Thailand Law Journal 2009 Spring Issue 1 Volume 12

II. Conceptualizing Drug Development Projects in Light of Private and Public Failures

It is tempting to view all neglected diseases similarly-as market and government failures, and to view all diseases for which drugs are marketed as market successes. Such an observation would lead to monolithic strategies regarding how best to leverage the resources of the market and the public sector to achieve pharmacoeconomically-sound drug outcomes. Certainly, to those afflicted with neglected diseases, this dichotomy seems stark. However, in reality, investments in curbing neglected diseases merely fall at unfortunate points on the risk-return continuum for all potential investors. Private firms consider the risk-adjusted net present value of future cash flows to evaluate profitability, and the public sector uses an opportunity cost and risk-adjusted net present value of future public benefit to evaluate projects. Ultimately, all neglected disease projects are subject to varying degrees of market and government failure within the contexts of these calculi.

Since various permutations of market and government failure may exist for various diseases, it is necessary to characterize particular challenges in the context of public and private continua. Once the relative degrees of market and public failure have been charted, determining which failures are most prevalent in the case in question is critical to determining how value may be added through innovative partnership. For example, if, after evaluating the resources and capabilities of public and private sector participants, it is determined that the degree of market failure is far less severe than that of government failure for a given leishmaniasis lead, then involving a majority of private partners and devoting PPP attention to resolving the most apparent market failures is the most effective strategy for near-term success.

This slight shift in cognitive frame is necessary both in setting broad public health priorities and determining optimal PPP business models. Understanding where a particular project is situated is paramount to the injection of realism into *405 organizational strategy. Consider AIDS and malaria vaccine research. A 1996 study of 591 vaccine candidates between 1983 and 1994 determined that the aggregate probability of success in clinical development, including a pre-clinical testing success probability of fifty-six percent, is twenty-two percent (in contrast with Medicines for Malaria Venture's estimate of twelve-and-a-half percent success for its drug development activities). [FN74] With the relative breadth of vaccine candidates in comparison with drug candidates, one might predict a higher likelihood of an AIDS or malaria vaccine than for drugs for either of these diseases. Yet, no imminent vaccine candidate exists for either.

The reconciliation of these two observations lies in the lack of predictive power of past vaccines for either AIDS or malaria. In the case of AIDS, the use of live virus is inappropriate, and there exist several strains of the virus which may not respond to the same vaccine. [FN75] Furthermore, it was recently established that success in the non-human primate model being used by the International AIDS Vaccine Initiative is not indicative of efficacy in humans. [FN76] Practically, this means that vaccine developers operate with no real scope for predictability until Phase III results have been tabulated.

Similarly, in malaria, there is the problem of different strains of the parasite. [FN77] In addition, there are several stages of the life cycle of the parasite which exhibit themselves in different bodily systems, with the consequence that immune responses generated by a vaccine against one stage of the life cycle may not be effective against the parasite at other stages. In fact, there has never been a vaccine designed against a complex multi-cellular parasite. [FN78] For these reasons, the risks involved in AIDS and malaria vaccine development differ significantly from the 1996 study.

Fig-2: In the accompanying graph, the risk-return frontier exhibits an upward curvature with diminishing returns for additional risk, typical of an equity risk-return profile. The AIDS (or malaria) vaccine project is originally perceived as a high-return moderate-risk project with moderate market failure. The original perception is marked by a light diamond. However, the added disease-specific risk associated with these projects causes the actual risk to differ significantly from the perceived risk. In actuality, the market failure is much more severe. The failure to evaluate risk appropriately has implications for me corrective mechanisms employed to curb the failure of the market to produce life-saving vaccines. (See next section)

TABULAR OR GRAPHIC MATERIAL SET FORTH AT THIS POINT IS NOT DISPLAYABLE
It is imperative that neglected disease product projects are characterized accurately so that public-private partnerships are tailored to the specifications of the task at hand. In the above graph (Fig-2), the failure to characterize an AIDS or malaria vaccine project in light of its true degree of risk will lead to insufficient funding and an overambitious mandate for the entity established to coordinate the project.

Furthermore, different projects tailored to overcome the same disease can have widely-varying degrees of risk. For example, Medicines for Malaria Venture has twenty-one projects in its discovery and development pipeline at various stages. [FN79] Most of its late-stage portfolio consists of arteminisin-based combinations based on a proven disease control mechanism with little risk of failure. In contrast, its early-discovery portfolio consists of exploratory disease control mechanisms which have not yet exhibited proof of concept and would likely require a decade or more to materialize into potent anti-malarials. The different risk profiles of diverse chemical entities warrant different public-private arrangements of resources in order to maximize the likelihood of project success.

Though the demographic profile of those inflicted with a disease remains constant, the proportion of that population which can benefit from a particular project differs based on the mechanism of the drug or vaccine developed. For example, an AIDS vaccine aimed at HIV subtype B, prevalent in North America, Europe and Latin America, has far greater market potential than one aimed at subtype A or C, prevalent in Africa. [FN80] However, the public health impact of the latter would be significantly greater. Since all diseases manifest heterogeneously within and across regions, the disease control mechanism of the developed product will have an impact on the financial incentives inherent in the project.

The rationale for public-private partnership for drug and vaccine development is that neither the market nor the public sector can successfully provide the products necessary for a critical public health impact. Consequently, public-private partnerships must be developed to respond precisely to the failures necessitating their existence. Furthermore, since partnerships are typically funded through scarce social capital, they must respond effectively, with structural and strategic characteristics tailored to the diseases they seek to control. [FN81] The next section of this paper will outline the emergence of product development PPPs and the PPP landscape which exists today. I will then interpret strategies and tactics which some PPPs employ, and others should consider, in light of the public and private failure framework delineated in Section I, so that existing and future partnerships can understand how to approach projects which they seek to undertake.

[FN74]. M. Struck, “Chances and Risks of Developing Vaccines” (1998) 14 Vaccine 1301-1302.

[FN75]. A. Batson & M. Ainsworth, “Private Investment in AIDS Vaccine Development: Obstacles and Solutions” (2001) 79(8) Bulletin of the World Health Organisation: The International Journal of Public Health 721-723.

[FN76]. International AIDS Vaccine Initiative, “AIDS Vaccines in Trials: The Global Clinical Pipeline” available online: http:// www.iavi.org/science/trials2.asp.

[FN77]. S.L. Hoffman, “Current Status of Malaria Vaccine Development Efforts” manuscript (2003) Washington, DC, Institute of Medicine.

[FN78]. H. Kettler & A. Towse, Public Private Partnerships for Research and Development: Medicines and Vaccines for Diseases of Poverty. (London: Office of Health Economics, 2002) at 106.

[FN79]. Medicines for Malaria Venture, Annual Report at 3.

[FN80]. International AIDS Vaccine Initiative, “US Government Starts Trial of New Aids Vaccine Tailored for Multiple Subtypes of the Virus” (13 November 2002) available online: http://www.iavi.org/highlights/nov/h20021115.asp.

[FN81]. See, Chapter 4 of Kettler & Towse (2002) for a mechanical evaluation of governance, structure, and funding arrangements of 4 significant PPPs.

This article is published with the kind permission of Nathaniel Lipkus. The article originally appeared in Michigan State University Journal of Medicine & Law, Spring 2006 issue.