[Ip-health] drug development blog post on Outterson brown bag

[Benjamin Krohmal]

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[ Picked text/plain from multipart/alternative ]
There is a new post on the drug development blog discussing today's
presentation by Kevin Outterson at CPTech.  The post is available
here: http://www.cptech.org/blogs/drugdevelopment/2006/10/kevin-
outterson-on-patent-buyouts.html

The text is below:

Today Kevin Outterson gave a presentation at CPTech, on "Patent
Buyouts." The talk was based upon the paper Patent Buyouts for Global
Disease Innovations for Low- and Middle- Income Countries. American
Journal of Law & Medicine. 32:159-173.

In his presentation, Kevin most notably called attention to the toll
of human papilloma virus (HPV) in the developing world and the
potential benefits of newly developed HPV vaccines to women in less
developed countries. HPV is a necessary condition for the 470,000
diagnosed cases of cervical cancer worldwide each year that result in
230,000 deaths per year. According to Kevin, while only 8% of
worldwide cervical cancer deaths occur in 30 high-income countries,
these countries are expected to account for an estimated 90% of
expected revenues from an HPV vaccine. While the vast majority of
cervical cancer deaths occur in lower income countries, the incidence
of cervical cancer in high-income countries is significant, and HPV
has not been neglected by pharmaceutical companies. In the past year,
both GlaxoSmithKline and Merk have received patents for HPV vaccines
that appear to be 100% effective in preventing infection with the
most dangerous strains of HPV. The cost will be $360 per vaccination
cycle in the United States. Outterson said these vaccines, developed
with high-income countries in mind, would be of much greater benefit
globally if they were made available at cheaper prices in lower
income countries.

Outterson briefly discussed and critiqued several proposals for
making HPV and other vaccines available in lower income countries,
including manufacturing un-licensed generics, voluntary differential
pricing, compulsory licensing, and prizes or advance purchase
commitments.

Outterson's proposal is as follows. Leave in tact the existing
pharmaceutical system in the 30 high-income countries that would
account for 90% of vaccine revenues. For all other countries, the
vaccine patent owners would voluntarily permit generic competition.
In return, Outterson suggested that patent holders would receive
money. He called this a buyout (more on this choice of words later).

There was some difficultly at first following the method of
determining the amount of money for the "buy out" of the patents, but
it turns out to be fairly simple. Whoever is paying for the patent
"buy out" would give the patent owners an amount equal to 14-17% of
the price of the cheapest generic product, multiplied by the number
of generic units sold in the low income countries, paid every year.

In the case of the two HPV vaccines, Outterson reckoned that this
would come to $30 million for each patent holder per year for the
life of the patent assuming that every 12 year old girl in the world
is vaccinated.

Quick math..... if vaccinating every 12 year girl in the world
reduced deaths in the developing world from cervical cancer by 70
percent, preventing roughly 150 thousand deaths per year, the patent
owners would receive roughly $400 per life saved. (The cost to
society would be the $400 to the patent owners plus the cost of
making, distributing and administering the vaccine to every 12 year-
old girl in the developing world).

The amount is intended to compensate the patent holders for R&D
funding lost by opening up lower income country markets to generic
competition.

Seminar attendees raised a number of questions. Some suggested that
Outterson=92s plan did not seem like a true patent buyout, and instead
more closely resembled a proposal for licensing patented products.
Outterson agreed that his proposal was not for traditional patent
buyouts that involve paying for full rights to a patent up front.
(There was some discussion of who should bear the risk that a product
would turn out to be better or worse than expectations.)

Most questions focused on the rationale for Outterson=92s formula for
calculating buyout amounts. Kevin explained that the 14-17% was the
PhRMA estimate of the rate of investment in R&D from sales. The price
of the cheapest generic product is intended to approximate the
marginal cost of production, and was chosen for inclusion in the
formula on the normative ground that vaccines should be available to
people in lower income countries at the most efficient price. Kevin
had not spoken to anyone in the industry about the proposal, and some
questioned whether patent holders would be likely to voluntarily
accept the proposed "buyouts."






Benjamin Krohmal
Research Associate
Consumer Project on Technology
Tel: +1-202-332-2670 ex. 14
Fax: +1-202-332-2673
ben.krohmal@cptech.org