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An article in the Monroe Street Journal looks at US policy on incentives to develop vaccines:

Policy makers are now trying to use market mechanisms to stimulate the research and development of vaccines to stop major killers in the developing world, including HIV/AIDS, malaria, and tuberculosis. On September 14, 2005, Senators John Kerry (D-Mass.) and Richard Lugar (R-Ind.) proposed bill S.1698, the "Vaccines for a New Millennium Act of 2005" on the Senate floor.

The bill aims to create a more lucrative market in which drug companies will have an incentive to research and develop vaccines for infectious diseases that hit developing countries the hardest. The bill seeks to mitigate the risk drug companies face when developing drugs that are most needed in developing nations, where many consumers cannot afford medications at market price.

The full entry is below the fold

As the world observed the 18th annual World AIDS Day on December 1, the globe paused to revisit a pandemic that has continued to haunt international healthcare professionals, public health experts, policy makers and world leaders. Despite decreases in the rate of infection in certain countries, UNAIDS reports the overall number of people living with the disease has increased in all regions of the world except the Caribbean. The number of people living with HIV has reached its highest level yet, with an estimated 40.3 million people infected, up from 37.5 million in 2003.

In 2005 alone, five million new infections were reported and more than three million people died of AIDS-related illnesses. Of these deaths, more than 500,000 were children.

A number of scholars and public health advocates predict that the severity of the pandemic, particularly in Sub-Saharan Africa, has begun to destabilize entire countries by slowing economic growth, wiping out whole generations, and creating a large population of AIDS orphans. Although the general consensus among the international community is that the disease must be stopped and rolled back before the human toll reaches astounding new heights, policy makers continue to grapple with which methods will best halt the spread of the disease.

The pharmaceutical industry has often been called upon to leverage its resources in the search for solutions amidst the crisis. A host of critics have shunned drug companies for not lowering the cost of antiretrovirals (ARVs) in heavily infected countries such as Swaziland and Botswana, where more than one in three adults is infected. However, companies such as GlaxoSmithKline, Pfizer, and Bristol-Myers Squibb have recognized their special position in the fight against AIDS and have been leaders among corporations that contribute their resources to relief efforts.

Together, they have poured millions of dollars and resources into building hospitals, training local healthcare workers, and raising awareness among communities in heavily infected countries. Because the impact of these programs is often limited to small local areas, proponents of generic ARVs and lowering the price of brand-name ARVs believe that changes in the cost structure are necessary to expediently roll back the disease on a global scale. However, complications with intellectual property laws and the companies' fear of discounted ARVs finding their way into the markets of richer nations have made lowering the cost of the drugs controversial.

Policy makers are now trying to use market mechanisms to stimulate the research and development of vaccines to stop major killers in the developing world, including HIV/AIDS, malaria, and tuberculosis. On September 14, 2005, Senators John Kerry (D-Mass.) and Richard Lugar (R-Ind.) proposed bill S.1698, the "Vaccines for a New Millennium Act of 2005" on the Senate floor.

The bill aims to create a more lucrative market in which drug companies will have an incentive to research and develop vaccines for infectious diseases that hit developing countries the hardest. The bill seeks to mitigate the risk drug companies face when developing drugs that are most needed in developing nations, where many consumers cannot afford medications at market price.

The total market size for vaccines in developing countries is estimated to be about $500 million per year, which is small compared to other drug markets in America and Europe. Consequently, the lack of a profitable market for these vaccines has deterred drug companies from aggressively developing these drugs.

The Center for Global Development reports that 10 percent of the world's R&D on health is targeted toward diseases that affect 90 percent of the world's people and that of the more than one thousand new medicines developed over the last twenty-five years, one percent were for tropical diseases.

To ameliorate this risk, the U.S. government would set "advanced market commitments" (AMCs) by agreeing to purchase large quantities of the vaccines once they are developed and brought to the market. This way, proponents argue, drug companies are guaranteed that their products will be purchased at market price and that they will recover their R&D costs. The bill also grants firms that research vaccines tax breaks and tax credits on the sale of vaccines to international health organizations or to governments of developing nations.

Coupled with "push" approaches that increase funding to public-private research partnerships, such as those established through the Bill & Melinda Gates Foundation, the "pull" approach proposed in the bill has been endorsed by the G-8 Finance ministers and leading vaccine groups such as the International AIDS Vaccine Initiative.

However, critics have questioned whether such market incentives will prove better than directly funding public-private partnerships instead. The fear of diverting funds from existing public health initiatives presents another argument against the bill.

RSB Corporate Strategy Professor and International Business Linda Lim points out that it may be more effective to utilize pharmaceutical industries in emerging markets such as China and India to find these vaccines, rather than in the United States. Professor Lim speculates that "from a cost and effectiveness point of view it would be better to conduct vaccine research in these countries and test them among the population most likely to need/benefit. The fact that the Kerry-Lugar bill proposes a research subsidy for U.S. firms … suggests that it is not as 'altruistic' as appears at first glance - if it's really to help people in poor countries, the money should be spent to develop local capacities to research tropical diseases and cures - since the cost is lower it would also save some U.S. taxpayer dollars."

Proponents of the bill respond to the criticisms by pointing out that AMCs do not require up-front spending and will therefore not pull resources away from existing programs. Furthermore, supporters reason that allocating resources to vaccine development would be a highly productive and cost-effective use of aid because a successful vaccine would save the cost of containing and treating these diseases in the future.

Harvard Economist Michael Kremer cites research that private R&D is more productive than public R&D; private firms are more likely to engage in costly clinical trials and bring a drug to market because they are profit-driven.

The "Vaccines for a New Millennium Act of 2005" must make its way through Senate mark up committees before it can reach the floor for a vote. Because AMCs are a relatively new method of foreign aid, it will be difficult to assess their impact compared to other public-private initiatives also conducting similar research. However, given the persistence of the HIV/AIDS pandemic, it is clear that new innovations are necessary and that AMCs could accelerate the discovery of lifesaving vaccines.

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CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.