R&D Incentives for Neglected Diseases

Neglected diseases are typically characterized as those for which adequate drug treatment is lacking, and the potential return on effort in research and development (R&D), to produce new therapies, is too small for companies to invest significant resources in the field. In recent years various incentives schemes to stimulate R&D by pharmaceutical firms have been considered. Broadly speaking, these can be classified either as ‘push’ or ‘pull’ programs. Hybrid options, that include push and pull incentives, have also become increasingly popular. Supporters and critics of these various incentive schemes have argued in favor of their relative merits and limitations, although the view that no mechanism is a perfect fit for all situations appears to be widely held. For this reason, the debate on the advantages and disadvantages of different approaches has been important for policy decisions, but is dispersed in a variety of sources. With this in mind, the aim of this paper is to contribute to the understanding of the economic determinants behind R&D investments for neglected diseases by comparing the relative strength of different incentive schemes within a simple economic model, based on the assumption of profit maximizing firms. The analysis suggests that co-funded push programs are generally more efficient than pure pull programs. However, by setting appropriate intermediate goals hybrid incentive schemes could further improve efficiency.