Interview of Ellen T’Hoen, Director of Medicine Law & Policy
1. Why do we need more transparency when it comes to R&D costs and what impact could it have on prices of medicines?
There is a need for greater transparency in the pharmaceutical sector regarding research and development (R&D) costs, but also regarding pricing and financial incentives offered to the industry to work on various subjects that we, as society, find important.
There are different general principles as to why transparency is important. In general, transparency is good for consumers and patients because non-transparent medicine pricing hardly ever leads to low prices. Transparency ensures a more leveled playing-field among buyers and between buyers and sellers. It is also important to stimulate good governance because our governments act on behalf of us in the public interest so the public needs to be able to scrutinize the outcome. Negotiations between government and industry lead to the design of incentives toward the pharmaceutical industry. So far, this is a good thing but if the results of the negotiations are neither known nor transparent, how can our governments be held accountable?
The reasons for transparency in the pharmaceutical sector are multiple. Firstly, the notion of need for greater pharmaceutical transparency is focused on prices for the reasons mentioned above. High medicine prices used to be an issue only in low-and-middle-income countries; today it has also become a problem in high-income countries with an important discrepancy in access to medicine, as it can be seen, for example, within the European Union (EU). Indeed, the poorer Member States don’t have access to certain cancer medications due to prices that are too high for their health budgets to make them available to cancer patients unless they deny healthcare to others. The main reason pricing is an issue that needs greater transparency is because transparency helps with getting better negotiation results and fairer prices.
Another aspect is R&D costs. High prices of medicine are often vindicated with the high costs of R&D. There are some truths in this argument in a sense that developing a new medicine is a costly activity. However, what is put aside is the fact that a large part of the costs is already carried by society through direct subsidies and incentives for the pharmaceutical companies. Part of the innovation circle sits within public research institutions or universities that are financed out of public funds. The knowledge developed by these institutions is then handed over to the pharmaceutical industry, which monopolizes it using the patent and regulatory system which enables them to sell it for the price they choose. Transparency in R&D costs will help knowing what part of public financing has been used for medical products which will be useful in price negotiation or simply to have a more honest picture of how much society contributes to innovation.
Another reason greater transparency regarding R&D costs is important is to offset the notion that there must be sufficient financing in the system to continue pharmaceutical innovation. This is an important point but our patent and regulatory system lacks a ‘sufficiency test’ when providing incentives for R&D. Within the EU, incentive mechanisms are merely based on the assumption that giving exclusive marketing rights will stimulate R&D and innovation. This assumption has been the leading principle for incentives in the pharmaceutical legislation even though the need for expanded exclusive marketing rights has never really been proven. Incentives are given regardless of the question of whether it is necessary. We have therefore argued for the introduction of a “sufficiency principle” in the incentive system to be able to identify the level of exclusivity needed to ensure investments are protected. Today it is not uncommon to see companies taking knowledge, for example about orphan disease treatments, that have been developed within the medical profession often through off-label use of an older medicine. They register an old product, but they get the 10 years exclusivity, even though they have done very little to develop this product. In this situation, it should be possible to say that the company does not get the 10-years exclusivity, but rather 6 months or whatever is needed to cover investment cost. Doing so will be impossible if R&D costs remain opaque.
As a conclusion, having greater transparency provides better and informed law making. Transparency is key to unlocking better policies.
2. In your opinion, how much progress has been done in the past two years of debate in the opinion of policymakers regarding transparency?
Over the past two years, there has been a greater international debate on access to Covid-19 vaccines and a better public understanding of who finances them, how they are priced and how they are made available. However, it has been surprising to me how little effect this has had on policy-making. People like me who have worked on global health for many years thought at the onset of this pandemic that things this time around would be different. Indeed, we thought that the lessons learnt from other pandemics such as HIV would be applied immediately. Unfortunately, it wasn’t the case at all. Instead, it became “business as usual” but “on steroids” because never has the world seen as much public funding going into the development of health tools in such a short period of time. It was a very important decision to respond to the pandemic globally with investments in innovation. But from that point on, nothing else changed. It led to the development of tools to fight the pandemic, but leaders failed to impose demands to share the knowledge needed to produce and supply these tools. Pharmaceutical companies have hugely benefited from that. As an example, while a large part of the population of the world still don’t have access to the Covid-19 vaccine, the latter makes up half of the revenue of an entire company like Pfizer.
The public heard a lot of promising sounding rhetoric coming from world leaders: President of the European Commission saying that the vaccine will be “our common good”, French President Emmanuel Macron saying that “no one should own this vaccine”, etc. It made me believe that things would be different this time. Unfortunately, I was wrong: the EU was one of the biggest opponents to dealing differently with the know-how and the IP necessary to produce the vaccine. The WHO established in May 2020 the Covid-19 Technology Access Pool (C-TAP). There wasn’t any vaccine at the time, but the idea was to have a vehicle to give hands and feet to the promises made of vaccines as a global good. The pool was created with the expectation that those governments that were financing the development of these new tools would use that financing as a negotiating tool to make sure that the know-how will be shared with others. Again, it was a big disappointment because the platform has not been used for that purpose. Until May 2022, only the Spanish government had licensed pandemic innovations developed in Spanish research institutes to C-TAP. They were then followed by the United States National Institutes of Health (NIH). In terms of vaccines, there was absolutely no response whatsoever from manufacturers. The Medicines Patent Pool (MPP) has succeeded in obtaining two licenses for Covid-19 therapeutics, but the vaccine remains a no go. It could have been avoided if the financing of the development of these products had been accompanied with conditions for sharing IP and know-how with institutions such as C-TAP and the MPP. Now these products have become such a huge commercial success for pharma that it is hard to turn that ship around.
The European Commission (EC) officials say that the procurement agreement on Covid-19 vaccine was not meant to create global public goods but to get vaccines to Europe. However, the agreement between the EC and the EU Member States, contains a clause saying that the EC needs to negotiate in such a way that it promotes vaccines as a global public good. It never happened and the only reason that we even know the clause was there is because the Spanish government publishes any international agreement it enters into, which is by the way a very good example of transparency. Again, the clause was great, but it had no effect on the behavior of the EC during the negotiation with the pharmaceutical companies because the focus was entirely on getting vaccines for the EU population.
As a conclusion, there is a disconnection between the public debate on the one hand, which is very intense with a high level of knowledge on how to do things differently, and the effect on policy on the other hand.
3. In your opinion, which laws could be introduced or changed at the EU level to improve the transparency of markets for medicines, vaccines, and other health products? And if not legal changes, what else could be done?
There are several aspects in the current pharmaceutical legislation that need to be amended or changed. First, the orphan drug regulation. The loopholes that allow companies to abuse that legislation need to be addressed so that no one can get exclusivity from an orphan drug without having done a significant amount of R&D expenditure.
The second change in pharmaceutical legislation relates to data and market exclusivity that limit the ability of countries to effectively use the measures that governments can take. For instance, all European countries have in their national patent laws a provision for compulsory licensing saying that if negotiations with pharmaceutical companies don’t lead to satisfactory results, meaning that paying the high price would have negative consequences in the healthcare system, for example, then the government can intervene and give the rights to other to supply the product for a lower cost. This right is internationally recognized, it is included in the WTO’s legislation and there is no question about the fact that it is a legitimate tool to use. However, the EU medicine regulation stops the effective use of it as it is not permitted to register a product that is produced or supplied under a compulsory license while there is still data and market exclusivity. There should be an exception in the regulation that waives this data and market exclusivity in case of compulsory license.
Third, the sufficiency principle should be applied before granting what are now automatic incentives. Those three changes would need to be made in the EU’s pharmaceutical regulation.
There are other aspects that relate to the secrecy that require a policy-change. For instance, many aspects around the secrecy of pricing are a result of a non-disclosure clause in the procurement agreement. It is possible for governments to decide not to do that. It is difficult for one Member State alone to do so, but there could be an agreement to no longer agree to non-disclosure in procurement agreements and to agree on a mechanism among member states to share pricing information at the EU level. It is already happening on a smaller scale, for example, between hospitals in the Netherlands where small hospitals and large hospitals share with each other what they pay for medicines. That system has proven to work well in cost containment. The other aspect of this pricing and cost sharing concerns collective activities between Member States to achieve procurement. The first experiment has been done with the Covid-19 vaccine.
It is important to highlight the fact that not all EU member states dislike hidden drug prices. Members that have large pharmaceutical companies, such as Germany, like high drug prices because the money flows back to their countries. It is an additional hurdle, and it is not by chance that Germany was driving the opposition at the WTO to the design mechanism to share know-how and IP of Covid-19 vaccines.
4. Do you see a connection between what could happen in the US in the field of pricing and how this discussion may impact the European region?
The European Union law and regulation-making is separate from the United States of America (USA). Health care systems in the EU are also very different from the USA. The latter pays a very high price for drugs which is justified by the belief that it is good for innovation. The US also spends significant amounts of money on publicly funded innovations for example through the National Institutes of Health. The US also often argues that it pays higher drug prices because the Europeans aren’t paying as much. The sufficiency principle (and greater transparency) would break through this belief and prove that both the USA and the EU are paying too much for the medicine. It would be easier to identify efficient ways to directly fund R&D and to decide as a society what are the priorities by having figures on the costs. Again, transparency is key to make this happen.
In the recent two years, we have seen that the Biden administration has taken a different position than the EU at the WTO on access to IP related to which was a huge departure from the usual USA stance at the WTO. The EU remains in its old rut and is far removed from showing willingness to find a good solution for the sharing of vaccines and other pandemic countermeasures at the WTO. The EU is at the same time a fierce proponent of a pandemic treaty at the World Health Organization. Perhaps those negotiations will deliver better results. It is important to retain some optimism.