Kristine Husoy Onarheim, The Lancet Youth Commission on Essential Medicines Policies

Lead Author: Kristine Husoy Onarheim
Additional Authors: Members of the Lancet Youth Commission on Essential Medicines Policies
Organization: The Lancet Youth Commission on Essential Medicines Policies
Country: Norway

Abstract

The Lancet Youth Commission on Essential Medicines Policies (YCEMP) was convened in March 2015 to examine access and promotion policies for Essential Medicines worldwide through a youth lens. YCEMP is comprised of 17 young professionals from 15 different countries, representing every region in the world.

We believe medicines should be available to all who need them, for both individuals and societies to realize their full potential, and to realize the human right to health and the right to science and culture, as recognised in the United Nations International Covenant on Economic, Social and Cultural Rights. This makes sense from both a public health perspective, and an economic perspective.

To achieve this, scientific progress and knowledge should be acknowledged as global public goods. This has significant implications for the current intellectual property and trade system, which places a disproportionate emphasis on the rights of innovators. Although those who develop drugs should benefit from their work, this cannot be at the expense of human lives. We can no longer tolerate a situation wherein the majority of the world does not have the opportunity to benefit from these developments. Indeed, the problems in the current systems restricting access to medicines, such as unaffordability, will increasingly apply to all countries as costs of healthcare continue to rise dramatically, and new drugs are created.

In this submission, we outline specific recommendations for the High Level Panel to consider for Member States. We recommend:
1. To implement research and development (R&D) models that incentivize innovation based on global health need and facilitate access to knowledge; and
2. For Member States to develop and implement legislation mandating transparency of R&D costs and prices associated with pharmaceutical, diagnostics, and vaccine research, development, and production.

Submission

RECOMMENDATION 1
Implementation of R&D models that incentivize innovation based on global health need and facilitate access to knowledge, from basic research to end products, for all in need

Currently, the research and development (R&D) of pharmaceuticals and other medical technologies is a market-based system, where innovation of new treatments is primarily driven by profitability rather than patient need. The majority of medicines are developed for patient populations in high-income countries, rather than those in low- and middle-income countries. This is a paradox, as the major burden of disease affects people in low- and middle income countries (IHME, 2013). By focusing on developing drugs for patients with the ability to pay high prices for drugs, pharmaceutical companies and their investors are ensured high returns on investment (WHO 2012; Røttingen et al. 2013). The current model for R&D incentivizes developers to recoup their investments by the price they set for the medicines product. For these reasons, newly-released drugs are often priced highly, as occurred when antiretroviral drugs were first released, and as has been seen with newer cancer drugs (Abboud et al 2013 ref). Through the patent system, pharmaceutical developers are awarded a monopoly on drugs they develop for up to 20 years, which allow them to determine drug price without reference to competitor activity within the market. Moreover, certain classes of drugs can be awarded extended monopoly period through additional intellectual property rights such as data or market exclusivity.

When patients or governments cannot afford to pay for highly priced drugs, there is little incentive for pharmaceutical companies to invest in R&D to produce drugs for those markets. The lack of financial incentive for R&D based on global health needs has been widely acknowledged (WHO 2006; WHO 2008; WHO 2012; MSF 2015; KEI 2014; HAI 2012; IFPMA 2013). The poor are particularly vulnerable; for example, in relation to the lack of development of new drugs for neglected tropical diseases.
While some argue that a model wherein private companies are adequately compensated such that R&D costs are reimbursed and sufficient profits are garnered is the only one that will incentivize necessary development of new drugs, YCEMP is concerned about the efficiency and effectiveness of the present system. Current monopoly rights of 20 years result in high prices for patients and health systems, with significant implications for resource allocation. Further, privatized knowledge and patented products does not necessarily result in more innovation: in fact, this can delay further developments of ideas, and skew production incentives towards low-risk propositions that add minimal value in respect of health outcomes. Of the medicines currently being developed, 85-90% have little or no added therapeutic value compared to current treatment options (Light and Lexchin 2012).

The goal of R&D should be to produce the most necessary medicines based on global disease burden, with products of such R&D made widely available at affordable prices.
To reach this goal, we recommend the following changes to reform and realign the R&D system:
1. Knowledge should be considered a global public good: We argue that knowledge – from basic scientific research through to development of end products – should be secured as global public goods, not private goods as they are in the current system. Stiglitz (1995) defines a global public good as a good that is not necessarily only both non-rivalrous and non-excludable, as per the traditional definition of Samuelson (1954), but of value worldwide. As a global public good, we envisage knowledge relating to medical R&D being made widely available, which can facilitate development of new drugs for the public. To facilitate this, alternative mechanisms are needed. The important work by the WHO CEWG gives guidance on how this can be ensured through various approaches including open-source collaboration and open access mechanisms; pooling of intellectual property and financing; and global coordination through establishing of a R&D observatory. These recommendations can be acted upon, and can provide incentives that can align and ensure the interests and rights of inventors, international human rights law, trade rules and public health.
2. A delinked R&D system: the costs of innovation and production should be delinked. When R&D is delinked, the end price of the product is unconnected to the development costs (Chatham House, 2015). Through post-registration delinkage, revenues are awarded to the developer of the medicine after successful registration of the product with a stringent regulatory authority such as the FDA or EMA, or ‘prequalification’ through the WHO prequalification programme. If the developer is ensured certain revenues, medicines can be produced and sold at a price close to that of production. In a delinked system, a reward is accrued for the innovative idea itself, rather than the development or production process. Hence, there can be several producers and the price do no longer have to be set with the purpose of recovering R&D expenses. When monopoly rights are removed, this should open up markets for competition between different actors, which generally facilitates sale of medications at lower prices.
3. Global financing mechanisms should be implemented to support R&D according to global health needs
In the current system pharmaceutical companies – and, in turn, payers – bear the burden of cost of development. However, alternative funding mechanisms for drug development must ensure that research to develop new products takes places according to global health need. We envision that, in order to support R&D as a global public good, additional financial incentives are needed. Moreover, as medicines are different from other private goods, public financing is needed.

YCEMP is of the view that, as R&D is a global challenge, countries should share the burden of costs of innovation through shared financing mechanisms: i.e. through global pooled funding. Member States should reach agreement that, through a global R&D treaty, funds can be contributed annually at a rate of 0.01% of GDP that will be used to develop drugs that can be used worldwide (WHO 2012).

While earlier funding mechanisms have focused on illnesses that are almost exclusively poverty-related (e.g. drugs for neglected tropical diseases) we argue that the creation of a global fund for needs-driven R&D should be broader. This is because market failures go beyond tropical diseases; looking into the future, greater investment in drugs to treat NCDs (which increasingly constitute a large proportion of the worldwide disease burden) will be necessary globally, not just in certain regions. Looking towards 2030, financing mechanisms should focus on global health need, and include R&D on all drugs, for all diseases, as the burden of disease in LMICs and HIC are overlapping (WHO 2016). This will also benefit public health care systems that struggle with high prices, which is of importance as countries move towards universal health coverage.

Milestone prizes or other alternative financing mechanisms can be promoted by country governments and other stakeholders to speed up the process for development by offering financial reward for reaching intermediate steps in exchange for the intellectual property rights (WHO, 2012).


RECOMMENDATION 2
Development of legislation across Member States mandating transparency of R&D costs and prices associated with pharmaceutical, diagnostics, and vaccine research, development, and production

High drug prices are contributing to an increasing percentage of individual healthcare-related expenses, particularly in situations where out-of-pocket expenditures towards health care are common, but also in health systems in which reimbursement for medicines is undertaken collectively. The issues of high drug prices is not limited to LMICs alone, as evidenced by reports by IMS Health which estimated that 8.4 million fewer prescriptions in the U.S. been filled in 2014 compared to 2013 due to cost concerns (IMS Institute for Healthcare Informatics, 2014). These concerns around the affordability of pharmaceuticals in all countries will become even greater as new, personalized medicines and other biologics drugs are expected to enter the market (Murugan 2015; PhRMA 2013).

As national health systems move towards their commitment implement universal health care coverage under the Sustainable Development Goals, they are called upon to provide financial risk protection by ensuring affordable access to healthcare services including essential medicines (WHO 2014). To achieve this, States must “expand priority services, include more people and reduce out-of-pocket payments” (Ottersen, 2014). For universal health coverage to be truly realized, health care services and drugs must be wholly or substantially subsidized to ensure financial risk protection for citizens (Ottersen, 2014, WHO 2010)).

Moreover, in deciding how to move towards universal health coverage, countries are also tasked with selecting which services to expand first. It has been suggested that countries base their ranking of highly prioritized services based on criterion related to cost–effectiveness, prioritizing those populations who are worst-off, and financial risk protection (WHO, 2014).

When looking at cost-effectiveness data pertaining to medicines, we argue that these estimates should not be based on manufacturer-set price, which frequently bears no relation to the costs of R&D and production of the medication in question (Henry and Searles, 2012). Indeed, medication prices are frequently determined by what the market will bear, as opposed to considerations for maximising access (The Economist, 2015). Instead, policymakers should consider the actual cost of creation of the medication. In order to do so, production costs data has to be made publicly available. If these data are not available, societies and countries can make uninformed decisions in negotiating the prices of drugs with manufacturers, with implications for patients and health systems. Accordingly, manufacturers should be required to report on the specific cost inputs of R&D of each drug that is sold on the market, through implementation of legislation at the national level mandating cost transparency.

This type of legislation has already been proposed in six states in the U.S. in 2015 and within the White House budget proposal for the Fiscal Year 2017 (Policy and Medicine, 2015; Office of Management and Budget, 2016). The proposals outlined in American bills are very promising and include reporting of production costs including R&D, manufacturing, and regulatory costs as well as the contributions to drug development by public institutions such as government grants. This has to be supplemented with additional cost information towards administration, marketing and advertising. Moreover, the legislation also calls for transparency of prices towards payers including public and private insurers, pharmacies, and others. Finally, the manufacturer must also disclose the profits yielded based on these prices. All of this information is to be reported to the relevant government agency on an annual basis, with provisions to make the information publicly available and to be used to negotiate prices for those drugs found to be major contributors to health budgets.

YCEMP supports the introduction of such legislation. We also recommend having an independent, autonomous body to audit and approve data submitted concerning costs, before publication. This would allow the public and experts to scrutinize the data provided, and allow comparison of the R&D cost to the actual return of investment on each medicine. Furthermore, the pharmaceutical industry must make the marginal cost of producing a product publically available. These statutory mechanisms should apply to all medicines approved for national use, and not only essential medicines. It can take years before newer medicines are added to WHO Model Essential Medicines List and/or national Essential Medicines Lists, often based on concerns around pricing; for this reason, all medicines approved for use by States should therefore be included in the legislation.

National governments would be responsible for introducing and enforcing these bills, supported by institutional and technical bodies holding actors accountable. Further, this new knowledge about production costs should enable policy makers and executives to use this information to negotiate better prices at the country level.

Bibliography and References

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