[Ip-health] Open licensing vs Monopoly Controlled Supply

[James Love]

http://www.keionline.org/index.php?option=3Dcom_jd-wp&Itemid=3D39&p=3D112

Open licensing vs Monopoly Controlled Supply

April 27th, 2008 by James Love

One of the most important battles being waged both inside and outside of
the IGWG concerns the nature of competition for the supply of
inexpensive medicines and vaccines.

The large pharma companies with well-known brands and big marketing and
distribution systems want to marginalize developing country generic
suppliers, as actual or potential competitors. This plays out in various
ways. For example:

    * Gilead and Roche have both used restrictive voluntary licenses to
control, as much as possible, the generic markets for active
pharmaceutical ingredients (APIs) for oseltamivir (Tamiflu), tenofovir
and emtricitabine.
    * BMS has threatened cut off suppliers of ddI APIs, if they also
sold APIs to the Thai GPO.
    * The enormous effort to bring tough patent protection to India and
China are as much about the generic API export market as they are about
the domestic Chinese and Indian markets.
    * The EU has pushed tiered pricing models and price negotiations
with patent owners on behalf of PhRMA member companies, as a strategy
keep the generic suppliers small and inefficient.
    * The TRIPS 31.f clause, which restricts exports under some
compulsory licenses, and the tortured debate over and resolution of
paragraph 6 of the Doha Declaration, are both about marginalizing
developing country generic suppliers. Under TRIPS 31.bis, developing
country generic suppliers cannot export to high income markets, even
when the high income countries are issuing compulsory licenses to high
income country generic suppliers.

At the IGWG, two models are emerging for the supply of medicines and
vaccines. Under the IFPMA/EU/Gates Foundation supported models, the
innovator companies would be guaranteed exclusive rights to supply
products, but in some cases, with pricing concessions negotiated with
the governments or donors who buy or subsidize purchases of drugs and
vaccines. The alternative approach, backed by many public health and
development NGOs, emphasize open licensing of intellectual property
rights and know-how to enable supply from a competitive generics
sectors.

In the context of the debate over new "pull" mechanisms to act as
incentives for R&D, there is a battle over these two approaches. The
Advanced Purchase Commitment (APC) and Advance Marketing Commitment
(AMC) models backed by various Gates Foundation funded groups and by
certain European governments, include strong monopoly supply provisions.
The prize models advocated by KEI, MSF, HealthGap, Barbados/Bolivia (the
2Bs) and others, emphasize a complete de-linking of R&D incentives from
the price of the products, and the open licensing/competitive supply
model.

If fact, both prizes or AMCs could be implemented with or without
monopolies or open licensing. For example, the US Congress recently
enacted a huge prize program for new medicines =E2=80=94 the priority revie=
w
voucher, which proponents say will be worth an estimated $300 million,
just for registering a drug or vaccine for a neglected disease. If
implemented as a fully tradable voucher, the full value of the prize
will be available to any drug or vaccine developer, including non-profit
ones like DNDi. This prize is not tied to any obligations on pricing or
licensing of inventions. It is purely a "complementary" incentive,
unlike the 2Bs prize proposals, which are all designed to be alternative
incentives, tied to open licensing.

Most of the recent AMC proposals look like prize funds, albiet in some
well-known cases with fairly rigid specifications of the technological
outcomes that earn the prizes, and with only a limited number of known
competitors expected to have the capacity to "win" the prizes.** These
proposals could have been implemented with open licensing for the
products themselves, but they were not. Conversations with European
governments make it clear why. The political power of the big drug
companies like GSK and Merck, who lobby against open licenses.

Recently the academic researchers Aidan Hollis and Thomas Pogge have
proposed a Health Impact Fund (HIF). Although technical details remain
elusive on key points, and are not forthcoming from Pogge yet (despite
numerous KEI requests for clarifications), the HIF reward system seems
to increasingly be modeled after the approaches set out in the first
medical innovation prize fund proposals* =E2=80=94 some type of reward for =
the
impact of the products on health outcomes. Pogge make a lot of effort to
say his fund is different from a prize fund, but it is hard to see why
from the reward mechanism. What is different about the Hollis/Pogge HIF
is the sole source (monopoly) supply feature. This is new, however, as
both Hollis and Pogge recently advocated open licensing and competition
for supply. Now they are firmly in the Gates/EU/IFPMA camp of sole
source suppliers, at negotiated prices. Why the switch? Does it matter?

Under the HIF, companies "opt-in" for the prizes, in return for lower
product prices. But they keep the monopoly, even if they take the
prizes. Companies that "opt-out" of the prize/low price system can do
whatever they like, including charging prices developing countries
cannot afford. Developing countries could threaten compulsory licenses
for high priced "opt-out" products. But who can supply the generic
alternatives, unless there is a market, somewhere, for generic products?
This is one of the problems with the HIF approach. Another is that it is
deliberately being marketed to undermine support for "prizes" which
Pogge says are a bad idea, as if the Hollis/Pogge reward system is
anything more than a copy of the early prize fund reward systems.*

All of this matters a lot. Both China and India are now implementing the
TRIPS, and it is becoming increasingly more difficult to find generic
suppliers of APIs who are truly independent. Many of the leading Indian
companies, like Ranbaxy, have been co-opted by the big pharmaceutical
companies. If the "new" incentive mechanisms are wedded to monopolies,
it will be harder, not easier, to get affordable prices, for both the
ones receiving the prizes, and the one=E2=80=99s outside of the prize syste=
ms.

*The newer prize fund proposals, including those including in the 2Bs
proposals, take the prize fund approach one step further, and feature
incentives that encourage open source collaboration and the sharing of
research.

**MSF and others have criticized the recent $1.5 billion pneumococcal
disease vaccine AMC on several grounds, and questioned if is a cost
effective project, given alternative areas to subsidize R&D, and the
existence of a market in the high income countries. Noting also:
"Governments may find it easier to commit to AMCs than to confront the
complex issue of intellectual property and R&D. But they should
recognize that AMCs are only a minor adaptation of the present system,
and that the ambition to develop policies for essential health R&D
should go well beyond AMCs."

--
_____________________________
James Love, Knowledge Ecology International (KEI)
http://www.keionline.org, mailto:james.love@keionline.org
voice +1.202.332.2670, fax +1.202.332.2673, US mobile +1.202.361.3040, Gene=
va mobile +41.76.413.6584

When everyone thinks the same, no one thinks.  Bill Walton remix of Walter =
Lippmann