In 2013, 6.3 million children below the age of 5 died, many of them from conditions that could be treated with existing medicines.

Despite much-heralded global progress in well-being, disparities in access to life-saving medicines remain vast. Few treatments exist for the numerous neglected diseases that disproportionately affect the poor.

Tuberculosis (TB) is a particularly poignant example. In 2010, around 1 million children contracted tuberculosis.  Current treatment for TB is long, complicated to adhere to, difficult to administer and markedly burdensome – patients may face two years of treatment for TB that is not drug resistant; this treatment often has noxious side effects, including psychosis, deafness and nausea. As a result, many patients do not or simply cannot complete the treatment cycle, and this has contributed to the spread of multi-drug resistant (MDR) and extensively drug resistant (XDR) tuberculosis.

In addition to being far more difficult to treat, MDR-TB and XDR-TB require medicines that are more expensive, with lower success rates. Further complicating matters is the fact that drug-resistant forms of tuberculosis are especially difficult to diagnose and treat in children. This treatment gap for children is exacerbated by the lack of child-friendly formulations of existing drugs. Despite the pressing need, current TB therapies for children are largely inappropriate, making correct treatment “complicated or impossible,” according to the World Health Organization.

“Incentives must be realigned to meet public health needs – especially for the poorest children and families.”

Therefore, there is a need, especially for children, for medications that will improve current TB treatment and address drug-resistant bacteria. A shorter and simpler treatment regime – available in child-friendly formulations – would improve compliance and decrease the risk of aggravated drug resistance. The development of new drugs specifically for MDR-TB and XDR-TB would improve well-being globally, saving countless lives and reducing ill health.

Despite the obvious global benefits of developing new drugs, until recently there has been a drought of new developments in TB treatment, with no medications on the market specifically targeting the growing burden of MDR-TB and XDR-TB. Only in 2012 did Janssen Pharmaceuticals, Inc. release bedaquiline, the first new TB drug in 50 years and the first one to be approved to specifically target drug-resistant tuberculosis. Much of the delay in the introduction of novel TB drugs can be attributed to woefully inadequate investment in TB research and development. In 2012, TB research and development was underfunded by approximately US$1.4 billion. These gaps in investment, in turn, are a direct result of the misaligned incentives present in the current pharmaceutical innovation system.

Drug development is currently incentivized through the exorbitant markups that innovators, protected by patents from market competition, charge during their product’s early years on the market.  Diseases such as TB are often most prevalent amongst the poor, who are unable to afford advanced medicines at such profit-maximizing prices. As a result, pharmaceutical companies shy away from researching and developing treatments that would greatly benefit the world’s poor. Even in cases where appropriate drugs are developed, many poor people, even in more affluent countries, suffer or die because they cannot afford the profit-maximizing prices of the drug.

Incentives for developers must be realigned to meet public health needs – especially for the poorest children and families – while also allowing firms to recover their substantial investment and generate a reasonable profit. One way to achieve this would be through the Health Impact Fund (HIF), a novel pay-for-performance mechanism proposed by Incentives for Global Health, a non-profit organization devoted to advancing market-based solutions to global health challenges.

Pharmaceutical firms would have the option to register new medicines with the HIF at a global level.  In doing so, a firm would agree to provide the new medicine at cost price worldwide. In exchange, the firm would be rewarded, during the first 10 years that its product is on the market, according to its actual measured health impact. Annual rewards would be paid from a fixed reward pool, which could be funded by governments and international donors and would reward each registered product with a share of the pool that matches its share of the health gains achieved by all registered products in the given year.

Since registration with the HIF would be optional, firms would be able to decide for each product whether the current patent system or the HIF would be more profitable. Firms would be more likely to register products that have relatively low profitability in the current system, but potentially a high health impact – like new treatments for tuberculosis. As a complement to the current patent regime, the HIF would thus help lower prices, increase access to medicines and enable pharmaceutical firms to bring significant benefits to patients while earning a profit.

Finally, the HIF would dramatically reorient pharmaceutical company marketing for drugs registered with the fund: from a focus merely on sales to a focus on health impact for patients, regardless of their economic position. To maximize their profits under the HIF mechanism, pharmaceutical innovators would not merely need to sell their drugs, but also market them for optimal therapeutic effect – by developing carefully calibrated pediatric formulations for existing drugs that could greatly enhance the benefit of these medicines for children.

The HIF is not a charity, but rather a novel, sustainable solution that uses current resources more efficiently and equitably to benefit children, especially those in poorer countries and households. Unlike other approaches to addressing inefficiencies in markets for medicines (e.g., Gavi, the Vaccine Alliance, UNITAID), which primarily function as stopgap measures, the HIF would address the structural problems of the current pharmaceutical innovation system by realigning incentives, thereby affecting systemic change.