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In March, our team at the Center for Global Development and Office of Health Economics posted a consultation draft of a policy proposal for a Market-Driven, Value-Based Advanced Commitment (MVAC). The MVAC is a new mechanism that puts middle-income country governments in the driver’s seat to accelerate R&D for diseases that affect the world’s poor—specifically, the 10 million men, women, and children who develop tuberculosis (TB) disease each year and desperately need better therapies. The model would help redirect private-sector R&D investments where they’re needed most, while ensuring affordable access and at-scale deployment when innovative drugs come to market. In the long run, the MVAC is intended to serve as a bridge between the dysfunctional status quo and a more sustainable and effective R&D ecosystem—one which more closely emulates the positive characteristics of high-income country markets for healthcare products.

Alongside the draft, we issued a sincere and open call for feedback “from country governments, funders, industry, civil society, and academia—to stress test our ideas; identify holes in our thinking; and help craft a tighter proposal that is responsive to stakeholder needs.” We asked, and you answered—and we’ve been gratified by the crowdsourced response from the broader community. In the months since we posted the consultation draft, we’ve received several thoughtful written responses and enjoyed the opportunity to speak frankly with a wide array of community members. In full transparency, reactions have been mixed. Some have been enthusiastic about a practical path forward; others have voiced concerns that the MVAC would further entrench a fundamentally flawed model of financing pharmaceutical research and development. Almost all have raised valid concerns about specific design elements, requiring further consideration. But as we hoped, the feedback has indeed helped us tighten our thinking, identify gaps in our analysis, and better understand differing perspectives—a testament to the value of open dialogue and respectful debate.

The MVAC consultation process remains ongoing; all input we receive will inform our revision of the consultation draft. For those of you attending the World Health Assembly, we hope you’ll join us for the next step in that process—an open learning and networking event on May 19.

For now, we want to reflect on the first round of feedback, including some of the main points raised by disease advocacy and access to medicines civil society groups in particular, and how they have influenced our thinking (though of course we’ll elaborate further in a revised consultation draft). In this (admittedly lengthy) blog post we break down the main critiques into three big categories: (1) areas of misunderstanding/lack of clarity on our part; (2) areas where the consultation process has helped point out or clarify specific design flaws or challenges—and where we can work together to find a solution; and (3) areas where we may need to agree to disagree. We may not be able to fully account for every issue that’s been raised, but we will do our best here to accurately and fairly reflect the most important critiques.

Category 1: Misunderstandings and Omissions

  • Compulsory licensing, TRIPS flexibilities, voluntary licensing. Several responses raised alarm at our characterization of compulsory licensing and other TRIPS flexibilities, and the implication of the MVAC for the continued availability of these important and lawful tools for enhancing access. In the draft report, we note that industry sees these measures as a risk—one that might dissuade R&D investments. We also note that the MVAC commitment agreements would require countries to waive compulsory licensing rights only for the specific product developed under the MVAC umbrella.

    As a purely practical/empirical matter, we do believe that the threat of compulsory licensing impacts anticipated profits, with noticeable downstream consequences for R&D. But the flip side, as many stakeholders correctly raised, is that compulsory licensing (and the threat thereof) has been a legitimate and often (though not always) useful tool for helping the worlds’ poor to access lifesaving products that have already been developed and would otherwise be out of reach. It has also been included as a policy option in draft legislation by the US Congress. Further, compulsory licensing was found to be a good value-for-money policy intervention in the Thai context.

    Our intention is not to blame or demonize countries for using the tools at their disposal to serve their citizens. Compulsory licensing has offered important upsides (improved short-run access to lifesaving health products and better leverage in price negotiations for products already on the market); but its use may come with potential systemic downsides (reduced private R&D or market entry investment, and therefore a lack of new products). It is notable that most compulsory licensing activity has taken place around treatments for HIV, where there exist large enough high-income country markets to make development commercially viable. TB does not fall into that category.

    To clarify our position here: the MVAC proposal does not require (or even suggest!) that countries surrender the threat of TRIPS flexibilities writ large. Instead, it is a practical proposal building off the current framework of international law. In the same way countries may use the threat of compulsory licensing to extract price concessions, we are offering a path for countries to use the threat of compulsory licensing to ensure—in advance—that innovative drugs will be offered at a locally affordable price point. If industry reneges on its end of the bargain by refusing to honor the pre-negotiated affordable pricing, countries are once again freed to exercise TRIPS flexibilities.

    In the long run, we hope the MVAC will help a move to a new status quo where countries don’t need to trigger or threaten compulsory licensing—not because they’re unable to do so, but because industry proactively offers innovative products at prices that reflect value to the health care system, take account of local budgets, and so are locally affordable. Countries would be willing to pay prices that reflect this value because they recognize the need for a sustainable supply of innovation to tackle the health needs of their populations.

  • The merits of generic competition. In our report, we write: “For MIC markets alone to generate private sector R&D investment, innovator companies will need assurance that MIC purchasers are willing to pay a value premium for innovation—potentially far higher than the cost of less effective generic competitors, but low enough to ensure local value and affordability.” Our intention here was to compare a potentially pathbreaking innovative product to less efficacious older products, which have been around for decades; because they are off-patent and benefit from generic competition, these products can often be purchased for just pennies a day. But several stakeholders understood this as an attack on generic quality—this was not our intention. Furthermore, the fact these older and low-cost products are included as comparators in our proposal means the innovator product must bring demonstrable and significant health benefit to justify a value premium. Comparing anything new to what is already available (however old or inexpensive) is at the heart of comparative effectiveness and a core principle of HTA.

    Back to the quality discussion and to be very clear: we are not questioning the quality of generic medicines in general and we are 100 percent in favor of quality generic competition, including, where appropriate, competitive tendering strategies for products that are either (1) off-patent; or (2) on-patent, but which can be substituted for other products of similar efficacy. In fact, we recognize insufficient generic competition and ineffective tendering as among (if not) the most important factors driving high LMIC drug prices, most of which are for off-patent products—subjects discussed in great detail in our forthcoming report on the Future of Global Health Procurement (to be published later this spring).

  • Civil society and affected communities input. Our intent in developing the MVAC proposal—and in sharing it widely through a public consultation process—is to ensure an open and participatory mechanism that can include and reflect the priorities of all stakeholders, including civil society and affected communities. Ultimately, affected communities are the intended beneficiaries of the MVAC proposal—and our proposal must involve listening and responding to their needs. One response noted that our consultation draft had not explained how they would be represented in MVAC design and governance.

    In our view, the design and governance of the MVAC necessarily include civil society and affected communities at all points throughout the process. For example, we use a sample target product profile (TPP) for our initial economic analysis developed by WHO which involves experts and civil society organizations in all its processes. Most importantly, health technology assessment, which lies at the heart of MVAC, is a highly collaborative and consultative process, with direct input from a wide group of stakeholders at the national and international levels—including civil society and affected communities. We expect these groups, in partnership with the scientific/medical community, to be particularly influential in determining both the characteristics of the TPP that relate to patient needs and experience and the determination of its value as is the norm with HTA agencies in high-income countries and middle-income countries (e.g., see here, here, and here for HTA processes in India). If anything, MVAC puts countries and beneficiaries in the driving seat when it comes to value determination discussions. We will make this a lot clearer in our final post-consultation proposal.

  • The application of tiered and value-based pricing. In our report, we write: “There is the potential for differential (“tiered”) pricing of products that remain under patent and outside the scope of large global health institutions. This is a ‘win-win’ solution in theory for countries and manufacturers, but the potential is often unrealized.” Some comments we received challenged this notion, arguing that patent holders will execute a tiered pricing strategy in a way that will lead to prices above levels that would be affordable to individual patients and government payers.

    On this issue, we recognize that, although tiered pricing has potential, this is often unrealized in practice. It requires prices to be set by manufacturers in negotiation with national payers based on evidence of added value and within the latter’s budgetary constraint. (Of course, any price for a medicine may be unaffordable to the poorest and most vulnerable individuals; even free medicines may be out of reach if they require costly travel or user fees to secure their prescription. This, of course, is the fundamental argument for universal health coverage, in which a payer pools funds across patients of different means to ensure equitable coverage with low or zero user fees or copays to ensure access to all including/especially those who cannot afford to pay directly.) But the problem is not tiered pricing per se, but how prices are set.

    The design of the MVAC is intended to help avoid some of these traps. Pricing is tiered across countries, but the tiered prices are not set arbitrarily; they are set at levels that reflect local affordability for MIC governments. Those governments, in turn, commit to purchasing and providing the drugs to their citizens, so no individual is faced with unaffordable out-of-pocket payments for lifesaving drugs. As part of the tiered pricing, the MVAC would also ensure that low-income countries receive the innovative drugs at a highly concessional price—either through direct purchase or via intermediaries like the Global Fund/Global Drug Facility, where mechanisms such as the MPP and voluntary licensing would be critically important.

    Relatedly, several responses expressed concern about the proposed use of value-based pricing, arguing that there are many ways to calculate “value,” no universally accepted method, and the term “value” has been abused to justify extortionary pricing a la Martin Shkreli. Our own use of language may have contributed to some misconceptions. We often refer to the economic concept of “willingness to pay”; this is a technical economic term intended to reflect a broad range of factors including affordability, but in plain English it may seem like we’re in favor of pricing extortion for vulnerable patients or the payers acting on their behalf. Instead, we should refer to countries’ ability to pay given local resource constraints, competing priorities, and the health benefit offered by an innovative product. Let us clarify here: our definition of a value-based price refers to the value of the product to the payer compared to the next best thing available to them as described in the 2007 Office for Fair Trading report: “[a value-based price] would ensure the price of drugs reflect their clinical and therapeutic value to patients and the broader [healthcare system].”

    Under the MVAC, the idea of a “value-based price” is therefore synonymous with a locally affordable price. Our preliminary calculations in the draft report are based on modelling carried out by academics at the London School of Hygiene & Tropical Medicine and Imperial College London using disease progression and health economics’ models widely used by the TB community (as previously indicated, we’re happy to share the underlying HTA model on request). These calculations, though preliminary, use a value-based price anchored on the opportunity cost of health expenditure elsewhere in the health system (which, of course, differs country by country, hence the differential pricing). Further, the value-based price would serve as the starting point for discussions—it would set an absolute maximum but would not translate directly into the actual price paid by countries, especially where early-stage TB R&D is in large part funded by public and philanthropic sources. We discuss these issues in the draft report and also in the next section.

  • Opportunity cost to MIC governments. Some comments expressed concern that the MVAC would entail large commitments of funding and political capital from MICs for a not-yet-realized future drug, potentially detracting from other (timelier) opportunities to address and control the TB epidemic. We emphatically agree that governments must carefully consider the allocation of scarce resources, considering not just the benefits of a given investment but also the opportunity cost, or benefits foregone elsewhere in the system.

    Yet here specifically, the MVAC offers a somewhat elegant solution by leveraging MICs future demand without requiring upfront payments or investment. The MVAC does not require governments to put any money forward or aside in the short term; they are not required to finance R&D inputs, nor are they forced to increase short-term expenditures. Instead, they simply commit to purchasing a future product—only if and when it comes to market. And at that time, the pricing for the new regimen is, by definition, set at a level where its value at least equals and likely exceeds the opportunity cost of that spending elsewhere in the health system. Given the current political momentum behind curbing the TB epidemic globally and domestically at MICs, we think our proposal is realistic.

Category 2: Let’s Work Together and Find a Solution

  • Interaction with Life Prize, delinkage, market entry awards, and other models. We received several important questions about how our model would interact with other innovative funding mechanisms, including the Life Prize to source early stage TB compounds. Though we did not address this issue directly in the draft report, we believe these can and should coexist and build upon each other within a single R&D ecosystem for TB.

    Our approach is purely practical: we believe in the additive power of multiple approaches and initiatives to crowd in R&D investments. Importantly, our model has a low opportunity cost (see further discussion below). The MVAC would not compete for or displace funds from “push” initiatives or the Life Prize; instead, it offers another supplementary avenue to accelerate R&D that requires no upfront allocations by countries.

    If the Life Prize model or a product development partnership produces a universal regimen meeting the TPP, that’s terrific! These regimens could then qualify for the MVAC commitment. The pro bono IP-holders could then take advantage of the commitment but offer the drug at cost, ensuring widespread uptake in countries with a lower overall cost footprint. Given the complexity of the multidrug combination needed to meet the TPP, we think that such competition is unlikely to materialize. But R&D is a numbers game; the more players in the marketplace, the higher the odds of a breakthrough product. The MVAC helps boost overall investment, most importantly crowding in private investment which is in short supply, increasing the likelihood that TB patients get the better products they need.

  • Multiple entrants. In our own internal discussions—and in response to questions raised by community members—we’ve grappled with the question of multiple entrants. That is, what happens if multiple products that meet the TPP come to market in roughly the same time frame? Would countries be locked into their initial commitment, even if there’s a competitive (or even superior) product introduced shortly thereafter, potentially from a nonprofit actor (e.g., a PDP or the Life Prize)? How could multiple products best compete for market share within the MVAC paradigm?

    On the one hand, the specific characteristics of the TPP (a multi-drug combination with at least two novel compounds) make this scenario unlikely. (Indeed, this would be a good problem to have!) But if we want to crowd in additional private sector actors—and protect countries against the unlikely but possible risk of “lock-in”—we need a better answer.

    There are many potential options, all of which deserve further consideration. For example, the commitment contracts could include either a break-out clause for countries or a re-run of the HTA model if a competitive product comes out within some pre-set window after launch. This would potentially imply a downward readjustment of the price, and therefore of the market value for the remainder of the agreement, with risk shared between industry and countries. Alternatively, we could rerun the HTA model a year after market entry, with open competition on price between the first and subsequent entrants provided they meet minimum efficacy standards (e.g., at least equivalence).

  • Accounting for incremental innovations that improve TB standard of care. Though a universal regimen for TB may still be a decade away, several respondents noted that incremental improvements are (thankfully) likely on a much shorter timeline. This naturally leads to a question: how would the MVAC account for/respond to incremental improvements that occur in the interim? Would this affect the commitments or prices paid for the final regimen?

    This is an important question, and one that we’ve spent quite a bit of time considering. At a fundamental level, there’s a tradeoff that needs to be managed. On the one side, a more “fixed” country commitment provides greater simplicity and predictability for all parties—but also may leave a country government vulnerable to overpaying if the universal regimen offers less than expected incremental value over the comparator standard of care upon market entry. On the other, a more flexible/adjustable commitment would protect the country from this eventuality, but exponentially increase the overall complexity.

    Given these competing forces, our proposal offers a pragmatic path forward. We imagine that several important innovations will come to market by the time a universal regimen is available; specifically, we are hopeful for the introduction of a better vaccine, a shorter DST regimen (like BPaMZ), and a better MDR regimen (like BPaL). Our modelling therefore considers a very optimistic scenario where several of these pipeline products are introduced as comparators at a very low generic price. This means we can still set a relatively “fixed” and predictable commitment but still protect countries from overpaying.

  • Specific characteristics of the TPP. Several comments took issue with specific characteristics of the TPP we used for our initial economic analysis. We take these comments seriously, but we emphasize that the TPP used in the report is based on the WHO TPP and serves as a starting point for the modelling analyses. The ultimate TPP would need to be discussed and agreed between participating country governments, drawing on a broad consultative process with the medical and scientific communities, civil society, and affected communities. Through this consultative process, the final TPP should reflect and respond to the technical concerns of expert stakeholders.

  • Risk of “over-paying.” Several comments raised concern that the MVAC might lead to countries “over-paying” for an innovative product, with industry getting too much revenue from resource-constrained national government. There is a more fundamental debate about the merits of “cost-plus” versus value-based pricing here (see next section), but there is also a more specific/narrow question about how to take account of a situation in which early-stage R&D is largely financed by donor and public-sector investments.

    We remain open to ideas and suggestions. Note that our proposal includes strategies to crowd in additional countries (helping push down the price for country payers) and a greatly discounted “tail price” once the initial commitment is fulfilled.

Category 3: Agreeing to Disagree

We believe there are different and not necessarily mutually exclusive ways of trying to address the issue of directing R&D investment in areas that matter to the poorest while ensuring new and existing products are accessible and affordable. We hope we have clarified our position vis-à-vis market entry awards, early stage prizes, and compulsory licensing earlier on. Some of us have written elsewhere about ongoing initiatives calling for more transparency of prices and of R&D costs as a means of improving access, and why these will not achieve their objective. MVAC is not a competitor to these initiatives; however, it does reflect our collective view that transparency of R&D costs with a view to introducing a global pact for cost-plus pricing is both unrealistic and unlikely to lead to better/more/more accessible/more useful innovation. We rehearse these arguments here, here and here.

Disclaimer

CGD blog posts reflect the views of the authors drawing on prior research and experience in their areas of expertise. CGD does not take institutional positions.