EPAR Technical Report #345
Fri, 12/01/2017
C. Leigh Anderson
Carol Levin
Travis Reynolds
Pierre Biscaye
Karen Chen
David Coomes
Elan Ebeling
Vivian Gor
Trygve Madsen
Emily Morton

The share of private sector funding, relative to public sector funding, for drug, vaccine, and diagnostic research & development (R&D) differs considerably across diseases. Private sector investment in overall health R&D exceeds $150 billion annually, but is largely concentrated on non-communicable chronic diseases with only an estimated $5.9 billion focused on "global health", targeting diseases that primarily affect low and middle-income countries (LMICs). We examine the evidence for five specific disincentives to private sector global health R&D investment: scientific uncertainty, weak policy environments, limited revenues and market uncertainty, high fixed and sunk costs, and downstream rents from imperfect markets. Though all five may affect estimates of net returns from an investment decision, they are worth examining separately as each calls for a different intervention or remediation to change behavior.

In a review of 285 sources published in the past 15 years that discuss private investment in 47 individual diseases, we analyzed and recorded information on which factors are most commonly discussed as either barriers or drivers to private sector global health R&D investment. We find that price, information, and market power are the most commonly discussed key factors. The literature suggests that low or uncertain LMIC product prices relative to prices in the U.S. or other HICs limit private global health R&D investment, and that LMIC market data gaps further hinder revenue forecasting and firm or product market entry. Though expected revenues from global health R&D may be low or uncertain, costs are often high, and incurred upfront with certainty, further deterring private investment in diseases with uncertain revenues. Further, relatively strong downstream market power may make it cheaper to purchase (license) rather than produce innovations (conduct R&D), reducing private sector incentives to invest in upstream global health R&D. 

Though a variety of policy tools exist to promote private sector investment in R&D, including push mechanisms (public research funding, R&D tax credits) and pull mechanisms (advance purchase commitments, orphan drug programs, priority review vouchers, and wild-card patent extensions), evidence of effectiveness is mixed. While we find 42 sources suggesting that some combination of policy tools had a positive impact on catalyzing private R&D funding for diseases more prevalent in LMICs, 11 sources report mixed results, and 3 sources report negative impacts of policies. 

Proprietary science and LMIC health data gaps represent further barriers to private global health R&D, including data science and bioengineering. To the extent that health data are more limited for global health diseases, there is reason to speculate that as the industry shifts more R&D to biotechnology even less will be directed at diseases prevalent in LMICs. Both industry experts and the literature additionally lament the limited market data available to better assess potential market outcomes – yet despite potential industry-wide gains, there is no clear incentive for any individual firm within this sector to either fund or contribute to such a data service.


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.

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.

second Brookings report reviews spending levels, barriers, and opportunities for private sector investment in global health R&D, provides a complementary analysis to our review of the literature on private global health R&D investment. Our 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. The 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 separate 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 review. 

Type of Research: 
Literature Review
Research Topic Category: 
Development Finance & Policy
Global & Regional Public Goods
Research & Development
Geographic focus: