The International AIDS Vaccine Initiative (IAVI) is dedicated to ensuring the development of safe, effective, accessible, preventive HIV vaccines for use throughout the world. In addition to sponsoring the development of promising vaccine candidates, IAVI seeks to encourage the adoption of public policies to promote industrial participation in vaccine research and to ensure that future HIV vaccines are actually used in the developing countries hit hardest by the pandemic. IAVI's core vision is an ambitious one: not only the development of an AIDS vaccine, but the simultaneous availability of that vaccine to everyone who needs it, North and South.

From its inception, IAVI has advocated a combination of global "push-pull" strategies to encourage industrial involvement in the HIV vaccine field. This two-part approach includes:

• Push mechanisms - typically in the form of direct or indirect financial support - that offer smaller biotechnology companies incentives to invest in vaccine-related R&D.
• Pull mechanisms that encourage larger companies to make long-term investments in HIV vaccines by ensuring that an effective vaccine will result in a sufficient profit.

This briefing paper outlines (1) the reasons why this "push-pull" approach remains more important than ever, and (2) the public policy responses required to generate a robust private sector investment in HIV vaccine research.

Private Sector Investment in HIV Vaccine Research Is Not Commensurate with the Catastrophic Breadth of the Global AIDS Pandemic
Since the beginning of the AIDS pandemic, 50 million people throughout the world have become infected with HIV, and more than 16 million have died. An estimated 6 million people contract the virus every year. By the end of 2000, AIDS will have robbed 13 million children of one or both parents. HIV/AIDS is the primary obstacle to future development in sub-Saharan Africa, and infection levels are rising sharply in India, China, southeast Asia, Russia, and eastern Europe. Scientists agree that the only hope to conquer the disease globally is the development and deployment of one or more safe and effective preventive vaccines. Yet, as the epidemic approaches the end of its second decade, only one vaccine candidate has progressed to human efficacy trials. With the exception of a limited number of other potential vaccines at much earlier stages of development, the vaccine product pipeline is otherwise nearly empty.

In recent years, basic research sponsored by the National Institutes of Health and others has revolutionized scientific understanding of HIV and triggered interest in a range of potential vaccine approaches. Expertise in the development and testing of vaccines, however, largely resides in the private sector. Unfortunately, private industry, the world's best hope for a vaccine, does not have adequate incentives to invest heavily in AIDS vaccine development. As a result, industry has been slow to respond to the overriding global health need to develop safe, effective, and accessible HIV vaccines. A study by IAVI and the World Bank in 1999 concluded that annual worldwide spending on HIV-related vaccine R&D is US$300-350 million - a small fraction of the amount devoted to new therapeutics - and that the majority of this spending is by the public sector. Moreover, little of the global R&D investment in HIV vaccines is directed toward efforts to develop products to be used in developing countries, where the predominate forms of HIV are fundamentally different than the prevailing sub-type in North America and Europe.

Market Disincentives Discourage Private Sector Investment in HIV Vaccines
The vaccine research, development, testing and deployment process requires the participation of different components of the private sector. Smaller biotech companies are typically responsible for early R&D spending on promising vaccine products. Only much larger entities - such as pharmaceutical companies - have sufficient capital to undertake large-scale testing and, in the case of approved products, support production and distribution in multiple countries. Unfortunately, prevailing market disincentives discourage both smaller biotech and larger pharmaceutical companies from making the large investments the world needs to accelerate HIV vaccine development.

Vaccine development is both complex and expensive, and the chances that any given vaccine concept will ultimately bear fruit are usually rather small. As a result, smaller biotech companies often have difficulty attracting the capital needed to support HIV vaccine R&D.

Economic realities similarly dissuade larger companies from investing in the HIV vaccine field. An economic fact of life is that companies will invest only if they believe they will ultimately enjoy a sufficient return on this investment. Moreover, any single company has a limited amount of funding available for R&D, and potential research avenues that are likely to be highly profitable will normally take precedence over those where the profit potential is weak or uncertain. Finally, large companies, even if successful, will have to make an early decision on the size of their production facilities. A plant or plants of adequate size will be critical to avoid the typical 10 to 15 year delay in vaccine availability in developing countries.

In general, vaccines, which are usually taken only once or twice, are not as profitable as therapeutic drugs, which are often prescribed for extended periods of time. Furthermore, in the case of HIV/AIDS, the primary market for a preventive HIV vaccine will be in developing countries, which usually cannot afford to pay for such products and often lack health care infrastructures. For these and other reasons, industry executives question whether even a highly successful HIV vaccine would result in a substantial profit to the maker.

Public Policies Must be Adopted to Ensure Sufficient Private Sector Investment in HIV Vaccine Research and Development
Where market failures prevent development of a vital public good, public policies must be adopted to correct or diminish these market disincentives. In the case of HIV vaccines, the following principles should guide adoption of policies to provide the needed "push" and "pull" to encourage greater industrial participation -

• Global solutions are needed to address this global problem.
• Because the current low level of private industry involvement in the HIV vaccine field stems from multiple market disincentives, encouraging greater private sector participation will require pursuit of multiple public policy approaches.
  
• Public policies must differentiate between the smaller biotech companies that are vital to early HIV vaccine R&D and the larger private entities that will be required to support production scale-up and ultimate marketing and distribution.
  
• In devising policies to encourage vaccine development, it is critical that policymakers remind themselves that the ultimate goal is not merely to develop a vaccine but to ensure that it is actually used by people in developing countries.
  
• Paying attention to distribution issues on the front end is critical, as distribution costs for currently available vaccines represent over 90% of their cost.

Potential "Push" Strategies to Encourage Short-Term Investment in HIV Vaccine R&D

• Continued Support for Basic Research
  Basic research is a critical backbone and precursor for vaccine development efforts. The U.S. National Institutes of Health's vigorous investments in this area must be continued.
• Public Venture Capital (Direct Investment in Private Sector R&D)
  Given the overriding global interest in HIV vaccine development, public funding to support the development and testing of promising vaccine candidates should be increased. IAVI - which receives support from the World Bank and from the governments of the United Kingdom, the Netherlands and the U.S.- currently provides funding for three scientific partnerships to develop new HIV vaccine products. These funds must be increased to maximize the number of promising vaccine candidates in development. In addition, funding for other research agencies that focus on product development, such as the Department of Defense, should be increased. These vaccine development initiatives, as is the case with IAVI's, must be linked to industrial product management expertise to ensure an efficient, milestone-driven product development effort.
• R&D Tax Credits
  To encourage greater private sector investment, government should offer tax credits covering companies' R&D expenses. Because smaller biotech companies may not have substantial tax liabilities that would benefit from such a tax credit, they should be permitted to waive the credit and pass it on to their investors. Rep. Nancy Pelosi and Sen. John Kerry have introduced such legislation in the United States.
• Regulatory Reform
  The morass of country-by-country rules governing approval and licensure of vaccines discourages investment in vaccines. International mechanisms must be developed to harmonize and expedite procedures for licensure and approval.

Potential "Pull" Mechanisms to Enhance the Likelihood that an HIV Vaccine Will Yield a Profit

• International Vaccine Purchase Fund
  Industrialized nations and multilateral institutions must work together to guarantee a market for HIV vaccines. One mechanism under active consideration by the World Bank and others is the development of a global fund for the purchase of HIV vaccines to be used in developing countries. Although no HIV vaccine is currently available to be purchased, funds should be obligated in advance -through contingent pledges or yearly contributions by OECD countries - in order to convince private companies to make the investments required to support expensive clinical testing, production scale-up, and preparations for marketing and distribution.
• Tax Credits for Vaccine Purchases
  President Clinton has proposed that companies be given tax credits for vaccine purchases by approved entities in developing countries. Although such tax credits would not on their own guarantee the availability of funds for the purchase of vaccines, they would help alleviate market disincentives by ensuring that companies selling vaccines in poorer parts of the world receive a meaningful financial benefit. These credits should be structured in a way to ensure the lowest possible price in the poorest markets.
• Tiered Pricing
  Companies should be allowed to charge higher prices for HIV vaccines in industrialized countries than in developing countries, where annual per capita health expenditures are sometimes less than $10. As with the vaccine purchase fund concept, tiered pricing will allow OECD countries to cross-subsidize vaccine purchases in developing countries. One way to approach this is to amortize R &D and other development expenses in the OECD market. This would allow sales in poor countries to take place at the marginal cost of production plus a reasonable profit.
• Patent Extensions
  To encourage larger pharmaceutical companies to make a long-term investment in vaccine research and development, it has been proposed that companies selling HIV vaccines at a reasonable price in developing countries be allowed a one-year patent extension on their drug of choice. While this is an appealing concept to private industry it is probably not politically viable.
• Increasing Coverage Rates for Existing Vaccines
  As a strategy for building confidence in the world's commitment to ensure a market for HIV vaccines in developing countries, international efforts should be made to stimulate the market in such countries for existing non-HIV vaccines. Initiatives would include building vaccine distribution infrastructure in developing countries and increasing funding for international vaccine purchase mechanisms.