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«Annex The following is a draft working document that will eventually be part of a study for WIPO on ...»

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Annex

The following is a draft working document that will eventually be part of a study for WIPO on

alternatives to the patent system.  It is attached to the KEI WHO proposal for an Antibiotics Innovation

Funding Mechanism, in order to provide some comparisons and contrasts with other proposed

mechanisms.

Approaches to simulating innovation for the development of new

antibiotic drugs

Introduction

(1) R&D Subsidies.

(2) Policies regarding regulatory barriers for registering products.

(3) Extending terms for patents and other intellectual property rights (4) Innovation inducement prize type incentives to reward innovation and/or conservation Innovation Inducement Prizes Antibiotic Conservation and Effectiveness (ACE) program Strategic Antibiotic Reserve (SAR) Pricing of antibiotics Antibiotics Health Impact Fund (aHIF) Antibiotics Innovation Funding Mechanism (AIFM).

(5) Other Pigouvian Taxes Antibiotic Innovation and Conservation (AIC) fee Transferable Patent Extensions Transferable Priority Review Vouchers Advanced Marketing Commitment (AMC), and Advanced Purchase Commitment (APC) Call options for antibiotics Introduction "What makes antibiotics unusual is that their very use undermines their future usefulness, as bacteria evolve resistance."1 There are large challenges associated with the development of new antibiotic drugs and diagnostic  Eric Kades, Eric, "Preserving a Precious Resource: Rationalizing the Use of Antibiotics," (2005)  99 Northwestern University Law Review,. 615 2004­2005.  Page 626.   Available at Faculty Publications. Paper 52.

http://scholarship.law.wm.edu/facpubs/52.  Citing the earlier works by Clem Tisdell, Exploitation of Techniques That Decline in Effectiveness With Use, 37 Public Finance /Finances Publique 428 (1982), and Gardner Brown and David Layton, Resistance Economics: Social Cost and the Evolution of Anti­biotic Resistance,  Environment and Development Economics. 349, 354 (1996).

Annex, revision Nov 21, 2013: Page 1 of 14 tests that will reduce their misuse, and in recent years there have been a number of proposals to stimulate innovation for new antibiotic drugs.  These can be divided into proposals to (1) increase public sector funding, tax credits and other subsidies of R&D (2) reduce regulatory costs and barriers for registering products (3) extending terms for patents and other intellectual property rights, (4) using innovation inducement prize type incentives to reward innovation,  and (5) other.

(1) R&D Subsidies.

Recommendations to stimulate the production of new drugs typically include proposals to expand government funding of R&D, as well as the provision of other subsidies, such as special tax deductions or credits, or concessionary financing.

Government funding of research and development of new antibiotic drugs and relevant diagnostics, while falling short of what many health experts feel is needed, is important.  The US NIH/NIAID has a number of initiatives underway that they describe as "Combating Drug Resistance With Basic

Research,” which are designed to:

● Develop new insights into the mechanisms of resistance, ● Develop new insights into how pathogens cause disease, ● investigate the role of host factors, ● deciphering microbial genomes, ● develop next generation sequencing technologies, and ● develop new computer­assisted modeling efforts.

NIH/NIAID funding supplements funding by other U.S. government agencies2, the European Union,3  and other governments.

In some cases, the public sector funding in the area of antibiotic drugs has a component that is partly designed to enhance the capacity and competitiveness of domestic industries.  Examples of this would include the the U.S. Biomedical Advanced Research and Development Authority (BARDA)4  and the European Union Innovative Medicines Initiative (IMI).

Despite the obvious cross­border importance of the development of new antibiotics and relevant diagnostics, the public sector funding of R&D is not currently part of global trade negotiations, other than the restrictions on public sector R&D funding found in the WTO Subsidies and Countervailing  Including specialized programs relating to public health emergencies and bio­warfare, and the Orphan Drug Tax Credit.

 Including, for example, the action plan against the rising threats from antimicrobial resistance adopted by the European Commission in answer to the Council Conclusions and European Parliament resolution to “establish an EU­wide plan to combat AMR, the New Drugs for Bad Bugs program.”  See, the BARDA Strategic Plan 2011­2016.  “Where vaccine and biological therapeutics manufacturing capacity is concerned, BARDA will continue to enter into public­private partnerships with manufacturers to build and/or retrofit medical countermeasure production facilities within the U.S., increasing domestic access to medical countermeasures.” Annex, revision Nov 21, 2013: Page 2 of 14 Measures (SCM) agreement.5 (2) Policies regarding regulatory barriers for registering products.





In recent years, the U.S. Congress and the U.S. FDA have take steps to lower the costs of registering new antibiotic drugs.   Title VIII of Food and Drug Administration Safety and Innovation Act (FDASIA), entitled Generating Antibiotic Incentives Now (GAIN), provides that an antibiotic drug may be designated as a qualified infectious disease product (QIDP), and is eligible for fast track designation and priority review, measures which effectively lower the costs of R&D.

While beneficial in terms of lowering R&D costs for the QIDP, fast track and priority review status involve a lowering of the standards for establishing the safety and efficacy of new products, increasing the risk of adverse events associated with the use of the drug, and also are associated with a slower approval for the non­antibiotic drugs that do not qualify for fast track or priority review.

(3) Extending terms for patents and other intellectual property rights There are a number of proposals to extend the duration of exclusive rights in patents, test data, and other types of regulatory or intellectual property rights associated with antibiotic drugs.  In 2012, the U.S. Congress enacted “Generating Antibiotic Incentives Now (GAIN)” amendments to the U.S. Food and Drug Administration laws that expanded certain regulatory market monopolies for certain antibiotic drugs.6

Some would go further.  For example, in his 2005 paper,7  “Preserving a Precious Resource:

Rationalizing the Use of Antibiotics,” Eric Kades makes a case for “infinite­term patents on antibiotics.” Kades was not only interested in increasing incentives to develop new drugs, he saw the high monopoly price as a useful in order to “prolong the useful life of the drug, and create incentives for drug makers to hold some antibiotics in reserve to meet the extraordinary demand that will arise if and when there is a bacterial plague.” Taken by themselves, the proposals to extend the commercial monopoly for the antibiotic drugs undoubtedly increase investor returns, but not without costs to users, and increases perverse incentives as regards the promotion of use of antibiotic drugs.8  In a number of realistic scenarios, an  And similar restrictions within Europe, under Article 107 of the Treaty on the Functioning of the European Union.

 For example, in the US, July 9, 2012.  P.L. 112­144, Title VIII—Generating Antibiotic Incentives Now, Sec. 801.

Extension Of Exclusivity Period For Drugs.

 Eric Kades, Eric, "Preserving a Precious Resource: Rationalizing the Use of Antibiotics," (2005)  99 Northwestern University Law Review,. 615 2004­2005.  Page 626.   Available at Faculty Publications. Paper 52.

http://scholarship.law.wm.edu/facpubs/52.  An earlier version of the paper is available a s Eric A. Kades, Plagues, Policy, & Patents: Addressing Overuse of Antibiotics, William & Mary Law School Working Paper No.

2003­Kades­1, March 11, 2003.

 Kevin Outterson, Balch Samora and Keller­Cuda, "Will Longer Antimicrobial Patents Improve Global Public Annex, revision Nov 21, 2013: Page 3 of 14 expanded term of the monopoly will extend the period when the drug developer has an economic incentive to promote high utilization of the antibiotic drugs, undermining the longer term value of the resource.

Long product monopolies create incentives to take into consideration the longer­run life cycle value of the antibiotic resource.  But offsetting these potentially positive conservation effects are the high private rate of discount used to evaluate future sales, as well as the firm’s interest in exploiting the resource before it is removed from the market for safety reasons, or replaced by a better drug.

(4) Innovation inducement prize type incentives to reward innovation and/or conservation A variety of proposals have been made to use innovation inducement prizes to stimulate innovation for new antibiotic drugs.  Innovation inducement prizes can be implemented in different ways, and this is reflected in the diversity of proposals for such prizes.  The most interesting proposals are those that completely de­link the returns to investors from the prices of products, and which effectively eliminate the current incentives to unhelpfully promote the low value uses of the drugs undermining conservation goals.

Innovation Inducement Prizes Among those endorsing a radical delinkage of R&D incentives from product prices is Richard Bergström, currently the Director General of the European Federation of Pharmaceutical Industries and Associations (EFPIA).9 “Incentives that separate the financial return from the use of a product are the only way to change this behaviour,” said Bergström at a conference held at Uppsala University in September 2010. “Intelligent pull incentives, such as advance commitments and prizes, provide financial rewards to the developer that are not based on the volume of use of the novel antibiotic. With the right set­up, pharma companies will have no incentive to drive use. Maybe they will not do any promotion at all. Use would be agreed with public policy­makers, purchasers and national health systems.” The use of prizes to reward antibiotic drug development has been proposed by a number of authors.10 Health? 7 Lancet Infectious Diseases 559­66 (2007),, and Kevin Outterson, "All Pain, No GAIN: Need for Prudent Antimicrobial Use Provisions to Complement the GAIN Act," 30 APUA Clinical Newsletter 13 (2012).  Robert Weissman and Anthony So, “Generating Antibiotic Incentives Now: GAIN ­­ Or Just Greed,” the Huffington Post, June 6, 2012.  Glyn Moody, How Extending Patent Protection For Antibiotics Creates Perverse Incentives To Render Them Useless. from the monopolizing­ourselves­to­death dept.  TechDirt.  June 29, 2012.

 Quoted in “Race against time to develop new antibiotics,” Bulletin of the World Health Organization 2011;89:88–89. doi:10.2471/BLT.11.030211/  James Love and Tim Hubbard. "The Big Idea: Prizes to Stimulate R&D for New Medicines," Chicago­Kent Law Review, Volume 82, Number 3 (2007); James Love. "Prizes, not prices, to stimulate antibiotic R&D.," SciDev.net.

March 26, 2008; Tyler Cowen, To Fight Pandemics, Reward Research, New York Times, May 4, 2013; Editorial.

Drugs win prizes; New incentives are needed in search for antibiotics.  Financial Times.  June 4, 2012; Anthony D Annex, revision Nov 21, 2013: Page 4 of 14 In 2012, in a bill regarding the reauthorization of certain FDA programs, the U.S. Senate voted to ask the National Academies to undertake a study of the feasibility, costs and benefits of using innovation inducement prizes to reward the development of new drugs.11   The Infectious Disease Society of America endorsed this study:12 “IDSA also is pleased to support Sec. 906 of the legislation, which calls the National Academies of Science to evaluate the feasibility and possible consequences of the use of innovation inducement prizes to reward successful medical innovations in targeted areas, including antibiotics. IDSA has long held that according to economic modeling a combination of incentives are necessary to spur new antibiotic R&D. Prizes are one potential incentive that could be a useful component of a larger effort to drive innovation. We also suggest requesting NAS experts to consider and make recommendations about formation of public private partnerships to support antibiotic development.” The Senate wanted the National Academies to consider the approaches set out in legislation to create the Medical Innovation Prize Fund [S.627, 113th Congress].  The legislation, introduced by Senator Sanders, would create a system of end product, interim and open source dividend prizes13  to reward developers of new prescription drugs and vaccines, as a substitute for the grant of a monopoly.



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