Strong Medicine: Can a Healing Industry Afford to Neglect Top Killers?

Advanced purchase commitments are a tangible solution to combat disease in poor countries, say the authors of “Strong Medicine: Creating Incentives for Pharmaceutical Research on Neglected Diseases.”

Malaria, tuberculosis and HIV/AIDS kill about five million people each year, almost all of them in poor countries, yet few drug makers pursue R&D to treat them. That needs to change, say Rachel Glennerster and Michael Kremer, authors of Strong Medicine: Creating Incentives for Pharmaceutical Research on Neglected Diseases (Princeton University Press, 2004). Glennerster is the executive director of the Poverty Action Lab at M.I.T., while Kremer is the Gates professor of developing societies at Harvard University. Their book won the Association of American Publishers’ 2004 award for Best Professional/Scholarly Book in Medical Science.

Rather than lay the blame solely on drug makers, Glennerster and Kremer construct a viable road map for encouraging R&D for neglected diseases. The authors share some of their ideas with Pharmaceutical Manufacturing.

P.M.: You write that major drug companies neglect diseases concentrated in poor countries. What are the roots of this neglect?

Glennerster: Biotech and pharmaceutical firms have very little incentive to pursue R&D on neglected diseases because they have little reason to think they will be able to recoup their R&D investments. This is a very real concern: for example, most vaccines sold to developing countries are priced at pennies per dose. The total market for vaccines in developing countries is about 500 million dollars a year, whereas a single blockbuster drug can have billions in annual revenues.

The roots of these low expected revenues are not simply in the poverty of the relevant populations, but also reflect severe distortions in these markets. A major issue is that once (for example) a vaccine is developed, governments — in the interest of maximizing access to life saving medicines — often use their powers as dominant purchasers and arbiters of intellectual property rights to keep vaccine prices low. If firms anticipate that governments will force down prices after R&D investments have been sunk, they will be deterred from investing in R&D on these diseases in the first place.

P.M.: How can governments, private foundations, and private industry work to create a better market for vaccines and other drugs needed in poor countries? Are there examples you can point to of this already happening?

Glennerster: One way to “create a market” would be for donors to undertake “advance purchase commitments” for desired products such as a malaria vaccine. The idea is that a coalition of governments and private foundations could commit in advance (through a legally binding contract) that, if a malaria vaccine were developed, they would help finance the purchase of those vaccines. For example, sponsors could credibly guarantee a price of, say, $15 to $20 per person for the first 200 to 250 million people immunized, in exchange for a commitment from the developer to subsequently drop the price in the poorest countries to a modest markup over manufacturing costs. A commitment of this size would offer firms an opportunity for sales comparable to those available in commercial markets. For governments and donors, it would be extremely cost-effective, saving more lives than virtually any imaginable comparable health expenditure.

For pharmaceutical products needed in rich countries, R&D is spurred by a combination of government or philanthropic “push” R&D funding, and the “pull” of market incentives: funding from institutions such as the U.S. National Institutes of Health covers the cost of most basic research, and the prospect of a market provides incentives for firms to turn these discoveries into marketable products. For products needed in poor countries, a number of institutions (such as the International AIDS Vaccine Initiative) have been put in place to finance R&D, but policies have not yet been put in place that would guarantee a market to developers that would be sufficient to cover risk-adjusted R&D costs.

Pull programs such as advance purchase commitments attract private sector R&D to worthwhile products through an open, transparent, and market-oriented approach — with donor dollars rewarding success without micro-managing the R&D process. Such pull programs can also be designed to ensure that, if new products are developed, they will reach the people who need them. Pull programs also reward success: if a desired product is developed, millions of lives can be saved at a very low cost; if no product is developed, there is no financial cost to donors.

A working group at the Center for Global Development in Washington, D.C. recently published a report concluding that advance purchase commitments for vaccines could be successfully implemented; more information about that proposal is available at www.cgdev.org/vaccine. In 2004, U.K. Chancellor of the Exchequer Gordon Brown released a statement that Britain intends to undertake, in cooperation with other donors, an advance purchase commitment for a malaria vaccine and, later, discussed applying the idea to HIV/AIDS as well.

P.M.: Have you engaged in dialogue with industry on the idea of advance purchase commitments for vaccines? What kind of responses has this idea received from industry or potential donors?

Kremer: I recently co-chaired a working group based at the Center for Global Development which undertook consultations with biotechs, emerging market suppliers, and pharmaceuticals. Overall, industry has been sympathetic to this proposal because the basic idea is to provide a market for these diseases, which is how firms are used to operating for diseases prevalent in rich countries. Firms see market incentives as preferable to reductions in intellectual property rights, or having governments micromanage the research process. In the past, a number of pharmaceutical firms have done valuable work out of a sense of corporate social responsibility, but programs such as advance purchase commitments align incentives for developing socially valuable products with private sector incentives — providing firms with a strong business case to undertake R&D on these diseases.


The next steps will be for a coalition of sponsors — governments, private foundations, or international organizations such as the World Bank — to put such a commitment into practice.

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