[Ip-health] The WHA negotiations so far, on R&D financing

Jamie Love james.love at keionline.org
Thu May 24 03:21:30 PDT 2012

I just wrote this to provide some analysis of where the R&D treaty
negotiations are at the #WHA65.  When the Internet is working, people
will be tweeting about this negotiation here:


The WHA negotiations so far, on R&D financing
24. May 2012 - 1:14

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: http://www.keionline.org/node/1414.

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

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:
http://keionline.org/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
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

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 providing 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 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:
http://keionline.org/node/1417). Among the USA talking points were the

*  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.

James Love.  Knowledge Ecology International
http://www.keionline.org, +1.202.332.2670, US Mobile: +1.202.361.3040,
Geneva Mobile: +41.76.413.6584, efax: +1.888.245.3140.

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