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Invent a Drug, Win $1 MillionShould the government start handing out prizes for science breakthroughs?

By Catherine Rampell
Posted Wednesday, Jan. 23, 2008, at 1:16 PM ET

(Continued from page 1)

But there were failures, too—most notably the wholesale prize systems offered by the Soviet Union (set up in 1919, for virtually all inventions) and the U.S. Patent Compensation Board (established in 1946 for private innovations in atomic energy, which couldn't be patented for national security reasons). By most accounts, these initiatives failed to generate much entrepreneurial creativity because the pots weren't big enough to motivate investment in multiple large-scale research programs. Perhaps also because they were so generalized, they didn't seem to attract the same attention to whatever problems they were trying to solve.

These two failings would likely afflict the industrywide prizes-not-patents system Sanders proposes. That is, if it ever survived the U.S. drug lobby's reflexive defense of its precious business model. Even if the bill could pass, its $80 billion annual price tag would make the prize fund difficult to sustain. Inventors and venture capitalists would have little reason to believe that the government would make good on its prize promises.

The good news is we don't need to punt the whole patent system to promote research for neglected diseases or other worthy causes. Instead of setting up an industrywide prize system, a few reputable charities (or a government agency with a brilliant PR team and an ironclad escrow account) should offer attractive prizes for solutions to carefully chosen problems. After all, if a malaria-vaccine prize could match or even surpass the expected profits for a weight-loss/hair-growth/allergy drug, companies would follow the money. And if the prize were given on condition of forgoing a patent, the drugs could still be manufactured royalty-free. As for which unprofitable causes to target, these types of prizes may be most helpful for problems that look the most hopeless. (Research grants, after all, are the traditional way of subsidizing worthy but unprofitable causes, but they are less useful than prizes in areas where there are no promising leads on which specific research or researchers will succeed.)

One of the best ideas in the Sanders bill could be adapted to this more-targeted system of prizes. The legislation proposes an interesting way to solve the problem of incremental drug development. The development of a new drug tends to happen in small steps, often contributed by different companies. Under the traditional patent system, there's seldom incentive to do the expensive initial legwork, since a newcomer could reverse-engineer your drug, improve upon it slightly, and push you out of the market. One alternative is to offer an advanced market commitment, in which a government or nonprofit guarantees purchase of a minimum number of doses. But with AMCs, such as the one the Gates Foundation promised for a pneumococcal-disease vaccine, there's no incentive to make those incremental improvements.

The Sanders solution rewards both the pioneer and the newcomer, who must share prizes every year over the course of a decade, based on an annual recalculation of how many people (or quality-adjusted life years) each drug is responsible for saving. Here's how this system might be applied to a prize for curing malaria: Let's say Company A developed an AIDS treatment that cured some percentage of the disease's victims; at first it would receive the entire payout from the prize fund every year. But Company B would get a share if it figured out a way to improve the formula. If the new drug were twice as effective as the original, the two companies would split the annual prize 50-50 every year thereafter.

Sanders' bill reminds us that adapting incentives to specific industries' research processes and business models is key. This observation explains why the lawmakers brokering the comprehensive patent-reform legislation are being drawn and quartered by different industries that want different provisions suited to their very different business models. There may be no all-encompassing solution to bring morality to the inherently amoral marketplace. But there are niches where—through private charities or more targeted legislation—we can create new markets that steer the entrepreneurial spirit toward the social good.

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Catherine Rampell is an editorial writer for the Washington Post. She previously covered technology and intellectual property for the Post.
Photograph of the X Prize by Stephanie S. Cordle/Getty Images. Photograph of a child with malaria on Slate's home page by Spencer Platt/Getty Images.
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