Thursday, March 24, 2011

Prizes 101: An Introduction to Prizes for Global Health Innovation on World TB Day

A guest blog post from our colleagues at Results for Development:

World TB Day, which falls on March 24 every year, marks Dr. Robert Koch's discovery of Mycobacteriumtuberculosis, the bacteria that cause tuberculosis (TB). Dr. Koch's discovery was a remarkable step forward in diagnosing, treating and fighting the TB epidemic, which takes over two million lives every year around the world. Despite the global interest in curbing the TB epidemic, the technology to diagnose the disease in most developing countries has not been updated for the last 125 years. Prizes could pave the way to develop a new and improved TB diagnostic.

Paul Wilson and Amrita Palriwala of Results for Development Institute (R4D) have studied the potential of prizes to spur the development of new health technologies, such as drugs, vaccines, diagnostics and medical devices, in the developing world. They spoke to their colleague Gina Lagomarsino about their forthcoming report “Prizes for Global Health Technologies,” which will be released next Tuesday, March 29th on R4D’s Center for Global Health R&D Policy Assessment website.

Gina: Why did you focus on prizes for diagnostics, as opposed to vaccines or drugs? Why TB diagnostics in particular?

Amrita: Our Center’s mission is to provide an evidence base for supporting ideas to advance technologies for neglected diseases. As we landscaped proposals, we found that proposals for prizes for new TB tests were among the most developed. Yet although prize competitions are well known in mathematics and other sciences, there is little experience using prizes to drive innovation in biomedicine. This lack of knowledge around how prizes work for health product development and global health in particular was the impetus for this work.

In general, diagnostics are a good testing ground for prizes because they present lower R&D costs and shorter development time frames than drugs and vaccines. There is great need for innovation in TB diagnostics, because the same sputum smear microscopy has been used to diagnose it for nearly a century in resource-poor areas.

Gina: Your report focuses on prizes for global health technologies. What is a prize, in the simplest terms and how have prizes been used in other contexts?

Paul: Prizes have waxed and waned in popularity, and they have a long history dating back to the 1800s. Several European countries in the second half of the 19th century considered removing the patent system entirely and replacing it with prizes. They can be a tool for promoting innovation, and in essence are a binding commitment to reward the completion of a goal, which is similar to policy innovations like priority review vouchers (PRVs) and advance market commitments (AMCs), which also reward success.

They mean different things to different people, which makes this an interesting area. People of different backgrounds and political persuasions want to use prizes to solve a range of problems. Retrospective prizes or recognition prizes like the Nobel Prize are important and certainly motivate scientists, but they don’t motivate people to solve a particular problem or to develop a particular product. Our report looks at prizes which are aimed at achieving specific objectives and of course our interest is health products.

Gina: What are some other mechanisms that have been used to incentivize innovation in global health? How do they compare to prizes?

Amrita: Push mechanisms like grants, product development partnerships (PDPs) and tax credits have been put forward—push funding is an input, but pull funding, like prize mechanisms, focuses on the outcomes. Push mechanisms shift the risk from the product developer to the sponsor.

Paul: Push mechanisms reduce the risk of product development by providing cash up front. Even regulatory changes that reduce the costs of clinical trials could also in this category. Pull mechanisms work on the other side of the equation and increase the reward.

Gina: Can a prize substitute for a market? How?

Paul: Currently, the motivation to invest in R&D is the market share that you access in the end. The size of that market, granted by the patent system, is the reward or the degree of the incentive to conduct R&D. For some prize proponents replacing this market or creating one from scratch is a primary goal and for others it’s not a goal at all.

The current patent system enables firms to charge substantially above what it costs to make the product, but this negatively impacts patients and governments. A prize could allow you to change the R&D investment decision by aligning incentives with public health needs instead of sales revenue. By substituting prizes for markets, where they don’t exist, or by asking firms to give them up, you ameliorate the problem of access.

Amrita: When we spoke to firms, it was hard for them to accept this equation. There needs to be a way to engage firms so that they can understand these alternate ideas. For TB diagnostics, a prize is not a substitute but a complement to the market – as it can help bring new minds and solutions to address the technological challenges with developing these tools.

There are different objectives for why people want to conduct prize competitions. The X PRIZE Foundation is trying to unlock latent markets, and the AMC is trying to substitute or create a market for a product that doesn’t naturally have one. Prize4Life, which recently awarded a biomarker prize to track the progression of ALS disease, is interested in reducing the technological barriers to carrying out R&D.

Gina: Prizes seemed simple until I read your report, which highlights the importance of design. What are important design considerations and how do they affect the prize?

Paul: The prize rises and falls on the technical specifications and the amount of the prize purse. One aspect of structure that we haven’t explored as much is the number of winners. Typically, you assume that there will be one winner—a so called “winner takes all competition,” but you could structure the prize to have multiple winners.

At first I was confused as to why firms view prizes so differently from markets, but they perceive prizes to be winner take all, which markets are not. Having multiple winners, akin to controlling a certain share of the market, would reduce the perceived risk for firms. This hasn’t been implemented before.

Another important dimension of structure is whether the prize provides a final end product payment or milestones payments. Of course, you can combine the two. Both pose risks to the sponsors. If you host a milestone prize, you may never actually get the final product in hand, but a final product prize may not be appropriate in all cases.

Gina: Did you find that prizes are an effective tool? If so, under what circumstances?

Paul: Prizes are helpful when you don’t know the way forward to answer an innovation question, and you have the sense that there are a lot of solvers out there who could help find the solution. This is what economists call information asymmetry. You don’t know who’s out there and what they’re thinking; if you did you could simply contract them directly.

Amrita: The other consideration is the market potential for the product. If it’s a large market, then a milestone prize might be sufficient, but if there’s little or no market, then you need a large final product prize or a milestone prize plus some subsidy. Our report lays out a decision tree which can help funders, policymakers, practitioners and others decide whether a prize is a useful tool for a particular innovation objective.

Paul: Very broadly, you need to think about who you’re trying to incentivize that’s not currently participating in the innovation space. Once you decide that, then you can systematically think through these questions. If there are only 3 organizations in the world that can solve a problem, then it may be better to engage them directly.

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