[Ip-health] A closer look at the WHO EWG endorsed proposals on funding product
Malini Aisola
malini.aisola@keionline.org
Fri Jan 15 10:31:02 2010
(Note, the document, which contains quotes and a table, will be easier
to read from the web).
http://keionline.org/node/751
A closer look at the WHO EWG endorsed proposals on funding product
development partnerships
By Malini Aisola
14 Jan 2010
The World Health Organization's Expert Working Group on R&D Financing
spent scant attention on how to raise money, but showed considerable
interest in how to spend it. The clear favorite approach is to give
grants to product development partnerships -- the approach that has now
become the most conventional approach, and one not surprisingly endorsed
by the PDPs themselves, and also by the Gates Foundation and the IFPMA
-- two groups that are often seen as devoted to protecting the status
quote in terms of intellectual property and business models for
innovation.
The World Health Organization (WHO) Executive Board will soon consider
the Executive Summary of the Report of the Expert Working Group on
Research and Development Financing, a document, formally identified as
EB 126/6 Add.1 [1], but not the actual report itself, which is only
available in a draft from that was leaked from the IFPMA, which
apparently not only had an advance copy, but was able to influence its
contents through its relations with "friendly EWG members." One
successful lobbying effort by the IFPMA was to kill the recommendation
to tax repatirated pharmaceutical profits to fund R&D for neglected
diseases. Another was to oppose favorable consideration of large prizes
to reward successful R&D for Chagas, AIDS, cancer and other diseases.
What the IFPMA, the Gates Foundation and many PDPs wanted was an
uncritical endorsement of the PDP business model, which generally
includes grants from governments and donors with limited interference
with the licensing of intellectual property rights or the pricing of
products. The EWG has generally done with this with the recommendations
found on pages 12 to 14 of EB 126/6 Add.1 [1], which include in
paragraph 32, the following statement:
[T]hree proposals are in circulation to provide reliable, long-term
funding to product development partnerships, and to automate or
centralize funding decisions across product development partnership
portfolios to a lesser or greater degree. These are:
* Fund for Research and Development in Neglected Diseases
(FRIND)
* Industry Research and Development Facilitation Fund (IRFF)
* Product Development Partnership Financing Facility. (PDPFF)
Fund for Research and Development in Neglected Diseases (FRIND)
The first proposal was developed by Paul Herrling, the head of research
for Novartis, and submitted to the EWG in the first public hearing as a
one page memo [2], with an attached four page article published in the
Global Forum Update on Research for Health Volume 5.
The Herrling article from the Global Forum provides this discussion
about the management of intellectual property rights:
If any of the entities above apply to FRIND for funding of their
project in R or D they in return would allocate an exclusive licence to
the fund for the particular neglected disease within the mission of
FRIND.
The Herrling proposal is basically that the grants under FRIND would be
linked to an exclusive license for the inventions in a particular field
of of use and geographic area. This is similar to the proposals for
managing intellectual property rights in several of the Bangladesh,
Barbados, Bolivia and Suriname prize proposals, with the exception of
the greater emphasis on open licensing with a field of use and
geographic area in the latter.
Herrling also states:
There are several alternative models in discussion to stimulate R&D
in neglected diseases, e.g. Advance Market Commitments (AMC) 5 or Prize
mechanisms as proposed by James Love6. The current FRIND proposal
overcomes a major drawback of the two models discussed above. Any entity
that wants to access either AMC or Prize money needs to invest at risk
in the full development of its product for neglected disease and as
about 7 out of 10 projects in clinical phase one fail before
registration all that investment would be lost. This is a major
disincentive not only for pharmaceutical companies but is outright
unaffordable for many PDPs, academic institutions or small biotech
firms. In addition since many advances in the treatment of disease are
incremental, the concept of a =E2=80=9Cprize=E2=80=9D for the first success=
ful product
is inappropriate and might be a disincentive to parallel activities. In
contrast the current FRIND model would fund the individual R&D phases
upfront and would bear the risk. An additional benefit is that through
FRIND a portfolio management approach across different players might be
established that allows more optimal allocation of (scarce) donor
resources to the most promsing R&D projects.
The model proposed here and AMCs or Prizes are not mutually
exclusive but rather complementary to increase the probability of the
creation of urgently needed new therapies for neglected diseases.
Herrling is saying two different things about grants and prizes. First,
he is saying that pull mechanisms in general can lead to inefficiencies,
such as (1) redundant investments and R&D races, but also (2)
under-investment from firms that do not have access to capital markets
or are risk averse. These are not criticisms of prizes but criticisms of
any pull mechanism that rewards success but not failure.
Secondly, Herrling says that prizes or other pull mechanisms such as
AMCs would "complement" programs of grants, and increase the probability
of success. KEI generally agrees with both of these observations. We
don't think that R&D should be funded solely by pull mechanisms, and we
think that R&D efforts are also more likely to succeed if there are
significant pull mechanisms, of which prize are the most appropriate for
cases where high prices are to be avoided.
What is remarkable is the analysis of the EWG, which pits the grant and
prize mechanisms against each other, and endorsed one but rejected the
other, on the grounds that prizes are not acceptable to the industry.
Paul Herrling is the head of R&D for Novartis, and he does not see it
that way.
When the Herrling proposal was first made, a number of groups indicated
an area of controversy would be the governance and accountability of the
new organization, including such issues as transparency, as well as the
"portfolio management team," which in some discussions, seemed to be
open to include people working within companies, presenting some issues
regarding conflicts of interest. There were concerns that the U.S. and
European biomedical companies would use this fund to subsidize their
fixed R&D costs, without necessarily being fully committed to developing
medicines for developing countries. Some of the PDPs felt it would be an
unwanted layer of control over their activities or access to donor
funds. There was also a criticism by KEI that it would create an
excessively centralized decision making structure, replicating the
"group think" problems that seem to plague many big organizations that
have performed poorly in terms of stimulating innovation.
The EWG regards the centralized control of funding as "a distinct
advantage for global coordination," however reported there would be
resistance from major funders and PDPs.
Product Development Partnership Financing Facility (PDPFF)
The PDPFF is a proposal developed by IAVI developed in conjunction with
Aeras Global TB Vaccine Foundation and PATH-Malaria Vaccine Initiative.
According to IAVI, "We did not formally submit this to the EWG." It is
not found on the WHO web page, and KEI was unable to obtain a copy of
the proposal from three members of the EWG and the WHO Secretariat, all
of whom were approached by KEI, so we could examine the details of this
highly endorsed proposal.
IAVI kindly provided KEI with a February 27, 2009 paper on the PDPFF,
which is attached to this blog, as well as shorter summary of the
proposal, that was prepared after IAVI learned that the EWG had included
the PDPFF in its work. In the second public hearing, IAVI provided
comments [3] on Financing the Accelerated Development of Vaccines for
AIDS, TB, and Malaria: Design of the PDP Financing Facility and an
Analysis of Its Feasibility, A Report to Aeras, IAVI, and MVI February
27, 2009 [4]
While the PDPFF was never actually presented to the EWG, it received a
high endorsement in the document sent to the WHO EB. It is therefore
useful to review some of the details. The PDPFF proposal is fairly
detailed in some areas, but says very little in others. This is not
necessarily a criticism of the PDPFF proposal itself, which was
developed in discussions outside of the WHO EWG, and was not published.
In the view of KEI, the EWG work should be informed by the WHO Global
Strategy (WHA61.21), including the discussions in the Global Strategy on
the management of intellectual property rights, access to knowledge,
access to products, and technology transfer and capacity building, among
other issues, and it is in these areas where the PDPFF often says very
little. This is an issue of the EWG itself, including its criteria for
evaluating projects, which in many important areas ignored the parts of
the WHO Global Strategy that were most focused on transparency,
technology transfer, competition, access, affordability and intellectual
property rights.
The PDPFF is a vehicle for issuing government-backed bonds to pay for
the development of new vaccines, and paying the bonds back from the
profits on the sale of vaccines. According to the paper:
The PDPFF represents a significant departure from the current system
for financing the PDPs:
1. Donors would support PDPs by providing guarantees and by
committing to pay premiums on PDP products when they reach market, as
well as through traditional grants.
2. Revenues from sales of PDP products would play a much more
important role in PDP financing than in the current system.
3. The new mechanism would require a greater degree of
collaboration among the three PDPs. Revenues from royalties and premiums
would be pooled to repay debt, and the three PDPs and donors would agree
on an initial expenditure and allocation plan.
Although it might be possible to modify one or more of these
features, the technical group believes that all three are necessary for
the proposed mechanism to succeed.
The PDPFF is in fact a complicated financing mechanism that presents
considerable risk to donors. It anticipates that premium prices will be
paid on vaccines, to retire the bonds.
While the proposal was not submitted to the EWG, it was evaluated in the
November 20, 2009 leaked draft report. The evaluation was based upon the
work of Dr. Mary Moran (who doubled as the coordinator of the
evaluations and the author of the highest rated proposal). In the draft
report, the PDPFF was rated lowest of the PDP proposals, but nonetheless
ended upon with a high recommendation in the summary report sent to the
WHO EB. The November 20, 2009 draft report offered a number of negative
comments about the PDPFF, such as these:
Data gaps for the PDP-FF . . meant [it] could only be partially
assessed. . . The PDP-FF has more fundamental difficulties, as reflected
in its lower scores for both DC impact and operational efficiency and
feasibility. The key problem lies with its inclusion of HIV, TB and
malaria vaccines, since it is unlikely that a sufficiently effective HIV
or malaria vaccine will be available in the next 10 years to provide the
planned 7-10% royalty-based revenue streams from Western markets. As a
result, TB vaccine revenues may need to cross-subsidise other areas.
Alternatively, developing country markets will be squeezed for margins
on less commercially successful vaccines (e.g. initial lower efficacy
malaria and HIV vaccines) Since poor countries may not be able to pay
higher prices (or only at the cost of reduced patient access), donors
will likely need to pay the price premium on their behalf (their
willingness to do so being a moot point). Bond purchasers, looking at
these figures and delivery timelines, may also be disinclined to risk
their funds. We note though that, if restricted to more commercially
attractive Type II vaccines that are already in development (e.g. TB,
pneumonia, meningitis), the PDP-FF would likely perform substantially
better.
Draft Report, page 77-78.
While the WHO Global Strategy calls for new R&D incentives that address
the "de-linkage of the costs of research and development and the price
of health products," the PDPFF works in the opposition direction,
linking the costs of R&D to the price of health products. While the EWG
did not specifically mention the de-linkage issue in the analysis, it
did give the PDPFF its lowest rating for "developing country impact."
Industry Research and Development Facilitation Fund (IRFF)
The Industry Research and Development Facilitation Fund (IRFF) was never
submitted to the EWG in the public hearing process, there is no copy of
the proposal itself on the WHO web page, and the EWG has refused so far
to provide a copy. We believe the proposal is the same as a 5 page
section of a report that was prepared by Mary Moran, a member of the EWG
who was evidently in charge of coordinating the evaluations of the
proposals.
Specifically, the IRFF was recommendation 3.2.1 of a longer report on
neglected diseases entitled "New Landscape of Neglected Disease Drug
Development [5]" that was published in 2005. The text of the proposal
runs from pages 68 to 73. The IRFF was the highest rated PDP proposal by
the EWG, which was not surprising since the author of the proposal was
also the coordinator of the evaluations. The November 20, 2009 draft
report described it as follows:
A long-term fund (supported by donors) that automatically reimburses
a fixed percentage (e.g. 80%) of the funds that PDPs disburse to Western
or DC companies. Designed to encourage industry partnering with
public-health driven PDPs, and thus provision of low or cost-price final
products. Automatically allocates funds across all PDP drug portfolios
globally, with most funding going to those who advance their portfolios
most efficiently. PDPs retain portfolio management.
The fund is basically an entitlement program for PDPs, with governments
writing no-ask checks for 80 percent of the expenditures with private
pharmaceutical companies. There are no concrete asks regarding
intellectual property rights or pricing of products, and indeed also no
details of where the money will come from, what happens when it runs
out, who will manage the fund, or determine which PDPs get the 80
percent subsidy.
The EWG analysis that was done by Mary Moran gave this proposal, which
was authored by Mary, its highest rating for developing country impact
and for operational feasibility. Perhaps a more appropriate rating would
be the highest rating for private industry, since the subsidy could only
be used to buy their services.
The IRFF is billed as something that would only offer new money to PDPs,
but this is fairly naive, as funding for public health is hardly
unlimited, and allocations that are earmarked for private industry will
at some point reduce funding opportunities for non-industry actors. The
2005 IRFF proposal addresses this issue in the following manner:
PPPs that choose not to use industry assistance in areas where it is
shown to improve performance, in optimising academic leads or preparing
regulatory submissions, are free to do so but this choice would not be
subsizied by public funds via the IRFF.
KEI has criticized the EWG criteria for project selection, on the
grounds that it penalizes change, overemphasizes continuity with the
status quo, and ignores important elements of the Global Strategy such
as those that deal with affordability, access, technology transfer,
competition, intellectual property rights and de-linking R&D costs from
drug prices. The following table examines the three recommended PDP
proposals, to see how they address some of these issues.
How do the three EWG recommended PDP Proposals compare in terms of 9
criteria?
Background and Criteria/Fund for R&D in Neglected Diseases
(FRIND)/Industry R&D Facilitation Fund (IRFF)/Product Development
Partnership Financing Facility (PDPFF)
Source of document
FRIND: The proposal is contained in a 5-page submission to the first
public hearing of the EWG. It comprises a one page memo and an attached
article, entitled =E2=80=9CMaking drugs accessible to poor populations: a
funding model,=E2=80=9D published in Global Forum Update on Research for He=
alth
Volume 5 in 2008.
IRFF: The 6 page proposal is included as recommendation 3.2.1 of a
longer report on neglected diseases that was published in 2005, titled
the New Landscape of Neglected Disease Drug Development.
PDPFF: The proposals were not formally submitted to the EWG and are not
available on the WHO website. KEI obtained a February 2009 unpublished
version from IAVI, which developed the proposal with Aeras and PATH-MVI.
Funding Mechanism
FRIND: The FRIND would provide centralized coordination of
grants to on development of drugs for 10 diseases.
IRFF: The IRFF would fund 80 percent PDP's payments to
industry.
PDPFF: The PDPFF would issue bonds to finance PDP vaccine development.
The bonds would be paid back by royalties and price premiums on the
vaccines, or by donors guarantees
1.What are the sources of funds?
FRIND: Funding by current donors of PDPs as well as developed and
developing countries. No further details are provided. (page
153)
IRFF: Funded by governments, with few details given. (page 68)
PDPFF: =E2=80=9CProceeds from the sale of bonds in private capital markets
would be used to support R&D and then repaid when vaccines developed by
the three PDPs came to market. The funds to repay bonds would derive
from a combination of royalties on sales in high- and middle-income
countries and donor-funded premiums linked to sales of PDP vaccines in
low-income countries. To reduce risks to bondholders and allow PDPFF to
borrow at low interest rates, the Financing Facility would back its
borrowing with guarantees from donor governments and possibly
foundations.=E2=80=9D (page 1)
2.How will the proposed mechanism be governed?
FRIND: The proposal describes in a sentence that representatives of the
donors would serve on the Board which would be instrumental in defining
strategy, disease scope and product scope. (page 153)
IRFF: The proposal does not provide details of the governance
structure, except for a statement that it should be =E2=80=9Coutside govern=
ment
or international bureaucracies,=E2=80=9D and a half a sentence on the
qualifications of an advisory board. (page 71)
PDPFF: The Board would be composed of representatives of participating
PDPs, donors who provide guarantees and independent experts (page 10).
Some further discussion on pages 22-23. The proposal acknowledges that
these issues =E2=80=9Cmerit further analysis.=E2=80=9D (page 3)
3.How will intellectual property rights be managed?
FRIND: IP would be retained by inventors, however, FRIND would receive
an exclusive license for the specific neglected disease indications of
products. (page 154)
IRFF: There is no discussion about intellectual property policies.
Implicitly, this is left to the PDPs.
PDPFF: No discussion
4.What are the mechanisms to ensure affordable access to the products of
innovation?
FRIND: FRIND will be obligated =E2=80=9Cto make available the therapies it =
funds
to poor patients in the developing world for free or at an affordable
price, or at least at no profit.=E2=80=9D (page 153)
IRFF: The sole reference to affordability is a one sentence statement
that funding will be limited to PDPs that =E2=80=9Chave a charter that incl=
udes
access to final products for developing country patients (for example,
affordability and appropriateness).=E2=80=9D (page 70)
PDPFF: The proposal acknowledges that the royalties and fees to repay
the bonds increase prices for vaccines. The PDPFF may have a positive
impact on affordability if it lowers the costs of capital and increases
the leverage of the PDPs to negotiate lower prices.
5.What are the mechanisms to promote transfer of technology to
developing countries?
FRIND: None
IRFF: No discussion
PDPFF: Not addressed in proposal
6.Did the proposal address the de-linkage of the costs of research and
development and the price of health products?
FRIND: Yes, in the sense that it requires a non-profit price to end
users
IRFF: No discussion
PDPFF: The proposal links, rather than de-links, prices and R&D costs.
7.Did the proposal address the specific R&D needs of developing
countries in relation to Type I diseases ?
FRIND: No
IRFF: No
PDPFF: No
8.Does the proposal promote access to knowledge and technology?
FIND: No discussion
IRFF: No discussion
PDPFF: No discussion
9.Does the proposal promote competition to improve availability and
affordability of health products consistent with public health policies
and needs?
FIND: No discussion
IRFF: No discussion
PDPFF: No discussion
Attachments:
pdpff27feb09.doc [4] 1.43 MB
irff_page68.pdf [6] 829.43 KB
draft_ewg_report_20nov09_ifpma_leak.pdf [7] 1.33 MB
PDPFF_concept_note_dec_2009.doc [8] 271 KB
Links:
[1] http://apps.who.int/gb/ebwha/pdf_files/EB126/B126_6Add1-en.pdf
[2] http://www.who.int/phi/Novartis.pdf
[3]
http://www.who.int/phi/public_hearings/second/contributions/HollyWongIntern=
ationalAIDSVaccineInitiative.pdf
[4] http://keionline.org/sites/default/files/pdpff27feb09.doc
[5]
http://keionline.org/www.thegeorgeinstitute.org/shadomx/apps/fms/fmsdownloa=
d.cfm?file_uuid=3DF2B06396-EEA0-851E-3049-C9A030AEDE0F&siteName=3Diih
[6] http://keionline.org/sites/default/files/irff_page68.pdf
[7]
http://keionline.org/sites/default/files/draft_ewg_report_20nov09_ifpma_lea=
k.pdf
[8]
http://keionline.org/sites/default/files/PDPFF_concept_note_dec_2009.doc
--
Malini Aisola
Knowledge Ecology International
1621 Connecticut Avenue NW, Suite 500, Washington DC 20009
malini.aisola@keionline.org|Tel: +1.202.332.2670|Fax: +1.202.332.2673