Breaking the European Deadlock: Part 2 – Transferable Exclusivity Vouchers – Effective Pull Incentive or a Policy Distraction?

This instalment provides an overview of what Transferable Exclusivity Vouchers are, a summary of the European Commission’s proposals in this area, and weights the benefits and weaknesses of the proposed approach.

What are Transferable Exclusivity Vouchers?

Ferraro et al. (2017)  describe a Transferable Exclusivity Voucher (TEV) (also termed Transferable Intellectual Property Rights (TIPR), or “wild-card” patent extensions) as rewarding a pharmaceutical company for the development of a critically needed drug with a voucher that extends the patent on another drug. Thus, any antimicrobial developer that meets the market reward criteria would receive a voucher to extend another product’s exclusivity. The TEV can be sold to other companies. Its value will depend on how much it is worth to companies competing to buy the TEV, which will in turn depend on the length and terms of the exclusivity extension and the sales value of qualifying products approaching expiry of intellectual property protection.

The European Commission’s proposal

The European Commission (the Commission) is proposing a TEV granting “an additional year of regulatory data protection to the developer of the priority antimicrobial, which the developer can either use for any product in their own product portfolio or sell it to another marketing authorisation holder” with conditions:

• The number of vouchers will be limited to a maximum of 10 over a 15 year period.
• Strict criteria are set to define the categories of eligible priority antimicrobials
• There will be transparency regarding any public contribution to the R&D costs
• Strict conditions on transfer /use to extend the data protection period of another product in order to ensure predictability for competitor products, including generics and biosimilars.
• Eligibility criteria linked to obligations for supply of the priority antimicrobial in the EU
• A sunset period of 15 years to continue or review the measure.

Note that the extension relates to data protection and not to patent protection. Thus it will only be of value to companies with products where the patent has expired and data exclusivity is preventing generic / biosimilar entry to compete against the product.  IQVIA analysis has suggested that very few products will fall into this category and thus the value of a TEV (and the reward it provides to antibiotic developers) will be low.

Benefits and weaknesses of TEVs and of the European Commission’s proposals

The TEV proposal has been controversial and we set out the arguments for and against drawing on analysis by Wilsdon et al. (2022), the BEAM Alliance (2023), Dubios et al. (2022) and Berdud et al. (2019)  supporting the “for” side whereas Ardal et al. (2023) , Van de Wiele et al. (2023) and The Non-Paper (2022)  summarising the objections of 14 member states.

A key attraction of a TEV is that it can be legislated for and operated at an EU level. It does not involve actions by Member States following their approval of the scheme. Funding is raised from health systems by delaying the introduction of generic or biosimilar versions of the products for which a TEV has been purchased. Raising money by delaying generic entry, potentially involving patients in additional co-pays, depending on the Member State health system, is of concern to TEV critics. However, Dubois et al. note that generic and biosimilar markets in the EU are not efficient, both in the sense of the market share enjoyed by generics and because the end of exclusivity often leads to high profits for early generic / biosimilar entrants as prices do not fall to levels reflecting the cost-of-goods. They note that “an incentive reward of $1 through a European voucher system costs less to the consumer/taxpayer than $1 (and a fortiori less than the cost of a cash award of $1) in most of the fifteen countries in our data set.” (p2) What is clear is that the TEV proposal will find opposition from generic / biosimilar manufacturers.

The key argument of TEV critics is that a TEV is far more expensive in terms of incentivising the new antibiotics needed than other routes, notably revenue guarantees and /or R&D “push” incentives.

Estimates of the costs vary. Wilsdon et al. estimates the costs for the four big member states, plus Poland and Greece, to be €426m per annum for 1 TEV per year and Berdud et al. estimated that the cost for EU health systems to be €350m to €840bm for 2 TEVs per year, with the value of an individual TEV needing to be €358m – €520m assuming an EU fair share of global costs. Ardal et al., however, criticise these as “industry-sponsored reports” and speculate that the cost could be as high as €5bn for one TEV.  The Commission’s proposals make such a figure seem very unrealistic, indeed it is very unlikely that the TEV as proposed by the Commission will generate the EU fair share of global contributions towards the costs of new antibiotics on its own and will need to be complemented with other EU measures.

Unpicking the cost and efficiency point, there could be enormous variability in the value of the TEV depending on the sales value of the products reaching the end of their patent life or data exclusivity period.  Dubois et al. however seek to tackle this potential inefficiency associated with a TEV by proposing that instead of the use of a pre-specified duration (one year in the Commission’s proposals) uncertainty about the reward the antibiotic developer will receive and about the potential costs to health systems can be resolved by (i) fixing the reward to be paid by the recipient of the TEV to the developer, and (ii) letting companies bid for the minimum length of exclusivity time they will be willing to pay this amount of money for.  This idea substantially improves the efficiency of TEVs and should be considered.

There will still however be another element of inefficiency, identified by Berdud et al., which is that the “winner” only has to bid €1 than the maximum value of the TEV to the next bidder in line. Thus the “rent” earned by some buyers of TEVs may be high. This is difficult to address, although some attempt to adjust the period of exclusivity could be made which takes account of the difference in sales between the “winner” and the “runner up” bidding for a TEV. Use of patent extension, rather than data exclusivity extension is also likely to make the market for TEVs more competitive and reduce the inefficiency.

It is important when addressing the cost and inefficiency issue also to be clear what is the comparator policy? This is because any incentive that creates effective new antibiotics, targeted at WHO priority pathogens, is likely to yield a high return (Silverman Bonnifield and Towse, 2022 ). Any version of TEV will be more efficient than the current status quo. The question is whether it can be achieved for less health care resource investment? Policy alternatives that are more efficient in principle, but unlikely to be implemented any time soon, are not necessarily the correct comparator.

The second major issue raised by critics is that whilst selling a TEV may reward the antibiotic innovator, there is no guarantee that it will be made available across all EU member states. This depends on local pricing and reimbursement arrangements and the willingness of the innovator to make the product available on terms that are acceptable to Member States. However, some requirements could be imposed on the innovator as a condition of receiving the TEV and conditions are included in the Commission’s proposals.

Other concerns that have been raised include:

• It is not able to differentiate for the quality of the antibiotic. It is important to note that the criteria which the antibiotic has to meet can be verified by the EMA alongside the licensing process, to ensure the necessary standard of efficacy has been achieved. Different TEV periods could be given however, depending on the likely value of the drug or, using a modification of Dubois et al. proposal: (1) the fixed value of the TEV to the antibiotic innovator could depend on the EMA’s assessment of the characteristics of the drug and (2) potential TEV buyers then bid the minimum length of a TEV they will “buy” for that quality adjusted fixed value. Alternatively, a hybrid approach could use another pull measure to adjust for the quality of the antibiotic delivered.
• The concern of some critics is that too many TEVs may be given which will inevitably reduce the quality at the margin of those rewarded. However, the Commission’s proposal is only for 10 over 15 years. We can note this is a challenge for all pull measures, and requires a filtering mechanism to ensure a minimum level of public health value is expected to be achieved before a product is eligible for a “pull” reward.
• Provisions would need to be put in place to cover situations in which, for example, the innovator went into liquidation, or the drug had to be withdrawn due to adverse reactions or other issues not apparent at licensing and award of the TEV. This is an issue with all “pull” incentives and can be addressed in part by contract, although inevitably some provisions may be harder to enforce when an incentive is a “one-off”. This challenge also applies to “push” incentives.
• Ardal et al. argue that a TEV does not help access outside of the EU. However, none of the other “pull” incentives will do this, unless conditions are attached to the award.

In the Table below we summarise the strengths and weaknesses of a European TEV in terms of its ability to meet the criteria that determine the features of a successful pull incentive (see blog 1).

Table 1 Strengths and weaknesses of a European TEV

The table demonstrates that many critical aspects of an effective pull incentive could be met by a TEV. However, the Commission’s proposals as they stand are insufficient, as the value of a TEV based on data exclusivity is likely to be low. It can, however, be combined with other “pull” incentives – push alone will not be sufficient – in a hybrid reward scheme.

Blog 3 in the series will explore revenue guarantee/subscription models as an alternative, and how they could be implemented in the EU.