Socially redeeming or obscene?

While we are on the subject of flu vaccine (which we always seem to be here) a reader alerted me to an interesting piece from the New York Times magazine on a proposal to make vaccines "good business." Market-oriented economists Michael Kremer at Harvard and Rachel Glennerster at M.I.T., suggest in their book Strong Medicine: Creating Incentives for Pharmaceutical Research on Neglected Diseases that

Western governments and foundations should make a legally binding promise to pharmaceutical and biotech companies: if you invent a safe and effective vaccine for malaria, tuberculosis or H.I.V., we'll buy the first (say) 200 million doses at a respectable profit-guaranteeing price. One great virtue of this scheme, the authors suggest, is that the public would pay for only a successful product. If a company invests millions in research but fails to develop a vaccine that meets the contract's specifications, no money would change hands.

Allegedly the Gates Foundation is interested and may try to assemble a roster of private donors.

My reaction? I certainly agree with the wry comment of the NYT writer, David Glenn, that "you might prefer an alternative world in which pharmaceutical companies make fatal diseases their primary concern and pour money into cures for impotence only when offered large prizes by eccentric software moguls." But for the rest of it, I'm no economist. So I ran it by a colleague who really is an economist. His reaction was equally wry (for an economist, anyway). An interesting idea, he averred, because it would test the proposition whether big pharma would settle for anything less than a really obscene profit. Anyone want to place a bet? (Tip of the hat to JGarrow for the alert).

Update, 12/14/04: The Bill & Melinda Gates Foundation has pledged $42.6 million to the first nonprofit US drug company, the Institute for OneWorld Health. Working in partnership with UC-Berkeley and Amyris Biotechnologies, OneWorld will seek to produce via biotechnology, the very effective natural anti-malarial, artemisinin.

Malaria has become increasingly resistant to front-line medications, but combination drugs containing artemisinin show nearly 100 percent effectiveness after a short three-day regimen. Yet, at a price of $2.40 per adult course for artemisinin combination therapies provided through the World Health Organization, these drugs are still beyond the reach of millions of the world’s poorest people. Artemisinin is in short supply, and producing it currently is labor-intensive and relatively expensive.

[...]

Each year, between 300 and 500 million people, most of them poor, become infected with malaria, and at least 1.5 million die, primarily children in Africa and Asia.

[...]

To ensure affordability, UC Berkeley has issued a royalty-free license to both OneWorld Health and Amyris, of Albany, Calif., to develop the technology for malaria treatments. In exchange, Amyris will produce the drugs at cost, and OneWorld Health will perform the detailed non-clinical regulatory work that will be required by United States and other global agencies to allow the low-cost, microbially-based product to be substituted for plant-based product by manufacturers of combination drugs containing artemisinin. (From eBioBlogger)

UC-Berkeley, Amyris and the Institute for OneWorld Health should be commended for this effort as should the Gates Foundation for supporting it. We will keep an eye on it.