| Keywords: | Biotechnology programmes/networks, Non-governmental organizations, Foundations, Private industry, Public institutes, health, Drugs, Vaccinces, AIDS, Malaria. |
| Correct citation: | Lehmann, V,. (2001), "New models for public-private partnerships in drug development." Biotechnology and Development Monitor, No. 46, p. 2-7. |
Virtual pharmaceutical companies have evolved as a new approach to overcoming market failures in pharmaceutical research. They combine entrepreneurial attitudes and social responsibility to make drugs available for developing countries. While they can be seen as a promising new model for public-private partnership in the age of globalizing health issues, this might not be enough to solve market deficiencies.
Drug expenditure mirrors the global distribution of wealth. The annual world market for drugs is worth US$ 314 billion and 90 per cent of this is spent in North America, Europe and Japan. Africa accounts for only one per cent of world drug sales. Pharmaceutical research and development (R&D) is time and cost intensive and is mainly carried out by the private sector. Commercializing a new drug takes about twelve years and costs some US$ 250 million. Investment in R&D, therefore, reflects the attractions of distinct markets.
In 1998, global spending on health research by both the public and private sectors amounted to about US$ 70.5 billion per year. However, less than 10 per cent of this was devoted to diseases or conditions that account for 90 per cent of the global disease burden. Between 1975 and 1997, 1223 new pharmaceutical compounds were launched on the market. However, only 11 of these were designed for tropical diseases.
In times of worldwide restructuring of economies under the impact of market forces, medical services as purely public services have come under scrutiny. At the same time, advocates of free markets have to admit that markets are not efficiently distributing services, particularly where the health sectors in developing countries are concerned.
There is an obvious lack of market incentives to deal with neglected diseases such as malaria, tuberculosis, sleeping sickness, and dengue fever. Traditionally, it was the mandate of the United Nations (UN) and its organizations to address such deficits. However, growing disillusion with UN organizations, such as the World Health Organization (WHO), fuelled by concern about their effectiveness, overlapping mandates and inter-agency competition, has made partnerships outside of the UN bureaucracy attractive. While the WHO over the last three years has made efforts to regain credibility by drastic structural changes, donors have shifted funding away from UN budgets towards earmarked, project-based funding. Teaming up with profit-oriented partners that employ an entrepreneurial mode of management is therefore seen as an alternative to known bureaucratic models.
Healthcare issues have become increasingly globalized. Every year, for example, Human Immunodeficiency Virus/ Acquired Immunodeficiency Syndrome (HIV/AIDS), malaria and tuberculosis kill about 5 million people in developing countries. This death toll has social, political and economic consequences beyond national states and threatens sustainable development particularly in Sub-Saharan Africa. At the same time, industrialized countries seem to have realized that in an age of increased international travel and exchange, the treatment of tropical diseases is not simply a question of altruism when every year about 120,000 people bring malaria back to Europe.
Medicines to counter tropical diseases would be new global public goods. Their development hinges on more than the mere provision of money. Neither public nor private entities alone will have both means and incentive to produce these goods. The idea is therefore to bring together the pharmaceutical industry with its knowledge of product development and the public sector with its expertise in basic biology and field studies.
There are now a number of public-private cooperations that follow the approach of Virtual Pharmaceutical Companies (VPCs) to neglected diseases. Similar to regular pharmaceutical companies, VPCs work on several promising substances simultaneously, because there is always the possibility of failure even in the latest stage of development.
VPCs have to straddle conflicting aims: on the one hand to create incentives for private industry partners; on the other hand to make drugs available at reasonable prices. VPCs therefore pursue a 'social venture capital' model for project funding. Unlike traditional venture capitalists, who seek equity in return for their investments, VPCs seek a commitment that drugs or vaccines will be provided to developing countries at a reasonable price with limited profit margin. In exchange, private partners can use patents derived from the collaboration to develop products for profitable markets in industrialized countries.
The money provided by VPCs is not a grant. Like the money provided by venture capitalists, it is seen as a financial investment. Recipients are consulted during the projects and have to meet benchmarks for continued funding. The approach is becoming increasingly popular in the USA, where charity following the principals of profit-oriented entities is coined 'venture philanthropy'. Historically, private, non-profit entities, such as the Rockefeller Foundation (see also the article in Monitor no. 44/45) have played an important role in funding research, for instance during the Green Revolution. More recently, wealth accumulated through increased stock market values has led to the creation of such new philanthropic entities as the Bill & Melinda Gates Foundation. This organization announced it would spend more than US$ 400 million on the development of vaccines in the next five years (see box).
While VPCs share a common goal and organizational principles, they also display some significant differences, due to the type of diseases they deal with. There are also important differences between drugs and vaccines that determine the different approaches to R&D.
First, the biology of vaccines is more complicated. In the case of malaria and the HIV, the infectors are highly variable, scientific knowledge is still limited and there are no examples of successful vaccines. Second, medical treatment can build up resistance. Therefore, the administration of a drug needs more attention than vaccinations, which normally can be achieved by a single or two-time treatment. Third, the motivations of individuals are different. Drugs are demanded by sick people who have an incentive to spend whatever they can to become healthy again. Vaccines, however, are preventive and healthy people often feel little need to allocate resources simply because there is a risk of disease. Furthermore, individuals often do not realize they are at risk and, therefore, successful prevention by vaccination depends on political will and the capacity of public health services to carry out vaccination programmes. Fourth, market incentives are different. For the pharmaceutical industry it is more lucrative to develop treatments than one-time prevention. However, the vaccine market is highly concentrated and dominated by only four transnational companies: GlaxoSmithKline (UK), Merck (USA), American Home Products (USA), and Aventis (France).
During the last 30 years, in industrialized countries numerous vaccines have been developed that have been recognized as having worldwide applicability. However, they have been slow in reaching the developing world. For instance, a vaccine against Hepatitis B has been available since 1981, but it is only reaching 40 per cent of infants worldwide and virtually none in the poorest countries of Sub-Saharan Africa.
Political impediments have accounted for the slow adoption of vaccines in developing countries. However, prices also play a role and are subject to the peculiar economics of vaccine R&D. Vaccines are based on large proteins. In comparison with synthetic pharmaceuticals the processes involved require extensive biological expertise, and regulatory procedures and quality controls are much more elaborate. Consequently vaccine pricing is less susceptible to patent expiration and competition by cheaper copies. Instead prices are determined by production volumes and facilities. Vaccine makers normally begin with modest production capacities for a limited amount of highly-priced units in industrialized countries. Over the years, production capacities are extended and manufacturing costs per unit decline. Eventually, prices are low enough for governments in developing countries and international donor agencies to purchase and disseminate these vaccines.
Worldwide five million people become infected with HIV each year. More than 90 per cent of them live in developing countries, with Sub-Saharan Africa being particularly affected. The HIV strains in these regions are different to those prevalent in industrialized countries. This has made it unattractive for the private sector to invest in developing a vaccine, and the public sector in industrialized countries has also neglected vaccine research. Instead, resources have mainly been concentrated on delaying the onset of AIDS after an HIV infection and the treatment of the symptoms.
Since 1987, there have been about 30 tests on healthy volunteers to determine the general use of substances in humans in early (Phase I) clinical trials. Of those, only one vaccine concept has reached Phase III trials, the ultimate test for safety and efficacy before it could be licensed for public use. Yet a reliable vaccine is not available.
The International AIDS Vaccine Initiative (IAVI) was set up in 1996 to help fill this gap. Endowed with US$ 230 million for the next seven years through to 2007, IAVI does not focus on stimulating basic research. According to its president, Seth Berkley, IAVI wants to maximize the number of promising vaccine candidates in clinical trials.
A multi-pronged strategy should substitute the present more cautious step-wise approach in vaccine development to make sure that an HIV vaccine becomes available as soon as possible for the developing world. The initiative now has six AIDS vaccine candidates under development. Projects must include a partner in a developing country to ensure that vaccine candidates match the strains of HIV relevant there. IAVI funds public research institutions as well as private companies, and follows a two-part approach to industrial involvement in the field of HIV vaccines:
Its experiences, as explained by Levings & Kahn, reflect some of the underlying difficulties new models for drug development face in a globalized setting. IAVI's VPC model is not the only public-private venture in the field of AIDS vaccines. In June 2000 the US National Institute of Allergy and Infectious Diseases (NIAID) launched four novel public-private partnerships to develop HIV/AIDS vaccines for use around the world (see box).
With two million deaths a year, tuberculosis has a serious impact on developing countries. Tuberculosis is the major opportunistic infection of HIV disease in poor country settings. Nearly 30 years have passed since the introduction of a new compound to treat tuberculosis and old substances have led to the build-up of resistance in Mycobacterium tuberculosis. Furthermore, effectiveness depends on the proper daily administration of drugs over the course of a six to nine months.
Why have no new drugs been developed? Institutions with the capacity to discover drugs are often non-profit entities, such as universities. Yet they are limited in their capacities to screen promising substances, so-called 'lead molecules', on a large scale and are only able to pursue a few through the entire product development trajectory. At the same time, private pharmaceutical companies who do have the capacity to develop drugs into marketable products have had little incentive to discover new leads.
To bridge this gap, the Global Alliance for TB Drug Development (TB Alliance) was founded in October 2000 with an initial endowment of US$ 45 million. It aims at commercializing a new anti-TB drug by 2010. This should provide better treatment than that possible with the drugs currently available because:
The TB Alliance targets gaps in the drug development chain, from early discovery, preclinical testing and the clinical trial stage. It is organized as a virtual R&D entity, a model that is generally gaining importance in the pharmaceutical industry. It includes 'virtual' drug discovery and 'virtual' drug development, which means that all processes are out-sourced but managed by a central unit. Administered by a 'lean enterprise', drug development could be accelerated, making the most effective use of resources that are not necessarily in-house, but are generated elsewhere. For instance, large pharmaceutical companies have libraries of compounds whose potential uses as tuberculosis drugs have not been investigated. Presently, the TB Alliance is negotiating with pharmaceutical companies to see whether their contribution to the project could be granting access to these collections. According to Giorgio Roscigno, Acting Chief Executive Officer of the TB Alliance, it is hoped that costs for developing a new drug could be cut to US$ 100 million, about half the regular costs of delivering a new drug to the market. Roscigno assumes that, if a new drug, that could reduce treatment to two months, would be available, it could capture at least US$ 300 million of the US$ 500 million annual sales of TB drugs.
Since all the initiatives emphasize the need to attract private companies to embark on partnerships, why are they reluctant to join? Most products will become available for markets with limited volume in the first place, so the added value is indirect. Generally, private companies gain from access to a network of cooperations and to possibilities of technology development that might later become profitable on their main markets. For small biotechnology companies, the initial funding, comparable with venture capital, can help to overcome gaps in the starting phase of the corporation. Especially for large pharmaceutical companies, another bargain might be in the realm of public perception. After the generic AIDS drugs trial in South Africa, and the threat of compulsory licensing, transnational pharmaceutical companies see a need to justify their position on proprietary technologies. All VPCs' partnerships respect intellectual property rights (IPR) and advocate tiered pricing: higher costs in industrialized countries to repay the R&D expenses, and lower costs in the developing world to guarantee availability. If successful, pharmaceutical companies could view tiered pricing as something more reliable than the compulsory licensing of their technologies that they might face.
In the field of agrobiotechnology, the dissemination of proprietary technologies has at times been criticized as a top-down manoeuvre to legitimize the development of new techniques. For example, Monsanto's (USA) delivery of genetically modified potatoes (see Monitor No. 41) and the so-called 'Golden Rice' by Syngenta (Switzerland/UK, see Monitor No. 44/45) were questioned as to their usefulness for the problems and people they supposedly address. Yet pharmaceutical companies, although not free from public relations considerations, cannot be criticized on the same grounds. For one thing, they did not launch these partnerships themselves, but were relatively passively drawn into them. Furthermore, the scale and impact of diseases such as malaria, tuberculosis or HIV/AIDS make it hard to dismiss a contribution to alleviating these diseases as public relations stunt by private companies.
Socially responsible VPCs are an interesting new approach to creating a science push for under-funded yet necessary pharmaceutical R&D. The idea of overcoming market deficiencies by market measures has inherent limitations. Representatives from the VPCs therefore point out the need for accompanying measures:
Legislation: In industrialized countries, legislation could help by giving companies specific tax exemptions. In the USA and Europe, there are already examples of research into so-called 'orphan diseases', which may affect only a few thousand people. Orphan drug laws encourage companies to develop medicines against rare diseases, which otherwise would have been neglected due to the limited market. These niche markets have successfully provided an incentive for small, emerging biotechnology companies to deliver specialized drugs. Similarly, legislation could target market limitations for diseases in developing countries. In the USA, Vaccines for the New Millennium Act of 2001 was proposed to the Congress. It suggests tax credits on R&D for vaccines against malaria, tuberculosis and HIV.
Dissemination: The successful development of new medical substances will not solve the problem of their availability. Even at cost price, none of the hardest-hit developing countries could afford modern medicines. A hypothetical AIDS vaccine that might be made available at a cost price of US$ 10 would still be out of the reach of all those countries in which public health spending per person per year is even below that sum. The incentives and markets have to be created and paid for by industrialized countries and international organizations. A first step in this direction is the Global Alliance for Vaccine and Immunization (GAVI), which aims to dedicate more than US$ 1 billion to the development and dissemination of vaccines.
Multiple approach: Diseases are complex phenomena with a range of ecological, societal and behavioural aspects. Drugs and vaccines are not the whole solution but neither are the alternatives. In the case of malaria, one option, using pesticides such as DDT to control mosquitoes, for example carries the risk of harmful side effects. Another approach is to limit the chances of exposure to mosquito by using bed nets. Yet in some societies a bed net is seen as status symbols rather than as a protection for the most needy children, and is outside the purchasing power of the most vulnerable groups.
VPCs are still a new concept. None of them is older than five years and, although promising, the approach will ultimately have to be measured by its ability to deliver the goods needed. Their potential as a new model for global public-private partnerships in R&D will largely depend on how they can balance the stimulation of innovation with the delivery of a product to developing countries.
In this sense it is important to look at VPCs with a focus on IPR issues. In the generic AIDS drugs trial in South Africa, at the core of the dispute was the South African government's provision for compulsory licensing. It is a matter of interpretation whether this measure runs counter to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Yet the outcome of the trial showed that IPR are not merely a legal issue, but that they are also entangled with the bargaining power of the patent owners and with the perception of the public.
At a time when the questioning of the overriding power of patent protection is gaining momentum, all VPCs have committed themselves to respecting IPRs. VPCs might become a roadblock if their example is turned against other measures to make technologies available to the needy, such as compulsory licensing. Such a 'philanthropic IPR protection beyond TRIPS' would ultimately run counter to the mission of the initiatives and the people they are intended to benefit.
Editor Biotechnology and Development
Sources
Global Alliance for TB Drug Development (2000), Scientific blueprint for TB drug development. New York, USA, Global TB Alliance.
IAVI (2000), PAIDS vaccines for the world: Preparing now to assure access. AVI Blueprint, New York (USA), IAVI.
"Puncturing AIDS." The Economist, VOLUME, February 3, 2001, pp. 81-82.
Global Alliance for Vaccines and Immunization (GAVI), http://www.vaccinealliance.org
Malaria Vaccine Initiative (MVI), http://www.malariavaccine.org
Personal communications with S. Berkley, (IAVI), Y. Champey, (MSF), C. Hentschel (MMV), C. Hogan, (GlaxoSmithKline), K. Holm (Global Forum for Health Research), R. Rabinowivich (MVI), G. Roscigno (TB Alliance) and S. Shapiro (HVDDT).
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