Advance Market Commitments for R&D in Diseases That Disproportionately Affect Low‐Income Countries

• Published date: 01 July 2012
• Date: 01 July 2012
• Author: Ebenezer Kwabena Tetteh
• DOI: http://doi.org/10.1111/j.1747-1796.2012.00442.x

The Journal of World Intellectual Property (2012) Vol. 15, no. 4, pp. 280–303

doi: 10.1111/j.1747-1796.2012.00442.x

Advance Market Commitments for R&D in Diseases

That Disproportionately Affect Low-Income

Countries

Ebenezer Kwabena Tetteh

University College of London

There has been a growing focuson finding ways to increase the availability of beneficial health technologies for

the diagnosis, treatment, prevention, elimination and eradication of neglected diseases that disproportionately

affect low-income countries.A number of interventions have been suggested but one mechanism thatappears to

have gained favour is advanced market commitments (AMCs), which has been piloted with the pneumococcal

conjugate vaccines. AMCs aim to inflateand reduce the uncertainty around the stream of expected quasi-rents

provided by (uninsured)healthcare demands in low-income countries to encourage private pharmaceutical and

biotechnology firms to undertake the desired R&D investments. This paper evaluates the potential of AMCs

to increase the supply of new molecular entities (NMEs) for neglected diseases and notes that AMCs are the

appropriate instruments as long as the global community relies (wholly or in part) on private firms to make

systematic ratherthan piecemeal public service or philanthropic investments. It calls fora review of World Trade

Organization (WTO)’s Trade-Related Intellectual Property Rights (TRIPS) agreement to explicitly recognize

the inadequacies of intellectual property rights (IPR) and patent protectionin stimulating innovation and access

to health technologies for neglected diseases.

Keywords AMCs; neglected diseases; pharmaceutical R&D; TRIPS

One of the key challenges facing international health is reducing the portion of global disease burden

attributable to neglected diseases that afflict almost exclusively low-income populations. The health

problems posed by neglected diseases can be traced to a whole range of issues including poorly

performing or non-existent healthcare delivery systems,human rights violations, civil strife, political

instability and non-healthcare determinants of health (agriculture and nutrition, housing, female

education and transportation etc.) that determine individuals’ self-efficacy to withstand random

shocks to their health (Hotez and Thompson, 2009). According to Musgrove and Hotez (2009),

improvedsanitation and water supply alone could reduce schistosomiasis and guinea wormmorbidity

by 75% and that of blinding trachoma by 25%. Putting aside these general public health policy

issues uncovers the more specific problem of limited availability of health technologies for neglected

diseases.1

In their seminal paper, Trouiller et al. (2002) reported that 16 of 393 new molecular entities

(NMEs) marketedbetween 1975 and 1999 were for tropical diseases and tuberculosis.Indeed, over the

study period, it was 13 times more likelythat a new therapeutic molecule will be developed for cancer

and diseases of the central nervous system than for a neglected tropicaldisease. Following this study,

Kaplan and Laing (2004) reported that only 10% of global pharmaceutical R&D expenditures are

directed towardshealth problems that makeup 90% of the global disease burden, creating the so-called

(10/90) pharmaceutical or innovation gaps. More recently, Cohen et al. (2010) revisited the Trouiller

et al. (2002) study and using the same counting methodology but different definitions for neglected

diseases, found that between 1975 and 1999, 32 NMEs were actually marketed. This, however, does

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Advanced Market Commitments for Neglected Diseases Ebenezer Kwabena Tetteh

not change the general conclusions that these diseases are neglected in terms of R&D investments. As

reported by Vanderelst and Speybroeck (2010), neglected diseases are less researched compared to

matched global diseases with similar disability-adjusted life years. Averaged over time,the number of

publications on matched global diseases was four times higher in the PubMed database and six times

higher in Webof Science. Solving the problem of limited R&D investments will require surmounting

the various hurdles that privately funded pharmaceutical and biotechnology innovators (hereafter

private firms) face irrespective of whether they are dealing with global or neglected diseases. These

hurdles include (1) the state of basic research and underlyingscience to support translational/applied

research; (2) economic hurdles that determine the profitability and hence the willingness of private

firms to make R&D investmentsover long periods of time during which no cash flows are realized; (3)

regulatoryhurdles that ensure the outputs of R&D investments are fit forhuman use; and (4) problems

associated with violations of international regimes of intellectual property rights (IPR) and patent

protection (Webber and Kremer, 2001). However, what makes neglected diseases notably different

from global diseases is that the expected R&D pay-offs commensurate with the lower aggregate

economic demand in low-income countries offers limited or non-existent scope for recouping the

costs of R&D effort.

As low-income countries in aggregate constitute a relatively small segment of the global mar-

ket, private firms rationally focus on profitable (global) diseases common to high- and low-income

nations. Lichtenberg (2005) notes that the quantity of pharmaceutical R&D conducted globally

is positively correlated with the burden of disease in high-income countries but not the disease

burden in low-income countries. This reflects not just their low incomes per capita but also the

absence of health-insurance protection to subsume the financial risks of unpredictable health-

care demands and make income transfers to the sick, especially in time periods where health-

care expenses are unaffordable relative to disposable household incomes. For the same reasons,

it is unlikely that domestic pharmaceutical and biotechnology firms in low- and middle-income

countries with innovation capacity will invest in neglected diseases when the profit potential is

sub-optimal relative to that in global disease categories—unless government intervention redi-

rects their investment choices. Lanjouw and MacLeod (2005) report from a survey conducted

in 2003, that, at most, 10% of total R&D expenditure by the largest pharmaceutical firms op-

erating in India (both Indian-owned and multinational subsidiaries) was spent on developing-

country diseases. That said the problem of low market profitability also undermines R&D in global

diseases.

Trouiller et al. (2002) report that almost 40% of candidate therapeutic molecules under inves-

tigation in R&D portfolios of private firms (mostly based in the United States) are abandoned as

effective global demand for these molecules are expected to generate sub-optimal on-patent cash

flows. Candidate molecules under investigation are abandoned not only for clinical efficacy and

safety concerns but also out of commercial considerations. Indeed, Acemoglu and Linn (2004) show

that a 1% increase in the potential market size of a therapeuticcategory leads to 4–6% increase in the

number of therapeutic molecules in that category. Finkelstein (2004) also show that health policies

that create higher expected demand by encouraging wider use of existing vaccines have dynamic

effects of increasing R&D investments (specifically a 2.5-fold increase in the number of new vaccine

clinical trials). The author argues that for every $1 increase in annual expected market revenue for

vaccines stimulates, annually, an additional $0.06 in discounted present value (PV) of expenditures

on new clinical trials. A similar dynamic effect is reported by Civan and Maloney (2009) who found

that the higher the retail price of existing drugs that have no generic competitors (a proxy of the

expected price of a new drug) in a given therapeutic category, the higher the number of drugs in the

development pipeline for that therapeutic category. Holding disease incidence and severity (a proxy

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