Incentives and innovative financing mechanisms encourage funding

Garnering investment from the private sector

The private sector has expertise in many areas valuable to the development of global health technologies. While the public sector has the expertise and mandate to address the health needs of the underserved, the private sector brings expertise that is essential to meet that mandate: efficient management of product development and manufacturing, successful navigation of regulatory pathways, and effective strategies to market and introduce new interventions. These are just some of the reasons the private sector is an important player in global health research and development (R&D).

Private-sector partners, however, may perceive that developing-world markets are insufficient to support new products. They may consider the costs and risks of making products for the developing world as outweighing expected financial gains. Incentives and innovative financing mechanisms aim to encourage greater engagement, capturing industry expertise in ways that will be beneficial to the private sector as well as to developing countries. Because no single incentive or funding mechanism will address the varieties of research opportunities for diseases and products, different mechanisms are needed to offer incentives to accommodate a range of health technologies at different stages of development.

High costs of new products

An often-debated 2001 estimate of the costs to discover, evaluate, and bring a successful new drug to market released by the Tufts Center for the Study of Drug Development found that the bill for developing a single compound could be as high as $800 million; the number may be well over $1 billion today. (Costs for products such as vaccines, devices, and diagnostics vary widely.) The cost of development is high in large part because perhaps 90 percent of compounds tested during the R&D process do not succeed.

The problem of insufficient funds may be especially acute for global health research when:

  • The annual income of large populations is low or negligible and traditional means to recoup costs—relying on consumers to pay the cost price with a margin of profit—cannot be sustained.
  • Public- and private-sector support for health costs is insufficient.
  • A disease is endemic in locations where economies are not able to sustain health systems and other social aims, such as agriculture, education, or development.

Ways to make investments work

Potential incentive mechanisms can be divided into two categories:

Push mechanisms use funding to accelerate R&D and lower costs before a product’s success can be determined. They place the risks primarily on the funder and not the product developer. Push mechanisms can be especially adept at harnessing the scientific creativity necessary to answer tough biological questions.

Pull mechanisms entice researchers by offering rewards or reducing risks for the development and delivery of successful products. Pull mechanisms are designed to reward the outputs of research.

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