New Report Debunks Claims That Government Prizes Could Effectively Replace Market Incentives for Drug Development

February 3, 2020

WASHINGTON—Opponents of market-based drug development have been calling on intergovernmental organizations to replace the intellectual property (IP) system with government-managed prizes as the primary incentive to drive biopharmaceutical innovation. But a new report released jointly today by the Geneva Network and the Information Technology and Innovation Foundation (ITIF) concludes that a prize-based system would misalign incentives, raise bureaucratic costs, and limit innovation.

“Advocates claim ‘delinking’ drug prices from R&D investments would make innovative medicines far less expensive. But the truth is it would almost surely lead to less new drug development and slower progress in improving human health,” said Philip Stevens, director of the Geneva Network, who co-authored the report. “For prizes to work, governments would have have to dedicate about $180 billion in taxpayer funds per year by 2022 to replace private medical R&D that would be lost. It’s unlikely they would do that, given the budget challenges many governments face—not to mention the fact that many of the benefits coming from governments’ spending would flow to other countries.”

Co-author Stephen Ezell, vice president for global innovation policy at ITIF, added: “Handing over significant control of global biomedical R&D to government bodies would be a recipe for inefficiency and for politicizing drug development. The current market-based system delivers a tremendous amount of biomedical innovation. Intergovernmental organizations should focus on solutions that improve the life-sciences innovaton ecosystem, including expanding drug access, rather than expending political resources promoting flawed concepts such as delinkage.”

The report traces the history of using prizes as incentives for inventors to solve societal problems and summarizes recent political efforts to replace IP rights with prizes, particularly in the field of drug development, where there has been intensifying interest among NGOs and in intergovernmental forums such as the World Health Organization and the United Nations.

The authors then analyze the practicability of replacing IP rights with a prize system, and they identify a series of fatal weaknesses—the first and most significant being that it is extremely unlikely governments would adequately fund prizes such that they could realistically serve as the primary mechanism for spurring global life-sciences innovation.

The report argues that while prizes have a place in stimulating biomedical innovation, they should be viewed as a complement to the current system, not a replacement. Instead of abandoning IP rights in favor of a dubious prize system, the authors say policymakers should focus on improving the current market-based system for drug development, which already achieves many of the goals delinkage proponents want. For example, health insurance shields consumers in advanced economies from the full cost of medicines, while drug companies discount prices in lower-income nations. Market competition drives innovation and exerts downward pressure on prices. And mechanisms such as Product Development Partnerships (PDPs) direct R&D resources to areas that have received less attention, such as neglected tropical diseases.

“Delinking the cost of R&D from the final price of medicine and making governments the planners and funders of drug development sounds like a simple solution to the complex range of factors that are responsible for poor health care in many nations,” said Ezell. “Advocates keep pushing the idea, but there’s a reason no countries have taken the plunge—it would almost certainly do more harm than good.”

Read the report.