TY - JOUR
T1 - Applying the concepts of financial options to stimulate vaccine development
AU - Brogan, David
AU - Mossialos, Elias
N1 - Funding Information:
additional, earlier incentive to continue development. The greatest challenge is to persuade companies to invest in a vaccines market with low returns. Conventional thinking suggests that if it is possible to increase returns, at the very least giving the project a positive NPV that meets a predetermined threshold, then profit-maximizing companies will always invest. There are two ways to increase the NPV of a project involving large development costs: increase expected future cash flows or lower current costs. So whereas pull mechanisms seek to increase future payouts, and push mechanisms help to lower current costs, our strategy does both. Our method hopes to incorporate financial incentives, while assuming a sense of corporate responsibility. Few companies will undertake projects in which the NPV is negative; however, it is naive to think that the NPV threshold for neglected vaccines can be as high as those for projects in developed nations. Therefore any viable solution must incorporate incentives to generate appropriate financial returns to developers, while relying on the goodwill of these companies to maintain a lower profit threshold for neglected vaccine projects. This assumption of corporate responsibility is supported by several examples of corporations donating drugs to treat neglected diseases24,25. Once a company brings a drug to a specific phase of testing — for instance, Phase I clinical trials — a potential purchaser could be allowed to examine all of the data on the vaccine and make an independent assessment of its potential. Ideally, this would be an international non-governmental organization or charitable foundation, with adequate funding to make several investment decisions and create a credible investment commitment, such as The Global Fund or GAVI. If the purchaser believed the drug to be a good investment, it would pay an agreed upon amount (the methodology for determining this will be discussed later) and in exchange would obtain the contractual right to buy a certain amount of the vaccine at a reduced price if it made it to market. If the vaccine was to run into problems during clinical trials and did not receive marketing approval, then the development company would retain the initial investment and the purchaser would have neither an obligation to buy nor derive a benefit from the investment. However, any contract negotiated would need provisions ensuring access and ownership of all vaccines developed from the initial, funded line of research. If one avenue proved promising, only to spawn a successful vaccine from a related mechanism, the purchaser would have an equal right to the new vaccine, as it came from the intellectual property of the funded research. Likewise, if a company were to acquire the development project and wanted to stop development, the contract could call for financial penalties. The final price, for the holder of the options contract, could be lower in this method than in conventional pull mechanisms because the company would have had the additional incentive of the earlier investment to ensure participation. The international purchaser could then distribute the vaccine to developing countries on the basis of their capacity to pay. This is similar to tiered pricing6,26, also referred to as Ramsey pricing27. A market price and a discounted price (for the holder of the options contract) could be fixed for the vaccine, negating the effects of parallel importing, while ensuring access to essential medicines in the countries that need them the most. If the contractually specified amount of vaccine is purchased, but more is demanded, the purchaser could then continue to buy vaccines at the higher full-market price. All countries would be eligible for the purchase of vaccines through the non-governmental organization, although the price for each one could be negotiated and kept confidential.
PY - 2006/8
Y1 - 2006/8
N2 - Stimulating research and development for neglected diseases (such as tuberculosis, malaria and AIDS) has proven difficult. We offer an alternative approach to stimulating research into neglected diseases based on the concept of a financial call option. Our Call Options for Vaccines (COV) model allows the purchaser to make payments during the early stages of development in exchange for reduced future prices. We conclude with a discussion of possible risks and benefits.
AB - Stimulating research and development for neglected diseases (such as tuberculosis, malaria and AIDS) has proven difficult. We offer an alternative approach to stimulating research into neglected diseases based on the concept of a financial call option. Our Call Options for Vaccines (COV) model allows the purchaser to make payments during the early stages of development in exchange for reduced future prices. We conclude with a discussion of possible risks and benefits.
UR - http://www.scopus.com/inward/record.url?scp=33746634827&partnerID=8YFLogxK
U2 - 10.1038/nrd2035
DO - 10.1038/nrd2035
M3 - Article
C2 - 16883302
AN - SCOPUS:33746634827
SN - 1474-1776
VL - 5
SP - 641
EP - 647
JO - Nature Reviews Drug Discovery
JF - Nature Reviews Drug Discovery
IS - 8
ER -