An important debate is taking place in Europe right now on how to fund new antimicrobials. For months it has been speculated that the European Union may move towards implementing transferable exclusivity vouchers (TEVs). In response, as first reported by Politico’s Carlo Martuscelli, on Wednesday, 30th November, 14 Member States wrote to the European Commission (in a leaked non-paper which I have since seen), outlining why they think its proposed policies are costly, inefficient, and will disrupt the market for generic drugs. They make three counter proposals for how new antimicrobials can be encouraged. The Commission should listen to them and get this policy right.
The European Commission wants Transferable Exclusivity Vouchers
While no formal announcement has been made it has been clear to those in the know that the Commission’s preferred policy is TEVs. This is where a company that comes up with a useful, new antibiotic is given a voucher that can extend the market exclusivity of a different drug, delaying when generic drugs are allowed to go on sale. This model is popular with industry, possibly because successful innovators get paid for their research, and companies can also extend the market access of a different drug, or sell the voucher to another company who can use it to extend their own product.
What is the risk to the generics market?
Holders of patents are often keen to make it as difficult as possible for generic companies to enter into the market and lower their costs. By making it unclear if a product will have its exclusivity extended, TEVs might make it more difficult for companies to time their market entry. This could undermine the generic market, not only for those drugs where a purchase takes place, but for other parts of a market where generic companies withhold investment because of the possibility that a TEV is used.
What will a TEV cost?
The value of a voucher will vary greatly depending on which drugs are nearing the end of their patent. If it’s a big blockbuster drug, then the value of the voucher will be far greater. The world’s bestselling drug in 2020 was HUMIRA (a drug for rheumatoid arthritis) with $20.39 billion in global sales; Keytrunda (a cancer treatment) was second, with $14.38 billion. A TEV would be worth 42 percent more if sold to the former drug. So there’s an element of randomness in how much the company gets paid.
The EU accounts for 23.4 percent of the global pharmaceutical market; a one-year extension of the most profitable drug globally will cost it $4.8 billion. Whilst countries will still need to pay for the generic treatment, the FDA estimates that these are usually less than a third of the price. Meaning it would likely cost more than $3.2 billion for a one-year extension. There isn’t an agreed formula for deciding how much countries should pay towards innovation; the UK has decided to pay based on its GDP. The EU has 14.8 percent of global GDP, and it has been estimated that approximately $3.1 billion is needed for each drug. You’d thus expect the EU’s fair share to be closer to $460m.
Part of the reason for the higher cost is that any voucher will likely see some benefits go to the company that buys it, essentially as a middleman. Otherwise doing so would not be worth their while. This money is unlikely to generate funds for antibiotic R&D and is therefore less efficient than direct payments to innovators.
Why is this estimate higher than the Commission’s?
Work carried out by the European Federation of Pharmaceutical Industries and Associations (EFPIA), suggests these vouchers will be between €350 million and €500 million each (369 million to 527 million USD, respectively), which is similar to the figure put forward by the Commission of around €440 million. How much the voucher actually costs is dependent on the cost of the drug. EFPIA underestimates the cost to governments by presuming it will be applied to a drug of average price. However, companies will earn more by extending the most profitable drugs, so it’s likely the costs will be far higher than this. EFPIA also suggests that the cost of any TEV will be greatly trumped by the value of a new antibiotic to Europe. This is likely true, however it is not a good justification of the policy, if cheaper ways of meeting the same ends exist (and they do).
A revolt from its members
On Wednesday, 30th November, the majority of EU Member States pushed back in a non-paper sent to the Commission. This effort was led by the Netherlands and co-written by Austria, Belgium, Finland, France, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Poland, Portugal, Slovakia, and Slovenia.
While Member States agree with the Commission that new incentives are needed, their objections to TEVs are made clear: “Transferable vouchers do not directly incentivise the development of novel antimicrobials, nor do they ensure that products are accessible and available throughout the EU for an agreed upon time period… the costs for national health systems will be high.”
The non-paper alone will not stop the Commission from pursuing a TEV, but for any proposal to be implemented by the council of ministers, it would need the support of 55 percent of Member States, representing at least 65 percent of the EU’s population. Martuscelli is right to say that “by all indications, they’re already holding a big, red pen.”
What do these Member States propose?
These Member States instead suggest that the EU’s new Health Emergency Preparedness and Response Authority (HERA) should facilitate any response that will “allow Member States to tailor towards their individual needs, and that contribute to making new medicines available across the EU and for a meaningful period of time.”
They propose three, non-mutually exclusive solutions:
- Direct financial incentives: such as a market entry reward. This would likely be a lump sum payment based on the value of the antibiotic. Many proposals have been put forward on how to judge this, including by the UK government and in the PASTERUR Act.
- Guarantee for minimum turnover: where each Member State is committed to paying a certain amount for antimicrobials regardless of the number of prescriptions. This is similar to the UK and US plans.
- R&D incentives: such as milestone payments for innovators.
The non-paper also stresses that it is crucial for new antimicrobials to be available in all Member States, and that the EU should prioritise reducing unnecessary use, through requiring prescriptions, point of care tests, and harmonising regulations and product information.
In addition, Member States emphasise the need for making a system cost effective, rewarding innovators directly, and making sure that payments are predictable, as this will best drive investment. They are correct to point out that paying for things directly is cheaper. Any of the three proposals put forward by these countries is likely to be far better than the TEV model that the Commission appears to be pursuing.
We can hope for a better policy ahead
For those who have long advocated reform for how antimicrobials should be purchased, the non-paper is a step in the right direction. Whilst antimicrobial resistance is a huge and growing problem in need of swift action, the policy implemented needs to work and stand the test of time. Waiting a little longer and taking the time to develop the right policies, rather than the wrong ones, will ensure that Europe can generate the medicines needed to protect Europeans, and the world from this “silent pandemic."
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.