What’s wrong with global health R&D?
Perhaps Bill Gates said it best: "Ten times more money is spent developing a cure for male baldness than for developing a cure for malaria, despite the fact that malaria kills one million children per year. The reason: there is a profitable market for male baldness, but no such market for malaria drugs."
That pretty much sums it up. Pharmaceutical and biotechnology R&D is both risky and expensive. Before investing in new products, firms must ensure that they’ll recover their costs and earn profits. So the private sector often overlooks diseases common to poor people, and invests in R&D with blockbuster potential in high-income markets – like weight-loss pills and treatments for lifestyle diseases.
Due to that dynamic, the business of biotechnology and pharmaceutical R&D isn’t working - at least for a selection of drugs, vaccines and diagnostics needed by the poor. As a result, much of global health R&D for diseases like malaria, parasitic infections and dengue currently takes place amongst non-profit Product Development Partnerships (PDPs) that channel funding from philanthropic and government sources to promising R&D projects.
Although PDPs regularly partner with biotechnology and pharmaceutical firms, increased participation from the private sector could still strengthen global health R&D. Public and philanthropic groups alone can’t fully provide the resources and innovation needed to address poor communities’ most persistent health needs.
Recently, groups in the public and private spheres have begun testing business models that might attract businesses and strengthen global health R&D. By combining profit motives with an integrated social cause and focusing on collaborative approaches to innovation, these models offer a way to bring fresh ideas to the table, tap into the impact investor movement, and push the limits of how global health R&D gets done.
A Social Enterprise Approach to R&D
Global health R&D often blurs the distinction between social and business initiatives. Although social enterprises are unlikely to pursue R&D projects that promise no revenues, they are more likely to address products needed by the poor if they meet either (or both) of the following criteria:
The product may have markets in both developed and developing countries, increasing its moneymaking potential
The product has reliable donor markets, like the GAVI Alliance and the Global Fund to Fight AIDS, TB and Malaria
In pursuing these products, which can range from treatments for TB to diagnostic platforms that can be used for a variety of diseases, social enterprises hope to meet both commercial and global health priorities. And they may opt to sacrifice some financial gain for a greater global health benefit.
The Results for Development Institute explored the potential of this approach in a recent paper by our Center for Global Health R&D Policy Assessment. The paper profiles for-profit companies in the United States that are dedicated to a social mission: to advance global health R&D by developing health technologies for low- and middle-income countries.
(Left: Image courtesy of Results for Development)
For example, the biopharmaceutical company Sequella is developing a treatment for drug-susceptible and drug-resistant TB which can shorten and simplify treatment regimens in both low- and high-income countries. Similarly, PaxVax has developed technologies that can be used for vaccines targeting a variety of diseases, from those affecting low-income countries (like cholera), to those affecting everyone (like pandemic flu). We found that the for-profit model that these and other companies employ offers a number of advantages, including:
Access to private financing like venture capital and impact investment
Quick decision making for new projects
An ability to leverage the dual markets described above
Yet despite these advantages, we have identified only 10 companies that are currently operating in this manner. Why hasn’t this social enterprise approach taken off in global health R&D like it has in other sectors?
An Untested Model
Through interviews with top executives, we found that the “global health social enterprise” (GHSE) model is still being tested, and the balance between maintaining investor satisfaction and pursuing social aims is in the process of development.
For example, although GHSEs can easily incorporate their social missions into day-to-day operations, they have a tougher time sticking to their missions in the long term. A transition in leadership or buy-out by another company can topple a company’s socially focused founding principles.
To help address this, many countries are adopting new legal tools to help organizations preserve the balance between financial returns and social goals. For instance, over 12 U.S. states have signed into law the Benefit Corporation and the Flexible Purpose Corporation - new, more flexible subtypes of traditional business corporations. These designations free corporate directors from having to manage their business strictly for the economic benefit of shareholders, enabling them to address social objectives. They also let companies tap into conventional capital markets as well as philanthropy. How much these tools can help firms that are engaged in high risk and costly R&D, however, is still being determined.
GHSEs face another challenge in an “impact investor” community that is only beginning to explore the global health R&D space. The Bill & Melinda Gates Foundation has begun to seek out program-related investment opportunities in biotechnology, but this represents a small proportion of their funding portfolio. Likewise, a significant proportion of double-bottom line investors are struggling to gauge the trade-offs between the potential financial returns and social impact of early-stage R&D – investments that are risky to begin with.
Many early-stage R&D projects will never result in a product, and if they do, those products might prove to be more socially beneficial than profitable (or vice versa). Companies often struggle to convey these trade-offs to investors. Is it better to pursue a 20 percent financial return and a 10 percent reduction in disease – or should those percentages be reversed? Is it better to raise financial returns early in a company’s lifespan and reinvest in socially driven projects later on, or to prioritize social impact at every turn? For biotechnology and pharmaceutical companies whose R&D costs can reach hundreds of millions of dollars, finding the right balance between these priorities can determine the financial viability of the enterprise.
As funding for Product Development Partnerships becomes more competitive, new entrepreneurs working in global health R&D may use the GHSE model to pursue impact investment more aggressively. Sound metrics and fundamental education in developing needed technologies for impact investors can help them attract impact investment and pursue dual market opportunities in global health.
Collaborative Approaches to Health R&D
Another approach to health R&D is to abandon the notion that it should take place under one roof.
There are various technologically enabled collaborative approaches to health R&D that bring innovators together, extending their impact beyond the sum of their parts. But though these approaches are common in fields like computer science, they are less common in health research.
Nevertheless, participation in collaborative health R&D is growing. Organizations like Innocentive use crowdsourcing to help companies and other organizations reach out to new problem solvers. The work of groups like Collaborative Drug Discovery and Open Source Drug Discovery shows that sharing data and working together can help companies reduce costs and speed up product development timelines. But what tools can public and private groups use to facilitate collaboration in an organized way? And how can they ensure that innovation is fairly attributed and rewarded?
The Center for Global Health R&D Policy Assessment provides one solution: a simple web-based primer that reviews different R&D models. This tool defines and organizes the different approaches to collaborative health R&D, and points out factors to consider before adopting a particular approach. It makes an important distinction between controlled and open collaboration. In controlled collaborations, only certain people are allowed to contribute and build on the knowledge exchanged. Open collaborations, such as open source initiatives or wikis, do not impose these limits.
The primer also discusses several unique considerations for various R&D models. For example, before an open source model is adopted, a product development initiative should consider whether the loss of managerial control that’s necessary when working with dozens or hundreds of innovators is worth the ultimate benefit. In some cases, opening up participation may help a company solve a problem that it was stuck on. But in others, it might slow R&D.
Through developing the primer and interviewing key experts, we’ve found that collaborative R&D in health is promising - but there’s much work to be done to enable it and support budding initiatives. The field is ripe with opportunities for funders and product developers, but it needs support from various members of the global health community to move it forward. As with GHSEs, collaborative health R&D needs better metrics to measure success. But there are numerous other ways to support the field, from facilitating information exchange through platforms like NextBillion, to analyzing specific cases. We’ve picked out some of the best opportunities here.
Shifting Global R&D Priorities
There’s no single solution to solving the global R&D imbalance, but these different models can help shift product development resources to where they’re needed most. Regardless of the approach, it’s important for health R&D to remain forward looking. The health needs of the poor are constantly changing, and R&D mechanisms will have to adapt.
Ideally, the flexibility of GHSEs and collaborative innovation will allow them to develop products that fill persistent gaps in infectious disease, while also shifting their focus to unforeseen needs. We’re only starting to understand the special challenges that non-communicable disease might pose in developing countries, and we need business models that allow bright social entrepreneurs and scientists to respond to these and other emerging needs as efficiently as possible.
To learn more about these topics, join the Center for Global Health R&D Policy Assessment for a webinar on alternative models for global health R&D on December 21, 2012 at 10:30 am EST. To register please email firstname.lastname@example.org.