By Felicitas Holzer and Thomas Pogge, Incentives for Global Health, www.healthimpactfund.org
COVID-19 underscores a pre-existing challenge in the pharmaceutical marketplace - we need a better way of paying for innovation, one that provides stronger incentives to address disease and delinks the price of new drugs from the fixed costs of research and development.
Commercial pharmaceutical research and development (R&D) efforts are encouraged and rewarded through the earnings that innovators derive from sales of their branded products. These earnings largely depend on the 20-year product patents they are entitled to obtain in World Trade Organization member states. Such patents give them a temporary monopoly, enabling them to sell their new products without competition. Under the protection of their patents, they can raise a product’s price far above manufacture and distribution costs while still maintaining a substantial sales volume. The highly effective hepatitis-C drug Harvoni was introduced in the U.S. at a price of $94,500 per 12-week course of treatment while production cost was estimated at $68–136 – a thousandfold markup (100,000%).
This way of covering the fixed cost of R&D has three obvious drawbacks.
First, innovators motivated by the prospect of large markups tend to neglect diseases suffered mainly by poor people. The 20 WHO-listed neglected tropical diseases together afflict over one billion people (WHO n.d.) but attract only 0.35% of the pharmaceutical industry’s R&D (IFPMA 2017, 15 and 21). Another 0.12% of this R&D spending is devoted to tuberculosis and malaria, which kill 1.7 million people each year.
Second, thanks to the affluent and well-insured patients, the profit-maximizing price of a new medicine tends to be quite high, so that most people worldwide cannot afford advanced medicines that are still under patent. This is especially vexing because manufacturing costs are generally quite low. Millions suffer and die from lack of access to medicines that can be mass-produced quite cheaply.
Third, rewards for developing and then providing pharmaceutical products are poorly correlated with therapeutic value. Firms earn billions by developing duplicative drugs that add little to our pharmaceutical arsenal – and billions more by cleverly marketing their drugs for patients who won't benefit. These large R&D investments would be much better spent on developing new life-saving treatments for deadly diseases plaguing the world's poor.
Complementary to the present regime, we propose the Health Impact Fund as an alternative track on which pharmaceutical innovators may choose to be rewarded.
Any new medicine registered with the Health Impact Fund would have to be sold at the variable cost of manufacture and distribution, but would earn ten annual reward payments based on the health gains achieved with it.
The Health Impact Fund would get pharmaceutical firms interested in certain R&D projects that are unprofitable under the current regime – especially ones expected to produce large health gains among mostly poor people. Such projects would predominantly address communicable diseases, which continue to impose devastating disease burdens mainly upon the poor. There would be much deeper and broader knowledge about such diseases, a richer arsenal of effective interventions and greater capacities for developing additional, more targeted responses quickly. Pharmaceutical innovators would thus have been much better prepared to supply or develop suitable medicines for containing the COVID-19 outbreak.
The Health Impact Fund would make an important difference also by rewarding for health outcomes rather than sales. Sales can be achieved even with a relatively ineffective drug or with patients who would benefit much more from another. With exorbitant markups, firms often try to influence hospitals, insurers, doctors and patients to use their patented drug even when it is not optimal.
To achieve health gains, innovators need different strategies.
They need to think holistically about how their drug can work in synergy with other factors relevant to treatment outcomes. They need to think about therapies and diagnostics together, in order to identify and reach the patients who can benefit most. They need to monitor results in real time to recognize and address possible impediments to uptake or therapeutic success. They need to ensure that high-value patients have affordable access to the drug and are properly instructed and motivated to make optimal use of it.
Nowhere is this focus on results, which the Health Impact Fund would encourage in innovators, more important than in the domain of communicable diseases. A firm rewarded for merely selling malaria drugs need not be distraught by the fact that malaria continues to infect over 200 million people each year (WHO 2019, xii), killing half a million of them. A firm rewarded for making its medicine reduce the malaria disease burden, by contrast, would aim to decimate the proliferation of malaria as rapidly and cost-effectively as possible. Collaborating with national health systems, international agencies and NGOs, such a firm would seek to build a strong public-health strategy around its product. Its highest goal would be complete eradication. If it succeeds in year 6, it can collect four handsome reward payments in years 7-10 while doing little more than enjoy the world’s gratitude.
Applying this point to a new disease like COVID-19 is complicated by the fact that we lack here a well-established baseline representing the harm the disease would have done in the absence of the new medicine to be assessed. For malaria, such a baseline can be established on the basis of a stable disease trajectory observable over many years. In the case of a new epidemic, one must rely on a modeling exercise that estimates the baseline trajectory on the basis of obtainable data about the spread of the disease and its impact on infected patients. This surely is a challenging undertaking which cannot yield precise or uncontroversial results about what damage the epidemic would truly have done if the vaccine or medication in question had not appeared.
Still, despite the roughness of such a modeled baseline, the Health Impact Fund would give innovators the right incentives.
It would guide them to ask not: how can we develop an effective product and then achieve high sales at high markups? But rather: how can we develop an effective product and then deploy it so as to help reduce the overall disease burden as effectively as possible?
The COVID-19 pandemic should make us stop and think: which of these two questions should be guiding our pharmaceutical innovators?
 Worldwide annual R&D spending for tuberculosis is just over $900 million (https://www.treatmentactiongroup.org/resources/tbrd-report/tbrd-report-2019) and $250 million for malaria (https://www.who.int/news-room/feature-stories/detail/world-malaria-report-2019), but only about one fifth of this is expended by the pharmaceutical industry (IFPMA 2017, 21). Tuberculosis kills some 1.2 million people each year (https://ourworldindata.org/grapher/the-number-of-deaths-due-to-tuberculosis-by-who-and-ihme-data), malaria kills 500,000 (https://ourworldindata.org/malaria).
ABOUT THE AUTHORS
Felicitas Holzer received her PhD in philosophy from Sorbonne Université, Paris. She is affiliated with the Bioethics Program and WHO Collaborating Center at FLACSO Argentina and recently joined the Incentives for Global Health team.
Having received his PhD in philosophy from Harvard, Thomas Pogge is Leitner Professor of Philosophy and International Affairs, Director of the Global Justice Program at Yale, and a co-founder of Incentives for Global Health. More information at https://campuspress.yale.edu/thomaspogge/
The Health Impact Fund is intended to provide a complementary system for the development of pharmaceutical innovations – especially ones intended for poor patients who cannot afford expensive medicines.
A. Hollis and C. Busby, “International Fund Could Drive Equitable Development of COVID-19 Vaccine,” Policy Options, April 3, 2020, https://policyoptions.irpp.org/magazines/april-2020/international-fund-could-drive-equitable-development-of-covid-19-vaccine/.
IFPMA, “The Pharmaceutical Industry and Global Health,” International Federation of Pharmaceutical Manufacturers & Associations, February 9, 2017, https://www.ifpma.org/resource-centre/ifpma-facts-and-figures-report.
M. Mikulic, “Total global spending on pharmaceutical research and development from 2010 to 2024,” Statistica, April 18, 2020, https://www.statista.com/statistics/309466/global-r-and-d-expenditure-for-pharmaceuticals/.
J. Sachs, “The Drug That Is Bankrupting America,” Huffington Post, April 18, 2015, https://www.huffpost.com/entry/the-drug-that-is-bankrupt_b_6692340.
WHO, “Neglected Tropical Diseases,” World Health Organization n.d., https://www.who.int/neglected_diseases/diseases/en/.
WHO, “World Malaria Report 2019,” World Health Organization, December 4, 2019, https://www.who.int/publications-detail/world-malaria-report-2019.
DSAI provides a platform for dialogue for development studies research, policy and practice across multi-disciplinary perspectives. This opinion piece is published as part of DSAI's call for contributions to our COVID resource section; as a space for pooling and sharing knowledge. Content is published with permission of the author(s). Views expressed are the authors' own.