A better way of stockpiling emergency medicines
By James Love
Published: October 28 2005 03:00 | Last updated: October 28 2005 03:00

In 2001, the US was paralysed by the fear that it would face an attack of a particular strain of anthrax that would be resistant to penicillin and other common antibiotics, but possibly treatable by ciprofloxacin, a more specialised antibiotic.

The recommended stockpiles for ciprofloxacin did not exist and the patent owner could not meet the demand for nearly two years. Despite the fear of an imminent attack, the US public health authorities decided to wait rather than buy readily available generics from outside the US.

Today, most of the world faces severe shortages of oseltamivir phosphate, marketed as Tamiflu by Roche, which is one of the drugs that might be useful in the event of an avian flu pandemic. The patent owner cannot meet the demand for stockpiled medicine for several years and, again, is seeking to maintain control over the patent, with possibly some limited licensing to a handful of generic firms.

In both the anthrax case and the current avian flu case, the US departed from its orthodox rhetoric and used the threat of a compulsory licence to obtain better pricing and, in the current dispute, to push for licensing to generic firms. It is time to reconsider the entire global approach to managing emergency stockpiles and to reconcile better the need for both research and development incentives and the protection of public health.

The World Health Organisation plans to acquire 3m doses of oseltamivir, which could treat 300,000 people at best. Globally, the stockpiles should be much higher - at least 12bn doses, and ideally far more to cover more of the population and to allow for prevention rather than just treatment. According to the WHO, "most developing countries will have no access to vaccines and antiviral drugs throughout the duration of a pandemic".

In both cases, the need for the stockpiles was known earlier, but the medicines were not ordered on a timely basis. In the meantime, access is un-equal, as people with means and influence can acquire private stockpiles of the medicines and those without face the risk of terrible suffering and death should the emergency actually unfold.

These scenarios are repeated for other known risks to publichealth. Why? When purchased from patent owners, stockpiles are expensive. Governments have limited resources and the probability of the emergencies is initially thought tobe small. On a risk-adjusted basis, the benefits do not justify the cost ofthe stockpiles relative to other competing claims on the government purse.

But there is a better way of thinking about the management of emergency medical stockpiles - one that would change the incentives to protect us from anthrax, avian flu, severe acute respiratory syndrome and other emerging public health threats, at least for medicines that already have commercial markets for other uses.

The proposal is to permit governments to acquire medicines freely for stockpiles from generic suppliers, on the condition that if the medicines were used to treat people, the patent owner would receive royalties. This makes it much cheaper to acquire the stockpiles but also increases the value of the patented invention, as long as there is some probability that the emergency use will occur.

The price of medicines is related to their expected benefit. But this assumes a nearly 100 per cent probability that someone will actually use them. In the case of stockpiles, on the other hand, there is often a fairly low probability of use. Indeed, the lower the risk of the emergency, the lower the expected benefit of the stockpile. As long as the prices for the medicines are above marginal costs and the patent owner insists on a price related to the price of the drug when used, stockpiles will be small. But if governments could freely obtain stockpilesat marginal costs, with only a liability to remunerate the patent owner inthe event of use, the incentives to match costs and benefits will be far more efficient.

The amount of royalties to pay in such a system should be generous for higher-income countries and much smaller for countries with poor populations. As noted, this works best when the medicine has a parallel commercial market for non-emergency uses. For those drugs that would only have a market in the case of an emergency, such as an anthrax or small pox vaccine, the liability rule could also be used, but in combination with other incentives, such as the medical innovation prize fund approach now being considered in the US, which provides for large cash rewards for developers of new drugs.

Hurricane Katrina reminded us that governments do not always plan for emergencies and that the poor are often the last to be helped. We urgently need to change the system for emergency medical stockpiles to promote better health security, economic efficiency and fairness.

The writer is the director of the Consumer Project on Technology and co-chairman of the Transatlantic Consumer Dialogue Working Group on Intellectual Property