Itâ€™s not a new idea. The â€œprizeâ€ model has been used in the past â€“ in the old Soviet Union. It didnâ€™t work. The Soviet experience was characterized by low levels of monetary compensation and poor innovative performance. The US experience isnâ€™t much better. The federal government paid Robert Goddard (â€œthe father of American rocketryâ€) $1 million as compensation for his basic liquid rocket patents. A fair price? Not when you consider that during the remaining life of those patents, US expenditures on liquid-propelled rockets amounted to around $10 billion.
Certainly not what Schumpeter had in mind when he wrote about â€œspectacular prizes â€¦ thrown to a small minority of winners.â€ Creative destruction indeed!
Senator Sanders wants to replace a patent system that has allowed the average American lifespan to increase, over the past 50 years, by almost a full decade with a prize program that has a solid record of complete failure.
As Joe DiMasi (Tufts University) and Henry Grabowski (Duke University) have argued, under a prize program, pharmaceutical innovators would lack the incentive to innovate. To quote DiMasi and Grabowski, â€œThe dynamic benefits created by patents on pharmaceuticals can, and almost surely do, swamp in significance their short-run inefficiencies.â€
In other words (and to paraphrase Winston Churchill) our pharmaceutical patent system is the worst way to stimulate and support health care innovation â€“ except for every other system. On a list of 100 ideas for ways to improve innovation and access, a prize program shouldn't even on the list.
Who could support such a crackpot idea? Nobody? Wrong! Dangerously wrong. Again, as DiMasi and Grabowski presciently observed in 2004, â€œThe main beneficiaries in the short-term would be private insurers and public sector purchaser of pharmaceuticals â€¦ Governments and insurers are focused myopically on managing health care costs. They are not likely to be strong advocates for funding new drug development that can increase individual quality of life and productivity."
Cui bono indeed.
Here is a link to the legislation(courtesy of one of its biggest supporter, Jamie Love):
Those who support this idea are so blinded by their own propaganda, that they view it as a solution to all the worldâ€™s health care ills. Consider some of the following statements:
Merrill Goozner (CSPI), â€œResearch is risky, new drugs are too expensive, and
industry focuses far too much of its effort on drugs of minimal medical significance. The prize fund solves all these problems by disconnecting the incentives for generating breakthroughs from the price that individual patients or their insurers must pay."
Sorry Merrill. Wrong on all counts.
Jamie Love (KEI), â€œBy separating the markets for innovation from the markets for the physical goods, the Prize Fund would ensure that everyone, everywhere, could have access to new medicines at marginal costs.â€
Er, Jamie â€“ time for some remedial economics classes.
And the timing of Senator Sandersâ€™ bill is interesting too. It coincides with the upcoming meeting of the WHOâ€™s Intergovernmental Working Group on Public Health, Innovation and Intellectual Property (IGWG in short) whose goal is "to prepare a global strategy and plan of action on essential health research to address conditions affecting developing countries disproportionately.â€
As Meir Pugtach (Haifa University) and Helen Disney (Stockholm Network have argued:
After all, how can we expect that an international body will be able to secure the implementation of recommendations, such as "promote the active participation of developing countries in innovation", "provide support for national health research programmes in developing countries through political action and long-term funding", "promote transfer of technology and the production of health products in developing countries" and "monitor the impact of intellectual property rights and other factors on innovation and access to health-care products"?
The truth of the matter is that the promotion of innovation and the creation of new medicines for the sake of developing countries cannot be based on a top-down process. Rather they should be based on bottom-up solutions by the actual players involved in this process - companies, research institutions, and the regulatory and IP authorities.
Clearly Senator Sanders and the Jamie Love-ites do not concur. They want the philosophy of the IGWG to become the law of the land in the United States -- hard facts, economic theory, and historical precedents not withstanding.
Hopefully the US delegation in Geneva will strongly argue against this philosophy and refuse to enter into â€œconsensus.â€
A prize in every box does not a Crackerjack idea make.