Incentives for Tb Diagnostics and Drugs

1. Incentives for Tb Diagnostics and Drugs Aidan Hollis Department of Economics University of Calgary

2. 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.

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

4. 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.

5. 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

6. 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

7. 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?

8. Funding through push or pull? Drugs • Is the grantor better at picking projects than the firm’s 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

9. 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.

10. 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