s High Level Panel On Access To Medicines The Need For Global Negotiations On Agreements To Fund R&d Within The Context Of A Progressive De-linking Of R&d Costs From Product Prices.

James Love is director of Knowledge Ecology International. His bio is available here.