COVID-19 and beyond: how to pay for new pharmaceuticals

By Felicitas Holzer, Thomas Pogge and Aidan Hollis.

While many commentators point to the shortcomings of public health services, less attention has been paid to the chronic defects in our current pharmaceutical research system, which is similarly implicated in the disastrous effects of COVID-19. One problem is that patents, the current research rewards, do not motivate pharmaceutical companies to work on infectious diseases that are suffered mainly by poor people. Thus, there is a chronic shortage of good treatment options for important and widespread infectious diseases, such as malaria, tuberculosis, schistosomiasis, leishmaniasis, dengue and Ebola, despite the fact these diseases sicken and kill millions of poor patients around the world. Another problem is that new treatments are priced to maximize revenues from affluent patients and therefore typically are unaffordable to the poor. A third important problem is that the current research system does not motivate sufficient interest in outcomes. A firm is rewarded for selling its product, regardless of whether it is suitable for the buyer, regardless of how well it is used, and regardless of its impact on the target disease at the population level.

Research for health gains 

To address the defects in the current research system, we propose, alongside conventional patents, an alternative reward mechanism that is better suited for tackling infectious disease outbreaks. More specifically, we propose the “Health Impact Fund” as a complementary system for incentivizing pharmaceutical innovations, in particular ones intended to help poor patients who cannot afford expensive medicines. This Fund would give any pharmaceutical company with a new drug the option to either set monopoly prices under patents or to register it with the Health Impact Fund. If it chose the latter option, it would still be free to patent its drug, but would be obliged to sell it during a 10-year reward period at or below the cost of manufacture and distribution, and permit its generic production afterwards. The rewards disbursed by the Health Impact Fund would come out of large annual pools divided according to the health gains achieved by the registered medicines, as assessed by statistical methods and denominated in Quality-Adjusted Life Years (QALYs). The more any new medicine improved or lengthened human lives, the more money would go to its innovator.

The Health Impact Fund would address the three problems stated at the outset. First, since its reward payments depend solely on the health gains achieved by their registered medicines, it would give pharmaceutical innovators powerful incentives to develop medicines against the diseases of poverty which continue to do much harm in the global South. Second, by delinking the price of any registered product from the fixed cost of developing it, the Health Impact Fund would secure affordable prices. Any registered drug would have to be sold at no more than the lowest feasible cost of manufacture and distribution, which could be ascertained through an organized competition among generic manufacturers. Third, the Health Impact Fund would motivate pharmaceutical innovators to market their drug for optimal health gains. Innovators would prioritize the patients who can benefit the most, would promote the optimal use of their medicine and would seek to embed their product in a collaborative strategy aimed at reducing the overall incidence of its target disease. While a firm that gets paid for merely selling malaria drugs has no interest in seeing malaria disappear, a firm that gets paid for its impact on the malaria disease burden would like nothing better. If it succeeds in year 6 of the reward period, it can spend years 7-10 enjoying the gratitude of the world while collecting four big payments for reinvestment in new research.

The Health Impact Fund: learning from COVID-19

How might the COVID-19 outbreak have gone differently in a world with the Health Impact Fund as an established complement to the existing research regime? This Fund would attract R&D to diseases that have two characteristics:

(i) they do not afflict many affluent or well-insured people and therefore do not offer much profit potential under monopoly pricing;

(ii) they do great harm (perhaps in part because they have long been neglected by the pharmaceuticals sector) and therefore promise large potential profits on medicines that are rewarded according to impact.

Paradigmatic diseases satisfying these two conditions are the great infectious diseases of the poor: tuberculosis, malaria and most of the 20 so-called “neglected tropical diseases.” Because commercial R&D has largely ignored these diseases, they afford excellent prospects for cost-effective progress – much more so than cardiovascular disease or cancer, which have already attracted hundreds of billions in R&D investment. Prospects are further brightened by the fact that communicable diseases can be effectively fought also at the population level: by reducing the rate of infection. The Health Impact Fund would strongly encourage such efforts by rewarding a drug not merely for improving the health of those who consume it but also for sparing others the disease altogether by reducing its incidence.

Had the Health Impact Fund existed, pharmaceutical innovators would have paid far more attention to communicable diseases. Our knowledge about such diseases would then have been much deeper and more extensive, our arsenal of vaccines and suitable interventions much richer, and our capacity to respond quickly and effectively to epidemics much greater. Moreover, pharmaceutical companies would then have been well prepared to fight communicable diseases at the population level, through collaborative public health strategies built around their products. Such efforts would have helped their corporate earnings. But they would also have given these firms a whole new sense of worth and moral standing based on successfully deploying their product so that many people never become sick in the first place. Working toward health impact rewards, a pharmaceutical firm’s urgent mission of treating patients is integrated into the higher purpose of containing and ideally eradicating the target disease. This is the spirit in which COVID19, also, should be fought.

Critics might say that the function the proposed Health Impact Fund would serve is already served by one or more existing organizations or public private partnerships, such as CEPI or TB Alliance, that have a very important role to play by supporting innovation in specific therapeutic areas or tools. However, these sector-specific organizations leave important gaps because each is focused on an individual area. We think that the Health Impact Fund has the unique approach of being open to all areas, so that the most promising solutions that were not included in one of these existing targeted areas can be supported and made available to patients in need. For example, until the West African outbreak in 2014, Ebola received little attention, and arguably there continues to be inadequate attention to Ebola even today. The Health Impact Fund would have given developers of an Ebola vaccine a commercial motivation to persevere in attempts to address this deadly disease. Since the Health Impact Fund is performance-focused, it offers an alternative path for firms that believe in the efficacy of treatments that do not get support from the leading product-development partnerships. It should be emphasized that the Health Impact Fund would support for-profit as well as non-profit pharmaceutical innovators on the same terms and focus them all on the aim of harvesting the most cost-effective health gains.

Eventually, the participation of for-profit pharmaceutical companies in the endeavor to resolve a global pandemic like COVID-19 seems indispensable. This is particularly owed to their capacity to advance new therapies and vaccines. Pharmaceutical innovators are especially good at coordinating the provision of pharmaceuticals from the workbench to the end-consumer (total factor productivity). They are also very good at making timely judgments about whether a research project should be continued or abandoned. They perform well in adapting and problem solving, creating quick partnerships, resolving bottlenecks, and scaling up quickly. Using the reward mechanism of the Health Impact Fund would maximize health gains while not neglecting the work mode of innovating firms. Especially poor populations would get access to effective treatments at low prices and would, moreover, benefit from the fact that diseases with a considerable disease burden could be decimated in the long run.


Author(s): Felicitas Holzer, Thomas Pogge and Aidan Hollis

Affiliations: Incentives for Global Health; Yale University; University of Calgary; Bioethics Program at FLACSO Argentina

Competing interests: None

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