Lead Author:James Love
Organization: Knowledge Ecology International
Country: USA
ABSTRACT
This submission highlights a particular set of policy options that can be used as part of a progressive implementation of delinkage. In short, we consider the expansion of subsidies for clinical trials tied to policies to reduce the costs of products, either directly through lower prices or by shortening the terms of exclusive rights, or some combination of the two options. The basic idea is that if governments collectively reduce the costs of R&D inputs, they can also reduce the size of incentives to induce investments in such R&D inputs.
Submission
The grant of temporary monopolies is widely used as an incentive to induce investments in R&D for the development of new drugs, vaccines, diagnostic devices and other products. These monopolies are associated with high prices, access barriers and unequal access, as well as a number of other shortcomings, and are also ineffective at inducing investments in the advance of basic science, projects where the prospects of commercialization of low-end drugs for tropical neglected diseases, to mention a few well known areas of market failures.
In order to achieve greater and more equal access to medicines, prices have to be lower. Many groups are asking that policy makers delink R&D costs from product prices. We have examined various delinkage strategies in a series of papers [see: Additional references on KEI’s work on delinkage]. Many policy makers are warming up to the notion of delinkage, but find the challenges of setting up radically new financing mechanisms a daunting challenge.
This submission highlights a particular set of policy options that can be used as part of a progressive implementation of delinkage. In short, we consider the expansion of subsidies for clinical trials tied to policies to reduce the costs of products, either directly through lower prices or by shortening the terms of exclusive rights, or some combination of the two options. The basic idea is that if governments collectively reduce the costs of R&D inputs, they can also reduce the size of incentives to induce investments in such R&D inputs.
This suggestion takes as its point of departure the U.S. Orphan Drug Tax Credit (ODTC) program. [2] The ODTC provides for a tax credit that directly reduces a company’s tax liability by 50 percent of the qualifying costs of trials on “certain drugs for rare diseases or conditions.” Since the creation of the tax credit in 1983, the credit has been available every year, except for 1995 through 1997. The statutes and regulations that set out the rules for the credit have changed over time, gradually expanding the number of products and trials that qualify for the credit, and liberalizing the carryforward provisions, which has been a benefit to smaller companies with no current profits. The credit is an important subsidy for clinical trials, but only for for-profit entities that file income tax returns. The U.S. Internal Revenue Service publishes some data on the use of the credit, but nothing that can be attributed to a specific trial or company.
Over time, the Orphan Drug Tax Credit has become an under-recognized government subsidy for R&D. In 2015, the FDA approved a record 45 novel drugs. Of the 45, 21 qualified as Orphan Drugs (47 percent of all approvals), and were eligible for the tax credit. [1] For cancer drugs, the role of the ODTC is even more important. From 2014 to 2015, 80 percent of all new cancer drugs qualified as Orphan products.
There are several important aspects of the ODTC.
-There is no transparency of the amount of the subsidy for specific drugs or specific trials.
-The ODTC only subsidizes for-profit entities, and does not provide a benefit to universities or non-profit drug developers, like DNDi, engaged in drug development.
-Non-US firms that sell products in the United States can and do claim the credits.
-U.S. taxpayers pay for the ODTC. No foreign country pays for this R&D subsidy.
The proposal is this: A group of governments could agree, collectively, to expand the current 50 percent ODTC to a higher level of subsidy, say 75 percent, and extend the subsidy to a larger set of drugs and trials. For this to happen, the subsidy would be paid for by a larger set of governments, perhaps lowering the costs for the United States and having other countries share more of the costs of the subsidies.
Why would governments want to consider this? Because at the same time, the governments could either lower expected reimbursements or shorten the effective term of the monopoly, perhaps by eliminating some sui generis regulatory monopolies and patent extensions, or issuing compulsory licenses before the full term of the patent.
The combination of expanding subsidies on clinical trials and reducing prices (and profits) from the monopoly protects innovation and patients simultaneously, and it can eliminate the stigma and negative consequences of lowering drug prices on innovation.
Implementation
The proposal provides a concrete method of progressively delinking R&D costs from drug prices, using well known and familiar policy interventions.
Policy makers should have more transparency of the use of the ODTC for specific drugs and trials.
Policy makers would have to consider and model the costs and impact of deeper and more widely available subsidies for R&D inputs, including in scenarios where prices are lower, or monopolies are shorter.
Impact on Policy Coherence
The key to policy coherence is to protect both access and innovation. This proposal illustrates that this can be done using well known and familiar policy interventions.
Impact on Access
The lower prices obtained through the intervention will expand and make access more fair.
Bibliography and References
[1] 2016. “2015 Novel Drugs Summary,” Center for Drug Evaluation and Research, U.S. Food and Drug Administration, January. http://www.fda.gov/Drugs/DevelopmentApprovalProcess/DrugInnovation/ucm474696.htm
[2] 26 CFR 1.28-1 - Credit for clinical testing expenses for certain drugs for rare diseases or conditions.
Additional references on KEI’s work on delinkage
James Love, An Economic Perspective On Delinking The Cost Of R&D From The Price Of Medicines. UNITAID Discussion Paper. World Health Organization. 2016.
2014. James Love, Alternatives to the Patent System that are used to Support R&D Efforts, Including both Push and Pull Mechanisms, with a Special Focus on Innovation-Inducement Prizes and Open Source Development Models, World Intellectual Property Organization, CDIP/14/INF/12, September 19.
2014. Narmeen Haider, Aidan Hollis, James Love. "Delinkage Proposals and the Measurement of Health Benefits." Whittier Law Review, Volume 25, Number 3, Spring 2014.
2012, James Love. Balancing options for health research and development, Bulletin of the World Health Organization 2012;90:796-796A. doi: 10.2471/BLT.12.113886
2012. Testimony of James Packard Love. "The de-linkage of R&D costs and drug prices through the Prize Fund for HIV/AIDS will cost less, expand access, accelerate and improve innovation, and replace an incentive system that is expensive, inefficient and unsustainable." Hearing before the United States Senate, Committee on Health, Education, Labor and Pensions, Subcommittee on Primary Health and Agency on The High Cost of High Prices for HIV/AIDS Drugs and the Prize Fund Alternative, May 15, 2012, Washington, DC
2012.James Love, Jan Keunen, Evert van Leeuwen en Gert-Jan van der Wilt, Weg met dure, inefficiënte patentensystemen, Het Financieele Dagblad, January 9.
2009. James Love and Tim Hubbard, "Prizes for Innovation of New Medicines and Vaccines," Annals of Health Law, Vol. 18, No 2, pages 155-186, Summer.
Eyes on the Prize: Incentivizing Drug Innovation without Monopolies, Multinational Monitor, MAY/JUN 2009, VOL 30 NO. 3. Robert Weissman interviewed me for the Multinational Monitor.
2009 June 18. The Global Fund to Fight AIDS, Tuberculosis and Malaria, the Special Programme for Research and Training in Tropical Diseases and the right to development. Prepared for the UN Human Rights Council, Working Group on the Right to Development, High Level Task Force on the implementation of the right to development. A/HRC/12/WG.2/TF/CRP.4/Rev.1. This paper, commissioned by the UN Human Rights Council, evaluates the Global Fund and the TDR partnerships, as mechanisms to realize the right to development. Among other things, the discussion of TDR ediscusses the role of Bill and Melinda Gates Foundation in changing the UN role in setting and priorities for tropical disease research, and the challenge of sustainability of treatments provided by the Global Fund.
2008 April 11. James Love. "The Role of Prizes in Developing Low-Cost, Point-of-Care Rapid Diagnostic Tests and Better Drugs for Tuberculosis," MSF expert meeting on IGWG and R&D for tuberculosis. Prepared at the request of MSF, this paper first introduced the concept of the open source dividend as a component of a prize fund.
2008 March 26. James Love. "Prizes, not prices, to stimulate antibiotic R&D.," SciDev.net.
2008. KEI Proposal: A WTO Agreement on the Supply of Knowledge as a Global Public Good .
2007 November 28. James Love and Tim Hubbard. "The Big Idea: Prizes to Stimulate R&D for New Medicines," Chicago-Kent Law Review, Volume 82, Number 3 (2007).The paper, which is based upon proposals first dev
2007 November 12. James Love. "Would cash prizes promote cheap drugs?" The New Scientist.
2006 March. James Love, "Measures to Enhance Access to Medical Technologies, and New Methods of Stimulating Medical R & D, UC Davis Law Review, Volume 40, Issue No. 3 Symposium: Intellectual Property and Social Justice, 679. This paper has two sections. The first concerns several proposals for improving the management of the traditional patent system, including improved statutory grounds for granting compulsory licenses, the use of remuneration guidelines for compulsory licenses, the creation of non-voluntary patent pools for the collective management of intellectual property rights, and three additional proposals for increasing patent transparency, managing standards for granting patents and avoiding unwarranted encroachments on the public domain. The second section of the paper looks at more radical changes in the paradigms to support medical R&D, including the use of medical innovation prizes, competitive intermediaries and a global medical R&D treaty.
2006 May. James Love. Drug development incentives to improve access to essential medicines. Bulletin of the World Health Organization. 84(5).
2006 May. James Love, "A new initiative at the WHO, Prizes rather than prices." Le Monde diplomatique.
2005. James Love and Tim Hubbard, "Paying for Public Goods," in Code: Collaborative Ownership and the Digital Economy. Edited by Rishab Aiyer Ghosh. MIT Press, Cambridge, 2005. (pp. 207 229). The chapter in Code evaluates methods of rewarding the production of knowledge, when the knowledge is available to everyone as a public good. The examples focus on the use of competitive intermediaries to reward producers of recorded music, software and biomedical inventions.
2005. James Love et Tim Hubbard, "Rendre les médicaments abordables : un Traité « R&D + » pour remplacer les « ADPIC + »," Pouvoir Savoir : Le développement face aux biens communs de l'information et à la propriété intellectuelle, Ouvrage collectif Coordonné par Valérie Peugeot, April. Also published in Vecam, April 16, 2008.
2004. Tim Hubbard and James Love, “A New Trade Framework for Global Healthcare R&D,” PloS Biology, February 17, 2004.
2003. A New Trade Framework for Global Healthcare R&D, Access to Medicines and the Financing of Innovations in Health Care, Paper presented at Workshop Hosted by the Program on Science, Technology, and Global Development, The Earth Institute at Columbia University, and the Consumer Project on Technology, Washington D.C. December 4th.
2003. James Love, From TRIPS to RIPS: A better Trade Framework to support Innovation in Medical Technologies, Agence nationale de recherches sur le sida/Institute d' Èconomie publique, Workshop on Economic issues related to access to HIV/AIDS care in developing countries, UniversitÈ de la MÈditerranÈe, Marseille, France, May 27th, 2003.
1997. A Free Trade Area For The Americas. A Consumer Perspective On Proposals As They Relate To Rules Regarding Intellectual Property. Comments for the Working Group On Intellectual Property Rights. Third Trade Ministerial and Americas Business Forum. Belo Horizonte, Brazil. May 13-16, 1997
1996. Comments on Trade and Pharmaceutical Policies: A Perspective from the U.S. Consumer Movement, HAI Seminar: World Trade Organization/GATT, Pharmaceutical Policies and Essential Drugs, October 4, 1996, Bielefeld, Germany.
1994. Pharmaceutical Drugs, Intellectual Property Rights and Public Health: A Consumer Perspective from the United States, Presented at XV Asamblea General de la Asociaión Latinoamericana de Industrias Farmacéuticas San Carlos de Bariloche - Río Negro - Argentina 11 al 13 de mayo de 1994. Remarks delivered on May 12, 1994.