The WHA negotiations so far, on R&D financing

This is a brief note regarding the WHA negotiations on the proposed treaty for medical R&D, and in particular, the elements which deal with financing R&D. I’ll skip the history and earlier context of the negotiations, and focus on the main issues in play this week.

In April, the CEWG published its report, and several of the CEWG members began to brief delegates, focusing on its most important recommendation, a call for a new WHO Convention (See pages 120-125 of the CEWG Report), which would obligate members to spend at least .0001 of GDP on R&D that would address the special health needs of developing countries. According to the report:

R&D under the convention should focus on the development of health technologies for Type II and Type III diseases as well as the specific needs of developing countries related to Type I diseases.

The CEWG further proposed that .2 to .5 of this amount be spent through a single pooled funding mechanism. I calculate the amount of money involved for each country and several categories of countries here:

Leading up to the negotiations, there was considerable push back from the US and Europe of these funding obligations. The US, which was already significantly above the overall target for R&D spending, saw the single pooled funding element of the proposal as a new funding obligation, and in Europe there was concern both about the general target and the pooled funding component. Also, the decision to focus the R&D treaty on health problems for developing countries made it seem as though they would be asked to lock-in a permanent fiscal obligation that would have little if any benefit for their own citizens.

KEI’s response to these issues was to propose that the scope of the treaty be expanded to including other health care priorities, such as the development of new antibiotics, that meet global health needs of priority for high income countries, and to replace the notion of a singled pooled funding mechanism with an obligation to fund “qualified” pooled funding projects, with the pooled funding projects competing against each other to attract government support. (See: /node/1405) Several European negotiators seemed to like the idea of expanding the scope of the convention, so their own finance and health ministers would see more domestic value of the treaty, and the European and US negotiators seem to prefer the competitive model for the management of the pooled funds, particularly if it included the existing PDP pooled funding operations they already fund.

The competitive approach recognizes the need for some centralized policy making, but that could be attached to the funding mechanisms, much like the US Bayh-Dole act or OMB rules provide for centralized policies that attach to funds managed by many different federal agencies.

Some people have questioned the notion of a flat rate of GDP for funding. In a 2005 proposal for an R&D treaty, public health groups suggested that funding obligations be based upon a graduated rate, which started low, but grew with income, as the income tax is implemented in some countries. Clearly some higher income countries hate the flat rate approach as much as some middle income countries do. Down the road, the WHO could consider other ways of scaling obligations than the flat rate.

The problems with the R&D treaty approach also extend to many other issues. In the United States, anything that is considered a treaty under US law requires Senate confirmation, and that is a major challenge. While the US tries to avoid treaties, it enters into countless “agreements,” many of which are considered “sole executive” agreements, that the US State Department considers “binding,” but not subject to Senate confirmation. The US also participates in many collaborations that involve renewed funding pledges and contractual commitments, as well as other ways to meet longer term financial obligations, such as those associated with obligations to pay back bonds or other fiscal instruments. In the past, the Gates Foundation has investigated several of these measures, in trying to build long term plurilateral financing mechanisms for vaccine R&D.

Meanwhile, other countries would prefer different funding models, often described as “innovative financing mechanisms,” some of which involve transaction based funding, such as fees on airline tickets (the funding model for UNITAID), or new bank transaction taxes, or even fees on patents (not to mention the taxes on Internet transactions or arms sales proposed by the earlier WHO EWG). Brazil had also proposed R&D funding come from the repatriated profits from pharmaceutical products.

In many respects, looking at the pharmaceutical industry itself as a funding mechanism is appealing. According to a 2010 report by IMS, by 2014 the global pharma market will reach $1.1 trillion, a growth of “nearly $300 billion over the next five years,” with a “5 – 8 percent compound annual growth rate.” So, despite all of the concerns over patent expirations for blockbuster products, the pharma sector looks pretty healthy. With a $1.1 trillion market in 2014, a global tax of .5 percent of pharma sales would generate about $5.5 billion per year — roughly the CEWG funding target. If countries spent 80 percent of that money in domestic R&D projects, that would create $4.4 billion in domestic R&D spending, with $1.1 billion for the pooled funding mechanisms. For patented products, the incidence of the small .5 percent tax would fall largely on the companies’ profits, since drug prices for monopoly products rarely reflect the costs of the inputs. On the down side of this proposal would be the stimulation of PhRMA lobbying in opposition, and the difficulties of implementing new taxes around the world. Still, it’s something to think about if the alternatives seem worse.

In any event, it is clear that this week the negotiators are not very concerned about PhRMA, but they are all terrified of their own finance/budget people. And, as noted above, there is a major fear of setting a precedent in the form of a legally binding commitment that would solely benefit developing countries.

To move the proposal forward, the delegates will have to find an acceptable terms of reference for a member state led process. In our view, the focus of this has to the development of credible strategies for mulitlateral collaboration on providing sustainable funding for some non-zero set of public health priorities. It would be best if the mix of funding targets is perceived as having value both North and South, East and West, rich and poor.

The WHA may want to create a negotiation on sustainable funding mechanisms that explores the specific proposal by the CEWG, which has much merit and also support from a number of developing countries. But the negotiators could also have an open mind about the nature and design of the mechanism, agreement or instrument (whatever set of words helps close the deal), so that the WHA ends on a step forward, and begins a conversation to solve the practical problems of raising and managing money for R&D. Otherwise, we will continue to muddle along, complaining about all of the gaps in R&D spending for important health problems, and not doing much about it.

Note on USA position

On May 23, 2012, the USA presented a highly negative and nonconstructive position on the treaty negotiations (See: /node/1417). Among the USA talking points were the following:

  • IP protections are unlikely to be a major contributor to progress in R&D for neglected diseases of the poor.
  • The US is the only country already making the level of investment in R&D for neglected diseases of the poor called for in this report – over $1.5 billion a year.
  • At this time, We do not favor the establishment of an intergovernmental working group to further develop the CEWG proposals.
  • We do not support the call for a binding instrument on financing by Member States
  • We have heard from a large number of member states that they are not prepared to commit .01 percent of their gross domestic product, as called for as obligatory under such a binding instrument.
  • We cannot support any proposal that would put in place a new financing mechanism that could be characterized as a globally-collected tax
  • We do not support the proposal that would establish a single pooled financing mechanism
  • We do not support launching a new InterGovernmental Working Group.
  • Member state discussions should include greater consideration of proposals passed over by the CEWG, such as advance marketing and procurement agreements, orphan drug legislation, regulatory harmonization and priority review vouchers.

Basically, the US was saying, IP protections are “unlikely to be a major contributor to progress,” the US is the only country that spends more than the CEWG obligation, the US wants to block work on any type of binding instrument or new funding mechanism, and the US wants to WHO to look at the US model of granting seven year monopolies on orphan drugs and promising to pay high prices for vaccines to stimulate R&D. This was truly an appalling statement. It came the same day the USPTO delivered an equally appalling statement at the WIPO negotiations on patents and health.

There are also extensive efforts by US officials to attack negotiators who support the treaty by using back channel diplomatic efforts to undermine their mandate from their own government, something that is highly resented among negotiators. The US is also actively trying to organize opposition to the CEWG funding targets, as being “too expensive” for developing countries — rather than truly applauding the fact that many developing countries are surprisingly supportive of the funding obligations. Taken as whole, and given the fact that US government is global leader in funding this type of R&D, the US position has to been seen as an expression of ideology rather than self interest.

In 2009, Barack H. Obama won the Nobel Peace Prize “for his extraordinary efforts to strengthen international diplomacy and cooperation between peoples.” I don’t see this week as evidence the Obama administration is up to that task.