Pay-For-Success (PFS) contracts use financial innovation to incentivise private investment in public-good projects, which are traditionally taken on only by governments and charities. For example, so-called “Social Impact Bonds” or SIBs, which are a type of PFS contract,[1] have been used to help fund public-good projects such as homelessness and prisoner recidivism, with over US$725 million in SIBs raised to date.[2] Under the SIB model, impact investors are incentivised to fund public-good projects in return for an outcome payment if the project is successful. Repurposed generic drugs can be considered non-rivalrous and non-excludable public goods suffering from a market failure due to a ‘tragedy of the commons’ because it is not possible to use patents to prevent doctors and patients from taking the generic drugs off-label.[3] It has been proposed that PFS contracts can address the market failure for generic drug repurposing.[4] Under the PFS model, an impact investor that successfully repurposes a generic drug to develop a new treatment protocol will receive an outcome payment. This payment is drawn from a Pay-For-Success fund according to the value of the repurposed generic drug with reference to the additional Quality-Adjusted-Life-Years (QALYs) generated.[5] Through this payment mechanism, impact investors can recover their investments, even without a patent to enforce a monopoly price or mechanism to track prescriptions of the repurposed generic drug in the new indication. The PFS model not only incentivises investment in repurposing generic drugs, it can be used to generate a sustainable and scalable fund for additional investment. For example, a business model built around PFS contracting can raise funds to conduct large-scale clinical trials for generic drug repurposing, which has otherwise been nearly impossible to do without patents to secure investments in the fund. Funding large-scale clinical trials for generic drug repurposing can result in billions of dollars in healthcare savings for health insurers and governments through reduction in drug costs per QALY, which exceed outcome payments made from the PFS fund. Those cost savings can then be reinvested in additional PFS funds to incentivise further development of more generic drug repurposing treatment protocols, significantly cheaper and faster than the cost of developing new patented drugs.[6]
[1] https://en.wikipedia.org/wiki/Social_impact_bond [accessed 28 July 2022].
[2] https://golab.bsg.ox.ac.uk/knowledge-bank/indigo/impact-bond-dataset-v2/ [accessed 28 July 2022].
[3] https://golab.bsg.ox.ac.uk/community/blogs/innovative-financing-mechanisms-2/ [accessed 28 July 2022]. Kerdemelidis, S. (2014). Deadly gaps in the patent system: an analysis of current and alternative mechanisms for incentivising development of medical therapies, available at https://ir.canterbury.ac.nz/handle/10092/9826 [accessed 28 July 2022].
[4] Bloom, B. (2016). Repurposing social impact bonds for medicine, available at https://ssir.org/articles/entry/repurposing_social_impact_bonds_for_medicine; https://crowdfundedcures.org [accessed 28 July 2022].
[5] https://en.wikipedia.org/wiki/Quality-adjusted_life_year [accessed 28 July 2022]. The number of QALYs that could be generated from a repurposed generic drug can be calculated in advance by a generic drug repurposing committee under a similar process to the NHS’s Subscription-Style-Payment (SSP) model for incentivising development of new antibiotics, whereby a fixed amount is paid annually according to the total QALY value of the new antibiotic, as assessed by the antimicrobials evaluation committee – see https://www.nice.org.uk/about/what-we-do/life-sciences/scientific-advice/models-for-the-evaluation-and-purchase-of-antimicrobials.
[6] https://dndi.org/wp-content/uploads/2019/10/DNDi_ModelPaper_2019.pdf. See Figure 1 on page 17: Out-of-pocket costs per stage of development for eight projects in DNDi’s portfolio.
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