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InnovationFinancing Ultimate Intermediary User Use Financing modality Predictability &mechanism sources (to/from flexibility (forof funds intermediary) intermediary/user)RECENTGlobal Fund Donor Global Fund Developing Drugs, bednets, Pooled donations/ Weak/moderategovernments, country, govern- health services grantsfoundationsments, NGOsIFFIm Bondholders, GAVI Developing Vaccine Bonds/grants Strong/moderatewith govern- country purchasesment backinggovernmentsPilot AMC Donor purchase GAVI Industry for Product Product purchase Strong/moderatecommitments R&D/developing development/ commitment/countries for new vaccine purchase subsidyvaccines purchases infuturePDPs Donor PDPs (IAVI) PDPs and Vaccine R&D, Grants/grants Weak/moderategovernments, partner advocacy, etc.foundationsorganizationsNEW OR PROPOSEDR&D window in Various GAVI, PDPs PDPs and Vaccine R&D Variable Variable – dependsexisting global science partners (grants, bonds, on sourcehealth fund taxes)/grants of financingVaccine R&D Bondholders, PDPs, other? PDPs and Vaccine R&D Bond/grants Strong/strongBond with govern- science partners or equityment backingAIDS Vaccine Gates IAVI IAVI and Early stage Grants/grants Medium/mediumInnovation Fund Foundation biotechs vaccine R&D or equityFigure 2: Key dimensions of innovative financing for healthrecent innovation in sources of financing for global health hasinvolved the establishment of new financing intermediaries,including the PDPs as well as the Global Fund and the GAVIAlliance, which pool funds from established sources. Thenewly launched UNITAID is an interesting exception;although its funds come from established donor nations,they derive ultimately from a new earmarked tax onairline tickets.Use and userR&D financing mechanisms can also be distinguished by theactivities they fund and by the organizations that carry outthese activities. Since different classes of organizationsspecialize to a degree in different stages of R&D, there is arough relationship between use and user: financingmechanisms aimed at earlier stages of R&D tend to focus onacademic labs and biotechnology companies, while supportfor later stages generally targets larger firms.Financing modalityFunding for vaccine R&D can also take a variety of financialforms or use different financing tools to generate resources.The public and non-profit sectors have typically supportedR&D through grants or tax concessions. Both approachespartially or fully subsidize R&D with no expectation offinancial return. Private investors generally expect a returnand fund R&D through debt or equity investments. Each ofthese financial instruments can be structured in manydifferent ways.PDPs also support vaccine R&D through grants buttypically expect in return a mechanism to ensure thatdeveloping countries would have affordable access to avaccine if it is developed.Purchase funds or advance market commitments seek tostimulate product development in the private sector bycreating a subsidized market. Choices among technologiesand product candidates are left to firms and the committedfunds are spent only if the desired product is developed,produced and purchased in eligible developing countries.In comparing the benefits and effectiveness of thesefinancing modalities, several characteristics should beconsidered. These include the duration and predictability offinancing for both the intermediary and for the end user; theflexibility of the funding and the user’s ability to target moneyto its specific R&D needs. In addition, R&D users benefit fromfunding tools with fewer associated administrative andreporting requirements, while donors naturally prefermechanisms that make use of existing administrativeinfrastructure to those that require new institutions andprocedures. Other important considerations are the incentivesthe financing modality creates for recipients and how itdistributes risk between ultimate funders, intermediaries andusers.Figure 2 describes several recently established and possible090 ✜ Global Forum Update on Research for Health Volume 4
Innovationfuture global health financing mechanisms using a simpleframework based on these dimensions of source, use, user,and financing modality.Possible new financing mechanisms forvaccine R&DR&D windows in existing global health financing mechanismsOne possible new source of funds for vaccine R&D would beexisting global health financing institutions, which couldbroaden their scope to support the development of newhealth technologies. Among the institutions that might opensuch new “windows” for R&D are the Global Fund, UNITAID,the GAVI Alliance and the World Bank. The strongestargument for such an expansion of the mission of theseinstitutions is that investment in R&D now can increase thepayoffs from future spending (or cut costs) by making moreeffective vaccines available sooner.For example, an effective vaccine against HIV could savebillions in annual treatment costs. The IFFIm mechanismwhich currently funds GAVI was designed to allow thefrontloading of expenditure on immunization, yet the benefitsof spending now rather than later are even more compellingfor R&D expenditure.The most suitable use of new resources from theseinstitutions might be to fund clinical trials in developingcountries, since this would constitute less of a departure fromtheir current activities. The new funds for R&D could bechannelled through PDPs and other organizations sponsoringtrials or through national governments where the trials will takeplace. New resources for efficacy trials would help to fill one ofthe critical gaps in current vaccine R&D financing. Moreover,financing from UNITAID or GAVI could be more predictable andlonger-term than most existing funding, since both UNITAID(through the airline tax) and GAVI (through the IFFImmechanism) have access to dedicated, predictable resources.Government-guaranteed bond financingA different kind of financing innovation would be to draw onthe international bond markets to support vaccine R&D, justas the IFFIm has done to pay for expanded purchase anddelivery of existing childhood vaccines. Such a fund, theInternational Finance Facility for Neglected Diseases or IFFnd,has recently been proposed for drug R&D; the concept couldapply equally well to vaccines 10 . As with IFFIm, borrowing atcompetitive rates would be made possible by donorgovernment guarantees. Unlike payment for vaccine purchase,however, investment in vaccine R&D could ultimately lead toa vaccine with commercial potential. Thus donor repaymentcommitments could potentially be offset in part by productroyalties. Nonetheless, donor governments could expect to beresponsible for the bulk of repayments, and might reduce theircurrent or future support for vaccine R&D through otherchannels in return for backing the R&D bonds.Funds raised through a government-backed bond issue ofthis kind could be disbursed through an institution such asGAVI. Alternatively, the resources generated through the bondsales could flow through PDPs. In either case, funds raised inthis manner would help to assure sufficient volume andgreater predictability of financing. There is no theoreticalreason to limit the use of funds from a bond issue to aparticular stage of R&D, although an expectation from donorsthat their obligations would be reduced by sales revenuesmight create pressure to focus on later-stage or less riskyprojects, or on those more likely to be used in rich worldmarkets as well as low-income countries.Targeted approaches to financing scientific innovationAnother class of innovative financing mechanism would focusspecifically on early stages of R&D – on fostering andtranslating innovation – and thus aim to fill the gap betweenpublic funding of university research and later-stagedevelopment work carried out by industry, PDPs, or in somecases, public sector institutions. We will mention threepromising ideas.Innovation funds administered by PDPs: IAVI will soonlaunch a fund, co-funded by IAVI and the Gates Foundation,to provide small grants to biotechnology companies (andperhaps some university labs) to test ideas considered toorisky to attract venture capital or other private sector supportand not appropriate for standard public sector researchgrants 11 . By drawing on the expertise of experienced fundmanagers and its own knowledge of the relevant science, IAVIalso hopes to be able to evaluate projects more rapidly thantraditional mechanisms. Until now, nothing of this kind hasexisted for vaccine R&D and no innovation fund has been setup and managed by a PDP. Although mechanisms of thiskind represent a departure from the traditional role of PDPs insupporting mid and later stages of product developmentthrough partnerships with industry, they have the potential tofeed new ideas and candidate products into the PDP pipeline.University/industry matching funds: while most scientificinnovation occurs in university labs, breakthroughs are notalways efficiently transferred to industry where they can bedeveloped into useful products. The Swiss government’sCommission for Technology and Innovation is attempting tofoster early collaboration between university researchers andbiotech companies by providing grants to academic labs onthe condition that the money is matched by an industrypartner, which then receives preferential access to intellectualproperty that is created 12 . This system could be modified totarget AIDS and other neglected disease vaccine R&D,perhaps by reducing the contribution required from theprivate sector partner. The Wellcome Trust’s Seeding DrugDiscovery initiative, which funds translational research onunmet medical needs and pairs researchers with experiencedindustry advisors, could be another model for bridgingthis gap 13 .Subsidized venture capital funds: venture capital fundsare an important mechanism for financing early-stage R&D inthe private sector – in 2004 they mobilized $3.7 billion forthe biotechnology industry 14 . Venture capital firms have so farshown relatively little interest in AIDS, malaria and TBvaccines, however, because the likely markets for theseproducts are seen as insufficiently attractive or too uncertainto offset the scientific risk, which, especially in the case ofAIDS vaccines, is seen as unusually high. One way to offsetGlobal Forum Update on Research for Health Volume 4 ✜ 091
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Editorial Advisory Board:Luis Gabri
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Contents096 Child immunization: acc
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IntroductionResearch contributions
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IntroductionType IType IIType IIIPr
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Introductionmaking), takes account
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Access to healthStrengthening healt
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Access to healthDeterminantsAvailab
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Access to healthCombining health an
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