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Michael Kremer on Creating Incentives for the Development of Vaccines

Are there ways of convincing the marketplace to respond better to the health needs of the poor? Economist Michael Kremer argues that policy makers must address powerful market forces influencing the research and development of medicines for diseases which primarily affect low-income populations. Government commitments to purchase needed vaccines if and when they are developed can provide incentives for the private sector to develop new vaccines and can help to ensure that, if developed, these vaccines will reach those who need them.

Kremer is the Gates professor of developing societies in the Department of Economics at Harvard University and a faculty associate of the Center for International Development at the Kennedy School of Government. In conjunction with fellow KSG faculty associate Rachel Glennerster, he is the author of 'Strong Medicine: Creating Incentives for Pharmaceutical Research on Neglected Diseases.' He is also co-chair of the Advance Market Commitment Working Group, a program of the Center for Global Development supported by the Bill & Melinda Gates Foundation.

Q: Describe some of the issues you are addressing in your research.

Kremer: Malaria, tuberculosis and AIDS kill about 5 million people each year. Yet, right now commercial firms have very little incentive to work on these diseases. That's because the market for products that are sold in developing countries is quite small and these diseases kill people overwhelmingly in developing countries. The total market for vaccines in developing countries is about 500 million dollars a year. A single blockbuster drug can have billions in annual revenues. So, firms right now don't have an incentive to invest in these diseases that's anywhere commensurate with the number of people these diseases are killing.

We need an approach that can help harness the energies of the private sector to show the same creativity that they're showing in developing drugs and vaccines for the rich country market, and apply those energies towards diseases that primarily affect the poorest people in the world. We also need to ensure that if vaccines are developed they will be made available, quickly, to the people who need them.

Q: Can you explain what you mean by advance market commitment and how that would work?

Kremer: One way to encourage research on these diseases - diseases like malaria, which kills a million people a year - would be if donors could commit in advance that if a vaccine were developed they would help finance the purchases of those vaccines. That would create a market that would encourage the same type of research for diseases like malaria as we currently see for diseases that affect developed countries. The commitment could also be structured to guarantee fast access to vaccines if and when they are developed.

The beauty of such a commitment is that if a vaccine is developed, millions of lives will be saved at very low cost. If no vaccine is developed, there's no financial cost to the sponsor.

Q: You talk about 'creating a market' - how would this type of commitment be similar to markets for drugs in rich countries?

Kremer: If you think about diseases that are common in rich countries - such as heart disease or cancer - research takes place through two channels. One is funding from sources like the U.S. National Institutes of Health, which provides upfront funding or research. Complementary to that are market incentives which spur involvement by commercial biotechnology and pharmaceutical firms. What we're suggesting is the same approach for diseases like malaria: a combination of upfront funding from a variety of sources and market incentives which would encourage firms to get involved.

Q: What kind of responses have you've received to the idea of advance commitment to purchasing vaccines?

Kremer: The Center for Global Development just issued a report on this issue, and already there's been quite a good response. The economic report of the president here in the U.S. mentioned vaccine advance purchase commitments as one important strategy for encouraging research on diseases concentrated in poor countries. In the UK, Gordon Brown, the Chancellor of the Exchequer, released a statement that Britain intends do this in cooperation with other donors for malaria and then later, in a follow up statement, discussed applying the idea to HIV/AIDS as well.

I think it's always an uphill battle when any new idea comes along, but I think that this is an idea that's really getting a lot of attention from a variety of sources. Industry is sympathetic to this because the basic idea is to harness the energy of the private sector by providing a market, in the same way that they're used to working in developed countries. Firms see market incentives as preferable to reductions in intellectual property rights or to having the government micromanage the research process.

Q: How do you see the idea of advance commitment unfolding over the next 10 or 20 years?

Kremer: I think Gordon Brown's statements have been very important. The support from the Gates Foundation to look at how this idea can be implemented in practice has been critical. The next steps will be for a sponsor - whether that's a government, like the UK , private foundations, or a consortium of sponsors - to put into practice a commitment to purchase, for example, a malaria vaccine, should it be developed. And that would involve setting forth a series of conditions that a potential vaccine would have to satisfy to qualify for that commitment. Once that's been done for a particular disease, we can learn more about the response; if the response is favorable, this could be tried for a variety of other conditions. One would hope this technique could be used not just for malaria but for other diseases and eventually for a whole series of research and development challenges around the world.

Q: How would the approach you propose impact the global AIDS epidemic?

Kremer: Even for a disease like AIDS, it's not clear how large the market will be (in terms of prospective sales) and whether an HIV/AIDS vaccine is really something that's commercially attractive to pharmaceutical companies. There are questions about whether in rich countries such a vaccine would only be taken by high-risk groups. In that case, there may be a fairly limited market in rich countries. There is obviously a huge potential market in developing countries in terms of individuals, but it's not clear how lucrative that market would be in terms of prospective sales. It's also not clear that firms which are motivated purely by commercial considerations would invest in a vaccine that would address the strains of AIDS that are most common in the developing world. They might focus on a vaccine aimed against the strains of AIDS common in the U.S., but that vaccine wouldn't necessarily be useful against the strains most common in Africa.

So, a number of efforts are underway to try to encourage the development of an AIDS vaccine. The International AIDS Vaccine Initiative is devoting a lot of resources to funding researchers up front, but I think an important complementary approach would be that donors could make clear to biotechnology and pharmaceutical firms that if they did develop a vaccine, donors would purchase that vaccine at a price which makes the investment commercially attractive. One of the potential unforeseen consequences of recent initiatives to limit the price of AIDS drugs is that it may have the counterproductive effect of making firms reluctant to invest in developing an AIDS vaccine for fear that they would be forced to make this available at cost or be subject to compulsory licenses to make the intellectually property available to other firms. I think it is important to think about ways of encouraging research and development that overcome these types of obstacles, and laying down a legally binding contract now to help finance the purchase and delivery of these vaccines would be an important step.