Funding for R&D models and incentivesFunding for R&D models and incentivesMichelle Childs Head of European AffairsKnowledge Ecology InternationalBrussels 2nd April

Michelle Childs Head of European AffairsKnowledge Ecology InternationalBrussels 2nd April

What should a frameworkcontain?What should a frameworkcontain?

Priority settingWhat type of research is needed

what is being doneWhere are the gaps

Sources of Fundingwho pays and how

existing fundingnew approaches

Methods of fundingGetting the 'right' R&D

Push and Pull mechanismsbalance innovation and access

Global FrameworkDeveloped and developing countries- needs driven

sustainablebalances access and innovation

Priority settingWhat type of research is needed

what is being doneWhere are the gaps

Sources of Fundingwho pays and how

existing fundingnew approaches

Methods of fundingGetting the 'right' R&D

Push and Pull mechanismsbalance innovation and access

Global FrameworkDeveloped and developing countries- needs driven

sustainablebalances access and innovation

Framework- Who pays?Framework- Who pays?

Could be ‘soft norms’ e.g %of GDPCould be formal Treaty with new mechanisms to identify priority R&DAlternatives to TRIPS+ approachBut resolution not prescriptive, opens up discussionCalls for serious discussions on core issues: who will pay for R&D? and what type of R&D do we need?

Could be ‘soft norms’ e.g %of GDPCould be formal Treaty with new mechanisms to identify priority R&DAlternatives to TRIPS+ approachBut resolution not prescriptive, opens up discussionCalls for serious discussions on core issues: who will pay for R&D? and what type of R&D do we need?

Framework requires direct or indirect government outlaysFramework requires direct or indirect government outlays

A multilateral norm or agreement that would obligate or ask member states to fund R&Da. Mechanisms that involve government outlaysb. Mechanisms that involve IPR enforced exclusive marketing rights(Some have proposed transferable patent rights or other types of

incentives that do not directly involve government outlays, but rather impose costs on consumers for related products)

A multilateral norm or agreement that would obligate or ask member states to fund R&Da. Mechanisms that involve government outlaysb. Mechanisms that involve IPR enforced exclusive marketing rights(Some have proposed transferable patent rights or other types of

incentives that do not directly involve government outlays, but rather impose costs on consumers for related products)

Who Pays? a. Mechanisms that involve government outlaysWho Pays? a. Mechanisms that involve government

outlays1. How much money will be raised?2. How will the costs be distributed among different countries?

• Should allocations be based upon incomes (GNI or GDP)?• Should the allocations be based upon levels of development (such as the relative

ranking on the UNDP HDI, or a World Bank like classification of countries by high, upper middle, lower middle and lower incomes)?

• Should the allocations be based upon budget elements, such as fraction of national outlays on medicines or health care?

• Should the allocations be based upon some other measure of economic activity, such as airline traffic (the UNITAID approach) or currency transactions

• 3.Should countries have broad obligations to financing priority research, or should the obligations be more specific, such as requirements to fund specific PDPs, diseases, or incentive mechanisms?

4. To what degree should the funding mechanisms be centralized?e.g. if countries finance direct grant programs or prizes, should the money be managed by a central entity, like TDR or the Global Fund for AIDS, TB and Malaria? Or should all or a portion of the money be managed by regional or national authorities?

1. How much money will be raised?2. How will the costs be distributed among different countries?

• Should allocations be based upon incomes (GNI or GDP)?• Should the allocations be based upon levels of development (such as the relative

ranking on the UNDP HDI, or a World Bank like classification of countries by high, upper middle, lower middle and lower incomes)?

• Should the allocations be based upon budget elements, such as fraction of national outlays on medicines or health care?

• Should the allocations be based upon some other measure of economic activity, such as airline traffic (the UNITAID approach) or currency transactions

• 3.Should countries have broad obligations to financing priority research, or should the obligations be more specific, such as requirements to fund specific PDPs, diseases, or incentive mechanisms?

4. To what degree should the funding mechanisms be centralized?e.g. if countries finance direct grant programs or prizes, should the money be managed by a central entity, like TDR or the Global Fund for AIDS, TB and Malaria? Or should all or a portion of the money be managed by regional or national authorities?

A new Framework: The Medical R&D Treaty: Basic obligationsA new Framework: The Medical R&D Treaty: Basic

obligations

1. Every country is required to support medical R&DThe obligation would be a fraction of GDPThe fraction would depend upon the level of developmentMinimum 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

1. Every country is required to support medical R&DThe obligation would be a fraction of GDPThe fraction would depend upon the level of developmentMinimum 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

Medical R&D Treaty:What fraction of GDP for R&D?Medical R&D Treaty:What fraction of GDP

for R&D?

Possible approachesUsing World Bank income groups, a graduated rate:

High Income, 15 basis points (.0015)High Middle Income, 10 basis points (.001)Lower Middle Income, 5 basis points (.0005)Low Income, 0 basis points of GDP (0)

A rate based upon per capita income in USD divided by 10,000,000, with a maximum rate (20 to 30 basis points)A sliding scale using the UNDP Human Development Index

Possible approachesUsing World Bank income groups, a graduated rate:

High Income, 15 basis points (.0015)High Middle Income, 10 basis points (.001)Lower Middle Income, 5 basis points (.0005)Low Income, 0 basis points of GDP (0)

A rate based upon per capita income in USD divided by 10,000,000, with a maximum rate (20 to 30 basis points)A sliding scale using the UNDP Human Development Index

Medical R&D Treaty: Methods of financeMedical R&D Treaty: Methods of finance

Projects that support Qualified Medical Research & Development (QMRD), including Priority Medical Research and Development (PMRD), are selected by Member States. Eligible finance mechanisms include:

Public sector support for QMRDTax expenditures, such as tax credits for QMRD investmentsPhilanthropic expenditures on QMRD QMRD funded by businesses or non-profit organizations under government mandates,National expenditures on relevant medical products, to the degree that such expenditures create incentives for investments in QMRD,Innovation prizes or other innovation incentives, to the degree that such expenditures support QMRD.Patent/Pricing System

Projects that support Qualified Medical Research & Development (QMRD), including Priority Medical Research and Development (PMRD), are selected by Member States. Eligible finance mechanisms include:

Public sector support for QMRDTax expenditures, such as tax credits for QMRD investmentsPhilanthropic expenditures on QMRD QMRD funded by businesses or non-profit organizations under government mandates,National expenditures on relevant medical products, to the degree that such expenditures create incentives for investments in QMRD,Innovation prizes or other innovation incentives, to the degree that such expenditures support QMRD.Patent/Pricing System

Imposes requirements on every treaty signatory to contribute to global medical R&D in proportion to the wealth of each country.

Directly addresses the need to ensure adequate and sustainable global investment in medical R&D without forcing inappropriate patent and pricing requirements

Encourages funding for neglected diseases, among other priorities

Enables each country to meet commitment as appropriate domestically

Concept supported by 162 NGOs, academics, elected officials, parliamentarians, health ministers, etc.SEARO and EMRO regions and others at IGWG

Imposes requirements on every treaty signatory to contribute to global medical R&D in proportion to the wealth of each country.

Directly addresses the need to ensure adequate and sustainable global investment in medical R&D without forcing inappropriate patent and pricing requirements

Encourages funding for neglected diseases, among other priorities

Enables each country to meet commitment as appropriate domestically

Concept supported by 162 NGOs, academics, elected officials, parliamentarians, health ministers, etc.SEARO and EMRO regions and others at IGWG

Benefits: Global Medical R&D Treaty Proposal

Incentives for countries to contribute to R&D outlaysIncentives for countries to contribute to R&D outlays

Context:Cost of funding R&D for any participating country will fall when other countries agree to participate.TRIPS agreement is mandatory for countries joining the WTO.Agreement on funding priority R&D unlikely to be mandatoryWhat other incentives to contribute to costs of priority R&D might be possible?

Suggestions:.European Union or Japan could encourage countries to contribute as a condition of other trade benefits, or, in lieu of tough IPR provisions in trade agreements.

IGWG might consider setting differential obligations for contribution based upon certain criteria that advance the R&D agenda.

projects involving sharing of information (open source)investments that involve technology transfer to developing countriesinvestments which provide for “pull” incentives like prize funds, that reward foreign inventors.

Context:Cost of funding R&D for any participating country will fall when other countries agree to participate.TRIPS agreement is mandatory for countries joining the WTO.Agreement on funding priority R&D unlikely to be mandatoryWhat other incentives to contribute to costs of priority R&D might be possible?

Suggestions:.European Union or Japan could encourage countries to contribute as a condition of other trade benefits, or, in lieu of tough IPR provisions in trade agreements.

IGWG might consider setting differential obligations for contribution based upon certain criteria that advance the R&D agenda.

projects involving sharing of information (open source)investments that involve technology transfer to developing countriesinvestments which provide for “pull” incentives like prize funds, that reward foreign inventors.

Methods of Funding: to focus on essential needs driven R&DMethods of Funding: to focus on essential needs driven R&D

a comprehensive system to support R&D must address the need for both “push” and “pull” financing mechanisms“push” mechanisms

Direct or indirect grants or subsidies to entities that undertake R&D.Funding is not explicitly linked to specific outcomes.Examples:

National research budgets (NIH, MRC, EU)most PDP funding.

“pull” mechanismsRewards for specific outcomes (successful R&D projects)

a comprehensive system to support R&D must address the need for both “push” and “pull” financing mechanisms“push” mechanisms

Direct or indirect grants or subsidies to entities that undertake R&D.Funding is not explicitly linked to specific outcomes.Examples:

National research budgets (NIH, MRC, EU)most PDP funding.

“pull” mechanismsRewards for specific outcomes (successful R&D projects)

Major ideas for pull mechanismsMajor ideas for pull mechanismsIPR, with prices moderated by tiered pricing strategy

Best example in the areas of vaccines.Transferable patent extension

Have consumers of Type I diseases pay for R&D for Type II and III diseases.

Advanced Purchase/Marketing Commitments (APC/AMC).Now focused on late stage R&D for vaccines.

Patent buyoutsPrizes

Several different models

IPR, with prices moderated by tiered pricing strategyBest example in the areas of vaccines.

Transferable patent extensionHave consumers of Type I diseases pay for R&D for Type II and III diseases.

Advanced Purchase/Marketing Commitments (APC/AMC).Now focused on late stage R&D for vaccines.

Patent buyoutsPrizes

Several different models

Problems of the current IPR “pull”mechanismProblems of the current IPR “pull”mechanism

Exclusive rights lead to pricing abuses and barriers to accessLow levels of investment in products that provide incremental health care benefitsLow levels of investment in treatments for the poor (neglected, global infectious, orphan diseases)Wasteful marketing outlays to gain bigger market share among duplicative products

Exclusive rights lead to pricing abuses and barriers to accessLow levels of investment in products that provide incremental health care benefitsLow levels of investment in treatments for the poor (neglected, global infectious, orphan diseases)Wasteful marketing outlays to gain bigger market share among duplicative products

APC/AMCAPC/AMC

State of playLargely for late stage vaccine development, or U.S. bio-terrorism

Strong pointStrong industry/Gates supportSupport from communities who anticipate access to subsidizedproductsLinks incentives to delivery systems

Weak pointsRequires early specification of technology or outcomesSubject to favoritisms, if products are in later stages of developmentDoes not necessarily address IPR or pricing issues beyond initial outlays.Concerns by developing countries about amount of co paymentsMaintains link between prices and incentives

State of playLargely for late stage vaccine development, or U.S. bio-terrorism

Strong pointStrong industry/Gates supportSupport from communities who anticipate access to subsidizedproductsLinks incentives to delivery systems

Weak pointsRequires early specification of technology or outcomesSubject to favoritisms, if products are in later stages of developmentDoes not necessarily address IPR or pricing issues beyond initial outlays.Concerns by developing countries about amount of co paymentsMaintains link between prices and incentives

Patent buy-outsPatent buy-outs

Close cousin to prizesRequires considerable information about value of inventionCould be implemented as voluntary or non-voluntary transactions.Recently proposed for developing country rights to HPV vaccine patents

Close cousin to prizesRequires considerable information about value of inventionCould be implemented as voluntary or non-voluntary transactions.Recently proposed for developing country rights to HPV vaccine patents

PrizesPrizes

Lots of different modelsMain idea for prize:De-couple incentive ( funding for research) from price of productReward successful outcomesThese are the two essential advantages of prizes. They pay for nothing but performance, and they ensure that anyone with a good idea — not just the usual experts — can take a crack at a tough problem.

Lots of different modelsMain idea for prize:De-couple incentive ( funding for research) from price of productReward successful outcomesThese are the two essential advantages of prizes. They pay for nothing but performance, and they ensure that anyone with a good idea — not just the usual experts — can take a crack at a tough problem.

Prizes and intellectual property rightsPrizes and intellectual property rights

Prizes could be thought of a substitute for IPR,compatible with IPR, or a new system of IPRIPR could be voluntary licensed in return for a prize, or prizes could be given without such licenses, or countries could decide that prizes would replace exclusive marketing rights

Prizes could be thought of a substitute for IPR,compatible with IPR, or a new system of IPRIPR could be voluntary licensed in return for a prize, or prizes could be given without such licenses, or countries could decide that prizes would replace exclusive marketing rights

Prizes as an alternative reward systemPrizes as an alternative reward system

2002, Aventis IPR scenario # 1 (Love, Hubbard)U.S. Sanders bill, 2005, 109th congress, HR 417

2002, Aventis IPR scenario # 1 (Love, Hubbard)U.S. Sanders bill, 2005, 109th congress, HR 417

Optional approach for prizesOptional approach for prizes

Hollis, 2005Rewards for priority R&D that improve health outcomes, with prizes proportional to QALY benefits

Pogge 2005, Nathan 2007Track II, for inventions rewarded through prizes forQALY/DALYs

CPTech/KEI 2006Eligibility of reward linked to licensing of patents to patent pool

Hollis, 2005Rewards for priority R&D that improve health outcomes, with prizes proportional to QALY benefits

Pogge 2005, Nathan 2007Track II, for inventions rewarded through prizes forQALY/DALYs

CPTech/KEI 2006Eligibility of reward linked to licensing of patents to patent pool

Stiglitz on prizes (19 March 2007)Stiglitz on prizes (19 March 2007)

Especially when it comes to diseases in developing countries, it would make sense for some of the prize money to come from foreign assistance budgets

Of course, the patent system is itself a prize system, albeit a peculiar one: the prize is temporary monopoly power, implying high prices and restricted access to the benefits that can be derived from the new knowledge.

With better-directed incentives (more research dollars spent on more important diseases, less money spent on wasteful and distorted marketing), we could have better health at lower cost.

That said, the prize fund would not replace patents. It would be part of the portfolio of methods for encouraging and supporting research.

A prize fund would work well in areas in which needs are well known – the case for many diseases afflicting the poor.

Especially when it comes to diseases in developing countries, it would make sense for some of the prize money to come from foreign assistance budgets

Of course, the patent system is itself a prize system, albeit a peculiar one: the prize is temporary monopoly power, implying high prices and restricted access to the benefits that can be derived from the new knowledge.

With better-directed incentives (more research dollars spent on more important diseases, less money spent on wasteful and distorted marketing), we could have better health at lower cost.

That said, the prize fund would not replace patents. It would be part of the portfolio of methods for encouraging and supporting research.

A prize fund would work well in areas in which needs are well known – the case for many diseases afflicting the poor.

Prize Fund example based on US HR 417 Medical Innovation Prize FundPrize Fund example based on US HR 417

Medical Innovation Prize Fund

Legislation introduced in 2005 to create the Medical Innovation Prize FundSeparates the Market for Products from the Market for Innovation

Legislation introduced in 2005 to create the Medical Innovation Prize FundSeparates the Market for Products from the Market for Innovation

Prize Payments replace High PricesPrize Payments replace High Prices

Innovators would be rewarded by prizes from fund rather than from high prices on medicines allowed by marketing exclusivityIn exchange, no government-granted monopoly - products subject to generic competition immediately upon entry to the market

Innovators would be rewarded by prizes from fund rather than from high prices on medicines allowed by marketing exclusivityIn exchange, no government-granted monopoly - products subject to generic competition immediately upon entry to the market

Prize tied to New Therapeutic Benefit of ProductPrize tied to New Therapeutic Benefit of Product

The MIPF would grant awards to the license holder of a medicine based upon the new therapeutic benefits of product

Prizes would be paid out over 10 years to allow for proven effectiveness among patient populations

The MIPF would grant awards to the license holder of a medicine based upon the new therapeutic benefits of product

Prizes would be paid out over 10 years to allow for proven effectiveness among patient populations

Minimum allocations to priority researchMinimum allocations to priority research

4% minimum for global neglected diseases ($2.4 billion)

10% minimum for orphan drugs ($6 billion)

4% minimum for research on AIDS, including AIDS vaccines, global infectious diseases, and medicines to treat bio-terrorism ($2.4 billion)The fund is supported by contributions equal to 50 basis points (1/2 of 1%) of US GDP (approximately $60 billion per year)

4% minimum for global neglected diseases ($2.4 billion)

10% minimum for orphan drugs ($6 billion)

4% minimum for research on AIDS, including AIDS vaccines, global infectious diseases, and medicines to treat bio-terrorism ($2.4 billion)The fund is supported by contributions equal to 50 basis points (1/2 of 1%) of US GDP (approximately $60 billion per year)

Impact on Patent SystemImpact on Patent System

Intellectual property rules, including patents, are left intact through the development of new medicines.

At point of FDA marketing approval, exclusive rights to product are eliminated, and generic competition is permitted.

Firms that register new products receive money from the Medical Innovation Prize Fund, rather than from marketing monopolies.

Intellectual property rules, including patents, are left intact through the development of new medicines.

At point of FDA marketing approval, exclusive rights to product are eliminated, and generic competition is permitted.

Firms that register new products receive money from the Medical Innovation Prize Fund, rather than from marketing monopolies.

What are the Prizes?What are the Prizes?

For a 10 year period, the innovator is eligible for prize payments

The payments are based upon evidence of incremental benefits to health

It does not matter who sells the product - only the innovators receives the reward

Path breaking innovative products can receive payments even when replaced in market share by follow-on products

For a 10 year period, the innovator is eligible for prize payments

The payments are based upon evidence of incremental benefits to health

It does not matter who sells the product - only the innovators receives the reward

Path breaking innovative products can receive payments even when replaced in market share by follow-on products

Possible implementation of prizes for Type II and III diseasesPossible implementation of prizes for Type II and III diseases

Prizes should be big enough to stimulate investmentThe amount of the prize required to stimulate R&D will depend upon the extent to which governments fund R&D through other instruments, such as subsidies for clinical trials.Some in Pharma industry attracted to Prizes for Type III.The prize mechanisms should be thought of as part of a larger ecosystem of financing of medical R&D, and should be implemented in combination with other instruments, such direct or indirect government funding of basic research, non-profit product development partnerships (PDPs), clinical trials, and other traditional and non-traditional types of funding R&D. What the prizes offer uniquely is an alternative to the marketing monopoly as an incentive for private investment.Prizes Instead of Prices. Innovation and access

Prizes should be big enough to stimulate investmentThe amount of the prize required to stimulate R&D will depend upon the extent to which governments fund R&D through other instruments, such as subsidies for clinical trials.Some in Pharma industry attracted to Prizes for Type III.The prize mechanisms should be thought of as part of a larger ecosystem of financing of medical R&D, and should be implemented in combination with other instruments, such direct or indirect government funding of basic research, non-profit product development partnerships (PDPs), clinical trials, and other traditional and non-traditional types of funding R&D. What the prizes offer uniquely is an alternative to the marketing monopoly as an incentive for private investment.Prizes Instead of Prices. Innovation and access

AdvantagesAdvantages

Rationally administered - R&D driven by medical needs, not market potentialBarrier to access dramatically reduced b/c all medicines sold at marginal-cost (generic) pricingIncreases investment in treatments for neglected diseasesEliminates wasteful marketing outlaysTreats medicines as public goods, not profit-vehicles

Rationally administered - R&D driven by medical needs, not market potentialBarrier to access dramatically reduced b/c all medicines sold at marginal-cost (generic) pricingIncreases investment in treatments for neglected diseasesEliminates wasteful marketing outlaysTreats medicines as public goods, not profit-vehicles

ConclusionsConclusions

Framework requires priority setting, sustainable sources of funding and range of methods of fundingSources of funding: soft or legal norms require consideration of not just how but who.Methods of funding- Wide range needed. New incentive models such as Prize funds that promote innovation and access should besupported.

Framework requires priority setting, sustainable sources of funding and range of methods of fundingSources of funding: soft or legal norms require consideration of not just how but who.Methods of funding- Wide range needed. New incentive models such as Prize funds that promote innovation and access should besupported.

For more informationFor more information

Knowledge Ecology Internationalwww.keionline.org,www.cptech.org

Michelle.childs@keionline.org

Knowledge Ecology Internationalwww.keionline.org,www.cptech.org

Michelle.childs@keionline.org

This paper was produced for a meeting organized by Health & Consumer Protection DG and represents the views of its author on thesubject. These views have not been adopted or in any way approved by the Commission and should not be relied upon as a statement of the Commission's or Health & Consumer Protection DG's views. The European Commission does not guarantee the accuracy of the dataincluded in this paper, nor does it accept responsibility for any use made thereof.