Center for Global Health R&D Policy Assessment

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Can R&D for Global Health be Profitable?

Observations from the MEND 2010 Workshop

At the Medicines for Neglected Diseases Workshop in Boston on September 11, 2010, a persistent problem surfaced in the discussion—global health R&D is not profitable, and companies have little incentive to create ground breaking health technologies that would have high health impact but little to no market impact. But what if companies could profit from tackling the diseases of the poor? Two models that were presented, one working within the current incentives system and one working to overhaul it, struck me as offering good insights for confronting the profitability challenge.

The first is the hybrid business model presented by Dr. Una Ryan, the President and CEO of Diagnostics for All (DFA). DFA is a newly formed non-profit company that develops low cost paper based diagnostics which meet the need for field-ready point of care diagnostics. These simple diagnostics are the size of postage stamps and cost fractions of a penny to manufacture, which helps keep prices low for health practitioners in developing countries. “It’s a mistake to pour money into unsustainable products,” Dr. Ryan said. DFA’s first product gauges liver functionality in HIV/AIDS and TB patients. Although DFA is a non-profit, it aims to operate like any other for-profit company that focuses on creating products in line with market demand. DFA develops technology on the cutting edge of microfluidics. To finance its commitment of reaching patients in the developing world, DFA owns a for-profit subsidiary, Paper Diagnostics, which licenses DFA’s technology to for-profit developers. The revenue from its for-profit arm helps sustain DFA’s work in addition to the donor support that the organization receives. As this endeavor grows, it will be interesting to monitor the model’s sustainability and judge its applicability to health technologies beyond diagnostics.

The second idea, the Health Impact Fund (HIF), proposes a radical decoupling of the market for innovation and the market for products. The HIF, championed by Dr. Thomas Pogge, would complement the existing patent system and offer companies the option to receive a financial reward proportional to their product’s health impact from a pre-established fund. The metrics for measuring health impact across diseases are still being ironed out by the fund’s proponents, but they will likely be based on what are known as QALYs or as DALYs. In exchange for the impact based reward, the company would have to make the health technology available for generic production, thereby removing the link between the market price of a health technology and a company’s profit.

In his keynote address at the workshop, Dr. Pogge noted, “Pharmaceutical companies are not at fault [for the R&D gap]. We, you and I, are at fault for regulating them in such a way that makes no sense and creates perverse incentives.” In other words, rather than relying on Corporate Social Responsibility initiatives, changing financial incentives could change R&D priorities. Now, there are some potential downsides to this plan. Companies have a disincentive to join the fund as more product developers participate, as the reward is a fraction of the available pool, not a fixed sum. It will also be tough in the current economic environment to convince governments to collectively contribute $6 billion a year, the estimated need for implementing the HIF, to a fund without predefined outcomes.

Despite these kinks, the HIF could be a good way to motivate scientists and companies to work more on drugs and vaccines for neglected diseases. Having the fund in place could help Product Development Partnerships (PDPs) stay in business and increase their competitiveness. In the current global health R&D architecture, PDPs have to continually seek replenishment funds from donors. If the HIF existed, then they might be able to count on much larger, long term streams of revenues based on the health impact of their products.

Neither of these ideas are perfect, but they pose an interesting principle. If we can think outside of the box, then the global health market might become more appealing for product developers. Global health will never be the most profitable R&D area, but maybe it can become profitable enough that product developers don’t have to go into the red to participate. As the social enterprise movement to address the demands at those at the “bottom of the pyramid” grows, perhaps it is time to consider how R&D players can create low-cost technologies for the developing world without sacrificing their business principles. It could be a mistake to place R&D for the developed and developing worlds in different spheres. After all, they both require the top scientific minds and significant capital investments. As BRIC countries expand their R&D industries and focus on the health priorities of their own populations, there will likely be a blurring of the boundaries between for-profit diseases and non-profit diseases. It is doubtful that donors could ever walk out of the picture, but it is critical that their money be used in the most impactful way. Changing business as usual for global health and how rewards flow may help engage the brightest companies and developers in solving the health problems that burden millions across the globe.