Understanding the Medical R&D Treaty Proposal James Love, CPTech MSF meeting on ensuring innovation for neglected diseases London, 8 June 2005

Some context

The market for patented medicines

More than $500 billion globally Roughly 1.5 percent of global GDP Share of GDP is not highly correlated with incomes Africa is a little more than 1 percent of global market

Outlays on medicines as a share of GDP are not high correlated to incomes (2000 IMS data)

US FDA Priority and Standard NME Approvals Calendar Years

US: Cancer Weapons, Out of Reach Robert 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.

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

Novartis at the World Bank in 2004 We consider India to be a market of 50 million

Research and Development The patent system raises prices and investments in R&D, but it is a costly way to finance R&D, particularly for products that are new and better than existing products

Trade Disputes Involving Medicine

Agreements regarding intellectual property rights Multilateral –TRIPS, SLPT (TRIPS II) Regional –NAFTA, CAFTA, FTAA, APEC, etc Bilateral –US, EU Unilateral –US (301/AGOA, GSP, etc), EU (actions in accession states, etc)

Selected countries with trade disputes over the price of medicine Australia - (US/AU FTA) Canada - US unilateral trade pressure Costa Rica - Government reimbursement policies raised in CAFTA negotiation Germany - US unilateral trade pressure Korea A7 pricing agreement, following US and EU pressures, current US and EU disputes reimbursements New Zealand - US unilateral trade pressure Thailand - Bush I/Clinton agreement to weak price control measures Turkey - Current EU unilateral trade dispute

Public Sector Investments in Medical R&D are left out of the “hard” trade framework, but remain part of the soft discussions Human Genome Project Fauci proposal at G8 for global AIDS vaccine effort Dozens of PPPs and other regional and multilateral collaborations Etc

Global frameworks compared Agreements that strengthen IPR and raise drug prices –Backed by dispute resolution –Unilateral trade sanctions Agreements to support public sector research, PPPs, priority research etc –Completely voluntary –Based upon moral suasion and public opinion

The Medical R&D Treaty as a new paradigm for globalization

Main ideas Address the legitimate global issue of sharing the burden of financing R&D for new medicines –Include both public and private sector R&D –Flexible on choice of instrument to finance R&D, including both push and pull mechanisms Introduce new mechanisms to address areas of priority Use economic incentives to drive research into areas of greatest need

Basic obligations 1.Every country is required to support medical R&D The obligation would be a fraction of GDP The fraction would depend upon the level of development Minimum support for priority medical research 2.Countries would have flexibility in terms of how the R&D was financed and managed Purchases of patented medicines, public sector research, prize funds, etc, would be allowed, to the degree that they stimulate R&D

Investments in certain projects will earn credits. These credits are tradable between countries Priority research/neglected diseases Open research Preservation and dissemination of traditional medical knowledge Technology transfer, capacity building Exceptionally useful projects

Global and Local Decision making Global –Fraction of GDP to support medical R&D, including priority R&D –Identification of prior projects –Accounting principles Local/National –Choice of R&D funding mechanism (public, private, pull/push, etc) –Selection of specific projects

Impact on funding R&D for neglected diseases Driving investment –Credits for neglected disease R&D set at rate high enough to stimulate investment –Credits can be used to satisfy treaty obligations. –Countries that have an excess of credits can sell them to countries to are below treaty threshold. Capacity building and employment –Developing countries could become net suppliers of R&D credits –Treaty also provides credits for technology transfer and capacity building

Innovative pull mechanism – the US proposal for a medical innovation prize fund (HR 417) Radical change in method of stimulating private investment –Separate market for innovation and product –No marketing monopoly –.5 percent of US GDP in innovation prize fund –10 year period of eligibility for new products Payments based upon evidence of incremental health care benefits –Some prize funds set aside for priority projects, including $2.4 billion annually for neglected diseases

Treaty mechanisms overview Country A Treaty Secretariat Purchase of patented drugs 13% Prize Fund Directed research Buy out Approved drugs International Projects e.g. PPPs Another country’s project Country B Report of treaty Qualifying projects Assembly for Medical Innovation (AMI) Treaty parties Council Medical Innovation (CMI) Committee on Priority Medical Research (CPMRD) Committee on Open Public Goods (COPG) Committee on Exceptionally Useful Projects (COEPUP) Committee on open Access publishing (COAP) Committee on Technology, Transfer and Capacity (CTEC) Committee on Traditional Knowledge (CTK)

For more information CPTech