Pharmaceutical and Essential Medicines:

A New System Which Benefits All?

Christopher RoachHeso 449March 15th, 2010

Why Are the Poorest People the Sickest?7

• Lack clean water• Lack safe and proper shelter• Lack adequate clothing results in bad protection against

disease vectors• Surrounded by pollution• High prevalence of pathogens including worms and insects• Lack nutritious food and proper diet• Living in filth• Lack satisfactory hygiene• Lack financial reserves and can’t afford medical treatment• Use contaminated water as there is no other option• Lack access to public sources of medical knowledge and

treatments• Lack knowledge of their legal rights and how to enforce

them.

• Lack proper disease prevention education

• Forced into unsafe working environments

• Exposed to high levels of crime, violence, and exploitation.

LACK OF ESSENTIAL MEDICINES

• Quick Intro in Pharmaceuticals

• Different Categories of Diseases

• Problems with the Current Drug Development System

• Possible Solutions to these Problems?

• The Heath Impact Fund: What is It and How does It Work?

• Will It Actually Work?

• Problems with the Health Impact Fund

Outline

The Health Impact Fund: Boosting Pharmaceutical Innovation With Out

Obstructing Free AccessPogge T. 2009. Cambridge Quarterly of Healthcare Ethics, 18, 78-86.

Pharmaceuticals2

• “Big Pharma” = pharmaceutical companies with revenue > $3,000,000,000, and/or R&D expending > $500,000,000.

• Global spending on pharmaceutical drugs ~ $724,470,000,000.

Top 10’s pre-tax Revenue is ~368,520,000,000

After tax Profits are ~ 78,740,000,000

Categories of Diseases

• Type 1 Diseases: Afflict people everywhere. 2

• ex. Cancer

• Type 2 Diseases: Afflict everyone, but more prevalent in developing countries. 2

• ex. Tuberculosis

• Type 3 Diseases: Almost exclusively afflict people in developing countries.2

• ex. Filariasis

Which category of disease do you think Big Pharma mainly focuses on?

WHY?

Problems with the Current Drug Development System

• Major problem is it produces a bias towards creation drugs of type 1 diseases.

• Drug development is fuelled by two main sources:7

• 1) Government Funding

• 2) Sales Revenue

Problems with the Current Drug Development System

• 1) Government Funding• ex. CHIR, NSERC, MSFHR, etc.• Tell research outfits “here is some money, work towards giving us this

type of drug”.• Advantage: can tell people what to work on.• Disadvantage: poor successful innovation… people are already being

paid, thus no effort and no competition.

• 2) Sales• ex. Drug/merchandise profits• Research outfits get a prize, cash or advanced purchase

commitment/advanced market commitment for making a drug.• Advantage: drives innovation through competition/desire for financial

gain.• Disadvantage: focus on expensive drugs for type 1 diseases.

Push Programs7

Pull Programs7

Problems with the Current Drug Development System

• There are 7 major drawbacks to the current pharmaceutical drug research and development scheme.• High Prices7

• Neglect of “Developing World Diseases”7

• Bias towards Symptom Relief7

• Wastefulness7

• Counterfeit Drugs7

• Excessive Marketing7

• The “Last-Mile Problem”7

High Prices7

• Why is this a problem under this current scheme?• While under patent, the drug will be sold at a profit-

maximizing monopoly price (i.e. the maximum possible profit when comparing price to number of people who will buy it).• Low prices = low profits, but pharmaceuticals don’t

make enough.• High prices = high profits, but only a few patients can

afford treatment.

Profit

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who

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Neglect of “Developing World Diseases”7

• Why is this a problem under the current scheme?• “Business 101, if there is no profitable market, why make

the product?”

• Under current development/production scheme, developing countries and their patients can’t give the desired sales volumes AND large mark-ups.• Results in the “10/90 Problem”

We see a bias towards type 1 disease and non-essential drugs.

Bias Towards Symptom Relief7

• Why is this a problem under the current scheme?• Three types of medicines:• Curative – removes disease from body.• Preventative – reduce likelihood of infection.• Symptom-Relieving – improve wellbeing and

functioning BUT don’t remove disease.

• Ideal medicine is expensive, mandatory, and one that must be taken frequently.

On the basis of profits, Symptom-Relieving > Curative > Preventative

Wastefulness7

• Why is this a problem under the current scheme?• Patent holder having to spend HUGE amounts of money

on thing such as:• 1) Filing for patents• 2) Monitoring for infringements of these patents• 3) Litigation against generics who challenge the

patents• 4) “Dead-Weight Loss”• 5) Government proceedings• 6) and etc…

• As a result, billions are lost annually which could be used to benefit those in need!

Counterfeiting7

Large mark-ups on drugs

Illegal manufacturing of the drugs

Pharmacologically equivalent (i.e. safe)

Pharmacologically un-equivalent (i.e. not safe)

Reduce innovator profits and undermine the system

Dangerous to patients

• Why is this a problem under the current scheme?

Excessive Marketing7

• Why is this a problem under the current scheme?

• If a company can maintain high mark-up prices, they will try really hard to increase sales volume. This leads to:• 1) Influencing physicians and their prescription patterns.• Pointless battles with “me-too” drugs.• Possible questionable business practices.

• 2) Massive consumer advertising to the population.• Advertising aimed as persuading people to take

medicine they don’t need.

• Again, this results in billions which are lost annually which could be used to benefit those in need!

The “Last-Mile” Problem7

• Why is this a problem under the current scheme?

• Pharmaceuticals don’t profit from allowing people in developing countries to have cheap drugs and be able to take them in the right doses, at the right time, and for the proper amount of time.

As a result of this improper drug usage, there is a higher chance of pathogens becoming resistant to drugs

Can led to the need for more expensive drugs and higher profits.

Solutions?: Part 14

• Companies donate drugs?• Companies donate IP rights?• Universities donate IP rights to not-for-profit drug

developers?• Companies set up R&D units dedicated to type II and III

diseases?• Government doubles support for biomedical research,

devotes the increment?• To drug R&D at publically funded research corporations with

patents placed in the public domain?• Governments pay for a larger portion of drug R&D in

government, academia or drug companies; recipients forego monopoly; costs met from mandated contributions by individuals or employers or by governments by treaty?

Solutions?: Part 24

• Universities conduct R&D for type II and III diseases with help from government and philanthropy to include medicinal chemists?• Public-private partnerships use contracts to manage drug

development at diverse sites in biotech or pharma?• Tax incentives favor R&D for high medical need and can be

invested or traded?• Extend Orphan Drug Act to cover type III diseases (fast-track

approval, 7-year extended market exclusivity, 50% tax credit on clinical)?• Wild-card patent extension for producing drugs for type II and

III diseases?• Advance purchase commitments?• Tiered pricing?

Solutions?: Part 34

• Price controls?• International pooled purchasing consortia?• Obligatory choice of protecting patents in either rich or poor

countries but not both?• Buyout or prize system (government provides patent holder

its profit)?• Patent buyouts by auction?• Conduct R&D in new sites funded by government,

universities, NGOs and pharma, with distribution at cost in poor areas and for profit in wealthy areas?

• Rewards based on global disease burden reduction from a government fund?

Health Impact Fund (HIF)

HIF: What is it? 1

• An global agency which offers to reward the patentee of any new medicine with annual payments proportional to the medicine’s demonstrated global health impact.

• The main idea behind this is the separation of drug invention/development and drug manufacturing/sales with respect to their mutual dependence on one another.

• Develop a fund, through annual global government funding, to establish

HIF: How does it work? 1

Develop a fund, through annual global government funding, to establish the actual agency.

How do we incentivize organizations to research into the desired drug/disease?

Pull Programs?Push Programs?A generalized commitment or a “comprehensive advanced market” commitment in which any medicine that works will be rewarded in proportion to how well the drug works in proportion to their global

health impact. (Based on QALYs)

1) Based on the quality of medicine.

2) Based on how many of the patients who need the medicine

get it and take it in the way it makes them better.

HIF: How does it work? 4

Companies can develop anything they like.

Show it is patentable in one jurisdiction

Apply for the health impact reward under the HIF.

For the next 12+ years you harvest annual payments proportional to health impact

HIF: How does it work? 4

• Goal is not to replace the current patent system, it’s to work along side it and complements it.

Why not make it mandatory?

What about drugs/products with low impact on the GBD?

Go HIF route, make no money on selling drug but from award.

Make/patent a product which caters to a few people and make

money off large mark-up.

HIF: Requirements if Awarded? 4

• Must sell the medicine at cost.

Will Pharmaceuticals want to do that?YES

Selling at cost = more customers

more customers = greater impact on global burden of disease

Greater impact on GBD = More $$$ under the HIF!

Government’s Role 4

• What’s been proposed thus far is only the minimum requirements.

• In order for this to work, Government MUST agree to the system long term and must give the promised money.

• They must help establish the system of how to reward innovations.

• The larger the reward, the more incentives for the pharmaceuticals.

Governments key to making this successful!

Will This Actually Work?• Will Big Pharma allow this?• New profit opportunities• Ways to shed unfavourable image• New way to make money with out give up old way

GREAT FOR THEM!

• Will it cost too much?• Can be run for as little at $4,000,000,000 6

• It is scalable; government can increase/decrease funding.• Maybe increase pharmaceutical taxes to help pay?!?!

NOT THAT EXPENSIVE

Will This Actually Work?• Why not use the money towards another campaign that would

be as good or better at promoting public health in developing countries.6

• In reality, not that much money is spent on them and it is unrealistic that we will see an increase.6

• The HIF benefits everyone! • Not an initiative that is JUST for the developing world, but a

new way of incentivising pharmaceutical research.6

• Benefits rich and poor.• Developed world and developing world.

• Increase in taxes will = savings in medical care.6

Problems with the Current Drug Development System under HIF7

• High Prices – innovators want lowest prices so there is a higher GBD impact.

• Neglect of “Developing World Diseases” – These are HUGE contributors to GBD, thus worth more under HIF.

• Bias towards Symptom Relief – curing and preventing reduced GBD more then symptom relief.

• Wastefulness – No deadweight from high mark-ups, little costly litigation, only have to get 1 patent, would embrace generics.

Problems with the Current Drug Development System under HIF7

• Counterfeit Drugs – No market for it as medication is already at market cost.

• Excessive Marketing – No point is urging doctors/patents to take drugs unless there is therapeutic benefit.

• The “Last-Mile Problem” – want patents to use drugs optimally as to maximize public health impact.

Problems/Criticisms of the HIF?• Requires open licensing of registered drugs.5

• The cost might be too high and as a result, might take away from other valuable development aid or health related activities.5

• The difficulty of measuring health impact accurately.3

• Others also argue that there is a lack of evidence that patents create a barrier to access… as such the HIF wouldn’t be addressing the main issue.8

What’s Going On Now?

• Currently, the WTO and WHO are investigating this program’s potential and are assessing whether it is actually feasible.7

• This organization very well might be up and running in the next few years!

References1) Commission on Intellectual Property Rights, Innovation and Public Health (CIPI), World Health

Organization. 2005. www.who.int/intellectualproperty/report/en/index/html.

2) "Fortune Global 500 2009 Pharmeceutical Industry". Fortune 160 (2). July 2009. http://money.cnn.com/magazines/fortune/global500/2009/industries/21/index.html. Retrieved 2009-12-18.

3) Grootendorst P. 2009. How Should We Support Pharmaceutical Innovation? Expert. Rev. Pharmacoeconomics Outcomes Res. 9 (4), 313 - 320.

4) Nathan C. 2007. Aligning pharmaceutical innovation with medical need. Nature Medicine, 13 (3) 304 -308.

5) Pekarsky B. 2010. Should Financial Incentives be Used to Differentially Reward ‘Me- Too’ and Innovative Drugs. Pharmacoeconomics 28 (1), 1 - 17.

6) Pogge T. 2009. Personal Communication. http://www.cappe.edu.au/media/thomas_pogge_on_pharmaceutical_innovation.mp3.

7) Pogge T. 2009. The Health Impact Fund: Boosting Pharmaceutical Innovation Without Obstructing Free Access. Cambridge Quarterly of Healthcare Ethics 18, 78 - 86.

8) Sonderholm J. 2009. A Reform Proposal in Need of Reform: A Critique of Thomas Pogge’s Proposal for How to Incentivize Research and Development of Essential Drugs. Public Health Ethics 1 (1), 1 – 11.

Questions