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Incentives for Innovation
(Push and Pull)
Andrew Alexandra
Director
Australian Research Council
Special Research Centre for
Applied Philosophy and Public
Ethics
University of Melbourne
• Pharmaceuticals largely produced and
distributed by large commercial
organisations, protected by international
IP regime.
•
Two kinds of problems re drugs for
(diseases of) the poor:
1. Accessibility - drugs too expensive
2. Availability - drugs not developed for
needs of poor
Solutions?
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Donation
Differential pricing
Bulk buying
Compulsory licensing
Public/private partnerships (push)
Priority Review Vouchers (push)
Advance Market Commitments (pull)
Health Impact Fund (pull)
Donation
Eg Merck’s donation of drug against river
blindness
Pro:
 Helps with accessibility problem
Donation
Con:
 Donated drugs often (almost) expired,
inappropriate, dangerous
 Drugs unknown to locals may be difficult
to administer
 Dependent on financial state of donor not predictable or dependable
 Doesn’t help availability problem
Differential Pricing
Current huge ‘deadweight loss’ difference btwn. amount earned at
current prices and that which would be
earned if drugs were sold more cheaply
above ‘break-even’ price to those who
can’t pay current prices. (Different
prices in different markets.)
Differential Pricing
Pro:
 Can help with accessibility problems.
Con:
 Difficulties of parallel trade and ‘external
referencing’ cause resistance from
pharma
 Does not help with availability problems.
Bulk Buying
Drugs purchased cheaply in bulk by eg
Clinton Foundation, then resold to
developing countries at low price.
Pro:
 Helps resolve accessibility problems.
Con:
 Dependent on good-will and capacity of
philanthropist.
 Does not help resolve availability
problem.
Compulsory Licensing
Requires patent holder to license another
party to manufacture drug, where
required to protect pubic health previously only for domestic
consumption, now also for export.
Pro:
Can help resolve accessibility problem in
emergencies for countries with domestic
manufacturing capacities.
Compulsory Licensing
Con:
 Ad hoc short term solution to
accessibility problem
 Relies on domestic manufacturing
capacity
 Not only does not help availability
problem, may be disincentive for
development of products which may be
subject to compulsory license.
Publicly Funded Research
(Push) Public provision commonly
addresses market failures. Here
research into drugs is publicly funded,
so either can be marketed outside
patent system, or conditions imposed
on patent holder/licensee.
Publicly Funded Research
Pro:
 Supplements market, contributes to
resolving both accessibility and
availability problems.
Con:
 Funding can go to unsuccessful, less
urgent, research.
 Dependent on changeable political
priorities.
Public Private Partnerships
Eg Global Alliance for TB Drug Development
funds development of new TB drugs.
Pro:
Can help resolve both accessibility and
availability problems
Con:
 As with publicly funded research
Priority Review Vouchers
(Pull) When a pharma company registers
a drug for a review in patent process
that is directed at eg tropical disease,
they can ask for expedited review of
another, ‘blockbuster’ drug, saving large
amounts.
Priority Review Vouchers
Pro:
 Helps resolve availability problem, without
use of public money.
 Legislatively mandated
Con:
 Do not help resolve accessibility problem
 Can delay other drugs awaiting approval
Advance Market
Commitments
(Pull) Sponsors (NGOs, govts.) promise
to buy quantity of product with given
specification at fixed price.
Pro:
 Can help resolve both availability and
accessibility problems
Advance Market
Commitments
Con:
 Need high level of specification.
 Admin. costs will be spent even if
specs. are not achieved.
 May ‘crowd out’ research which would
have been more efficacious.
Health Impact Fund
(Pull) Proposal to set up market-based,
pay for performance reward mechanism
for innovators alongside traditional
patents. Payment from public funds
according to impact of innovation.
Innovators would not have to charge high
monopoly prices to recoup R&D costs,
wld.have incentive to sell product
cheaply to achieve high impact.
Health Impact Fund
Pro:
 Addresses both accessibility and
availability problems.
 Gives commercial incentives to Pharma
to participate.
Con:
 Needs long-term, yet-to-be achieved
commitment for governments.