The patent-based system may inflate drug prices. But they also result in fewer sick days and averted hospitalization costs.
lem. Government committees would struggle to determine the true economic and social value of medicine before it is even created.
With estimates for developing a new medicine between $1.2 billion and $2.6 billion, this matters a whole lot.
For prizes lower than the true market value of the invention, drug developers — and the venture capitalists so instrumental for start-ups — would direct their capital away from medicine R&D towards politically safer but less socially useful areas. New medicines would dry up.
If a government prize committee overvalues the prize, it would trigger duplication of R& D as competitors swarm. Curious then that proponents of these prizes argue they will end the supposedly “wasteful” and duplicative R&D under the patent system.
Finally, there is the problem of politicization. A prize system would hand significant new discretionary powers to government officials as the judges of which medicines win prizes. Political factors would influence decisions on where to allocate funding, rather than clinical need. Diseases that could summon the most vocal lobby groups would get attention from prize bureaucrats, while less fashionable diseases may be ignored.
Political connections and lobbying could both play a role in securing a prize, while elected officials may attempt to influence R&D spending by government agencies.
Patents, on the other hand, represent a far less arbitrary form of innovation incentive. Government merely sets the framework of patent law, under which all companies compete. And competition is the key to innovation.
Take hepatitis C, until recently an incurable disease afflicting around 12 million Indians. Since 2013, no fewer than 10 new treatments have come onto the market, offering clinicians a huge range of options. Such breadth and speed of innovation under a winner-takes-all prize system is hard to picture.
Despite their superficial attraction, no country (other than the technologically backward former Soviet Union) has yet replaced intellectual property rights with prizes. The reasons are clear. Prizes risk economic distortions, undermining incentives for innovators, and adding a new layer of bureaucratization and politics. Be warned, therefore: delinkage and drug development do not go hand in hand.