Medical Innovation Prize Fund

Introduction

This document will describe the medical innovation prize fund. This is an alternative method of funding R&D in the pharmaceutical industry that will ensure all drugs are generics without messing with the patent system too much. This proposal has been tabled as a bill to American congress (HR 417) and work has been done on implementing it in places such as Brazil, Europe and South Africa. This is particularly pertinent given the debates around the cost of Anti-Retro-viral drugs to developing countries that need them the most. The concept and research was devised by an NGO, Consumer Project on Technology (CPTech).

Problem Statement

There are a multitude of problems with the current patent system. Essentially they result in overpriced drugs and an unavailability of drugs in places where they are needed most. This has the direct effect of killing people. Let's flesh this out a bit.

One of the primary reasons for the patent system was to provide companies with a monopoly on a drug. This would give the company increased profits in return for ensuring that drugs are priced ethically, i.e. the same drug should cost more to rich people and less to poor people. This pricing scheme is against market forces and is the reason why a monopoly is introduced. Unfortunately it takes one American senator to stand up and ask why his people are being charged more than the damn Eye-raquis to convince the pharmaceutical company to stop it and charge exorbitant prices across the board. "In 2004, Novartis told the World Bank it considers India to be a market of 50 million persons. In other words, if it has a monopoly, Novartis plans to price its new medicines so that they are too expensive for more than 95% of the population."(source)
The claim by drug companies is that R&D is expensive and risky and the monopoly afforded by patents allows them to continue to research. Thus, they are claiming that their high prices are necessary for innovation. So, the longer a patent is held, the longer these policies can be pursued. Given that these policies price out over half the worlds population, this provides the glue than binds the patent system to human rights. Thus the heavy lobbying by the US and Europe to extend patent protection from 50 years to 70 (TRIPS Plus) is deeply unethical.

However, research is not being performed on 'needed drugs', according to the FDA from 1993-2002 70% of new approved drugs did not introduce any significant therapeutic benefits over existing drugs. This is because 80% of R&D budgets are spent on creating these 'me-too' drugs. In addition there is one sales rep for every five doctors in the US, with spending on marketing pegged at 30% of total revenue compared to just 12% for R&D (source). Further, the top five selling drugs (in the most profitable industry in America) were developed by taxpayer-funded research. This is particularly true of anti-retroviral drugs.
When the patent on a drug expires, the price typically drops 90%. Half of the number of drugs being sold are generics but they only account for 10% of the revenue from sales.(These stats are taken from memory of a conversation with the HR 417’s author, James Love and may not be accurate)

In North America and Europe, HIV patients are treated with ARVs at a cost of $10,000 or more a year. In South Africa, the entire annual health care spending on each person each year is $50. For the drug companies, the market in sub-Saharan Africa, and indeed that in the entire Third World, is irrelevant. It accounts for less than 2 per cent of their global sales. The drug companies have refused to provide critical drugs cheaper resulting in Brazil and South Africa threatening to call a “state of emergency”, which would allow them to ignore patent protection and produce generic life-saving drugs. In response, the Indian generic drug company Cipla is offering South Africa a cocktail of drugs at $350 to $600 per patient, while Brazil has offered to supply generic drug-manufacturing equipment.

It is now obvious that there are problems in both the development and the selling of drugs. A policy that can direct innovation better and ensure cheap generic drugs are available is required. Given the political climate of developed nations calling for an increase in patent protection, a policy that will keep the patent system in place is required. Enter the innovation prize fund.

Policy

Below is a summary of the policy by its creator, James Love(source):
The policy, H.R. 417, creating the Medical Innovation Prize Fund is an attempt to fundamentally restructure the pharmaceutical system. It presents a new paradigm for R&D of new medicines. This is how it would work:

• The legislation would separate the markets for products from the markets for innovation. Products would become generics immediately after FDA approval.
• The innovators would be rewarded from a massive Medical Innovation Prize Fund (MIPF).
• The MIPF would make awards to developers of medicines, based upon the incremental therapeutic benefits of new treatments.
• The MIPF would also have minimum levels of funding for priority health-care needs such as:
1. Global infectious diseases
2. Diseases that qualify under the US Orphan Drug Act
3. Neglected diseases primarily affecting the poor in developing countries
• These pay-outs would take place over the first ten years of use of a medicine. The payments from the MIPF would always go to the developer of the new medicine, regardless of who actually sells the product to consumers.
• The legislation proposes to set the MIPF pay-outs at .5 percent of the national income of the United States (as measured by GDP).
• An independent Board of Trustees would manage the MIPF. Trustees would include key government officials, as well as persons from the private sector, representing industry, patient groups and medical researchers.
• Inventors would be free to obtain patents, and to use patents normally, until the FDA approves a new medicine. At that point, the patent owner would be remunerated from the MIPF, rather than from royalties on high drug prices.

It would eliminate all market exclusivity on prescription medicines, in return for remuneration from a $60 billion per year Medical Innovation Prize Fund, that would be distributed to companies that develop new medicines on the basis of the incremental health-care benefits the medicines deliver. The new US proposal shows one can separate the markets for innovation from that for products providing hefty financial incentives for companies investing in R&D, without harming consumers.

Here’s an example. If company foo and company bar were both to develop an asthma drug that provides the same therapeutic benefits, then the amount of the fund set aside for asthma drugs would be split in half and paid to each company. If foo were to then improve their drug an d it provided incrementally better benefits then foo would receive a greater share of the fund. As more companies entered the market (by developing their own drugs, not selling existing ones) the fund would be further split, until normal market forces would make it unattractive for new asthma drugs to be developed.

Thus this provides a powerful new regulatory system where the fund can incentivise research by providing a larger fund for it.

Practicalities

Money

The money for the fund would come from the money saved by the government in the purchase of drugs. As the government would be purchasing generics they would benefit in a 90% savings. In addition, the increased availability of better drugs should result in long term health care savings from an increased patient turn around time and less repeat visits, not to mention the less tangible benefits to workforce productivity. Given the more focused research and reduced number of 'me-too' drugs the innovation prize fund does not need to match the total profits of pharmaceuticals. CPTech's research suggests setting the fund at .5% of the US' GDP and has carried out studies for Europe, Brazil and South Africa to name a few. This is essentially an exercise in discovering what size the fund needs to be to incentivise the current level of R&D in a country.

Evaluation

When a new drug is reviewed by the FDA or SAMCC (South African Medicines Control Council), the incremental health benefits are examined, thus no new effort is being expended to gauge these benefits.

Conclusion

Here's a quickie: Innovation isn't happening, drugs are overpriced. Thus drugs needed in the developing world either don't exist or are too expensive. Drug companies claim this is because of the risk and high cost of R&D and hence patents are required to maintain a monopoly where they can recoup their costs. This claim is the most defended and attacked. The proposed policy, the innovation prize fund will separate the market for innovation and the market for the drugs without messing with the patent system.