Incentives for Tb Diagnostics and Drugs

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Incentives for Tb Diagnostics and Drugs

• Aidan Hollis
• Department of Economics
• University of Calgary

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Can prizes be useful at all?
Diagnostics

• I am skeptical. Possibly the prize mechanism, as
  used by Innocentive, for solutions to very
  specific technical puzzles, might be useful.
• Overall prize for technical solution is not
  implementable because the problem is simply too
  multi-faceted.

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Drugs Overview
Drugs

• What is required is new drugs which treat
  Multi-drug resistant strains
• Which mechanism will be effective?
• Patent exclusivity
• Prizes
• Grants

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B. Cash for Therapeutic Impact
Drugs

• Health Impact Fund
• The proposed Health Impact Fund is an optional
  mechanism that rewards pharmaceutical innovators
  based on the incremental health impact of their
  products, if they agree to sell those products at
  designated low prices. The proposed Fund is to be
  financed mainly by governments.
• No impact on patent rights
• Fixed annual payment divided according to
  assessed health impact (QALYs) per drug over 10
  years.

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Health Impact Fund
Drugs

• Proposed budget perhaps 5bn annually.
• Not specific to Tb
• However, to the extent that Tb drugs could
  achieve significant global health impact, a
  well-financed fund would increase incentives for
  private drug and vaccine development.
• Operates alongside normal patent exclusivity
  firms choose to obtain payments from HIF or to
  exploit their patent rights.
• Similar to a global drug insurance mechanism with
  value-based pricing

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Grants
Drugs

• Currently important, and likely to remain so.
• Key questions access and decision problem.
• What mechanisms will enable wide access and low
  prices?
• Decision-making is problematic

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Funding through push or pull?
Drugs

• How do we compare prize mechanisms and grants?
• Prize mechanisms impose risk on the firm, but
  with higher potential reward
• Grants impose risk on the funder.
• In either case, much money will be spent on
  failures.
• The question is who should choose which projects
  should be funded?

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Funding through push or pull?
Drugs

• Is the grantor better at picking projects than
  the firms internal processes?
• Upside of grantor project selection
• Grantor sees the whole portfolio
• Downside of grantor project selection
• Highly political (compare e.g. to HIF)
• Grantor experts not motivated financially to make
  good choices
• Grantor experts may try to exclude outsiders
• Antitrust considerations

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Corporate philanthropy
Drugs

• We should not expect for-profit pharmaceutical
  firms to fund development on a non-profit basis
• No-loss-no-profit pricing is implausible for drug
  companies, since if firm fails to develop a drug,
  price is zero. If firm does develop (with low
  probability) do it only recover its own costs? If
  so, this is simply corporate philanthropy, which
  is not a sustainable approach to financing.

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Quick summary
Drugs

• For diagnostics, grants tied to reasonable
  licensing regimes seems a reasonable solution
• For drugs, a variety of approaches is certainly
  likely to be optimal.
• For more on Health Impact Fund see
  www.incentivesforglobalhealth.org