Strong Medicine: Creating Incentives for Pharmaceutical Research on Neglected Diseases
152
Strong Medicine: Creating Incentives for Pharmaceutical Research on Neglected Diseases
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Overview
From Nobel Prize–winning economist Michael Kremer and fellow leading development economist Rachel Glennerster, an innovative solution for providing vaccines in poor countries
Millions of people in the third world die from diseases that are rare in the first world—diseases like malaria, tuberculosis, and schistosomiasis. AIDS, which is now usually treated in rich countries, still ravages the world's poor. Vaccines offer the best hope for controlling these diseases and could dramatically improve health in poor countries. But developers have little incentive to undertake the costly and risky research needed to develop vaccines. This is partly because the potential consumers are poor, but also because governments drive down prices.
In Strong Medicine, Michael Kremer and Rachel Glennerster offer an innovative yet simple solution to this worldwide problem: "Pull" programs to stimulate research. Here's how such programs would work. Funding agencies would commit to purchase viable vaccines if and when they were developed. This would create the incentives for vaccine developers to produce usable products for these neglected diseases. Private firms, rather than funding agencies, would pick which research strategies to pursue. After purchasing the vaccine, funders could distribute it at little or no cost to the afflicted countries.
Strong Medicine details just how these legally binding commitments would work. Ultimately, if no vaccines were developed, such a commitment would cost nothing. But if vaccines were developed, the program would save millions of lives and would be among the world's most cost-effective health interventions.
Product Details
| ISBN-13: | 9781400880140 |
|---|---|
| Publisher: | Princeton University Press |
| Publication date: | 05/31/2016 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 152 |
| File size: | 2 MB |
About the Author
Read an Excerpt
Strong Medicine
Creating Incentives for Pharmaceutical Research on Neglected Diseases
By Michael Kremer, RACHEL GLENNERSTER
PRINCETON UNIVERSITY PRESS
Copyright © 2004 Princeton University PressAll rights reserved.
ISBN: 978-1-4008-8014-0
CHAPTER 1
INTRODUCTION
After graduating from college, I spent a year teaching high school in a rural area of western Kenya. Six months into the job, I went to Nairobi to purchase textbooks for the school and run some other errands. When I arrived I felt a bit like a country bumpkin, having been living in a house with mud walls and a thatched roof and suddenly being surrounded by skyscrapers. People in western Kenya had told me that Nairobi, situated at some 5,000 feet in altitude, would be very cold. As someone who was used to Kansas winters, I assumed what constituted "cold" in equatorial Nairobi would not affect me, but I did, indeed, find myself getting chills.
As I made my rounds in Nairobi, I felt very lethargic. I would stop into a restaurant, order food, and then realize I couldn't bring myself to eat. I would leave and, feeling weak, go into another restaurant, order food, and again push it away. The next day I would feel better and wonder why I'd been so sluggish, only to again slip into lethargy and weakness a bit later. This went on for several days.
At one point I needed to make a phone call, and sought out the nearest pay phone, which happened to be in a hospital — actually, one of the best private hospitals in Nairobi. While making the call, I realized I was too weak to walk out and had to see a doctor.
It turned out that an anopheles mosquito had gotten past my mosquito net and bitten me, injecting the infective form of the malaria parasite, known as sporozoites, into my blood. The parasites had moved to my liver, where they changed form and reproduced, giving rise to blood-stage malaria.
As the parasites multiplied, destroying my red blood cells, I began to experience nausea, exhaustion, fever, sweating, and shaking chills. My alternating periods of strength and weakness were characteristic of malaria. If I had been out in the village and not gotten to a doctor, the condition could have led to death through severe anemia, or by stemming blood flow to the brain and other organs.
I checked into the hospital in Nairobi. My memory of what happened thereafter is a blur. I remember waking from strange nightmarish dreams. The type of malaria I had proved resistant to the first-line drug used to fight the disease, but the doctors switched me to alternatives and kept me on them until I recovered. I returned to the village fifteen pounds lighter.
Of course, I was phenomenally lucky to receive first-rate care. Many people in Africa live far from clinics, cannot afford to see a competent doctor, or do not have the money to pay for effective medicine.
I saw this vividly illustrated years later when I returned for a visit to the village where I had lived in Kenya. One of my friends there had malaria. Unlike me, he recognized the symptoms, but he lived several hour's walk from a hospital, and was not much inclined to go there in any case, knowing that patients regularly have to share a bed. The first-line malaria medicine is readily available over-the-counter in Kenya, and costs less than a dollar. But when I arrived, my friend hadn't been medicated because he couldn't afford the pills. While he was unlikely to die from the disease, he was sufficiently sick to be unable to work, and the resulting inability to afford essentials made him even weaker.
Malaria is only one of the diseases that plague low-income countries. Together, malaria, tuberculosis, and the strains of HIV common in Africa kill 5 million people each year. Diseases like schistosomiasis, which many people in higher-income countries have never heard of, also impose a heavy burden on poor countries. Vaccines offer the best hope for conquering these diseases because they are relatively easy to deliver, even in countries with weak health-care infrastructure. Yet research on vaccines for diseases that primarily affect low-income countries remains minimal.
In this book we examine the reasons for this lack of research and propose that foreign aid donors encourage this research by committing in advance to help finance the purchase of suitable vaccines.
We argue that a key reason why pharmaceutical firms have been reluctant to invest in R&D on vaccines for diseases that primarily affect poor countries is that they fear they would not be able to sell the vaccine at prices that would cover their risk-adjusted costs. The low anticipated price reflects not only the poverty of the relevant populations, but also severe distortions in markets for vaccines for these diseases. Intellectual property rights for pharmaceuticals have historically been weak in low-income countries. Most vaccines sold in these countries are priced at pennies per dose, a tiny fraction of their social value — even measured in terms of what people with very low incomes would pay for the protection. Once pharmaceutical companies have invested in the research necessary to develop vaccines, governments often use their powers as regulators, dominant purchasers, and arbiters of intellectual property rights to keep prices low.
Research on vaccines is an "international public good" because the benefits of scientific and technological advances spill over to many nations. Hence, none of the many small countries that would benefit from a malaria, tuberculosis, or HIV vaccine has an incentive to encourage research by unilaterally offering to pay higher prices. And accordingly, private developers lack incentives to pursue socially valuable research on diseases primarily affecting low-income countries.
Incentive systems to encourage development of new products can be broadly classified as push programs, which subsidize research inputs, or pull programs, which reward developers for actually creating the desired product. Government-directed push programs are well suited for basic research. But for the later, applied stages of research, pull programs are also needed. With pull programs, money changes hands only after a successful product is developed. This approach of rewarding results gives researchers strong incentives to self-select projects that have the best chance of success. Pull programs also create incentives for researchers to focus on developing a vaccine, rather than pursuing ancillary goals, such as publishing journal articles. Moreover, appropriately designed pull programs can help ensure that, if new vaccines are developed, they will reach those people who need them. Several historical precedents, such as the Orphan Drug Act, suggest pull-like mechanisms can be effective tools for spurring product development.
The most attractive form of pull program is generally a commitment to fully or partially finance vaccine purchases for poor countries. Alternative pull approaches have significant disadvantages. Extending patents on other pharmaceuticals to reward developers of new products, for example, would place the entire burden of financing new products on the people who buy these other pharmaceuticals. Purchasing and distributing existing vaccines which are not being fully utilized would be a cost-effective way to save lives, but simply increasing prices for existing vaccines without explicit incentives for developing new ones would be an expensive and ineffective way to spur research on new vaccines.
For vaccine commitments to increase research activity, developers must believe that the sponsor will not renege once desired products have been developed and research costs sunk. If structured appropriately, these commitments can be legally binding contracts, as evidenced by legal precedents. The credibility of vaccine commitments can be further enhanced by specifying in advance the rules that govern the eligibility and pricing of vaccines, as well as by insulating the arbiters of these rules from political pressure.
Requiring candidate products to meet basic technical requirements, including approval by a competent national regulatory agency such as the U.S. Food and Drug Administration, would ensure that funds were spent only on effective vaccines. Requiring low-income countries to agree before a qualifying vaccine is used, and perhaps requiring them or other donors to contribute part of the production and distribution cost — would help ensure that products purchased by the program would be useful under actual field conditions.
One way to structure a vaccine commitment would be to guarantee a price of, say, $15–$20 per person for the first 200–250 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 cost. A commitment of this size would offer firms an opportunity for sales comparable to those available in commercial markets. It would be extremely cost-effective, saving more lives than virtually any imaginable comparable health expenditure.
Vaccine commitments could be undertaken by international organizations such as the World Bank, by national governments, by private foundations such as the Bill & Melinda Gates Foundation, or by a combination of these groups. If a commitment to purchase vaccines failed to produce an effective vaccine, no donor funds would be spent; if it succeeded, tens of millions of lives would be saved at remarkably low cost.
This book lays out the rationale for a vaccine commitment and discusses how it could be designed. Chapter 2 reviews the disease environments in low-income countries and chapter 3 discusses the low level of research on diseases primarily affecting low income countries. (Readers familiar with health issues in developing countries may wish to skip these chapters.) In chapter 4 we discuss the market distortions that limit research in general and particularly limit research on vaccines against diseases that primarily affect poor countries. Chapters 5 and 6 outline the potential roles push and pull programs can play in addressing market failures in R&D. Chapter 7 reviews various types of pull programs and argues that commitments to help finance vaccine purchases would be most attractive. Chapters 8, 9, and 10 discuss how pull programs could be structured: how a candidate vaccine's eligibility for such a program could be determined, how much to pay for a vaccine, and how payments should be structured, for example to divide the reward between multiple providers. Chapter 11 explains how a similar approach might be used to induce R&D on other products, such as other medical technologies and technologies that could improve agricultural productivity in the tropics. Finally, chapter 12 discusses the political economy of a vaccine commitment and how it could be designed to meet the needs of possible sponsors.
CHAPTER 2HEALTH IN LOW-INCOME COUNTRIES
We begin by outlining two sad characteristics of low-income country health environments: the prevalence of infectious diseases, and the weakness of health-care systems. We then discuss some of the leading infectious diseases in the developing world. Finally, we note that in spite of the obstacles, health has improved tremendously in low-income countries, due largely to the adoption of cheap, easy-to-use technologies such as vaccines.
The Disease Environment in Low-Income Countries
Poor countries face different disease environments than rich ones because of their geography, climate, limited resources, and often dysfunctional governments. A disproportionate share of low-income countries are in the tropics, and the high biodiversity of the environment gives rise to more numerous — and more virulent — infectious diseases, as well as to vectors like the African mosquitoes that spread malaria. Poverty leads to inadequate nutrition, sanitation, and education, all of which contribute to the spread of infectious diseases. Poor people often cannot afford to see a qualified doctor or to obtain drugs for infectious diseases that are easily cured in rich countries. Poor and often dysfunctional governments fail to provide clean water, sanitation, or public health programs such as mosquito control or effective antituberculosis campaigns.
As a result, infectious and parasitic diseases account for one-third of the disease burden in low-income countries — in fact, for over half of Africa's disease burden. In contrast, infectious and parasitic diseases account for only 2.5 percent of the burden of disease in high-income countries (WHO 2003). The disease burden in high-income countries consists mainly of noncommunicable conditions disproportionately affecting the elderly, like cancer and cardiovascular disease, as seen in figure 1. Many other diseases are concentrated in low-income countries (table 1). Middle-income countries (which include China as well as much of Latin America and Southeast Asia) have patterns of disease intermediate between these extremes.
Weak Health-Care Infrastructure
A key reason for the spread of infectious disease in low-income countries is weak health-care systems. Budgets are low and incentives for government health-care workers to do their jobs efficiently are weak. Private health delivery is clogged with quacks. These factors make it difficult to deliver all but simple forms of health care on a large scale.
Low-income sub-Saharan African nations spent only 6 percent of their average $300 per capita GDP on health — around $18 per person (World Bank 2001). In contrast, U.S. public and private health spending constituted 13 percent of the country's almost $32,000 per capita income in 1998, for a total of more than $4,000 per person.
In many low-income countries, qualified medical personnel are scarce. Whereas the United States has 2.7 trained physicians per thousand people and Europe has 3.9, sub-Saharan Africa has only 0.1 (World Bank 2001).
Similarly, a large share of available health resources is often focused on a few high-quality facilities in the capital. While this means that the elite can receive high-quality care, it also means that the resources available to the bulk of the population, especially in rural areas, are considerably less than would be suggested even by the national averages just cited.
Government health-care systems are often dysfunctional. Medical personnel assigned to public clinics are often absent, particularly in rural areas. A study (Chaudhury et al. 2003) in which surprise visits were made to public primary health clinics in five low-income countries found that 25 to 40 percent of health workers were absent from their posts (see figure 2). Chaudhury et al. found that absence rates were particularly high among doctors, at over 40 percent on average. Moreover, clinics in low-income countries often lack drugs because salaries of health-care workers take priority in budget allocations and because drug procurement and distribution is inefficient or corrupt.
Many patients therefore rely on private health care, but private systems also function badly in the absence of basic quality regulation that is taken for granted in developed countries. Many private practitioners are untrained and prescribe inappropriate pharmaceuticals. A 1988 study by Kakar found three times more providers in the informal sector than in the formal sector in India. In a detailed study of medication in India, Phadke (1998) categorizes more than half of all drugs prescribed as "unnecessary" or "contraindicated." While self-prescription is not uncommon in the West, it is routine in the poorest countries, where rules requiring prescriptions are typically not enforced (Kamat and Nichter 1998). Many patients purchase and consume incomplete courses of medication, especially when symptoms subside after a partial course (Nichter and Nichter 1996). Drug overuse and misuse speed the development of drug-resistant forms of diseases because the most resistant microbes survive, and are then transmitted to others.
Malaria, Tuberculosis, and HIV/AIDS
The combination of hospitable environment for infectious disease and the difficulties of appropriately delivering all but basic treatment through weak health-care systems leads to a terrible toll from infectious disease.
(Continues...)
Excerpted from Strong Medicine by Michael Kremer, RACHEL GLENNERSTER. Copyright © 2004 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
Foreword ixAcknowledgments xiii
1.INTRODUCTION 1
2.HEALTH IN LOW-INCOME COUNTRIES 6
The Disease Environment in Low-Income Countries 6
Weak Health-Care Infrastructure 7
Malaria, Tuberculosis, and HIV/AIDS 11
The Impact of Cheap, Simple Technologies 20
3.THE PAUCITY OF PRIVATE R&D TARGETED TO THE NEEDS OF LOW-INCOME COUNTRIES 25
The Extent of R&D Targeted to Low-Income Countries 25
The Scientific Potential for New Vaccines 27
4.MARKET AND GOVERNMENT FAILURES 29
Why Target Foreign Assistance to Vaccine R&D? 30
The Patent Tradeoff 33
Low-Income Countries and Intellectual Property 36
Social versus Private Return: Some Quantitative Estimates 40
The Role of Public Purchases 42
5.THE ROLE OF PUSH PROGRAMS 45
Meningococcal Meningitis: An Example of a Successful Push Program 46
A Cautionary Tale: The USAID Malaria Vaccine Program 47
Incentives under Push Programs 49
6.THE POTENTIAL ROLE OF PULL PROGRAMS 55
The Effect of Market Size on Innovation 55
The Impact of Financial Incentive Programs 56
Examples of Pull Programs Stimulating Research 59
Advantages and Limitations of Pull Programs 63
7.PULL PROGRAMS: A MENU 68
Commitments to Finance Purchase of Products and Patents 68
Patent Extensions on Other Pharmaceuticals as Compensation for Vaccine Development 70
Best-Entry Tournaments 72
Expanding the Market for Existing Vaccines and Drugs 73
8.DETERMINING ELIGIBILITY 76
Basic Technical Requirements 76
Independent Adjudication Committee 78
Market-Test Requirement 81
Exit Clauses 84
9.HOW MUCH SHOULD WE PROMISE TO PAY FOR A VACCINE? 86
What Market Size Is Needed to Spur Research? 86
Cost-Effectiveness: What Is a Vaccine Worth? 90
10.HOW SHOULD PAYMENT BE STRUCTURED? 97
Paying for Multiple Vaccines and Market Exclusivity 100
Bonus Payments Based on Product Quality 103
Increasing the Promised Price over Time 105
Avoiding Windfalls 106
Industry Consultations 107
11.SCOPE OF THE COMMITMENT 109
What Diseases to Cover? 109
Vaccines, Drugs, and Other Technologies 109
Incentives for Agricultural R&D 112
12.MOVING FORWARD WITH VACCINE COMMITMENTS 115
Making a Commitment Legally Binding 116
The Politics of Creating Markets for Vaccines and Drugs 118
Potential Sponsors of New Markets for Vaccines and Drugs 119
References 127
Index 145
What People are Saying About This
Strong Medicine is full of insights that can make a real difference to the morbid world in which we live. It combines powerful analytical reasoning with practical insights and empirical knowledge to explore a highly promising way of expanding incentives for medicinal research. The possibility of making a significant difference through a commitment to purchase effective vaccines as and when they are developed is thoroughly scrutinized in this definitive investigation, for which we have reason to be grateful.
— Amartya Sen, Harvard University, Nobel Laureate in Economic Sciences
This important book, on how to design markets for drugs to treat millions of diseased people in the developing world, has the added advantage of being an interesting read. The authors convey very well the intellectual excitement associated today with putting mechanism design into practice. They take the reader, one step at a time, through the various levels at which problems might arise and then show how the design is meant to take care of these problems.
— Abhijit Banerjee, Massachusetts Institute of Technology
The public health of the developing world is the single issue of greatest significance for humanity over the next half century. This important book offers thoughtful analysis and practical ideas for confronting and addressing this issue through research and development of lifesaving vaccines.
— Lawrence H. Summers, President, Harvard University
Michael Kremer and Rachel Glennerster have produced a work of outstanding importance to the well-being of developing countries. "There are five billion people in the poor world, many suffering from debilitating or fatal diseases. The potential gains in overcoming this human suffering from the development of effective and cost-efficient vaccines are enormous. Yet the economic purchasing power of the rich world favors the development of vaccines and drugs for the rich world. Strong Medicine presents workable incentives for research and development to respond more powerfully to the human needs of poor people. Kremer and Glennerster have produced results that deserve the attention of all those who work in development and that chart a way forward for one of the greatest issues of our time.
— Nicholas Stern, Second Permanent Secretary at HM Treasury in the United Kingdom, Visiting Professor at the London School of Economics, and former Chief Economist of the World Bank
"The public health of the developing world is the single issue of greatest significance for humanity over the next half century. This important book offers thoughtful analysis and practical ideas for confronting and addressing this issue through research and development of lifesaving vaccines."—Lawrence H. Summers, President, Harvard University"Michael Kremer and Rachel Glennerster have produced a work of outstanding importance to the well-being of developing countries. "There are five billion people in the poor world, many suffering from debilitating or fatal diseases. The potential gains in overcoming this human suffering from the development of effective and cost-efficient vaccines are enormous. Yet the economic purchasing power of the rich world favors the development of vaccines and drugs for the rich world. Strong Medicine presents workable incentives for research and development to respond more powerfully to the human needs of poor people. Kremer and Glennerster have produced results that deserve the attention of all those who work in development and that chart a way forward for one of the greatest issues of our time."—Nicholas Stern, Second Permanent Secretary at HM Treasury in the United Kingdom, Visiting Professor at the London School of Economics, and former Chief Economist of the World Bank"Strong Medicine is full of insights that can make a real difference to the morbid world in which we live. It combines powerful analytical reasoning with practical insights and empirical knowledge to explore a highly promising way of expanding incentives for medicinal research. The possibility of making a significant difference through a commitment to purchase effective vaccines as and when they are developed is thoroughly scrutinized in this definitive investigation, for which we have reason to be grateful."—Amartya Sen, Harvard University, Nobel Laureate in Economic Sciences"This important book, on how to design markets for drugs to treat millions of diseased people in the developing world, has the added advantage of being an interesting read. The authors convey very well the intellectual excitement associated today with putting mechanism design into practice. They take the reader, one step at a time, through the various levels at which problems might arise and then show how the design is meant to take care of these problems."—Abhijit Banerjee, Massachusetts Institute of Technology"Michael Kremer is likely the most thoughtful advocate of an exciting new approach for tackling the scourges of AIDS, malaria, and other diseases that primarily afflict the populations of less developed countries. In this book, he and Rachel Glennerster offer by far the most complete discussion I have seen of why this approach—one that would see authorities stimulate private efforts to develop medical treatment by providing a guaranteed market for them—should be adopted, and of how to deal with problems of implementation and design."—Kenneth Sokoloff, University of California, Los Angeles
Michael Kremer is likely the most thoughtful advocate of an exciting new approach for tackling the scourges of AIDS, malaria, and other diseases that primarily afflict the populations of less developed countries. In this book, he and Rachel Glennerster offer by far the most complete discussion I have seen of why this approach—one that would see authorities stimulate private efforts to develop medical treatment by providing a guaranteed market for them—should be adopted, and of how to deal with problems of implementation and design.
— Kenneth Sokoloff, University of California, Los Angeles
Recipe
"The public health of the developing world is the single issue of greatest significance for humanity over the next half century. This important book offers thoughtful analysis and practical ideas for confronting and addressing this issue through research and development of lifesaving vaccines."—Lawrence H. Summers, President, Harvard University
"Michael Kremer and Rachel Glennerster have produced a work of outstanding importance to the well-being of developing countries. "There are five billion people in the poor world, many suffering from debilitating or fatal diseases. The potential gains in overcoming this human suffering from the development of effective and cost-efficient vaccines are enormous. Yet the economic purchasing power of the rich world favors the development of vaccines and drugs for the rich world. Strong Medicine presents workable incentives for research and development to respond more powerfully to the human needs of poor people. Kremer and Glennerster have produced results that deserve the attention of all those who work in development and that chart a way forward for one of the greatest issues of our time."—Nicholas Stern, Second Permanent Secretary at HM Treasury in the United Kingdom, Visiting Professor at the London School of Economics, and former Chief Economist of the World Bank
"Strong Medicine is full of insights that can make a real difference to the morbid world in which we live. It combines powerful analytical reasoning with practical insights and empirical knowledge to explore a highly promising way of expanding incentives for medicinal research. The possibility of making a significant difference through a commitmentto purchase effective vaccines as and when they are developed is thoroughly scrutinized in this definitive investigation, for which we have reason to be grateful."—Amartya Sen, Harvard University, Nobel Laureate in Economic Sciences
"This important book, on how to design markets for drugs to treat millions of diseased people in the developing world, has the added advantage of being an interesting read. The authors convey very well the intellectual excitement associated today with putting mechanism design into practice. They take the reader, one step at a time, through the various levels at which problems might arise and then show how the design is meant to take care of these problems."—Abhijit Banerjee, Massachusetts Institute of Technology
"Michael Kremer is likely the most thoughtful advocate of an exciting new approach for tackling the scourges of AIDS, malaria, and other diseases that primarily afflict the populations of less developed countries. In this book, he and Rachel Glennerster offer by far the most complete discussion I have seen of why this approach—one that would see authorities stimulate private efforts to develop medical treatment by providing a guaranteed market for them—should be adopted, and of how to deal with problems of implementation and design."—Kenneth Sokoloff, University of California, Los Angeles