Important note: Information in this article was accurate in April 2001. The state of the art may have changed since the publication date. IAVI Report - April / June 2001
Chris Collins
Legislation aimed at stimulating more private sector research on vaccines against AIDS, malaria, and tuberculosis has been introduced in the US Congress for the third consecutive year. Although it was not incorporated into the tax bill signed by President George W. Bush in May, The Vaccines for the New Millennium Act of 2001 could still be considered later in this year's Congressional session.
On the other side of the Atlantic, vaccine research incentives are being considered by the UK.
It may seem paradoxical that financial incentives for pharmaceutical and biotech companies are being proposed at a time when the industry is being pilloried regularly in the global press for its sizable profit margins and the high prices of AIDS drugs in developing countries. Yet it is widely believed that the complex challenges of making an HIV vaccine cannot be met without greater engagement from the private sector, which has much of the expertise needed to develop and produce vaccines and shepherd them through licensing.
Although lagging industry interest in AIDS vaccine development largely reflects the daunting scientific challenges, there are also significant economic obstacles to industry participation. Research investments in vaccines for malaria, TB, and HIV are high risk and take many years to show results. Even then, the eventual market for these products is uncertain, since the vast majority of people who need these vaccines live in poor countries with (at best) limited ability to pay. It is this dilemma which has spurred the US and UK governments to look for ways of addressing the economic challenges to research and delivery of these desperately needed vaccines.
The Vaccines for the New Millennium Act of 2001 (House of Representatives bill #1504 and Senate bill #895) was formally introduced in April and May of this year by Rep. Nancy Pelosi (D-CA) and Senator John Kerry (D-MA). Both bills are bipartisan: Rep. Jennifer Dunn (R-WA) and Senator Bill Frist (R-TN) are original co-sponsors of the legislation.
The Vaccines for the New Millennium Act of 2001 is similar to two vaccine bills introduced by Pelosi and Kerry in last year's Congressional session, when parts of the legislation came close to inclusion in the final budget deal. According to Rep. Pelosi, the legislation is intended to "leverage private sector resources and encourage the market to work more effectively" to find vaccines and microbicides urgently needed to promote international public health.
The new Pelosi-Kerry bill contains several provisions designed to accelerate private sector research and development (R&D) of microbicides for HIV and vaccines for HIV, TB, and malaria and any other infectious disease that kills over one million people per year. One key component is a 30% tax credit on company R&D expenditures for these products. Pharmaceutical companies are often criticized for dedicating a substantial share of their revenues towards advertising and profits, rather than the significant R&D expenditures they say justify high drug prices. The Pelosi-Kerry bill provides tax credits only for actual R&D investments in the targeted research during the previous tax year.
The bill also contains provisions aimed at extending these financial incentives to biotech companies, where much of the innovative private research is occurring. Many biotech companies are not yet profitable and therefore have no tax liabilities that would enable them to take advantage of traditional tax credits. The Pelosi-Kerry legislation would make the vaccine R&D credit refundable for companies that have zero income tax liability for both the current and previous two tax years, and gross assets of $500 million or less. For example, if an eligible smaller company spent $1 million on HIV vaccine research expenses during the tax year, it would receive a refund for 30% of this amount (or $300,000).
This refund provision is similar to an R&D incentive implemented last year in the UK that allows small and medium-sized companies to receive a cash payment for part of the value of research tax credits they accrue. The Senate version of the bill would require that refunds to biotechs be used for the targeted vaccine and microbicide research.
In addition, the Pelosi-Kerry bill would encourage larger pharmaceuticals to contract with biotech companies for targeted vaccine and microbicide research. An existing tax credit on a broad range of contracts between companies would be increased from 65% to 100% specifically for research on vaccines for HIV, TB, or malaria, or microbicides for HIV.
The Vaccines for the New Millennium Act of 2001 also includes several provisions intended to promote access to the targeted vaccines and microbicides once they are licensed. First, it provides a 100% tax credit on the sales value of the priority vaccines and microbicides to qualified international health organizations or governments in developing countries. This provision was based on a proposal made by former President Bill Clinton during his last State of the Union address, and is aimed at increasing the attractiveness of developing world vaccine markets to industry.
Second, the bill would create a purchase fund at the US Treasury Department, to buy the targeted vaccines and microbicides for distribution to developing countries. The fund would not receive government appropriations until a product is ready for delivery. The sales credit and purchase fund proposals are mutually reinforcing: a vaccine sales credit could bolster the effectiveness of the purchase fund by doubling the value of sales made to the fund, encouraging industry to produce more vaccines for developing countries.
Another access-oriented provision in the bill mandates that companies developing a vaccine or microbicide using the proposed R&D tax credit must present a plan for maximizing global access to the product once it is licensed. The plan would be non-binding, but it would force companies to be explicit about their efforts to achieve wide distribution of the product in developing counties, and could be a valuable tool for health advocates urging concrete action to accelerate international delivery of these essential products.
Finally, the Act expresses the "Sense of Congress" in support of tiered (differential) pricing and of publicly-supported efforts to expand vaccine manufacturing capacity.
When British Chancellor Gordon Brown unveiled the UK 2001 budget plan in March of this year, he announced that the government planned to create a tax credit "to stimulate research into the development of vaccines and drugs to combat malaria, TB, and those strains of AIDS/HIV prevalent in the developing world." The details of the tax credit are still under discussion, but a summary paper in the UK budget plan suggests that the credit would be valued at 50% of qualifying research and would be in addition to existing R&D tax credits.
The government also announced that it plans a "consultation" on tax incentives for donation of drugs, vaccines, and associated medical equipment to international aid organizations and public health authorities. (The US already has a drug and vaccine donation tax credit.) The UK tax incentives are part of a collection of proposals that the government says is "designed to relieve child poverty and to eradicate diseases primarily affecting developing countries."
A step in moving these proposals forward came in May, when the Performance and Innovation Unit of the UK Cabinet Office presented the government with a package of global health initiatives. Other components of the package include creation of a new Global Fund for Health to purchase existing products, an advance purchase commitment that would be a binding promise to purchase future products, such as HIV vaccines, and R&D tax credits, public-private partnerships and targeted financial support to stimulate research.
Would tax incentives actually accelerate research on the most urgently needed vaccines, or would they amount to another example of "corporate welfare" in the tax code? Studies of existing R&D incentives in the United States, including the Research and Experimentation Tax Credit (R&E Credit), have generated conflicting results. A summary analysis of studies on the R&E Credit published by the US General Accounting Office in May 1996 concluded that "Half [of the reviewed] studies provided estimates in support of the claim that, during the 1980s, one dollar of research credit stimulated at least one dollar of additional research spending. The estimates made in the remaining studies either do not support that claim or are inconclusive." An analysis of industrial tax policy published in 1997 by the National Academy Press determined that the R&E Credit "has had a modest impact in stimulating private R&D investment."
But while existing incentives may have affected private sector R&D spending in general, they have been far less successful at stimulating research on the products needed most in developing countries. This is most likely because credits such as the R&E can be used to subsidize a broad range of research, from anti-depressant or cardiovascular drugs for Europe and the US, to malaria vaccines for developing countries. It is no wonder that products for rich countries consistently win out when corporate priorities are set.
To create incentives for developing microbicides and vaccines against the most deadly infectious diseases, the credit proposed by Pelosi and Kerry is both more generous and more targeted than the existing R&E Credit. So will it work better? That is difficult to predict in advance, especially since in practice, its effects would probably vary for different products and types of companies. But some positive signs come from interviews with industry representatives who indicated that tax credits could provide some incentive for vaccine research-if they are packaged with other interventions, particularly credible purchase capacity.
Besides calling for tax credits, the legislation also proposes careful evaluation of their effectiveness by directing the US Institute of Medicine to study this question and report its findings to Congress within five years of the bill's passage.
Growing international momentum to address AIDS and other infectious diseases may boost the chances for passage of key components of the US and UK proposals. One scenario is that purchase fund commitments from the US, France, the UK, and international forums, including the UN Special Session on AIDS, could lead to the creation of a multipurpose global fund for drugs and for infrastructure to address infectious diseases. The vaccine purchase fund envisioned in the Pelosi-Kerry bill could then become one sub-account within a larger purchase fund. Following the lead of the UK, governments should also make "binding promises" to provide necessary monies for vaccine and microbicide purchase when these products become available.
The international community is finally recognizing the moral and economic imperative to deliver the benefits of existing medical technology more equitably to people around the world. The new US and UK proposals are attempts to make accelerated development and delivery of future technologies part of these expanded international efforts against infectious diseases.
Chris Collins is a consultant with Progressive Health Partners and President of the Board of the AIDS Vaccine Advocacy Coalition (AVAC). Previously, he was on the staff of Rep. Nancy Pelosi and helped develop an earlier version of the vaccine incentive legislation described here.
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©2001. The IAVI Report.
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