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The Prize Fund Model: Interview with KEI's James Love

How to incentivise innovation in drug development without the customer paying is the driving concern behind the alternative R&D models for R&D now being considered. How would the Prize Fund model do this?

Prizes could be designed in many different ways. The core idea that Tim Hubbard and I proposed in 2002 meetings with the drug company Aventis was a prize fund of a fixed size that would reward drug developers on the basis of the evidence of the impact new products had on health care outcomes. Developers would be rewarded for products that improved treatment options.

Who would fund the prize and how would you get international agreement on this?

Prizes should be funded by governments and or employers – the same entities that pay for health insurance or public health programmes now. At some point, a shift from prices to prizes would require new thinking about the trade framework, moving from agreements about intellectual property rights to agreements about funding R&D, including but not limited to prizes.

How would the mechanism work ?

A prize fund could be designed to apply to everything, or to only some diseases. Not every country has the same health problems or needs. The United States might create a prize fund that rewards every disease, and provides extra incentives for public health priorities, like global health problems, like malaria. A developing country that was setting up a prize fund might decide to give all of its money to inventions that were neglected.

The pharmaceutical industry remains unconvinced by this proposal. They say it would require upfront investment with very uncertain promise of sufficient returns comparable to those they get at the moment through functioning markets.

The big drug companies, "big pharma", started off being quite hostile to prizes, because they correctly saw it as a challenge to their claim that monopolies are the only feasible reward system that stimulates R&D. However, in 2007, several big companies, including Novartis, Pfizer and GSK, indicated more flexibility on prizes, if the prizes reward inventions for diseases that primarily impact poor people living in poor countries – where the system of marketing monopolies is clearly not working.

The Prize Fund approach would require a new global trade framework to deal with issue of sharing the global burden of the R&D costs. This is a huge project?

We already have such a global agreement. It is called the TRIPS Agreement. It requires countries to issue 20-year patents on medicines. This approach is the wrong one. You should have an agreement that allows countries to use all sorts of different mechanisms to stimulate R&D, including not only patents, but prizes, open source R&D projects, etc. I think we can move in this direction. We are moving in this direction in the WHO IGWG negotiations.