 Thank you for coming after this short lunch. So we are very pleased to welcome Rachel Silverman Bonifil, who is a senior fellow at the Center for Global Development. Mathias de Atripont was professor at ULB in Brussels and Chris Snyder who is in Toulouse, but online with professor at Dartmouth College. So this round table is about financing innovation for neglected disease. So we'll have Rachel speaking first, making a short presentation then Chris and Mathias and then we'll open for more discussion and questions. So Rachel. Excellent. Well, thank you so much for the introduction and for the invitation to be here today. I used to live in Toulouse so it's a great pleasure to be back here for a little bit of cassolet and some good wine and to of course see great colleagues here at the Toulouse School of Economics. So while we're pulling this up just to say a little bit about myself and the angle I'm coming from here, probably unlike most of you, I am not an academic. I work for the Center for Global Development. We are a non-profit, non-partisan independent think tank. And what we try to do is pull together economic evidence and multidisciplinary evidence and do the sort of policy translation of what does that actually imply for making evidence-based policy. Who needs to hear that? How do we convey it to them in a way that distills the key messages and the sort of important insights from economics in a way that's accessible, policy relevant for the issues we care about. And as the Center for Global Development implies, we do global development. We look at global health and education and economic growth and climate and trade and any number of different issue areas. I primarily work on global health policy myself, hence why I'm here today. And so today I'm going to talk, as the session title says, this is about financing innovation for neglected diseases. And I mean, I think speaking to this audience, you probably know about pull-and-push financing. But I'm going to give a little bit of an overview of how and why we need to finance neglected diseases outside of normal market channels and why, in my view, pull is kind of dramatically and unforgivably underused as a tool in this space with a lot of problems as a result. But not always. There's always exceptions. So the first kind of message I want to leave you with is that neglected R&D needs occur at all income levels. So when we say neglected diseases, people often think of the poorest countries. But these are, they look different to different countries. So this is a graph from a 2018 report we put out called Tackling the Triple Transition. Our TSC colleagues were very helpful inputs to that. And basically what this is doing is it's separating out low-income countries on the left, lower-middle-income countries in the middle and upper-middle-income countries on the right. We don't have upper-income countries here. But I can tell you what they would look like if they were here. And what this is saying is, okay, what is the total size of the market for health products in any one of these countries? That's the number at the bottom. So in low-income countries, it's 4.4 billion. That goes up an order of magnitude to lower-middle-income countries, 45 billion. And then upper-middle-income countries, the number is smaller because it's just a smaller sub-stamp, but it actually is a much larger market here. So these are not the universe of all countries. We have a sample intended to show demonstrate returns. And the important thing to note is that they look different in terms of who is actually paying for these health products. So in low-income countries, donors that kind of dark gray color have about half of the market power. There is no real market outside of that. It is very, very small. That's not to say there's no buying and selling, but the absolute quantities of money are very small. And it was really overwhelmingly the external donors who are providing the financing for health products in these countries. But as you move up to lower-middle-income countries, which hopefully this clicker will allow me to do. Okay. Okay. Examples of this would be malaria and leshman ISS. So these are kind of diseases of the poorest of the poor. The countries that were there at the burden are very, very low-ability and willingness to pay. Okay. Here we go. Okay. As you move into lower-middle-income countries, however, you start to see things looking pretty different. So all of a sudden the donors do not play a very substantial role. You still don't see much of a role of the government. That's the blue section. Instead, you see overwhelmingly the market is private sector. So the total demand, the total size of the market has increased by about an order of magnitude, but there's lower no pooling. The demand is very fragmented and kind of unreliable because it's being channeled through all these private distributors and small-scale sales. You know, there's differential pricing to different segments of the market. There's, you know, some people are trying to serve the wealthiest and some people are trying to serve the poor, but it's very hard to characterize these markets overall because they are so fragmented. An example of this would be TB. So TB, there's about $4 billion a year of spending between therapeutics and diagnostics. That's a pretty good size, but outside of some centralized purchasing by the Global Fund, most of this is happening in the private market. So the demand is very, very fragmented outside of that one large purchaser. And then as you move to upper and middle incomes and then to high middle income countries, you start to see a larger and larger role of the government. So this is for upper middle income countries. The government's about 40%. If you go to high income countries, that goes a lot higher, depending on what country you look at, but, you know, all the way up to 90, 95%, probably about 80% overall. But there's still neglected diseases here. They're just different. So it is, it is neglected diseases because of classic R&D market failures. So this would be antimicrobial resistance, the market failures for new antibiotics and pandemic preparedness, for example. But the point is, you know, these look different at different income levels. But when we talk about neglected diseases, we're not just talking about diseases of the poor, but we are talking about those. So I probably am not educating anyone in this room. When I say there's two basic financing approaches here, there's push funding. This is subsidizing inputs to the R&D process. So paying part or all of the costs for scientists, scientists salaries, laboratories, materials, clinical trials and so on. And in this case, it is the funder bearing the financial risk of failure. They are subsidizing the input costs that money is a sunk cost at that point. Maybe the research and development will succeed. Maybe it won't. In either case, the funder has already paid the money. They have borne the risk for that, the financial risk for that failure. There's also pull financing and pull financing increases of magnitude or of expected revenue and profit. I should say magnitude or reliability of expected revenue and profit contingent on successfully developing the product. So this means that, you know, you, you, if you're a company and you're saying, okay, if I develop this product, how much am I likely to get for it? If I bring it to market, this is increasing that number or it's saying, well, I'm a company, I think there might be this amount, but I'm not sure. It's saying, okay, we're going to make sure it's that amount. Maybe it's not increasing it, but we're going to provide that guarantee that predictability that allows you to then take the risk. In this case, it is a private sector actors, the companies or the investors in those companies that are bearing the financial risk of failure. The payer does not pay unless there is successful innovation. And the tend to sort of mimic or kind of reconstruct a functional market where one otherwise would not exist. Now you can always, of course, make many mistakes when you try to do this, but that would be the idea. Oh, no, dear. Okay, hold on a second. Okay. Okay. So there's several different types of pull financing. So what there's first, what I would call de facto pull financing, and this is what you see in standard markets. We're essentially most private, most research and development is conducted by private actors. They are driven by the promise of monopolistic pricing via patent exclusivity, if and when they develop a successful innovation. They know that they will have that time limited monopoly. They will be able to charge monopolistic prices. And if those, the revenue is sufficiently large from that promise, they will invest upfront in the R&D, and they will be willing to bear that risk. You could say this is a second category. You could say this is a subcategory of the first one. And this is the payer policy and repeat game. So this would be a payer. For example, the UK is national health service and they're nice, which is their health technology assessment and price setting body where the payers establish rules and reputations for rewarding innovation. So over time doing this over and over again and creating kind of a track record of what you are willing to pay as a centralized payer, you are able to then convey to the market. Okay. If you, if you produce this kind of innovation, you will be able to reap this kind of reward. And maybe that's not super prescriptive in the sense of there might not be a specific target product profile, but there is a track record of say rewarding an incremental disability adjusted life year at a certain price. And then the developers know that is likely to occur. And they are respond to the incentives that are set by that. And then finally there's what I would call pull mechanisms. So these are specific programs and instruments that are purpose built to incentivize specific types of innovation. And again, there's still lots of different categories here. There's advanced market commitments, prize mechanisms, market entry, rewards, volume guarantees, subscription models, many others. We'll hear more about advanced market commitments from Chris who will go into those in great detail. But the idea is that this is not an ongoing process. This is sort of a standalone individual program designed to incentivize a very specifically narrowly designed type of innovation. Now for neglected diseases, the status quo is that most funding is pushed. And this is in contrast to typical R&D for pharmaceuticals, where we have a de facto pull model driven by the promise of future sales during that period of patent exclusivity. This encompasses grants, product development partnerships, and so forth. It is primarily funding from governments and philanthropies. The US alone spends about 135 billion per year. This is across all sectors. It's not just health, but on sort of push financing grants for various kinds of research and development. And it can be executed by any number of different actors. It can be universities, nonprofits, for-profit, pharma companies, and so forth. But the point is that the funder is funding the inputs to the process. They are subsidizing directly the costs of research and development. So why is this a problem? Well, we see several different kind of challenges that we run head-first into. The first is that it requires the funder, a government, or a philanthropy to pick winners. They're doing so under asymmetric information. They know less about the prospects of success, about how strong a given implementer will be at actually creating the R&D than the kind of implementers who are applying for a grant. They have a grant application process. They have a selection committee, but at the end of the day, they don't really know. It can be seen as an unjustified corporate subsidy, especially if it's going to a for-profit entity, a for-profit entity eventually commercializes the drug. This is especially the case, as it often is, when the public sector is also expected to pay the market price for the end product. There's also the functional problem, which is that push can crowd out as well as compliment private investment. So if one company wins the grant application, and they get grant subsidy, and another company also had a promising candidate, but they do not get a subsidy, does the second company want to continue pursuing this and knowing that the first company has this sort of subsidy line? It puts it at a competitive disadvantage, and it might make them decide not to do so, even if they otherwise would have. A second problem is that it distorts market incentives. For funders, there's the sunk cost fallacy. The funders are serving as co-investors in the development of a product or technology. And there is often this idea in their heads that we paid for this, we invested in it, so we might as well use it, even if what ultimately comes out of this research and development process is low value or just inappropriate for the intended recipients. For the recipients of the funding, the push funding is perceived as free, and they might continue to use and pursue such funding and continue products, even if there's a very low probability of success, well after the point at which this would have been cut off if it was a private sector entity bearing the costs of doing so. A third is principal agent misalignment. So somebody is in charge of distributing these monies, and it is substituting the small cohort of funders who have the money and are spending it from a broader community of national payers in setting innovation priorities. And national payers are themselves agents of the people they are paying on behalf of, but at least in a perfect world, there is democratic accountability for, you know, what those payers decide to do with their money, and that does not exist if it's a the Gates Foundation or the US government making decisions on behalf of poor people in Kenya. And this may as a result generate products that are inappropriate or unaffordable for the intended beneficiaries who may nevertheless feel pressured to adopt them. Finally, there's access market entry and pricing issues. So the first option is that market entry is managed by a nonprofit philanthropic entity. The prices in this case would usually be set at a lower affordable level unless the marginal cost of production is high. But there's no profit motive for market entry. And often these entities are not actually, they don't have the skill set to do market entry and commercialization at scale. They have limited experience, success, or incentives to do registration, distribution, and sales. And so you can see quite slow market entry and penetration. Option two is where you sort of give kind of the rights to market entry and the sales revenue to a for-profit partner. This offers you strong distribution and market entry capabilities and incentives, but your incentives might cut against access. So you want to set a profit maximizing prices and you may not have any financial interest in entering the poorest and smallest markets because there is a transaction cost of every market you are entering to register to set up distribution channels and so forth. And what all this ends up is what we have termed the product pileup where you have donor funded innovations. Some of them never materialize and some of them do, but nobody actually wants them or you could afford to pay for them or some combination of all of the above. And in all of this, of course, there are continued real research and development needs that are not being met. So what I would suggest is that pull as an alternative push can solve many of these problems under the right circumstances. So when a product is incentivized through pull mechanism, it has a built-in purchaser. This reduces the product pileup because everything that is developed already has the purchaser in mind. So what I would suggest here was said, I am willing to pay for this. I am willing to be the market for this and that does not exist with push financing. It stimulates market incentives and should drive efficient allocation of investments and decision making. A lot of this is contingent on design decisions though, which I think Chris will talk about at length. At some point in all of this, you need to design a target product profile which says, describes the actual innovation you're looking to incentivize. So what I would suggest is, if you're looking at a target product profile, it should be for upstream collaboration and inclusive decision-making and design. It should reflect desirable characteristics of the product to make sure it's useful and viable among the target audiences. This shifts the risk of failure to the private sector and restores that kind of incentive to cut things off if they're not working and mitigates some of the risk from the government picking winners. Now of course the government does literally pick a winner and it's not happening downstream once the results of R&D outcomes are already observable. But that said, pull mechanisms are not a panacea. There are situations in which they are not appropriate. Foundational scientific research is one of them where you have open-ended inquiries and exploration when these sort of foundational knowledge is most valuable in the public domain and open source where different people can take it and run with it in different directions. And where a successful end result cannot be described or anticipated in advance. If you want to have a pull mechanism, you need to know what you're trying to pull. And if you cannot describe it in advance because things are too open-ended, you can't do it. A second time this is not appropriate is if there is no option for a credible pull mechanism. To have a pull mechanism, the commitment from payers needs to be credible. If it's not credible to the market, the market will not respond. And in some cases, the prospective payers, for example, perhaps low- and middle-income country governments themselves might not be credible. Maybe that's unfair, but that would be how the market would perceive them if they were committing in advance. And there's a third one I realized that I... that I was missing here. I don't know how I've forgotten what it is. Oh, yes. The third one is when there is... when the social welfare of the innovation is so high that there is differential risk appetite between the payer and the private sector, where essentially the benefits are so high that the public sector is willing to pay... to overpay dramatically, to pay many possible winners for the outcome of getting one successful product. This would be sort of the COVID example, where you both want pull, maybe you want pull, but you also kind of want to spread your bets. You're willing to overpay. In this case, it's not as cut and dry. Sometimes you still want pull as part of that, but it is a justification to fund additional push in addition to the pull. So I'll stop there, and I think Chris is going to talk more about AMCs. Yeah, thank you, Rashad. So that's very interesting, and we are going to continue with Chris, who is going to talk more about mechanisms. So Chris, you can share your screen. Okay. So can you see... 15 minutes maximum, Chris, or if you can do less, that's better. Okay. Let's see if we can get the view here. Okay. Thank you very much. Can you hear me okay? Yeah. Okay. So Rachel, thank you very much for setting this up. I'm going to be able to save a lot of time because she set this up so well. So the basic idea here is the difficulty incentivizing investment in innovation. There are well-known issues with traditional mechanisms, profits, patents, and prizes. Patents, for example, they give some monopoly power to the winner, but that leads to high prices later on, and they're only limited incentives. The social benefit for many of these innovations are higher than what the firm is receiving from the profits, even if they're making monopoly profits. Prizes, how do you know how big of a price to set? And typically they're sort of such low amounts anyway that they provide only hobbyist incentives. The shortcomings of any of these mechanisms become just all the more pronounced when you're thinking about neglected diseases. And here I'm going to be talking about products serving poor countries. Wow. So there's profits while there's low revenue potential in these markets, because people just don't have the income available to pay. So their willingness and ability to pay is just very low. So what happens in these cases is often donors will step in. Rachel showed the fractions there, especially in the lowest income countries. So donors step in and do the procurement because for altruistic or whatever purposes, they step in. Well, the trouble there then is that patents not going to do very much if you're essentially engaging in bilateral bargaining with a monopoly buyer, maybe UNICEF or the WHO or GAVI. So just to take some examples in the vaccine market, you see cases where there'll be vaccines that are developed in rich countries and it'll take years and years and years, decades to diffuse into poor countries. In the case of rotavirus or hepatitis B. And also just the case that we lack new products for diseases specifically of poor countries, malaria and HIV. So actually the Center for Global Development was just a big proponent and advocate here of this mechanism called an advanced market commitment, which Rachel referred to and I'll talk about in detail for the rest of this talk. There's some actually Center for Global Development reports. There's this book by Michael Cramer and Rachel Lannister called Strong Medicine in 2004 and it basically laid out the idea behind these advanced market commitments and advocated their use for incentivizing vaccines for neglected diseases. I'll get into the details in a minute, but here are some of the design features and advantages. So it's a policy that commits to providing a top-up subsidy on top of some regular payment and it's committed to potentially far in advance of investment and potentially success. So we're thinking about the investments needed are going to be the research and development and maybe also capacity. If you're thinking about say building the facilities that are going to produce these vaccines at scale and if you know anything about vaccines, vaccine capacity is quite expensive and complicated. So the advantage of committing to these subsidies far in advance is basically it's going to solve a holdup problem where the, if it's going to be a unitary government or NGO or other donor, that's going to be the counterpart at the end. You can imagine that when they sit down at the bargaining table to decide on the price, the buyer is going to say, well, I really have a limited budget. Tell me how much it costs to produce and maybe I'll cover that. Well, if that's what the firm expects and the investing firm, they're not going to have very strong incentives to invest in the R&D and capacity. All of these fixed and sunk costs over and above any production costs. So committing in advance to a subsidy on top of say the production cost is a way to help avoid this holdup problem. The subsidy is a top up to a tail price in the country co-payment. So the tail prices, this agreed upon price that the companies that the producers agree to as sort of an exchange for agreeing to receive the subsidy, they agreed to keep the price low for some fixed period after the subsidy fund runs out. And so the advanced market movement, first of all, during the actual subsidy period is already committing to buying usually a large amount. And this tail price keeps, constraint keeps the prices low in the period afterwards. That's going to avoid some of the deadweight loss from high prices potentially and can lead to larger access. There's payments for results here. It's a poll funding mechanism. That avoids the problem that you've invested all this money as a government or a funder and you have no, you don't have the success. So it's kind of avoids a political economy problem. And it also is Rachel said very well avoids moral hazard and adverse selection problems. You avoid, you know, fly by night entrance and you avoid entrance to kind of keep with a project, even if it's prospects for success aren't very high. The co-payments, I'll get into this in a little bit, but the co-payments that say the market participants pay, you don't necessarily want them to be so high that say these are co-payments that the health systems in poor countries have to kick in. If they're very high, then that's going to limit access. But if they're moderate or reasonable, this does provide some kind of a market task. That's a market piece of this advanced market commitment. So the end user is going to have to kick in some payment. They're going to think about the value to them. And if it's not sufficiently valuable, they're going to avoid buying it. And so then the firm receives no reward there. So anticipating that the firm is going to want to produce things that the end buyers want. And so this mitigates an incomplete contracts problem where it might be really hard to specify, even with a very well laid out target product profile, everything that you want in this vaccine or whatever product we're talking about. But it might be really hard to get all of those features right. You might miss something. For example, you might have missed the fact that you'd like this vaccine, say, to be robust, to not need a very cold chain capacity or something that doesn't exist in low income countries and makes it hard to distribute. Maybe forgot to include that in the target product profile. And so that would be an incomplete contracts problem. And the firm having received a reward either way would go for the easiest solution and maybe one that wouldn't have thought about that. But if you care about selling it and distributing it in low income countries where our cold chain capacity isn't that widespread, you might think about the design of the vaccine. Chris, I have a clarification question. Sure. If you can also speak very well in front of the microphone because sometimes we have difficulties listening to you. Oh, sorry. Yeah, I think my internet is going in and out too. When you talk about co-payments for the market test, here you're talking about the co-payment of the poor country with paying part of the cost with respect to the donor with giving it or you're not talking about something else. Right. And I'll get into that in this slide here. The details here. So let me just talk about an example from the pilot program. These advance market commitments were piloted for the second generation pneumococcal vaccines. And so some of these jargon terms that I've thrown out there, I can give some more concrete definition. So this program started with a pledge in 2007, five countries in the Gates Foundation pledged $1.5 billion for a second generation pneumococcal vaccine. There are a bunch of different diseases that were contending to be the ones of the strong medicine. I think the book I talked about anticipated this being run for malaria, but ultimately it was chosen to run for these pneumococcal vaccines. Now pneumococcus might be less well known than malaria, but it actually killed very many children, estimated to kill anywhere between 700,000 and a million children under five annually in low-income countries. We don't hear about as much in high-income countries because we have antibiotics that cure this, but in countries without as much access to antibiotics, it would kill children due to pneumonia and meningitis. Now there were already first-generation vaccines that were designed to cover the strains that were prevalent in high-income countries. There were a number of other strains that caused a small percentage of cases in high-income countries, but there was enough inducement there that there was actually some research. In fact, quite a bit of research firms had these second-generation vaccines that conjugated even more strains that kind of completed the coverage in rich countries. It just so happened that the strains that these covered were very prevalent in low-income countries. So these are going to be much more useful for low-income countries, these second-generation vaccines. So there is already research and development. There are two firms that were already in phase three trials well along. So what incentives were needed? Here it was more to incentivize the completion of the R&D, but even more than that, to incentivize the capacity and the distribution for as close to a universal vaccination campaign as possible in low-income countries. So the target might have been something like 200 million courses, I should say, in low-income countries. So in 2009, there was work along with Michael Kramer and John Lavin, I'll talk, we co-authored some work on this. I'll get to you in a sec. We're part of, we and a bunch of other economists, we're part of this, and also industry officials and medical people, part of this economic expert group that worked on validating the framework design and we actually did some work modifying it. The ultimate design talked about actually the bulk of the price was going to be paid by GAVI, that's $3.50 per dose. And then there are these graduated country co-payments that Pierre was asking about. So basically this was part of the GAVI program for any vaccines that GAVI provided. They have already a co-payment schedule. So the poorest countries pay nothing. And then as a function of income, you might pay 10 cents or 20 cents or say low-middle-income countries might pay as much as a dollar. And so GAVI would make up the rest of this, this $3.50. And you could graduate too, as the country's per capita income rose, you would graduate to higher co-payments. So the advanced market commitment actually only was, the subsidy related for that $3.50 was not huge. It was actually 75 cents, according to the ultimate design. So one thing we worried about was, whether this was actually going to provide the right incentives for the amount of capacity that was part of the target. So we advocated that it have this design feature where we called it a supply commitment where you could only draw down the funds in proportion to the fraction of the target that you produced. So if you're only producing a small fraction of that, the total amount you could draw out of the fund was limited. In 2010, manufacturers responded. They actually did commit not to the full target, but to 30 million annual doses each. So a total of 60. Through 2020, most of the funds were spent. The prices actually fell. So they're agreeing to lower hotel prices. Serum Institute came in. And as we'll see in the next picture here, some program evaluations that we did. I mean, in a sense, if you throw $1.5 billion at a problem, you expect to get something for it. In fact, much more money than that was thrown. If you think about the Gavi contribution, when you add that, it was something like more of the program spent $5 or $6 billion in total. So if you spend $5 or $6 billion on a disease, you expect something for your money. The question is, was the design of the advanced market commitment contributing to this success? So what we do in this figure is compare the expansion of coverage relative to coverage in high income countries for pneumococcal disease in blue, compared to that for rotavirus. It's actually received similar support from Gavi, but wasn't structured as an advanced market commitment. And the grass shows that the rollout of pneumococcus was about five years faster. So I'm very low on time here. In the last few minutes, just wanted to talk a little bit about some theory work that Michael Kramer, John Lim and I did here, where basically we set up a model where this advanced market commitment, which is, we model as just a fund that you commit to F might be $1.5 billion and a per unit payment, say 75 cents, that's layered on top of, there's already going to be bargaining that happens between a donor or an agency like Gavi and these firms anyway. So we can't ignore that there's going to be this bargaining for supplies. So the advanced market commitment is layered over that. And one of the subtle issues here is that, how does this really sweeten the pot? We think that through this bargaining, they might just sort of, it's like shifting money from one pocket to the other for the donor. And is that really going to make them, maybe they'll just take that subsidy into account and actually provide less of a payment, less of a payment in the bargaining. So just basically, they'll be crowd out there. And in fact, if you don't design it correctly, that's certainly a possibility. So it turns out if you're trying to incentivize capacity, the shape of the contract matters and these design features matter. And so some of this theory actually supported the recommendation that you may not get good incentives from the framework design, but the supply commitment design that we suggested might have been better. Another issue is that this is, and this is the last point I'll make, technological distance may matter. So the pneumococcal advanced market commitment was run for these we call technologically closed products. They were pretty far along and they're R and D. And so there was really just trying to incentivize capacity investment. But that's not the only thing it can be used for. Malaria would have been another target. And it turns out that the design principles might be slightly different for incentivizing a distant product where you also have to incentivize research and development. And of course, research and development is expensive. And so that's going to require rich subsidies. But the asymmetric information problem might be less for these very technologically distant products as the firms may have just as little information about what it's going to cost to produce as the donor. It's only later on where the firms will know very well what their production and capacity costs, but governments, governments won't. And the other issue is that with a very technologically distant product, it's going to be really hard to design a complete technological, technical product profile. So having these country call payments is a kill switch might help incentivize proper product design. And let me stop there. Thank you. Um, not just. Not just is going to kind of introduce a discussion, maybe have some more thoughts, but just if you want to share your slides, you can. And you have to unmute. Can you hear us? Yes. Hello, hello. Yes. To find my slides. Is it okay? Yeah, we see the reference. Yes. Okay. And so you hear me. Yes. Okay. Well, thank you. Thank you very much for the invitation. My apologies for not being there physically. Now, let me make my presentation, which will be complimentary to the very nice presentation by Rachel and Chris, since I will focus on rare diseases in the EU. This is based on joint work with Alain Fischer and Michelle Goldman, who are both the medical doctors. Alain Fischer is one of the fathers of gene therapies. He was a professor at Collège de France and he was also the president of Macron as the COVID vaccination person in France. And Michelle founded or instituted for interdisciplinary innovation in healthcare. So what I will talk about here is indeed, as I say, rare diseases. And I will stress the fact that the high prices for rare disease therapies are becoming a big policy headache. Progress of science is great because it opens up new promising areas, but they can be very costly. And so we'll discuss this a bit. And so we will try and make two points in terms of trying to kind of limit the problem. First, we will argue that it is worth considering asking pharma companies to set up benefit cooperation divisions for their rare disease business, tasks to pursue reasonable prices for their innovation therapies. That's point number one. And point number two, based on what happened in the, in the COVID-19 to suggest that the EU could play a more active role in terms of the purchase and the organization of the rare disease therapies markets. So first of all, a couple of points from the medical area. Here are a couple of examples of rare disease therapies and some market prices. So for one injection, which can cure you still, but it's, it can go up to 2.8 million dollars. Now you can say these are very rare, rare diseases. So maybe a lot of money times a very low number. That's still okay. When you look at what people say in the area, and for example, there is this paper by Hans Georg Eichler and co-authors and Hans Georg was the chief medical officer of the European Medicines Agency. So a very well-respected person in that paper. Well, he stresses that well, rare diseases affect in total around 6% of the EU population. They are currently a profitable business for industry. 50% of new marketing authorization in the EU are about rare diseases. So this is not antibiotics or vaccines or treatment for poor countries. There is a lot of action. On the other hand, although patient population for each disease is very small costs already add up. In fact, in Austria, for example, which is the country of Hans Georg Eichler, but a very similar country from from ours already 8% of the drug budget is for rare diseases. And we are talking about an area where 90% of rare diseases still have no treatment. So we are talking about treatment for 10% of 6% of the people. So 0.6% of the population and we are already at 8% of the drug budget. So now among the things that in the medical area they mentioned are transparency on costs, sharing information across rare diseases to help platforms or synergies. The EU commission is worried about this. They've come up with an improved affordability strategy, enhancing competition, working with national authorities to exchange information and indeed do synergies, enhancing transparency and these kinds of all these things that we economists understand. All feeling is that it might be helpful get the private sector to help. And by private sector, I mean, you know, I don't like to criticize big pharma because you know, big pharma, you have lots of people there working for the common good inside these companies. The problem is more the fact that as we know all over the economy for the last decades, shareholder primacy, shareholder value has become really dominant. This was, for example, already documented very well. For example, in this paper by Ben Holmes, and Steve Kaplan. And in fact, I think it's particularly important in some sectors where they earn a lot of money. There is a paper by Andrew Lowe and some co-authors, Thakur and others. So Andrew Lowe is a pretty well established finance professor at MIT. And he documents that the while biotech firms don't be the market, big pharma companies beat the market in risk adjusted return by 3% every year. Now Pfizer market cab is 200 billion. 3% of that is 6 billion. And so basically, I think it would make sense, even the public budgets are not ending with aging, with the cost of climate change, all these kinds of things. Our feeling is that it would be good to ask indeed some pharma companies to have either to put common good advocates on the board of these companies, like people like Bill Gates saying, look, profit is one thing, but what about the common good? And I think also to turn some divisions into benefit corporations. So the idea would be to say, look, let's go for reasonable prices. So let's avoid losses, but let's not generate excess risk adjusted rates of return. And the advantage of this kind of legal structure is that it would protect the management from being sued by shareholders for deviating from pure shareholder value maximization. So that's one idea. By the way, there are additional things, this 3% a year is worsened by the fact that, of course, the regulation is not perfect. And of course, as I say, if shareholders run the companies, they will try and take advantage of loopholes. Another paper by Andrew Lowe and some other co-authors is that, for example, in the US, original innovation is much more profitable than truly creative innovation. They do that in a very nice study about cancer therapies. So in fact, by making regulation smarter in terms of indeed, for example, avoiding these kinds of biases, you can kill two birds with one stone in the sense that you, by reducing the kind of the excess profitability of this marginal innovation, you immediately induce more truly creative innovation. But anyway, that's the first point. The second point lessons from COVID-19. Now, and I saw that Rachel had a paper suggesting that we should build on the successes of the Operation Warp Speed in order to have more innovation in a number of these areas. I think it is quite clear that although the Trump administration didn't do everything right, as we know, on COVID management, they, with Bada, their biomedical advanced research and development authority and their Operation Warp Speed, they managed to really push innovation in COVID vaccines. Let me stress the fact, and I think it's also helpful on this debate about push and pull and all these kinds of things. I think it's a very, very good example of smart industrial policy. So, and by smart industrial policy, I would argue that it's not just picking winners, but picking a set of potential winners and making sure that there is enough competition among them. So basically they concentrated funding on six projects. And it's impressive to see that these six projects were three different technologies, mRNA, viral vector, protein subunit, with dual sourcing each time. There is a famous BioNTech Pfizer and Moderna for mRNA, but also Johnson & Johnson and Oxford Extra, Zeneca for viral vector and all that. So they also decided to go worldwide, not just US. By the way, BioNTech Pfizer, they gave the money to BioNTech, the German biotech companies, not Pfizer that came later. So in the end, all six have been authorized in the EU. So they were all successful, five in the US. So it was a very big success. It's also a very big contrast with the identity of the top four vaccine product producers in the world pre-COVID-19 in the West, which were GSK, Sanofi that teamed up for one, but probably the least successful of the six, Merck Charmendome and Pfizer. And as I say, Pfizer only came later. So I think it's a good lesson for smart industrial policy. And the mRNA technology was basically developed by biotech companies. And indeed, BioNTech then took advantage of Pfizer. Moderna, by the way, they did by themselves. So in that sense, let us keep in mind not to exclude also when you go for these pull factors, do include the promising smaller firms. Now, then coming back to after the innovation, the purchasing, Israel showed that you don't have to be involved in R&D or production to get ahead. They paid a high price and they were the first. By the way, they also allowed Pfizer, BioNTech to look at the impact of vaccination on Israeli population as a whole, thereby contributing to global knowledge. UK and US benefited from close link to AstraZeneca and Pfizer and Moderna respectively. The EU, they had an interesting strategy at the beginning in the EU, where two four countries wanted to go by themselves and buy these vaccines. So Germany, France, Italy and the Netherlands. So it took a while for the EU to say, look, let's try and do it all together. So that led to some delay. If you look at this, the vaccination starting December 2020. We still have 20 minutes for questions and answers. Maybe if you can. Okay, okay. So let me just three, four minutes and I'm done. So Israel was first, then the UK, then the US, then the EU. However, the EU did manage to make sure this is vaccination across the 20 top EU countries by population. Okay, you have Hungary that went a bit faster because they went Sputnik with the Russians and then two, three countries were later. But in fact, as you see, it was very, very concentrated up to the point where you started reaching the vaccine hesitancy. So the, in fact, the EU did manage to ensure a pretty equal access at the pretty low prices. By the way, these prices are supposed to be secret, but the Belgian Secretary of State tweeted about them. So the, and so the point is in the end, I think that this has quite interesting lessons for rare diseases. We know the prices are a problem. In this sense, coordinating the bargaining at the EU level of purchases for rare diseases where lower prices is an overriding objective, the urgency is not as crucial as with COVID vaccine would be important. By the way, it would build on the alliances between member states that are trying to do the same already, the Benelux and Austria and Ireland, for example, doing one and so on. So our feeling is that the advantage of these kinds of things would be important in terms of limiting the high prices. And we could also have EU-wide coordination in the organization of clinical trials in terms of coordination of national R&D funding, maybe following the NIH model in the US. So I think that there are a lot of potential areas where the EU could play a much bigger role in this playing together and that would really improve this trade-off between innovation and access. Thank you. Thank you, Mathias. Thank you for all of you for these very rich discussions. So I think we have a bit more than 15 minutes. So I'm going to open for questions. I'm sure there will be a lot. So raise your hand if you want to ask a question. And I will have some provocative questions at the end, maybe. Hello. Thank you all very much for these presentations. My question is around the Rachel Silverman's first presentation on the idea of a product pile-up, which is quite a provocative idea, which I think you coined in a brief I read. But it hasn't been, shall we say there's not consensus that that's the case in literature. And the evidence provided is bedaquiline and the slow diffusion of new chemical entities in low-income communities. So I guess my questions are twofold. One, how did you arrive at making this argument that this exists? And I know there's really limited data, but how much you go about improving it? And second, how do you divorce? I think that the framing that was given, and please correct me if I'm wrong, was that the products that are being developed were not the ones that were wanted. And I spent tears in my life working on bedaquiline introduction. That drug was very, very much wanted. It was just completely unaffordable. And so we're arguing for a relative emphasis on pull versus push mechanisms. We also have to think about whether push or pull entry points would allow us greater possibility and leverage to insert those kinds of access provisos. And I'm not persuaded that pull versus push would get that entry. So thank you very much. Can I respond to that? Yeah. So I was not thinking of bedaquiline as the case study of that. So the two, sort of ones I have in mind when I make that point, and I do think there are others, but the two I have in mind are RTSS, the first malaria vaccine that had something like a 30 to 40 percent efficacy rate that required four doses. And, you know, very marginal about whether this was a sort of good use of funds and a lot of pressure from donors for countries to adopt it. Now, ultimately it looks like we now have much better malaria vaccine. So it looks like that's been preempted by a lot of events. But that was one. Number two are the self injecting contraceptives, which was a sort of Gates Foundation funded consortium. This was based on evidence that there was in theory, some demand from women for such a product. So it wasn't completely out of left field, but there was no market demand for it because they did not have a market demand for it. There was no market demand for it because they did not have sort of country buy-in, country purchaser buy-in, but private distributors. And so then they realized there was no demand, and they tried to have a volume guarantee around it after the fact. So those were the two are the sort of iconic examples I'm thinking of. I agree, Bedakilan is a different case completely, and that is an affordability question. And I think this gets to the broader problems of the space of I think everyone feels burned on that, you know, countries feel burned that they can't afford it. And the developer feels burned that they can't recoup their money from having invested in it and doesn't want to be in TB anymore. So I do agree with you. I don't think Bedakilan is an example of the phenomenon. I mean, I can talk, you got a lot of other points too, which I don't want to take all the time, but I can talk to you about offline. Here's a question. All right. So I'm Angie Aquatella incoming at TSE. And this is a question for Chris. So there seems to be quite a bit of risk preference heterogeneity around contracting, perhaps like a rare disease. And given your work with Michael Kramer that looks at heterogeneity, like mainly that vaccines versus treatment paper. How do you think risk preference heterogeneity guides us on the optimal mechanism for incentivizing innovation in these types of markets, like in the market for rare disease? Yeah. So I guess we should kick that over to Matthias, because he was more about the rare diseases. And I was thinking more of, you know, using these advanced market commitments for, for in this case, you know, you know, I'm thinking about malaria or thinking about pneumococcus. These are endemic diseases of low income countries. So they're actually quite widespread. And so you might end up selling, or at least you want access to, you know, large swaths of the population to these, to these medicines. I think different cases could be made for, you know, different mechanisms might be called for when you have, you know, rare diseases here. If you have a, you know, a per unit subsidy of, of 75 cents or a dollar or you can make it $100, you know, that's not going to add up too much. If it's, if it's being, you know, if it's being rolled out to just a very, very, you know, 6% of the buyers actually, you know, 100th of the present of the population. There, I think you need a mixture of different mechanisms. I mean, Matthias had a quite a complicated structure where you actually get into the corporate governance, whether you integrate that with, with push. And you integrate that with, you know, other, other sorts like maybe a subscription model or something or fixed payments. But you talked about this, this heterogeneity issue, which is this issue about if, if you're selling things on private markets, and there's a, you know, a wide diversity and willingness and ability to pay. You know, you might have some, some really high demand people with maybe a high risk of contracting the disease. And you have also other people that maybe the large proportion of the population has a very low risk of contracting the disease, although it might actually contribute a lot to demand in the end, because that might be the vast majority of the population. So that just any kind of product, whether it's a vaccine or a medicine or anything where you have this very asymmetric risk or demand distribution, it's going to be really hard to price the product to make it lucrative for producers. So there, one point to make there is just if you have a market where you have a lot of heterogeneity and risk or in willingness to pay, whatever the source of that, that might be an argument for government support in those particular cases. I don't think it's necessarily has, when you're talking about diseases of low income countries, when you have donors that are buying these products on behalf of the population or the country health ministries, in a sense they can buy in bulk for the country. And so they can kind of integrate over the risk distribution. So it may not be that much of a concern. Thank you, Chris. Other questions? Yeah, Isabella. Hi, thank you so much. I'm Isabella Yelovats from Gaetano. So I don't know how important is the phenomenon I'm talking about, but some innovations start in startups. So many times involving universities, the public sector, et cetera. So I was wondering whether the mechanisms you are talking about the advanced market commitment or the benefit cooperation can tackle this presence of startups whose innovation in the end are both or acquired by a big pharma. So I don't know whether I'm clear or not, but about this interaction between startups and big pharma and how you use the mechanisms to tackle this interaction. So let me just say one word and I think it's more a question for Matthias, but in a sense, these advanced market commitments are designed to be firm agnostic. That's one of the advantages. Rachel talked about some of the disadvantages of push. They have to identify which developers you're going to push through the development pipeline with some of these pull funding mechanisms and advanced market commitments. It's firm agnostic. So you offer the price inducement or the contract at the end of whatever firms come through at the end, they can be the client firm. So in a sense, the advanced market commitment is sort of agnostic as to the structure of the firm. They can kind of license things and work things out for themselves. Thank you, Chris. So I think we have a question by Mark Le Monnier. Yes. Hello. Yes, I'm here. Yeah. I'm Mark Le Monnier. I'm the CEO of a biotech company. I'm just answering your question. I'm a company developing novel antibacterial so addressing the problem of antimicrobial resistance which I think is very relevant to this discussion. And so as a private company, the model of companies like ours is at some point when you show proof of concept of your product in the clinic then big pharma comes and, you know, licensing thing or requires the company. So that's the exit. The private investors that we have today are completely lost. I mean, an investor can manage risk but what they cannot manage right now is the fact that the market is unsustainable and unpredictable. So market entry rewards or any kind of pool incentives that we can discuss today, they provide to those investors a credible issue but at least predictable stream of revenue and now they can do the models and if on top of that pharma starts making deals with biotechs then the private capital will flow again into our companies but we need that because it's like a domino. You see the effect. And then just another comment on something that I think Chris was discussing. I agree that truly breakthrough innovation needs to be incentivized more than incremental innovation but let's not forget that some of the best drugs at least in the antibacterial space were actually incremental innovations. So for example third or fourth generation cephalosporins are excellent antibiotics and these were incremental innovation based on a breakthrough drug initially. So I think patient benefit and societal benefit should drive the investment more than is it really breakthrough and you know nature science or is it just smart chemistry. Thank you. Thank you Mark. Time for more questions. Luca. Can I address some of the questions? If you want to answer some to say something you can. Yes. So thank you. I think coming back to this biotech versus pharma I think the paper I was mentioning by Andrew Lowe, Thakur and all that indicates that the excessive rents or the you know above competitive rents are indeed in the big pharma and not in the biotech. So this is where the extra money is. And as for the I mean I fully agree that in fact that what counts is indeed the quality of the drug not how innovative it is per se. This being said I think that this other paper I was referring to by Andrew Lowe, Fojo and others. They do a very clever study of cancer drugs and they look at you know the food and drug administration they have a first of all they think about the efficacy of a drug in terms of how much it can prolong life and they for the promising ones they give them a fast-track treatment and so they compare the return of fast-track and non-fast-track and it turned out that the non-fast-track is much more profitable than the fast-track is unfortunate because indeed that means that too much of the activity is guided as a profit reason towards the less ambitious drugs. That sense by basically reducing the effectiveness of the non-fast-track you can rerun the money towards more promising avenues. So in that sense you kill two birds with one stone. Thank you. Mattias maybe a short question on this. Do you remember if the abnormal positive return of the big pharma are compensated by the abnormal negative return of the biotech? Good question. What is the transfer from some small firms to big firms? I think that well they may be part of that of course there is only the other I mean some biotech companies are extremely successful but the reason why they don't beat the market is because it is so risky. So most of the problem is not the stuff that is about the big pharma is the stuff that goes nowhere. Luca? Yeah this is Luca Mayini from Harvard Medical School. You talked about these two prong problems on the one hand limiting prices for gene therapies and on the other hand providing incentives for what you call truly innovative products and I think you use that sentence that you use just now Mattias killing two birds with one stone but I'm having a little trouble understanding the framework that you have in mind because in my head therapies are very innovative and so if you're thinking about lowering prices for these products but at the same time providing incentives for truly innovative drugs I see that as almost like pushing in two different completely opposite directions so I was hoping you could talk a little speak more. First of all when I was mentioning the killing two birds with one stone this was focusing on this study of low and the like on cancer therapy so now the looking at the rare diseases I think another area it looks like right now we are over incentivizing some of these therapies and as I say having 50% authorization for these kinds of things and we are talking about 10% of 6% of the population and already a big part of the drug budget so 8% of the drug budget for this there is a question of trying to limit a bit what is going to happen here because I think we are overdoing it so it's not the same problem as with the issues that Rachel and Chris were talking about and I think there our feeling is indeed that trying to benefit cooperation would be a way to go by putting people around the table and making sure that we do things of course without losses because we are we do see the value of the private sector the question is how or greedy one should be. Maybe I take the last question because we are running out of time if you can say whether you have any thoughts on this very quickly I was wondering whether or you can imagine that advanced market commitment could eventually solve the international free-riding problem when it's a question of innovating into a public good there is always a problem of free-riding and I'm not sure the market commitment that we have been discussing but I don't know I don't think you can solve it writ large because you still have the coordination problem you would still have to have countries coming together to both agree to do so to pay equivalent prices or equivalent prices adjusting for local income so I don't think advanced market commitments get you out of the free rider problem we have a paper out recently looking at the G7 as a grouping collectively finance new antibiotics through proportionate contributions to a pull mechanism each of these would be financed by the countries themselves there is no binding nature to it it would have to be based on goodwill and contribution to the problem I think we also did the math on it and it looks like it's very high return on investment so it should be the kind of thing that everybody is willing to fund a small part of but we'll say it's free rider problems a hard one to solve we'll find out eventually thank you if we think about pandemic preparedness the problem is really, really hard to the prisoner's dilemma is a really hard problem to solve in a crisis we have a little bit more luxury to try to coordinate I totally agree with Rachel none of these mechanisms are going to solve these problems but it might provide a device or a forum to try to get a little further along thank you thank you all for this interesting discussion Matias do you want to say add something I agree with Rachel and Chris thanks a lot for your question sorry if you had to do it online and we hope to see you in Toulouse another time thank you we're looking forward thank you very much for this great conference so now we'll have a coffee break and then we start again at 2.30