EPAR Technical Report #346
Mon, 04/23/2018
C. Leigh Anderson
Travis Reynolds
Pierre Biscaye
David Coomes
Elan Ebeling
Vivian Gor
Jack Knauer
Emily Morton

The private sector is the primary investor in health research and development (R&D) worldwide, with investment annual investment exceeding $150 billion, although only an estimated $5.9 billion is focused on diseases that primarily affect low and middle-income countries (LMICs) (West et al., 2017b). Pharmaceutical companies are the largest source of private spending on global health R&D focused on LMICs, providing $5.6 billion of the $5.9 billion in total private global health R&D per year. This report draws on 10-K forms filed by Pharmaceutical companies with the U.S. Securities and Exchange Commission (SEC) in the year 2016 to examine the evidence for five specific disincentives to private sector investment in drugs, vaccines and therapeutics for global health R&D: scientific uncertainty, weak policy environments, limited revenues and market uncertainty, high fixed costs for research and manufacturing, and imperfect markets. 10-K reports follow a standard format, including a business section and a risk section which include information on financial performance, investment options, lines of research, promising acquisitions and risk factors (scientific, market, and regulatory). As a result, these filings provide a valuable source of information for analyzing how private companies discuss risks and challenges as well as opportunities associated with global health R&D targeting LMICs.

10-K filings discuss a variety policy tools that exist to promote private sector investment in R&D including push mechanisms (public research funding, R&D tax credits) and pull mechanisms (advanced purchase commitments, orphan drug programs, priority review vouchers, and wild-card patent extensions). R&D tax credits are the most commonly mentioned policy incentives across all 10-Ks, but are mentioned more frequently by companies researching only Type 1 diseases than by companies researching at least some Type 2 or 3 diseases. Pharmaceutical companies also frequently mention investment constraints and opportunities related to various types of uncertainty in their 10-K filings. Companies working on at least one Type 2 or 3 disease are less likely to discuss scientific uncertainty and policy or regulatory uncertainty than companies working only on Type 1 diseases, but both types of companies frequently discuss issues related to limited revenues and market uncertainty, fixed costs of R&D, and imperfect markets.

This research was conducted as part of the Brookings Institution's Private Sector Global Health R&D Project. This two-year project aims to examine potential policy solutions to incentivize investors and pharmaceutical companies to raise their investment in global health R&D. An initial report from the Brookings Institution on health governance capacity examines the capacity of selected low- and middle-income nations to make effective use of external investment in global health research & development.

This report completes a series of three analyses of reviews spending levels, barriers, and opportunities for private sector investment in global health R&D. A second Brookings report draws on consultations with more than two dozen experts drawn from businesses, venture capital firms, non-profit organizations, public-private partnerships, charitable foundations, and universities, investment data from a variety of sources, and case studies of leading examples of venture capital investments and innovative finance. A prior EPAR review draws on literature from five primary academic search databases, five supplemental search databases, ten private pharmaceutical company websites, and twelve philanthropic and public organizations involved in health R&D worldwide. This EPAR report analyzes 10-K Securities and Exchange Commission filings of pharmaceutical companies to explore another perspective on the factors influencing private global health R&D investment. This multi-pronged strategy of referencing - and checking against – multiple sources allows us to paint as full a picture as possible and to have greater confidence in our findings.

Read our blog posts summarizing key findings from our literature review on the factors affecting global health R&D investment and on the role of partnerships in addressing challenges to private global health R&D investment.

Read a blog post from the Brookings Institution discussing our literature review.

Type of Research: 
Literature Review
Research Topic Category: 
Development Finance & Policy
Global & Regional Public Goods
Research & Development
Geographic focus: 
Count and proportion of times a company mentioned each hypothesis in reference to a disease type they are researching

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