Transferable patent extensions: a solution for financing the development and market access of new antibiotics?

“In principle, in a market economy, needs attract investment. In the case of antibiotics, we know that there are needs, but we don’t see any innovation coming,” explains Pierre Dubois. Why? Because investors know they will not realize the expected return on investment.

For Pierre Dubois, the main flaw in the antibiotics market is tied to the need to preserve the public value of this “common good”.  “Antibiotic consumption has a private, short-term value for each patient, but it also has an impact on the population as a whole because it promotes the development of antibiotic resistance. You have to take this external factor into account,” he says.  As a result, it becomes the objective of healthcare organization systems to reduce the consumption of antibiotics. “Another difficulty comes from the fact that, to preserve the effectiveness of new antibiotics, we only want to use them as a last resort,” adds Pierre Dubois.

The conjunction of these two trends means that healthcare manufacturers who launch new antibiotics on the market can only expect small sales volumes.  High selling prices are thus needed to ensure profitability. However, on the contrary, selling prices are low. According to Pierre Dubois, “this combination of low prices and low quantities explains the lack of investment in innovation for new antibiotics.”

To effectively stimulate innovation, one of the ways is to disconnect the innovator’s reward from the quantities sold. “To achieve this, political will is essential,” says Pierre Dubois.

Faced with this observation, the TSE team proceeded to explore a new option: the use of transferable exclusivity extensions, or vouchers. In principle, the innovator receives an extension of intellectual property rights for the development of a new antibiotic. They can then use it themselves, or sell it to the holder of a very profitable drug (a “blockbuster”) whose patent (and thus the period of exclusivity) will soon expire; they can thus delay the introduction of equivalent generics. On a European scale, the European Medicines Agency (EMA) could be the regulator of these vouchers.

The advantage of this mechanism is that it is imposed on any country that uses this other drug. Of course, this means that the medication with an extension of exclusivity is sold at a high price for a longer period. This mechanism thus has a social cost, because it is financed by the health system of each country.

Researchers therefore compared the cost/benefit ratio for the community, in different European countries, of rewarding the innovator with a voucher instead of traditional direct payment. “This comparison shows that the cost of the voucher is generally lower due to the margin practiced by generics makers and the cost of public funds,” says Pierre Dubois. “Indeed, to pay 1 billion euros in public funds to an innovator, 1.3 billion in contributions or taxes, on average, must actually be collected.”

Such a system is thus attractive both in political terms, to align all European countries in a common direction, and in terms of efficiency of public spending.

The main criticism of such a system concerns the uncertainty regarding the value of the voucher. If a duration is tied to the voucher (an additional exclusivity right of six months or one year, for example), how can fair compensation be guaranteed to the innovator? For Pierre Dubois, the solution is simple: setting the value of the voucher but not its duration, which is then auctioned between the innovator and the pharmaceutical companies: the one that offers the shortest market exclusivity period is selected.

Another criticism targets the market power of the buyer. Indeed, those able to buy these vouchers are large laboratories, and there are few of them. The company producing the biggest blockbuster arriving at the end of an exclusivity period could possibly ignore the real value of what the voucher would bring them, and might consider instead what their primary competitor is able to offer, which could result in increasing the social cost. “In actual fact, there is not much of a gap between the top blockbusters, so these companies will have little power,” replies Pierre Dubois. However, this market power is likely to be higher if many vouchers are issued at the same time. One solution is to issue only one per year, even if it means combining the value of vouchers from several innovators. In this case, a single voucher would be auctioned.

However, it is unlikely that the regulator would issue large quantities of vouchers, on the one hand, and that innovators would all launch new products at the same time, on the other. As Pierre Dubois points out, “the regulator will have to be clear on the type of innovations, and on the criteria, that it is ready to finance with this mechanism.”

Other models are possible, such as the subscription model, which consists in decoupling “sale price and volume,” which guarantees the innovator a fixed reward, based on a contribution from each country, regardless of the quantities sold; the new antibiotic is then put on the market. But in this model, the temptation would be high for some countries not to participate in the financing, and ultimately still benefit from it. This is called “free-riding,” an issue that is also encountered in the fight against global warming.

The other model that TSE is working on involves linking “antibiotics and in vitro diagnostics,” in order to make it mandatory to use the results of an in vitro diagnostic test for the prescription of any new antibiotic. This system would have the merit of allowing a fair use of antibiotics, and therefore of combating antibiotic resistance. Pierre Dubois adds that “the two mechanisms, i.e., the voucher and the use of an antibiotic conditional upon an in vitro diagnostic, are perfectly complementary.”