- The IFPMA and its members are open to the use of innovative finance mechanisms where there is demonstrable market failure.
- None of these mechanisms are standalone solutions. They should be viewed as complementary to existing IP systems for stimulating further R&D.
Product Development Partnerships (PDPs)
A recent approach that has helped to increase R&D for neglected diseases is the product development partnership (PDP) model, in which stakeholders from the private, and non-profit public sectors may work together. Indeed, the majority of industry R&D projects for diseases of the developing world now involve collaboration with PDPs. Companies provide the R&D, technology, manufacturing and distribution expertise, with funding and logistical contributions from partners, such as governments or philanthropic organizations. Academic institutions are also involved in providing research capabilities and disease area knowledge. This cooperative tool is a crucial link in the process of bringing new discoveries to patients, particularly for those diseases that affect neglected populations, where there is little commercial investment.
“Orphan Drug”-type Mechanisms
In the US, the EU and several other countries, “Orphan Drug Acts” have produced impressive results in terms of new drugs made available in disease areas where the number of patients is small and the return on R&D investment insufficient. Legislation or other mechanisms similar in spirit to these “Orphan Drug Acts”, (e.g. the US Priority Review Voucher Scheme) could provide a favorable framework of financing incentives to increase R&D for drugs targeting diseases of the developing world. Such a package could include R&D tax credits, research grants, lower regulatory fees, or fast-track approval.
Advance Market Commitments
Several WHO member states have helped to fund an advanced market commitment (AMC) under GAVI Alliance auspices to stimulate the development of new vaccines to address diseases that disproportionately affect the developing world. The AMC approach may help to replicate market forces, making money available only if companies succeed in producing the desired product, while ensuring low prices to increase developing country access. Research-based biopharmaceutical companies around the world have the necessary know-how, and the AMC’s innovative financial incentive can encourage them to take on the risk associated with bringing new medicines and treatments from the laboratory to the poorest countries that need them.
Prizes are funds that create rewards for successful development of new products, which are paid in a lump sum once a product obtains necessary marketing approval. Prizes could be catalysts for short-term approaches to incentivizing innovation in some circumstances. However, they do not provide a sustainable mechanism for supporting broad R&D into diseases that disproportionately affect the developing world. This view is supported by leading economists Joseph DiMasi and Henry Grabowski who have also noted that there are “numerous and potentially substantial, costs” to prize funds. For example, “the temptation for legislators and administrators to undervalue innovations is especially great for prize awards.” This can lead to weakened incentives for innovation, and leave the innovator with “little choice but to comply with expropriation of much of the value that has been created.”
Several proposals have been put forward as potential mechanisms for stimulating research and development (R&D) in disease areas where market forces alone offer insufficient returns. These include: product development partnerships, “orphan drug” legislation, advance market commitments, patent pools, and prizes.