Market Entry Reward: Fully Delinked

While fully delinked MER schemes can be designed in numerous ways, such delinking of the unit sales from revenues means that decisions surrounding post-approval activities (those coming after the product is approved by regulatory agencies) are made by a third-party, independently of the originator (or late-stage) developer. Such activities include, for example, country market registrations, manufacturing (single or multisource), distribution conditions (where and when), and follow-on R&D (if and when) and post-market surveillance. Decision-making on these issues can be handled by the MER awarding entity or a designated institution with a public health mandate. Manufacturing can be licensed out to other manufacturers or the originator company can be asked to maintain this role with compensation. Other operations such as product registration, supply, and pharmacovigilance may also stay with the originator company; indeed any operations can stay with the developer if they are thought to be comparative advantages. In adequately compensating the developer for agreeing to the optimal mix of roles, fully delinked models have substantial advantages for longer-term sustainable use of the product in that there is no longer the incentive to maximize sales — and therefore no direct or indirect pressures from product marketing — while supporting necessary innovation and supply. If basic product information can be ensured through health systems in which there is real need for the product (e.g., where there is relevant multidrug resistant infection justifying use of the specific product), then demand for the product can be considered legitimate demand. Sharing critical information — such as information pertaining to safety and proven efficacy of the product — may, of course, need to be enhanced with the help of public health bodies to ensure that potential prescribers know of the existence of the product and understand the cases in which it can be useful.

In managing distribution free of the commercial objective, the decision to sell into national markets can be based on true need for the product and on ability of the health system to appropriately manage it. For example, countries can be asked to fulfil certain criteria such as those listed in Table 1. Ensuring that the appropriate structures, procedures and steward-ship personnel are in place is absolutely essential to maintaining product efficacy over the longer-term.^{Reference Pulcini, Morel, Tacconelli, Beovic, de With, Goossens, Harbarth, Holmes, Howard, Morris, Nathwani, Sharland, Schouten, Thursky, Laxminarayan and Mendelson9}

Making pricing decisions free of the commercial objective leaves room for local affordability and the relative price of other available products to be the main determinant of end price. This is essential for ensuring that the product is accessible where it is needed and that sensitivity to prices does not lead to its overuse or under-use. Indeed fully delinked approaches allow for local considerations to influence end price and avoid unhelpful pricing distortions that can contribute to inappropriate use of the product or prohibit access where the product is needed.

Fully delinked arrangements may also present overall cost advantages in that they can help encourage full product development by smaller companies who traditionally lack post-market capacities to sell in global markets. They also remove the major expense associated with product marketing — thereby potentially decreasing the magnitude of the reward necessary for developers to be profitable. Ultimately, such a scheme allows for a greater number of MERs to be offered and for a greater number of products to be brought to market and protected for the longer-term.

Market Entry Reward: Partially Delinked

This version of the MER is the one recommended by DRIVE-AB. In the partially delinked MER, the developer receives a large-scale reward and then sells the product on a unit basis into the market. While such arrangements may in theory reduce the pressure to sell the product if the MER is sufficiently high that the developer can recoup R&D costs, it still leaves in place the incentive to increase unit sales to maximize profits. Since end price considerations remain with the developer, prices will reflect what the market will bear. In the case of a new antibiotic, one can expect prices to be very high — much higher than most antibiotics on the market today. Wide-scale product marketing is then likely to increase because each additional sale will be worth so much more.

As sustainable use is not directly supported by the structure of the partially-delinked model (sustainable use is not supported in partially-delinked models as it is in fully delinked models), it has to be addressed in other ways. For example, sustainable use could be partly supported by structural elements such as a sales exclusivity provision in which the developer sells only to a large-scale purchaser acting in the public interest (e.g., Global Fund, UNICEF, GAVI etc.) for all or some markets, such as the Global Drug Facility for TB treatment.¹⁰ Responsibility for sustainable use in these markets therefore is transferred to the purchaser and any down-stream actors. Of course such arrangements would not affect the markets in which the developer directly sells the product.

Another option would be to have part of the MER offered later in time, and granted on the basis of enduring susceptibility to the drug. This would directly discourage extensive product marketing and any unjustified sales. (For further discussion on this topic, see publications on Antibiotic Susceptibility Bonus).

DRIVE-AB has also proposed a version of the MER in which the magnitude of the five yearly payments is adjusted by revenues in the previous year (revenues above a stated level would reduce the reward payment of the following year). While this may be intended to keep a cap on sales in this time frame, in practice it is unlikely to significantly impact normal firm behaviour. The greater the number of sales in the early years post-market, the greater the chances of physicians being accustomed to using the product and using it in the latter half of the patent life when constraints of the reward scheme no longer hold (see below for more on sustainable use related contractual obligations) and prices can be highest. A sales-adjusted version of the MER, as proposed, would not support sustainable use goals any better than the version using standard payments without sales-adjustment.

Tackling sustainable use in markets into which the developer directly sells the products requires weaving sustainable use related obligations into the MER contract. These obligations are intended to restrict marketing activities and limit sales to country markets with the necessary infrastructure, regulation, and stewardship personnel to ensure appropriate use. Ideally demands emanating from such measures would remain minimal at the level of MER granting body and the developer, utilize fairly straightforward approval procedures, and be stated as early as possible such that developers can adapt.

A list of potential obligations that could be used is provided in Table 2. The design of these obligations must match the specific market context and product characteristics. Where this is not possible upfront (e.g., where resistance-related risks related to the market or product context reveal themselves only late in the production process), more specific measures may need to be introduced closer to product launch. For example, this could include obligations surrounding oversight by third-parties, distribution controls, or named-patient supply. Together the obligations must cover all situations that might lead to clinically inappropriate sales and must have strong oversight and enforcement mechanisms in place, including large penalties for confirmed breaches. Most importantly perhaps, the parameters of the MER must fully align with the reward conditions. If the company or country is not bound by the obligations for sales of the product outside of the contract specifications for new indications, etc., then sustainable use measures will not result in the desired effect. Ideally, the MER and contract provisions should be applied globally such that minimum standards relating to use of that product are not gamed or undermined by variations in different jurisdictions.

Addressing sustainable use through contractual obligations creates a legal ‘zone of control’ as do the product patents and label. It also maximizes developer control, thereby potentially retaining commercial attractiveness. On a practical level, this approach is closest to the current business model, and most relevant parties are already accustomed to dealing with contract law. However, this is a time bound approach that can only be enforced for the duration of the contract. Contractual obligations may also be particularly ineffective in addressing perverse incentives (e.g., sales representative remuneration linked to sales targets). In order for sustainable use related contractual obligations to be effective, they must be inherited by any third-parties involved in the manufacturing and/or distribution of the product and possibly further development in the case of follow-on products.

Enforcement of such contractual obligations themselves would be challenging. Meaningful punitive measures, stated upfront, would be necessary to ensure compliance. Claw-back of the MER (full or partial) would be required in the case of confirmed breaches.

Finally, while use of contracts may be more familiar to most stakeholders and seem less burdensome than using a new business model, in reality the necessary measures to ensure compliance may prove administratively and financially burdensome and ultimately require a larger and more empowered MER secretariat. Allowing industry and public health interests to diverge would give such a secretariat an eternal uphill battle.

Grants and Pipeline Coordinator

Basic sustainable use provisions can also be included in push incentive arrangements such as grants (nonrepayable funding for R&D),^{Reference Savic and Årdal11} including those to support a pipeline coordinator (governmental or nonprofit organization that closely tracks the antibiotic pipeline and targets both financial and technical support to fill any identified gaps).^{Reference Baraldi, Lindahl, Savic, Findlay and Årdal12} Indeed defining general obligation provisions (or principles) early on in the discovery/R&D process has advantages in that expectations are clear to the developer when critical investment decisions are being made and, more generally, the developer retains autonomy over how to achieve the broad goals according to internal capacities and preferences. This approach is widely used within existing product development partnerships for products needed in the developing world¹³ and can be illustrated through a long history in the US of embedding public interest provisions in both government grants and public-private partnerships.^{Reference Sagal, Slowinski, Freese and Ferguson14} In this case, sustainable use could be embedded through broad public health principles by which recipients must abide. The design of the measures could be refined and made more specific as product characteristics become clearer and adapted to the changing external context. Indeed, such measures could be adapted incrementally until a developer-led plan is in place.

Long-Term Supply Continuity Model

The Long-Term Supply Continuity model proposes payments for maintaining supply of needed but rarely used antibiotics after patent expiry of the originator product. Crucially, as the tender recipients go on to sell independently into the open market, the model leaves the link between rewards and unit sales remains intact. As such, activities related to product promotion can be expected or to increase if they had previously been suppressed by MER arrangements. In order to hedge against this risk, sustainable use related contractual obligations would need to be included, similar to those included in the MER scheme, as mentioned in the report.¹⁵ Indeed, the obligations could be amended in light of experience with the product during the patent/MER period. This would represent a loss of commercial attractiveness for potential, traditional, generic bidders, which would have to be compensated for in the magnitude of the payment. Obligations could also be used to encourage that end price decisions are made in accordance with public health authorities, in line with the overall prescribing strategy (such that the price of the product is appropriate relative to other therapeutic options, and ends up encouraging an optimal prescribing strategy). The caveats surrounding the use of contractual obligations as the sole means of supporting antibiotic sustainable use hold again here.

However, if the long-term supply chain payments were instead intended to serve rather as a lump-sum payment covering manufacture and supply of the product upon demand — thus functioning like an insurance mechanism or service contract — then sustainable use goals would be much easier to achieve. Arguably there would little remaining motivation to promote the product, unless potential gains to general company reputation (which could support sales of other products within the portfolio) were seen to outweigh the marginal cost of production. The remaining risk of promotion, as with any fully delinked model, could be removed as part of the supply contract. Finally, if this model functions as an insurance scheme or service contract, then end price can be determined according to health needs and supportive of steward-ship and locally optimal prescribing strategies.