A large economic challenge to market demand is presented by the inability of significant numbers of potential customers for a given product to pay its full cost; this in turn constrains the ability of private investors in research and development to recover their investment and make a profit. Returns to investment and profit-making are also affected by other costs, for instance, responding to regulatory requirements and protecting against liability or compensating claims, particularly when any of these are extraordinarily unpredictable.
All these costs are taken into account when private developers craft portfolio strategies and scrutinize investment alternatives. Furthermore, and very importantly, companies invariably assess costs, risks, and benefits relative to one another. Take, for instance, the case of vaccines for malaria and AIDS, two very complex infectious disease categories that entail exceptionally high levels of R&D risk. A company must compare potential payoff from investment in a malaria vaccine for a large market of low-income consumers with a correspondingly low per-dose profit), with potential payoff from investment in an AIDS vaccine (for a smaller market of consumers who either have relatively high incomes or may be able to rely on health insurance or public-sector subsidy for drug purchase). An increasingly germane issue has to do with the costs consumers and providers are able and willing to cover and, in the era of managed care, what technological investments will generate the biggest savings to those who provide health services.
A crucial subset of concern has to do with industry response to health problems that may be critical but are of such relatively small scale that the market potential they represent is either not apparent or is unappealing in terms of prospective R&D investment. This lack of appeal may prevail even when the benefits from solutions to the health problems in question go beyond prevention and cure of diseases in individuals, such that they also have considerable benefits for the health of the public and, by extension, the well-being of the society as a whole. From this perspective, such technologies can be thought of as "social products," material goods that express important societal values but are nevertheless inefficiently or inadequately represented by market forces. Of these, a significant group—vaccines, contraceptives, pharmaceuticals for managing drug addiction, and diagnostics and therapies for at least some infectious diseases, including sexually transmitted diseases—raises special challenges to decisions about R&D investment. The challenges are primarily economic but in some cases, cultural and sociopolitical factors become weighty and even determining.1
The social products problem becomes acute when the technology at issue responds primarily to requirements of the less developed countries, as has been the case with many infectious diseases. In 1992, R&D claimed just 3.4 percent of the world's total expenditure on health. Of the almost $56 billion invested in health research in 1992, approximately 95 percent was invested in health problems that primarily affect the industrialized world; just 5 percent was devoted to the health needs of developing regions. Combined research and development spending on the three leading disease conditions in developing nations—pneumonia, diarrheal disease, and tuberculosis, diseases accounting for almost one-fifth of the entire global burden of disease—totalled $133 million, or 0.2 percent of the world's