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Strong Medicine: Creating Incentives for Pharmaceutical Research on NeglectedDiseases by Michael Kremer and Rachel Glennerster, Princeton, N.J., PrincetonUniversity Press, 2004, xiv + 153 pp.
HIV/AIDS, tuberculosis, and malaria are the three major killers that account for 40 percentof mortality due to infectious diseases in the world. According to The World Health Report,2004 (WHO), approximately 2.8, 1.6, and 1.3 million people died in 2002 respectively fromAIDS, tuberculosis, and malaria. Further, a larger number of newly infected people havebeen added every year to the total of those living with these diseases, 5 million for HIV,from 8 to 9 million for tuberculosis, and 300 to 500 million for the malaria. What is impor-tant within the context of international development is that the majority of people infectedby these diseases are concentrated in low-income countries. The burden of infectious dis-eases is a serious issue for many people in these countries and is considered a strong im-pediment to economic growth.The purpose of the book is to provide practical ways of stimulating research and develop-ment (R&D) for neglected diseases, in particular the three major killers mentioned above.Although patients living in low-income countries sorely need medicines, they usually can-not afford them. R&D activity for these medicines does not seem to be taken seriously bypharmaceutical companies. Within these circumstances, the authors examine reasons forthe lack of R&D as well as various systems designed to deal with the problems associatedwith R&D incentives and access to medicines. From their analysis, they conclude that acommitment to purchasing vaccines could develop. Regarding this issue, Lanjouw (2002)1
has taken the position that since the existing patent system plays such an important role ininnovations, it should be reformed in order to correspond to the actual circumstances oflow-income countries. Thus, there is a difference between the two relative to whether theproposal applying to this problem is a substitute for or a complement to the existing patentsystem.In the past ﬁve years, discussion of this issue has become quite meaningful. Reﬂectingthe upsurge of international public opinion, and with the Agreement on Trade-Related As-pects of Intellectual Property Rights (TRIPS), WTO members agreed to institute a moreﬂexible policy regarding medicines for the three major killers from 2001 to 2003. Develop-ing countries now have the right to produce drugs protected by the patent holder and togrant compulsory licenses to home manufacturers through this agreement. They can alsoimport cheaper drugs from the countries that produce copies using compulsory licenses.While no country has used these rights so far,2 these amendments heighten the bargaining
1 Jean O. Lanjouw, “Intellectual Property and the Availability of Pharmaceuticals in Poor Coun-tries,” in Innovation Policy and the Economy, ed. Adam B. Jaffe, Josh Lerner, and Scott Stern, vol.3 (Cambridge, Mass.: National Bureau of Economic Research, 2002); Lanjouw, “A Patent PolicyProposal for Global Diseases,” in Annual World Bank Conference on Development Economics,2001/2002, ed. Boris Pleskovic and Nicholas Stern (Washington, D.C.: World Bank, 2002).2 Although WTO members must give notice when invoking these rights, none of them did so untilJanuary 2005. http://www.wto.org/english/tratop_e/trips_e/public_health_e.htm.
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power of low-income countries over multinational pharmaceutical companies in negotiat-ing prices of the antiretroviral drugs and those used against tuberculosis and malaria. As aresult, costs for related drugs have fallen drastically.3
Although the decline in prices of drugs is favorable to patients in low-income countries,it is potentially harmful to further development of medicines, therapies, and vaccines to beused against the three major killers. This is because low prices reduce the proﬁts of pharma-ceutical ﬁrms, leading to a loss in incentives for further innovation. The declining will todevelop medicines for such diseases must be of concern. The problem of how to keep highincentives to develop medicines for neglected diseases and to ensure patients’ access tothese medicines must be more clearly addressed when prices take a downturn as a result ofTRIPS amendments in the WTO. To date, no concrete plan has been developed. Hence, abook proposing a deﬁnitive system for resolving conﬂicts relative to R&D incentives andmedicinal access has great signiﬁcance.
The book is organized as follows. Chapter 1 guides readers in learning how serious infec-tious diseases are in developing countries. This is supplemented by personal experiences ofone of the authors, Michael Kremer, who was infected with malaria as a youth in Kenya. Hedescribes a situation in which most people, including his best friend, could not access medi-cines in the same way he could. This experience may have motivated him to take up thisissue.Chapter 2 describes differences in distributions of disease in low-income and high-income countries and also includes the status of each disease. In high-income countries, non-communicable diseases, such as cancer and diabetes, account for approximately 80 percentof all diseases. For low-income countries diseases consist mainly of those that are infec-tious or otherwise communicable. Based on the idea that simple technology is appropriatefor situations in which there is a weak health-care infrastructure and inadequate training ofmedical staff, the authors recommend vaccines as a simple tool against infectious diseasesfound in low-income countries. They refer to the success story of polio and smallpox in the1980s, and the focus placed on R&D for vaccines thereafter.Chapter 3 describes the lack of private R&D to develop drugs for low-income countries.Nevertheless, the authors point out the scientiﬁc potential for new vaccines that can comeabout through advances in technology. In Chapter 4, they suggest that R&D incentives forvaccines are impeded by failures both in the market and in government. Two factors affect-ing market failure are given: (1) “externalities” such as the consumption of vaccines by oneperson beneﬁting others due to reducing the probability of that person infecting others and(2) the “gap” between social and private returns relative to R&D investment. The presenceof the former factor indicates that vaccines are public goods. Individuals can take a free ridewithout purchasing it. Thus, there is a market failure because private sectors will not supplysuch an unproﬁtable product. In the latter factor, the gap is increased by downward pres-
3 The costs for treatment with antiretroviral drugs declined from around U.S.$30 per day per personin the middle of 1998 to U.S.$1 in the beginning of 2002 (“AIDS: Hope for the Best. Prepare for theWorst,” Economist, July 13–19, 2002, pp. 65–67).
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sures on prices due to the government imposing weak patent protection on developers.4
According to the authors, this is a government failure.Chapters 5 and 6 discuss push and pull approaches that are distinguished by the type ofR&D incentive. Push programs subsidize R&D input in advance. Examples are grants andtax credits for R&D investment. Pull programs such as patent and prize systems rewarddevelopers for success in developing new products. Although push programs are necessaryfor basic research that is disconnected from commercial proﬁt, they may also be an inefﬁ-cient allocation of R&D input and may be susceptible to the opportunistic attitudes of de-velopers. If there is inadequate monitoring of inventors that are funded by the government,developers may have the incentive to divert resources from original plans and exaggeratethe probability of success in order to obtain more funds, thus making use of asymmetricinformation against the government.On the other hand, the authors argue that pull programs encourage applied research.People who award funds to inventors do not have to monitor the researchers. This is differ-ent from push programs in that rewards are paid to developers only when a vaccine is devel-oped. Thus, funds for developers are only spent for concrete outcomes.While admitting the complementary nature of both push and pull programs, the authorsfocus on pull programs that encourage the private sector to undertake applied research.Chapter 7 includes discussion of various pull programs such as: (1) commitments to ﬁnancethe purchase of products and patents, (2) provision of patent extensions on other products asa compensation for vaccine R&D, (3) establishment of best-entry research tournaments,and (4) expansion of market size. The authors propose commitment to ﬁnancing the pur-chase of quantities of vaccine at ﬁxed prices relative to international society.One of the remarkable achievements of this book is discussion of vaccine pricing inChapter 9. This includes estimations of price that are both attractive to inventors and cost-effective in saving lives. The authors propose that a range of prices between U.S.$15 andU.S.$20 per person for immunization of the ﬁrst 200–250 million individuals would beacceptable to inventors and also be cost-effective. Unfortunately, pull programs suffer froma problem called “time-inconsistency.” Even though governments and international organi-zations promised that they would give developers rewards after success in inventing vac-cines, this commitment may be withdrawn under the guise of “public beneﬁt.”  In order toavoid this time-inconsistency problem, both governments and international organizationsmust secure a credible commitment. In this way, pharmaceutical companies will not fail toundertake research. The remaining part of this chapter includes description of various insti-tutional frameworks that may stimulate R&D to invent vaccines for diseases spreading indeveloping countries.Finally, the authors advocate the necessity of making legally binding contracts for com-mitment to prevent the time-inconsistency problem mentioned above. The role of key spon-sors, i.e., private foundations, national governments, and the World Bank, is described in
4 In many countries, patents for medicines are waived on grounds of public health. Even at the end ofthe 1980s, 40 countries, including developed countries, did not admit substance patents for medi-cines but only process patents (Jean O. Lanjouw and Iain M. Cockburn, “New Pills for Poor People?:Empirical Evidence after GATT,” World Development 29, no. 2 [2001], p. 265).
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Chapter 12. The authors close by discussing the potential for cooperation among multiplesponsors that have reliable commitment.
A primary contribution of this book is its provision of concrete ways to stimulate privateR&D using economic perspectives. R&D efforts for medicines that can be used againstneglected disease like malaria are scarce. Private developers hesitate to exploit new drugsand vaccines for fear of making unproﬁtable and risky R&D investments. Although thepublic sector might be expected to develop provisions against such cases, the authors pointout the fear that push programs will be inefﬁcient and bureaucratic. Public and private sec-tors seem to have a complementary relationship as represented by Cockburn and Henderson(2000).5 These authors described a division of labor between the two. Therefore a plannedlayout where only the public sector undertakes development of medicines should be dis-missed and incentives for the private sector should be established.As a precedent for public commitment, “orphan drug” legislation in the United Statesmay be viewed. In this package, push and pull programs of subsidies, tax credits, and peri-ods of exclusive right have already shown signiﬁcant results in the last two decades. Whilethere have been claims of applying “orphan drug” legislation to matters of slow R&D againstthe diseases in low-income countries, there seems to have been little concrete discussion ofinternational application so far. This book sheds light on the possibility of purchase com-mitments for vaccines and strives to stimulate interest in the public, including policymakers.Further, in the context of viewing WTO amendments from 2001 to 2003 as a disincentivefor private R&D, their assertion may be valid.Purchase commitments may be real as long as fund resources and credible commitmentare managed. In fact, GlaxoSmithKline, one of the greatest pharmaceutical companies, de-cided to develop and manufacture new vaccine for meningitis in Africa in 2003 because theWorld Health Organization (WHO) and Médecins Sans Frontières (MSF) announced thebulk purchase of vaccine without legal contracts. This fact may support the authors’ pro-posal. The feasibility of such purchase commitments deserves to be examined.The book embraces controversial issues relative to targeting diseases. The authors focusmainly on the three major killers while indicating that a similar approach could be taken toother diseases, including innovations of drugs and other medical and agricultural technolo-gies. Although targeting diseases that kill the most people seems to be reasonable, it may bemore difﬁcult to focus on truly neglected diseases such as human African trypanosomiasis(sleeping sickness) and leishmaniasis. Such diseases may have less scale for attention andcommitment. The level of motivation for R&D differs widely based on whether or not themarket is secure in a given developed country and whether such disease is emerging orreemerging. Unlike the cases of malaria and tuberculosis, medicines for HIV/AIDS aresupplied where an increasing number of patients in the developed world is the determinant
5 Iain M. Cockburn and Rebecca M. Henderson, “Publicly Funded Science and the Productivity ofthe Pharmaceutical Industry,” in Innovation Policy and the Economy, ed. Adam B. Jaffe, Josh Lerner,and Scott Stern, vol. 1 (Cambridge, Mass.: National Bureau of Economic Research, 2000).
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of R&D efforts. In fact, Pharmaceutical Research and Manufacturers of America (PhRMA)announced that no less than 63 new medicines and 16 new vaccines against HIV/AIDS arenow in development in the United States as of November 2004. Thus, treating these threediseases as equal may be inappropriate. Even if the purchase commitment should work inthe case of HIV/AIDS, R&D efforts would have been directed to a strain that affectedpeople in developed rather than developing countries.(Banri Ito)