Research Mandates

KEI Research Note: 2020-4: The current and potential role of biomedical research mandates
2020

The current and potential role of biomedical research mandates.

Progress in biomedical research depends upon funding. This funding comes from a variety of public sector, non-profit and commercial entities, and can take a number of forms, from direct funding and subsidies to incentives, as well as research mandates.

Research mandates are important, because they can increase R&D investments, and also direct them to areas of greater benefit and need, even when governments undertake other measures to lower prices or promote competition. Research mandates can be used in connection with the grant of exclusive rights, or imposed on competitive suppliers. Research mandates can be implemented as a requirement to undertake certain research, such as post approval Phase IV safety trials, or to fund research performed by third parties, for example, asking health insurers to fund research on health outcomes. This note provides some examples of such mandates, including both those that have been implemented, and those that have been proposed. This research note also discusses research mandates in other areas of the economy.

Examples with U.S. statutory authority

FAD: Postmarketing Requirements and Commitments: Frequently Asked Questions (FAQ)

A few examples from the FAQ

Under 21 CFR 314.510 and 21 CFR 601.41, FDA may approve drugs based on surrogate endpoints that reasonably predict that a drug provides clinical benefit. This clinical benefit is then confirmed through additional human studies or clinical trials that will be completed after marketing approval.
. . .
On December 3, 2003, the President signed the Pediatric Research Equity Act (PREA) of 2003 to improve the quality of pediatric information in drug labeling, PREA was reauthorized on September 27, 2007. This legislation provides FDA with explicit authority to require applications for new active ingredients, new indications, new dosage forms, new dosing regimens, or new routes of administration to include pediatric studies or clinical trials. The legislation also authorizes FDA to require pediatric studies or clinical trials of marketed drugs that are not adequately labeled for children after other opportunities to obtain such studies or clinical trials on a voluntary basis have been exhausted.
.. .
On September 27, 2007, the President signed the Food and Drug Administration Amendments Act of 2007 (FDAAA) (Public Law 110-85). Section 901, in Title IX of FDAAA, created section 505(o) of the Federal Food, Drug, and Cosmetic Act (the Act), which authorizes FDA to require certain studies and clinical trials1 for prescription drugs and biological products approved under section 505 of the Act or section 351 of the Public Health Service Act. This new authority became effective on March 25, 2008. Postmarketing studies or clinical trials may be required to:

Assess a known serious risk related to the use of a drug
Assess signals of serious risk related to the use of the drug
Identify an unexpected serious risk when available data indicate the potential for a serious risk

FDA Vaccine approvals
https://www.fda.gov/vaccines-blood-biologics/development-approval-process-cber/vaccine-development-101

In certain cases, the FDA may require the manufacturer to conduct post-marketing studies to further assess known or potential serious risks. (These studies are sometimes called Phase 4 of development).

Medical Device Post-Approval Studies
https://www.fda.gov/medical-devices/postmarket-requirements-devices/post-approval-studies

The FDA may require a post-approval study (or studies) at the time of approval of a Premarket Approval (PMA), Humanitarian Device Exemption (HDE), or product development protocol (PDP) application to help assure continued safety and effectiveness (or continued probable benefit, in the case of an HDE) of the approved device. Post-approval studies (PAS) are conditions of device approval. A sponsor’s failure to comply with any post-approval requirement may be grounds for withdrawing approval.

CDRH has established the Post-Approval Studies Database to share general information regarding each PAS ordered since January 1, 2005, provides the overall study status (based on protocol-driven timelines and the adequacy of the data) and the applicant’s current reporting status for each submission due.

U.S. Legislation

1995. S.1251, 104th Congress. – National Fund for Health Research Act

SEC. 101. ESTABLISHMENT.

(a) Establishment.–There is established in the Treasury of the United States a fund, to be known as the “National Fund for Health Research” (hereafter in this section referred to as the “Fund”), consisting of such amounts as are transferred to the Fund under subsection (b) and any interest earned on investment of amounts in the Fund.

(b) Transfers to Fund.–
(1) In general.–The Secretary of the Treasury shall transfer to the Fund amounts equivalent to–
(A) taxes received in the Treasury under section 5701 of the Internal Revenue Code of 1986 (relating to taxes on tobacco products) to the extent attributable to the increase in such taxes resulting from the amendments made by title II of the National Fund for Health Research Act; and
(B) the amounts designated under section 6097 (relating to designation of overpayments and contributions to the Fund).

1995. S.18, 104th Congress – Health Care Assurance Act of 1995.

“SEC. 9512. TRUST FUND FOR MEDICAL TREATMENT OUTCOMES RESEARCH.

“(a) Creation of Trust Fund.–There is established in the Treasury of the United States a trust fund to be known as the `Trust Fund for Medical Treatment Outcomes Research’ (referred to in this section as the `Trust Fund’), consisting of such amounts as may be appropriated or credited to the Trust Fund as provided in this section or section 9602(b).
“(b) Transfers to Trust Fund.–There is hereby appropriated to the Trust Fund an amount equivalent to the taxes received in the Treasury under section 4501 (relating to tax on health insurance policies).

“SEC. 4501. IMPOSITION OF TAX.

“(a) General Rule.–There is hereby imposed a tax equal to .001 cent on each dollar, or fractional part thereof, of the premium paid on a policy of health insurance.
“(b) Definition.–For purposes of subsection (a), the term `policy of health insurance’ means any policy or other instrument by whatever name called whereby a contract of insurance is made, continued, or renewed with respect to the health of an individual or group of individuals.

1996. HR 4270, 104th Congress. To require reporting on research and development expenditures for drugs approved for marketing, and for other purposes.

SEC. 7. PROMOTION OF RESEARCH AND DEVELOPMENT.

(a) Account.–Any person engaged in the manufacture of drugs for introduction into interstate commerce shall, in accordance with subsection (b), establish for each drug an account for funds to be reinvested in research and development for health care technologies.

(b) Reinvestment in Research and Development.–To insure that adequate funds are being made available for research and development of new health care technologies, the Secretary of Health and Human Services shall establish for persons engaged in the manufacture of drugs for introduction into interstate commerce the minimum amount such person should make available for research and development of its new health care technologies based upon a percentage of sales revenue for that drug. The Secretary may require different percentages for minimum reinvestment for different classes of drugs based upon patient protection, orphan drug status, or magnitude of sales.

(c) Additional Rules.–The Secretary shall adopt regulations concerning qualifying research and development expenditures and the reporting requirements for persons who are subject to subsections (a) and (b).

1997. Legislative Proposal to Increase Funding for Medical Research. Hearing before a Subcommittee of the Committee on Appropriations, United States Senate. 105th Congress. S. HRG. 105–524

Senator SPECTER. We will now have a panel discussion examining a possible legislative proposal relating to medical research. Mr. Perry, Mr. Hallquist, Ms. Cioffi, Mr. Love, Mr. Clarkson, step forward, please.
This panel will examine the possibilities of increasing funding for medical research by having the Government extend the period of exclusivity for certain pharmaceutical products in exchange for the company providing a dedicated royalty income stream to NIH. This is obviously a complex issue which would involve greater rights of exclusivity, which would impede upon the issue of generics. And the question is what will the impact be on the consumer? What will the help be to aid medical research?

    Kenneth W. Clarkson, Ph.D., Director, Law And Economics Center School Of Law And Business, University Of Miami
    The demonstration project to fund biomedical research is a novel mechanism to create additional research and development efforts to address compelling health problems first . . . the project provides off budget financing to the National Institutes of Health. This will help reduce the four out of five rejection rate at NIH.
    Second, the demonstration project provides additional research dollars for completion of existing clinical trials.
    Third, it also provides incentives for examining a wide spectrum of new indications, including potential spinoff treatments and compounds, optimizing dosing amounts and schedules, exploring the use with other compounds, investigating the application to pediatric populations, and developing improvements in drug formulation.
    Gina Cioffi, National Director, Cooley’s Anemia Foundation
    A pharmaceutical company could receive up to five years of new market exclusivity for a drug that has been previously approved by the FDA. In exchange for that provision, the company would be obligated to pay a three percent royalty on net U.S. sales of that product during the new exclusivity period to the National Institutes of Health. At the same time, it would also be required to invest not less than an equal amount in research and development efforts in the general therapeutic area of the eligible product.
    James Love, Consumer Project on Technology
    We are supportive of the suggestion that Congress impose R&D royalty obligations on pharmaceutical companies, in order to promote a higher level of biomedical research in the United States. We have recommended this approach elsewhere. However, there is no need to tie this proposal to a higher monopoly profits on unpatented pharmaceutical drugs. The proposal for matching contributions for R&D has merit. because society benefits from a mix of public and private R&D investments

Licensing practices

Cisplatin research mandate.

In 1983, Bristol-Myers sought an extension of exclusivity on Michigan State University patents on cisplatin, a drug that was at the time the second largest selling cancer drug. The U.S. Department of Health and Human Services requested comments on the proposed extension. Five companies objected to the extension. When Bristol-Myers defended the extension on the grounds that it would be a incentive for Bristol-Myers to condition testing cisplatin for new indications, one company, Andrulis Research Corporation, proposed to that the government simply require the generic suppliers to fund research on the drug, either directly, directed by the government to a research foundation, or managed directly to the government. Bristol-Myers was forced to counter with a proposal to lower the price of cisplatin by 30 percent, and fund $35 million in research directed by the NIH to third parties. The cisplatin extension was discussed at a 1991 Congressional hearing.

  • Exclusive Agreements Between Federal Agencies and Bristol-Myers Squibb Co. for Drug Development: Is the Public Interest Protected? Hearings before Subcommittee on Regulation, Business Opportunities, and Energy, of the Committee on Small Business, United States House of Representatives, July 29, 1991. Serial Number 102-35.

See in particular, the questions about the cisplatin research mandate on pages 354 to 355, as well as the section of the prepared statement of James Love that provided commentary on the cisplatin research mandate. The Federal Notice for the final grant of the extension, with the conditions, is available here: 48 Federal Register 53177.

Papers, Proposals

1994. James Packard Love Pharmaceutical Drugs, Intellectual Property Rights and Public Health: A Consumer Perspective from the United States. Presented at XV Asamblea General de la Asociaión Latinoamericana de Industrias Farmacéuticas, San Carlos de Bariloche, Río Negro, Argentina, 11 al 13 de mayo de 1994

Cisplatin is one of many drugs which is marketed by BMS (the world’s largest seller of cancer drugs, even though it has never discovered a cancer drug on its own). Cisplatin was discovered at Michigan State University on a government grant. The University licensed the drug to BMS on an exclusive basis for 5 years. When the exclusive license expired in 1983, several companies wanted to obtain non-exclusive licenses to manufacture and sell the drug. At that time the federal government could decide whether or not to use the exclusive license, or to allow competition to drive the price down. BMS argued that if it was forced to compete there would be no profits to fund R&D. At that time Andrulis Research Corporation told the government that there was a simple way to solve the R&D program. Andrulis suggested that the government fix a royalty of the drug that would be used solely for R&D. Andrulis suggested that the money be given to NIH or a special foundation set up to receive the money. We thought that this was a very good suggestion. Instead, however, the U.S. government allowed BMS to have the exclusive license, on the condition that the company lower its prices by 30 percent, and fund $35 million in cancer research, which was carried out under the direction of the NIH.

I was reminded of the Andrulis proposal several times over the past few years, because it seems to offer countries a way to avoid the company black-mail over the R&D issue. A similar proposal was made by Eastman Commission in Canada in 1985, although it was never implemented. More recently, several members of the U.S. Senate have proposed that 1 percent of the entire U.S. health care expenditure be devoted to health care R&D. This proposal was made in response to criticisms that the cost control features of the Clinton Health care bill would reduce company R&D efforts. It is important to consider how mandatory contributions to an R&D fund, managed by the government, change the dynamics of negotiations over drug pricing policies. If companies want to criticize the impact of a policy on R&D, it becomes obvious how to address the problem – simply increase the size of the R&D contribution. It is also important to remember that it is really consumers, and not the companies, which are the source of this revenue under any scheme including systems which fund R&D through monopoly profits.

1996. James Love. Comments on Trade and Pharmaceutical Policies: A Perspective from the U.S. Consumer Movement. HAI Seminar: World Trade Organization/GATT, Pharmaceutical Policies and Essential Drug. October 4, 1996, Bielefeld, Germany

The government can also require pharmaceutical companies to reinvest in health care R&D. The money can be invested directly by the companies themselves, it can be diverted to a national R&D fund, to be administered by public health authorities, or there can be a combination of the two. There are many advantages to the mandatory reinvestment approach. The country can determine the aggregate level of R&D, and this can be done without regard to the private sector’s views on patent policies, price controls or other areas where we frequently see a form of blackmail by the industry. It is, after all, the consumers who fund the pharmaceutical companies, and this approach simply guarantees that an acceptable amount of the revenues from drug sales are actually spent on R&D. This is not simply an idea for developing countries, although I have proposed this in Argentina and Brazil. It is an idea that we are also trying to promote in the United States.

In our experience, efforts to protect consumers from high prices for pharmaceutical drugs are resisted on the grounds that price controls, compulsory licensing or other practices lead to reduced R&D investments. Patient groups are often cynically manipulated by these threats. This is a way out of that dilemma. This is a way to reconcile the public health interest in the development of new therapies with the broadest access to the new technologies.

1997. James Packard Love. Comments for the Working Group On Intellectual Property Rights, Third Trade Ministerial and Americas Business Forum, Belo Horizonte, Brazil, May 13-16, 1997

Mandatory Reinvestment

There have been several proposals in the United States for mechanisms involving mandatory reinvestment of healthcare R&D. An early proposal was made by a pharmaceutical company seeking a non-exclusive license to market cisplatin, an important cancer drug.77 Cisplatin was discovered at Michigan State University on a government grant. The University licensed the drug to BMS on an exclusive basis for 5 years. When the exclusive license expired in 1983, cisplatin was the best selling cancer drug in the world, and several companies wanted to obtain non-exclusive licenses to manufacture and sell the drug. BMS, which did not invent cisplatin, complained that competition would eliminate profits needed to fund future R&D on cancer drugs. Andrulis Research Corporation approached the government with a simple way to solve the R&D problem. Andrulis suggested that the government fix a royalty that would be used solely for R&D. Andrulis suggested that the money be given to NIH or a special foundation set up to receive the money.78 The Andrulis proposal provided an important insight — it was possible to uncouple the exclusive marketing rights from incentives to fund R&D.

Subsequently, a bipartisan group of U.S. Senators proposed a similiar reinvestment mechanism. They wanted a small percent of overall U.S. healthcare expenditures be placed into an R&D fund, to offset the impact of managed care on R&D funding. In a somewhat different context, Senator of Labor Robert Reich had proposed mandatory minimum reinvestments in employee training. More recently, Representative Sanders has introduced legislation to give the U.S. government the right to set a minimum percentage for reinvestment in healthcare R&D from sales of pharmaceuticals.79 The Sanders proposal would permit the pharmaceutical companies to choose their investment projects, subject only to limits on qualifying expenditures. Each of these proposals involved different ways for governments to insure macro levels of investments, with a great deal of flexibility in micro management of the investments.

The supporters of this approach believe it is an important tool if the government seeks to resolve thorny dilemmas regarding the need to avoid unreasonable prices for new healthcare technologies (and universal access), while ensuring sufficient levels of private sector healthcare R&D. We have recommended this system in combination with compulsory licensing of pharmaceutical patents. It would also work in the complete absence of patents.

2000. James Love, Paying for heath care R&D – Carrots and Sticks. October 19, 2000.

Senator Specter’s R&D funds. In early 1995, Senator Specter introduced S. 18, the “Health Care Assurance Act,” which, among other things, would have created a “Trust Fund for Medical Treatment Outcomes Research.” This R&D fund would have been funded by a tax of .1 percent of the premiums on private health insurance. Later the same year, Senators Hatfield, Harkin, Boxer, Inouye, Simon, Kerrey, Mikulsk and Moynihan sponsored S. 1251, “the `National Fund for Health Research.” The money for the fund would have come from an increase in the excise taxes on tobacco products. This bill also would have created a voluntary check-off system, whereby taxpayers could designate $1 of their tax refunds be donated to medical research.

. . .
In the United Kingdom, the government permits higher reimbursement prices for pharmaceutical when companies have above average R&D expenditures. In several countries, including Canada, the drug companies have negotiated promises for increased R&D levels, in return for changes in public policy. In India, the government has tried to push for minimum levels of R&D investments, but has meet resistance. In Argentina, there are proposals in the domestic industry for a tax on pharmaceutical sales to fund an Argentine R&D program.

2011. Antibiotic Innovation and Conservation (AIC) fee. The Infectious Disease Society of America (IDSA) proposed an Antibiotic Innovation and Conservation (AIC) fee. Seventy five percent of the AIC fee would be used to fund R&D for new antibiotic drugs, and the remaining twenty five percent for antimicrobial stewardship. See: Infectious Disease Society of America,”Combating Antimicrobial Resistance: Policy Recommendations to Save Lives,” Clinical Infectious Diseases, Volume 52, Issue suppl_5, May 2011, Pages S397–S428. From page S407 of the report:

“With respect to public monies, IDSA proposes creation of an Antimicrobial Innovation and Conservation (AIC) Fee. The AIC Fee would be a flat fee (e.g., $3 per daily dose, inflated by the consumer price index annually) charged against the wholesale purchase of every daily dose unit of antibiotics (both branded and generic) in the US, including for human, animal and plant agriculture, and aquaculture use. The fee would be paid by the dispensing entity (e.g., pharmacy, animal feed mill, aquaculture company, etc.) at the time of wholesale purchase from the supplier. The rationale for such a fee is that effective antibiotics represent a ‘‘shared societal benefit,’’ and every antibiotic manufacturer, prescriber, and user must share the responsibility to maintain this benefit. Antibiotic resistance resulting from antibiotic use (both appropriate and inappropriate) is an example of the ‘‘tragedy of the commons’’. A prescription may help the individual patient, plant, or animal, but such use also causes collective erosion of the benefit (effectiveness of antibiotics) for society as a whole. Analogously, use of highways by a vehicle has a cost to all users. Tolls (and differential rates) are means to have users pay their fair share of societal costs for establishing and maintaining a shared benefit. Because of the emergence of resistance, use of antibiotics differs from use of all other drugs that affect only the individual patients taking them. Hence, an AIC Fee would be charged to maintain the ‘‘shared societal benefit’’ of effective antibiotic therapy. Obviously, safeguards need to be incorporated into the AIC Fee structure to ensure that any costs passed on to consumers will not negatively impact vulnerable populations’ access to these important drugs.”

2013. Antibiotics Innovation Funding Mechanism (AIFM). The AIFM, endorsed by the WHO Euro region, was a proposal to collect a fee on the use of antibiotic drugs, to fund develop of new antibiotic drugs.

At least since Clem Tisdell, scholars and policy analysts have proposed an obvious 31 intervention to discourage low value uses of biologic drugs – imposing taxes on the consumption of the products. A theoretically well designed tax designed to correct market prices so the private costs match the social costs of the consumption is sometimes referred to as a Pigouvian tax. A well known and widely cited economist, Arthur C. Pigou proposed using taxes to discourage actions which caused negative externalities – precisely the situation when drug use leads to decreases in future efficacy of the drug.

The grant of a monopoly leads to high prices, and by raising prices, acts in some ways that are similar to a tax on consumption. But a private monopoly does not seek to scale the “tax” to address treatment objectives, and more important, the private monopoly keeps the money. If consumption is taxed by governments, the money can be used for something else, including to fund the AIFM. The high prices charged by holders of patent monopolies are only imposed on new drugs, in the time and places where patents are in effect. But taxes on antibiotic use can applied to both new and old drugs, and in times and places where patents do not exist. With a broader base, the same amount of money can be raised with less dead-weight loss, and the taxes or user fees can be scaled in useful ways. For example, as noted by Eric Kades and others, taxes can be lower in developing countries, and higher in higher income countries, because a smaller tax will have a larger impact with low income consumers. Taxes could be scaled differently for agriculture than for human use, and differently for different types of uses, and even scaled for individual drugs, given differential regulatory objectives as regards use. . . .

For antibiotics, the tax is particularly appealing, because it can be used to achieve conservation goals, and the benefits of the tax are returned to the drug manufacturers in the form of new R&D subsidies, and to the consumers in the form of lower prices on the new products developed as open source products.

An initial goal of 1 percent of the global antibiotics market, would provide more than $400 million

2017. Marcus Low and Kristanna Peris, Research Mandates, Submission to UN Secretary General High Level Panel on Access to Medicines, Treatment Action Campaign, SECTION 27 and Knowledge Ecology International. February 27, 2017.

By introducing mandates for reinvestment in R&D, governments will have a mechanism to ensure there is robust funding for R&D, including in areas of priority, even as they pursue other policies that are designed to lower drug prices.

While the justification for granting patent protection on medical products is to ensure investment in medical R&D that would serve the public interest, the evidence suggests that the granting of patent rights provides no guarantee of such investment in medical R&D. In addition, the investment in R&D that does take place tends not to be in areas of greatest medical need. . . .

A well designed IPR-linked research mandate will address this policy incoherence by mandating rights holders to invest more in R&D. It will do so by making the maintenance of patent rights contingent upon compliance with an R&D mandate.. . .

4.4.5. R&D Mandates in the Brazilian Oil Fields

The Brazilian government began taking legal measures in 1998 to tie the right of oil exploration concessions to R&D funds. Under the Petroleum Law and Federal Decree 2,705, when production of oil or natural gas reaches a certain target, the concessionaire is required to make investments in R&D. The Concession Contract also requires the concessionaires to invest in R&D projects. The obligation, established by the National Agency of Petroleum, Natural Gas and Biofuels (ANP) in Resolution No. 33/2005, requires that an amount equal to 1 percent of the field’s gross product income must be invested in R&D projects. At least half of the 1 percent must be invested in previously accredited institutions by the ANP while the other half may be invested in development activities in the concessionaire’s own facilities. . . .

4.4.6. Research mandates in Columbia

In 2011, Colombia created new laws requiring that ten percent of the royalties of exploitation of oil, coal, gold, platinum, and other mineral resources by both the government and private sectors must be invested in various R&D projects. The funds are distributed to R&D projects based on where the need is greatest and increase the country’s R&D funding by almost 40%. . . .

Additional examples of Research Mandates

UNIAID.
UNITAID was created in 2006, by the governments of Brazil, Chile, France, Norway and the United Kingdom, and other governments have recently joined, including in Japan in 2020. The original funding model was a tax of airline ticket, $1 for an economy fare, and $10 for business class. The revenues are spent on innovative public health programs, including but not limited to research and development of drugs, vaccines, diagnostic tests and other technologies.

7 U.S.C.§7401. Commodity promotion and evaluation

b) Findings
Congress finds the following:
(1) It is in the national public interest and vital to the welfare of the agricultural economy of the United States to maintain and expand existing markets and develop new markets and uses for agricultural commodities through industry-funded, Government-supervised, generic commodity promotion programs established under commodity promotion laws.

Examples include:

  • Cotton Research and Promotion Act,
  • Potato Research and Promotion Act
  • Egg Research and Consumer Information Act,
  • Beef Research and Information Act,
  • Honey Research, Promotion, and Consumer Information Act,
  • Pork Promotion, Research, and Consumer Information Act of 1985,
  • Watermelon Research and Promotion Act
  • Mushroom Promotion, Research, and Consumer Information Act
  • Soybean Promotion, Research, and Consumer Information Act,
  • Sheep Promotion, Research, and Information Act of 1994

To illustrate, the Potato Research and Promotion Act requires producers or importers of potatoes to make payments to finance research, development, advertising, and promotion of potatoes. The current assessment is 3 cents per hundredweight, with an exception for producers with less than 5 acres of production. There is an annual report on the research that is funded.

7 U.S. Code §2611. Congressional findings and declaration of policy
. . .to authorize the establishment of an orderly procedure for the financing, through adequate assessments on all potatoes harvested in the United States for commercial use and imported into the United States from foreign countries, and the carrying out of an effective and continuous coordinated program of research, development, advertising, and promotion designed to strengthen potatoes’ competitive position, and to maintain and expand domestic and foreign markets for potatoes and potato products. . . .

7 U.S. Code § 2619 – Assessments
a) Collection and payment; recordkeeping; limitation
(1) Each handler designated by the board, pursuant to regulations issued under the plan, to make payment of assessments shall be responsible for payment to the board, as it may direct, of any assessment levied on potatoes; and such handler may collect from any producer or deduct from the proceeds paid to any producer, on whose potatoes such assessment is made, any such assessment required to be paid by such handler. . . . .
(2) When importers are subject to a plan, each importer designated by the board, pursuant to regulations issued under the plan, to make payment of assessments shall be responsible for payment to the board, . . .