I’m sure that everyone interested in the business side of global health knows the conventional wisdom (CW) that the markets for global health products aren’t there. After all if the spending on health care in developing countries is a few dollars per person per year, how could they afford the developed world’s “miracle” drugs that cost billions of dollars to develop and possibly thousands per patient? And subsequently, why should investors invest in companies that develop products for such unattractive markets: “what’s the upside?” in VC-speak. But I recently learned that the CW is wrong in at least one area of global health- the childhood vaccination- and think that the related financing scheme provides a valid model for overturning the CW for global health product development in general.
As was announced in October 2009 by the WHO (WHO press release), one of the success stories in global health is the achievement of high vaccination rates among the world’s children for a handful of infectious diseases (measles, pertussis, tetanus and diphtheria). The success has been engineered by the GAVI Alliance (GAVI Alliance), a partnership of WHO, UNICEF, the World Bank, and the Gates Foundation, which over the past eight years has organized the technical, administrative, and financial aspects of the effort. The most visible part has been the work by WHO and UNICEF who determined what vaccines were needed where and worked with in-country public health ministries to implement annual vaccination programs. Less visible (to me at least) has been how the effort has been financed- through the International Finance Facility for Immunisation (IFFIm). The IFFm (IFFIm) was launched in 2006 by the United Kingdom and France, Italy, Spain, Sweden, Norway, and South Africa who pledged to contribute $5.3 billion to the IFFIm over 20 years. Using the pledges as collateral, the IFFIm raises cash to fund the vaccination program by issuing bonds which, not surprisingly, have a triple-A rating from the commercial rating agencies. The World Bank is the “financial adviser and treasury manager” and has sold the bonds in the UK and Japan, raising $1.6 billion since 2006.
In addition, the GAVI Alliance is experimenting with stimulating vaccine innovation through its Pneumococcal Advanced Market Commitment (AMC) program (GAVI AMC) in which vaccine manufacturers are invited to submit offers to fill forecasted demand for a product meeting a pre-defined “Target Product Profile.” With sufficient thought, negotiation, and planning, customer and supplier will get what they want: a high-quality, affordable and profitable pneumococcal vaccine. By October 2009, four manufacturers had submitted offers.
Overall, the childhood vaccine market is healthy with WHO reporting 120 vaccines now available, 80 new vaccines in the pipeline (meningococcal meningitis, rotavirus diarrhea, pneumococcal disease, and human papillomavirus), about $1 billion in annual sales (the global vaccine market is near $17 billion), and more than three-quarters of the demand being met by manufacturers in developing countries like India. Moreover, 100 million children are vaccinated annually (with another more 25 million in need) and about 1.5 million lives saved. Could the GAVI Alliance/IFFIm/AMC model be ramped up and applied to global health needs generally? I am guessing, yes, but maybe have missed the policy wonks’ musings on how to do so. For a start, I’d propose that the organizations and their affiliated funding facilities be broadly targeted, e.g., a International Funding Facility for Global Therapeutics (or for diagnostics or for national healthcare delivery systems), rather than product- or disease-specific, to have the greatest impact. I’d also suggest the alliances focus on:
-generating a better understanding of the markets (a challenging problem, see the Center for Global Development’s website on demand forecasting, CGD forecasting);
-designing the needed product specifications;
-subsidizing purchases for willing buyers through an IFF;
-and stimulating reasonably-priced funding for innovator companies (also maybe through an IFF). The result: innovator companies would invent possible products, which big companies would see as attractive acquisitions, and eventually (after investing years and billions) the under-served markets would be served.
Obviously, an important question is what would be investor interest in the bonds for funding global health product development and purchase and would that interest generate the billions needed? Clearly, I don’t know much about the international bond market and would appreciate any comments to steer me right.