[Ip-health] The Health Impact Fund and open licensing vs. price controls

[James Love]

On Mon, 2008-04-28 at 00:20 -0600, Aidan Hollis wrote:
> There are many proposals envisioning a prize mechanism for stimulating
> pharmaceutical innovation, including the two Sanders Bills. The HIF is
> another such proposal, and we are currently working on specifying its
> operations in some detail. We hope to be in a position to present a worka=
ble
> version within a few months.

I agree with this statement.  What is confusing to people who don't read
everything is not what , which is always clear, but rather some of the
statements Thomas has made elsewhere, deriding prizes (in submission to
the IGWG, in his recent book, and in lectures).  In our earlier exchange
off this list, said he meant to disparage a certain type of prize, one
that is an ad hoc with excessive specification of a qualifying outcome.
But the message received by people who are less deep into the details is
often less nuanced, a point I want to make here.

The HIF can call itself a prize, an AMC, or a banana.  However, in terms
of having a debate over the role of prizes, it will be helpful if the
proposals for prizes are fairly acknowledged and described, and not
dismissed by proxy as ad hoc rewards with excessive specificity,
particularly when the HIF is borrowing so heavily in terms of its own
reward mechanism on the medical innovation prize fund approach.

Making things even more confusing for a general audience is the fact
that the HIF calls itself an AMC, which is precisely the type of ad hoc
reward mechanism for which such a criticism seems intended.   In terms
of actual proposals on the table, it is as if the HIF decided to define
prizes as AMCs and AMCs as prizes.   There is probably an explanation
for why this was a good idea, but for a lot of people, it creates
confusion.

> However,
> instead of requiring open licensing of the relevant IP and know-how, the =
HIF=E2=80=99s
> design requires that the owner oisf the relevant IP must sell the drug at=
 an
> administratively fixed low price, no higher than the HIF=E2=80=99s estima=
te of the
> cost of manufacturing. This would not be a negotiated price.
>
> Why are we proposing price controls, rather than open licensing? If
> competition is not effective in reducing the price to near cost, innovato=
rs
> would benefit from high prices and still receive reward payments from the
> HIF. Competition may fail to be effective for a variety of reasons.

Ok, fine. You don't trust competition, and you prefer price controls.
Our view is that the capacity to administer price controls is weak in
the WHO and weak in developing countries.  I agree that for some
products, competition is a challenge, even with open licensing of
patents and know-how. Empirically, however, competition has been a
powerful force for driving down the prizes of many other products, such
as, for example, pretty much the entire India pharmaceutical market.

Price controls might be a useful tool for cases where competition isn't
effective.  But why get rid of open licensing?  You can have competition
and price controls.  One does observe price negotiations and tiered
pricing for off-patent vaccines or drugs, and government price
regulations of generic products (a major feature of the India generics
market).  Once you end the legal monopoly, you have more freedom and
options in how to procure products.  This can't be a bad thing. If
competition solves the problem, the HIF can avoid being a price
regulator.  Open licensing should be put back into the HIF, even if you
retain the ability to regulate prices.


> Jamie has suggested that following the implementation of TRIPS, there may=
 be
> fewer and fewer independent sources of active pharmaceutical ingredients
> (APIs). We agree that this is a concern. This concern reinforces our view
> that generic competition will not always reduce prices to near cost.

A shift to new incentive mechanisms that employ open licensing will make
the API markets more competitive.  A shift to incentive mechanisms that
retain supply monopolies controlled by innovators, will make the API
market less competitive.  I don't see the decision as to which approach
to use to be neutral.

> We have received no funding from drug companies nor are we soliciting any=
.
> Our only four research sponsors -- the Australian Research Council, the
> Social Science and Humanities Research Council of Canada, the BUPA
> Foundation, and the European Commission -- have never made the slightest
> attempt to influence in any way the direction of our work.

It is good they have not sought to influence your work, which means it
can go in any direction you like.

Some parts of the European Commission (DG-Trade), have put a lot of
pressure on Thailand and other countries to negotiate prices, and not
use the compulsory licensing option.  It is certainly the case that in
the current debate over the AMC, European governments have made it clear
that open licenses were off the table, as a concession to the industry.
(why is this so important to industry?)  And, the industry is not shy
letting researchers and NGOs what they want, and what they don't want.

In the late 1990s, Gates was pushing for APCs and monopoly supply
agreements, and he supported price negotiations with big pharma, over
compulsory licensing.  I was talking last week to someone from Bostwana,
who said that the government would still not buy generics, largely to
please Gates, even though if they did buy generics, they could treat
more people with HIV.

Do groups working on drug pricing think it is helpful to abandon open
licensing, in favor of a price control approach?  Jamie

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