Prizes and Grants, Type I, II and III diseases, rich and poor countries, open and closed medicine development

In efforts to introduce the topic of innovation inducement prizes into the discussions about drug development, there are inevitably questions about the relationship between grants and prizes.

In some cases, prizes are being offered as a reform of “pull” mechanisms, and can usefully be compared to the grant of a marketing monopoly, which is the primary pull mechanism used today. In this context, a question is, should drug or vaccine developers be rewarded with monopolies or cash? And if cash, where does the money come from, and how much money is given to a particular project?

Another question concerns the competition between push and pull — in the present analysis, between grants and prizes.

I believe everyone is in agreement that grants are important. I am not aware of anyone who thinks otherwise. There are some people who think “pull” mechanisms (including prizes) are not necessary, but I don’t think anyone questions the value of the grant economy for medical R&D.

The WHO is looking now at R&D and access issues. This includes a focus on R&D for type II and III diseases and conditions, and R&D for the special needs of developing countries with respect to Type I diseases. On the other hand, the WHO access agenda includes treatments for all diseases (access to medicines for all).

Prizes can be thought of an R&D strategy, or an access strategy. Or both.

In the case of Type I diseases in high income countries, there is wide agreement that grants, such as those from the US NIH, are important. There is also a concern about the inefficiency of marketing monopolies, in terms of stimulating R&D, and the negative impact of high prices: restrictive formularies, personal hardships for uninsured or under-insured persons, high costs for governments or employers, etc. Prizes should be seen as a competitor to the marketing monopoly, and one that offers more efficient R&D incentives, and much greater access to new inventions. (i.e., the end of the UK NICE negative list).

In the case of Type I diseases in developing countries, the debate should be mostly about access. Reasonable obligations to fund innovation inducement prizes, perhaps tied to elements of health budgets or drug purchase budgets, could replace the system of monopolies. This has been proposed at different times by various government health officials, including but not limited to various IGWG submissions. The alternative to prizes for Type I diseases are either high monopoly prices, or a much more common use of compulsory licensing of patents, which is politically quite challenging.

In the case of Type II diseases, the high income country debate is similar to the Type I case. In developing countries, there may be greater opportunity to use compulsory licensing than is the case for Type I diseases, and for this reason, some may not want to bother spending political capital to push for a radical change in the business model for drug development. Our own sense is that compulsory licensing in developing countries is easier, but still difficult, for Type II diseases. and that patent owners are being more aggressive in patenting and enforcing patents for Type II diseases in developing countries.

For Type III diseases, both innovation and access are important in developing countries. A short term priority for Type III diseases is probably in the area of grants, rather than prizes or other pull mechanisms, and the role of prizes should not be over-sold or over-promised. However, KEI believes that innovation inducement prizes can accelerate the development of new products — particularly when the innovation ecosystem includes a robust and sustainable system of grants focusing on Type III diseases.

For all innovation efforts, there are quite important issues concerning openness, and the hazards of enclosures of science and the hoarding of knowledge. A number of academics writers, patent professionals and R&D experts have called attention to the potential risks that innovation inducement prizes might lead to less sharing of knowledge, as people position themselves to win prizes. But this risk should be seen in a broader context. It is also often pointed out that patents can discourage upstream research and downstream product development. Government grant programs that encourage the privatisation of publicly funded R&D (like the US Bayh-Dole Act) can also move things in the wrong direction. It turns out this whole important topic is complicated.

One area to pay attention to are the “Bayh-Dole” issues relating to prizes. In many of the US government funded prizes, and in the early X-prize designs, all of the intellectual property rights go to the recipient of the prizes. In some non-medical cases in the US, the government is barred from asking for licenses to use the inventions that win the prizes — an even worse outcome than for patents developed under federal grants, which are subject to (rarely used [fn1]) royalty free government licenses, and march-in and access requirements. So one debate is about obtaining the right bundle of rights in patents or data from prize winners, and managing also the disclosures.

After a series of workshops on medical innovation inducement prizes, proposals also emerged to include new “open source dividends,” which involve sharing of prize money to entities that openly share access to knowledge, materials and technology. The open source dividends were modeled in several of the 2008 Bolivia Barbados prize proposals, and have unfortunately been ignored by some of those who have commented on those proposals.

There are also much more transformation proposals for funding open source medicine, including the proposals to introduce “competitive intermediaries” that have as their mission, the funding of public goods, or the reward of interim drug development benchmarks. KEI, some PDPs and others sees the competitive intermediaries discussion as potentially quite important, and we are thinking of organising some technical meetings to explore this further.

fn1. For an early look at this issue, see: Peter S. Arno, Michael H. Davis, “Why Don’t We Enforce Existing Drug Price Controls? The Unrecognized and Unenforced Reasonable Pricing Requirements Imposed Upon Patents Deriving in Whole or in Part From Federally-Funded Research,” Tulane Law Review, January 2001