Medical R&D That Works for the Developing World

Can the world settle on a medical research and development (R&D) system that develops medicines and other products to meet priority health needs and makes those products available on an affordable basis?

Developing a strategy to meet these twin goals is the task of World Health Organization (WHO) negotiations in their final phase this week.

The WHO Intergovernmental Working Group on Public Health, Innovation and Intellectual Property is finishing talks to create a global strategy and plan of action to spur medical R&D focused on the health needs of developing countries, and to ensure that poor populations get access to important pharmaceuticals and other medical technologies.

The world — and especially developing countries — needs more innovation. To have public health benefit, however, the fruits of the innovative process must be available to people who need them.

The current patent monopoly-based system of R&D has proven inefficient at advancing a needs-driven public health agenda. This is true for rich countries as well as poor, but the situation is much worse in poor countries. This has nothing to do with the ethics of Big Pharma. It is how the system is designed.

The current corporate sector system of R&D is driven by the prize offering of a patent monopoly. Patents are not worth much if they offer monopolies on sales to a population that — no matter how large — has little buying power. And if the prize incentive is too small, it will not induce R&D, no matter how much it may be needed as a public health matter.

Here’s what this means in practice: Developing countries comprise 80 percent of the world’s population but amount to only 13 percent of the global market for medical products. A review by Doctors Without Borders of new drugs introduced between 1975 and 2004 found that of 1,556 new drugs put on the market, only 21 were for “neglected diseases” — diseases endemic to developing countries.

The value of the patent monopoly is based on the holder using it to profit maximize as a monopolist. It is therefore no surprise that companies holding patent monopolies charge high prices. This is what the patent enables. High prices are an increasing problem in rich countries, but the brand-name pharmaceutical industry’s current pricing model — which commonly runs into the thousands of dollars a year for a single medicine, and may involve charges of more than $100,000 — leaves new medicines completely out of reach of the vast majority in developing countries.

How to respond to these problems? There are two basic alternatives. One is to rely on charity. Private foundations and companies seeking good will may contribute to R&D for products targeting diseases in developing countries. They may offer discounted versions of their drugs, or give some away. Charitable initiatives may accomplish quite a bit, but in general they suffer from being ad hoc, unsustainable, erratic, episodic, short-lived and insufficiently resourced. Charity may be helpful, but it is no solution to meeting public health priorities on a sustained basis.

The second option is to examine systemic approaches to support R&D that do not rely on patent monopolies or the prospect of charging high drug prices as a reward, and to identify mechanisms to make the fruits of R&D widely accessible.

There are a lot of good ideas, large and small, about how to do this. Notably at the WHO talks, Bolivia and Barbados have put forward a series of concrete proposals for non-patent prizes to incentivize R&D, with the resulting fruits of the innovation made available at competitive prices.

One of the Bolivia/Barbados proposals is for a Priority Medicines and Vaccines Prize Fund. The fund would offer large cash prizes to entities developing new products for neglected diseases, antibiotics or products for emerging public health threats (like avian flu or SARS). It would offer smaller prizes to parties that made advances toward these goals, meeting benchmarks short of bringing new products to market. It would also offer separate prize money to parties that openly published and shared their research. A condition of receiving the prizes would be licensing all resulting patent, data and know-how so that end products could be made available immediately on a competitive basis. In other words, there would immediately be generic competition and low-cost pricing.

There is no guarantee that the prize fund would work in creating innovation where now there is none or much too little. But it is an interesting and provocative proposal.

There is no legitimate rationale, on the merits, to oppose ongoing discussion of this prize proposal. Remember, in keeping with the focus of the WHO talks, the Bolivia/Barbados proposal focuses on health problems specific to developing countries. It involves areas where there is no effective market (or, in the case of antibiotics, special market problems) to incentivize R&D. So, there is nothing for Big Pharma to lose here.

But the industry and its allies are viewing this and similar proposals very cautiously. Some ideologues oppose any tinkering with the patent monopoly system. The industry is concerned that tinkering in the case of health problems related to developing countries will eventually threaten the patent monopoly system in the rich world, or interfere with its ability to expand sales to the wealthy in middle-income countries. (More on the role of Big Pharma and its proxies in my next column.)

Will country negotiators at the WHO talks ignore those who would subordinate public health to patent veneration or commercial concerns? Will they instead advance experiments with new institutional arrangements to promote the complementary public health objectives of innovation and access? We will know by the end of the week.

Opening the Schoolhouse: Undoing the World Bank’s Damage

For 30 years, the International Monetary Fund (IMF) and World Bank have remade much of the developing world according to a market fundamentalist ideology.

The results — measured by lost wealth, stunted social indicators, depletion of natural resources and trashing of the environment, rising inequality and concentration of income, damage to indigenous communities, or many other standards — have been catastrophic.

Can the ongoing harm be undone?


Consider one very small example, with not-so-trivial consequences: the case of school fees in Kenya.

In the 1980s and 1990s, the IMF and particularly the World Bank told developing countries to adopt user fees for education. The institutions have enormous power to impose conditions on developing countries eager to get loans, especially heavily indebted countries that need new loans to pay off old debts and keep their economies functioning.

Why should families be charged for sending children to school? The idea was that school fees can help pay for the cost of schools, especially as the Bank and Fund demand government spending cutbacks.

In practice, and predictably, school fees proved a disaster.

Mary Njoroge has recently retired after 31 years in the Kenyan educational system. Her final post was Director of Basic Education in the Ministry of Education.

Njoroge says that, “even as the fees were introduced, poverty levels were rising in most of the country, and the parents were not able to pay the fees. That led to many, many children dropping out of school — just because of the inability of parents to pay the fee.”

In Kenya, Njoroge says, school fees were a very important revenue source. They became an inadequate substitute for lost federal revenue — and the existence of school fees became a rationale for further federal spending cuts.

“It was from the fees that the schools could buy books, buy chalk, buy exercise books and any readers that they were going to use,” Njoroge says. “Fees also paid for the running of the school, the overhead of the school. That money was very important. The schools were not going to be able to run without it.”

Not surprisingly, the poorest families were hit the worst by this policy, and girls worst of all. There were no exemptions for the poor, though exemptions have proven an utter failure in other places.

For poor families, says Njoroge, “Initially, the choice was if children have to go to school, which children would go? And boys were the ones sent to school in the very poor communities and girls were left at home. Eventually, even that became difficult and for the very poor communities both boys and girls dropped out of the school system. Only those who were able to afford the school fees were left to continue.”

By the start of the 2000s, spurred by outside pressure, the World Bank came to recognize that school fees were a failure. But Kenya and other countries had come to rely on fees, and it wasn’t obvious how to do away with them.

Then, something transformative happened.

In the 2002 presidential elections, Mwai Kibaki ran on a platform that highlighted a commitment to eliminate user fees for education. This promise helped Kibaki get elected. And then he delivered on the promise. Njoroge oversaw the initiative to get rid of school fees.

“When the new government came in and announced that in the new year [2003] children could attend school without paying fees,” says Njoroge, “we witnessed an additional 1 million new children in our schools, over and above the 5.9 million who had already been in the school system.” An additional million came soon thereafter.

User fees had locked the schoolhouse doors to a quarter of Kenyan children. Abolishing fees opened the doors.

Njoroge says that improved tax collection and better systems for financial accountability paid for most of the additional costs — both the lost school fees money, and the money needed to teach so many more kids. The excitement around the initiative also attracted donor funding.

This surge of new students into classrooms created significant transitional problems, says Njoroge, but now teachers have been trained how to handle bigger classes, and how to teach multi-grade classrooms.

Eliminating school fees has been a grand success. “When the fees were lifted, says Njoroge, “we immediately saw the kids at school. It led to investment of resources by the government into the education system. It led to developing new strategies to finance the education program in a transparent and accountable manner, which also has attracted international donors.” And the Kenyan example has inspired many other countries to follow suit, including more than a dozen nations in Africa.

Everything is not perfect. Fees are still in place for secondary schools.

And the system needs to hire more teachers. Which brings the story back to the IMF and World Bank.

Teaching the additional 2 million kids in primary school requires at least 40,000 new teachers, Njoroge says. Kenya has about 60,000 trained teachers who are unemployed, but Njoroge says that Kenya cannot hire new teachers, because agreements with the IMF restrict its ability to increase budgetary outlays for teachers.

But just as user fee policy was changed even though it once seemed un-reformable, so too shall IMF policies that directly and indirectly block countries from undertaking desperately needed investments in healthcare and education soon come to an end.

IMF: The Times They Are A-Changin’

Have things changed at the International Monetary Fund? Or is the world just witnessing yet another in a long series of global economic double standards?

IMF Managing Director Dominique Strauss-Kahn says that the “need for public intervention” to address the global financial crisis “is becoming more evident.” Strauss-Kahn has urged for a global fiscal stimulus, writing that, “Timely and targeted fiscal stimulus can add to aggregate demand in a way that supports private consumption during a critical phase.” The IMF has announced its support for the fiscal stimulus plan in the United States — a country with significant budget deficits and massive foreign debt.

The support for government intervention runs directly counter to the IMF’s longstanding support for strait-jacketing governments in poor countries, by demanding “structural adjustment” — a series of market fundamentalist, corporate-friendly policies, including hyper-restrictive macro-economic policies.

So far, there is little evidence that the IMF is changing the way it operates in developing countries. But maybe the times are changing, whether the IMF likes it or not.

The IMF gets its power from a gatekeeper role in international finance and donor circles. International lenders and government aid donors commonly limit their lending and aid donations to countries in the IMF’s good graces. The logic is that the IMF is competent to determine that the recipient countries are pursuing sensible economic policies, and therefore equipped to manage loans or aid.

The IMF has capitalized on its gatekeeper role to demand countries pursue a cookie cutter, market fundamentalist agenda of blind deregulation, sell-offs of public assets to corporations (privatization), opening up economies to foreign investors, tariff cuts, and government spending cuts.

There is overwhelming evidence of the failure of the IMF’s policy agenda. Mass privatization has led to enormous concentrations of wealth and encouraged corruption. Deregulation has contributed to financial crises, including those that foreshadowed the current global crisis centered in the United States. The overall economic model had impoverished tens of millions and left developing countries poorer. And government budget ceilings and inflation targets have prevented countries from expanding desperately needed investments in healthcare and education. Indeed, the IMF’s own Independent Evaluation Office has found that the Fund requires poor countries not meeting Fund inflation targets to divert most new donor aid. Instead of spending additional donor money on healthcare, for example, countries must use it to build up foreign reserves or pay down domestic debt.

Although the Fund has promised that it would reform the way it imposes conditions on poor countries, a new report from Eurodad, the European Network on Debt and Development, finds that, over the last six years, IMF conditions have not changed in number or kind.

One thing has changed, however. Impressed by the IMF’s repeated failures, middle-income countries have paid back their loans to the Fund, and are not taking out any news ones.

This in turn has two consequences. For now, at least, the IMF has lost its hold over most middle-income countries — but it maintains its iron grip on the world’s poorest countries. And, the Fund is experiencing a financial crunch of its own. It had depended on the interest payments from middle-income countries to support its budget.

Developing countries are not shedding tears over the IMF’s financial distress. “At long last, the IMF is experiencing first hand serious budget cuts,” says Cheikh Tidiane Dieye of Environment and Development in Africa (ENDA), based in Senegal. “The poetic justice of this is palpable. In Senegal, the IMF has mandated budget cuts for years. As a result, we have been unable to invest in health care, education and other essential services. If the IMF’s loss of financial power is accompanied by a loss in political power, this could be good news for all Africans.”

The IMF’s governing body has just approved a proposal that would involve cutting its staff by about 20 percent and selling some of its gold stock to create a trust fund that would fund administrative operations in the future.

The gold cannot be sold without U.S. approval, however, and the U.S. representative to the Fund cannot support gold sales without Congressional authorization.

Health, development and labor organizations in the United States are mobilizing so that Congress approves gold sales only after achieving fundamental changes in IMF policy. Last week, 80 U.S. organizations — including Action Aid International USA, the AFL-CIO, Africa Action, the Bank Information Center, Essential Action (which I direct), 50 Years is Enough, Global AIDS Alliance, Health GAP, Jubilee USA Network, the ONE Campaign, Oxfam America, RESULTS USA, Service Employees International Union (SEIU), and the Student Global AIDS Campaign — urged Congress not to approve gold sales until first achieving real change at the Fund.

The letter says the Congress should require the IMF to: rescind the use of overly restrictive deficit-reduction and inflation-reduction targets; exempt expanded health and education spending in developing countries from IMF-imposed budget ceilings; permit developing countries to spend foreign aid for its

intended purposes; delink debt cancellation from harmful economic policy conditions; and disclose crucial documents currently kept secret.

If the gold sales deal is approved, the IMF will become self-financing, and the U.S. Congress will lose much of its power to demand changes in how the IMF operates. So the present opportunity will not soon present itself again. There is no certainty about when the gold sales authorization will come before Congress, but it now seems as though it may be delayed until 2009.

Perhaps the IMF under the leadership of Strauss-Kahn, who took the helm of the institution only last September, is ready to re-evaluate its market fundamentalist, corporate-friendly policy prescriptions for poor countries. A statement issued by the Fund last week said that African countries did not need to raise interest rates in response to inflation driven by higher prices of food and fuel, and that some subsidies might be permissible in some circumstances. This is perhaps a baby step forward.

But if the IMF is not ready on its own to jettison its long-standing policy demands for poor countries, it may soon find that it has no choice. Representative Barney Frank, D-Massachusetts, chairs the House Financial Services Committee, which must approve the gold sales proposal prior to the full House of Representatives considering the issue. At the 20th anniversary celebration of the Bank Information Center last week, he strongly denounced structural adjustment, stated as a matter of fact that gold sales will only be authorized if additional IMF gold is sold to cancel poor country debt, and made clear that he intends to obtain policy changes from the IMF as a condition of permitting gold sales.