Jamie Love

Open Science Summit

Knowledge Ecology International

De-linkage of R&D costs and prices of products

My name is Jamie Love and I work for Knowledge Ecology International. We are a non-profit, we havve an office in DC and Geneva. We do a lot of work on intellectual property works. We focus on knowledge goods. I am going to talk today about the term of R&D de-linkage from the prices of products, as it relates to biomedicine and medical devices. It's a broader issue and there's a broader research agenda. Let's see here.

So, the context under which I am going to talk about this are going to be economics of de-linkage, the policy issues, the trade-related aspects, and the political implications of this strategy. I think this is a community that is hyper-aware of a lot of the market failures and issues about managing informationr esources. Which is to say that the operating assumption is from an economic point of view that knowledge is more valuable when it is shared. It is more valuable to society. But um, some knowledge goods are expensive to create, and uh, we don't really want to depend on the government to fund all databases, all clinical trials, all research projects and things like that.

So, the traditional response is to enclose knowledge goods through IP. Some people recoop the value of what they create, that's how we finance, that's the engine of investment in knowledge goods. There's high transaction in managing IP. There's high innovation costs, and I could tell a million stories about that. I am going to focus on what we think are the solutions todaay.

There are basically, thsi last point, there are insufficient mechanisms to reward investments in open science. Thsi is from a paper from Tim Hubber, he's from England, he works at the Weclome Trust, and the Human Genome Project, we've worked together. One of the ideas is that the final product, and it's similar to what Abe talked about, it's possible to think about the reward of the development of the price of the product and having that de-linked. Can you finance and make it sustainable and endurable, the alternative financing mechanism? If you have a cancer drug, if you can't pay the $100k for the drug you don't get the drug. Your chances of survival for certain kinds of breast cancer are low, unless you pay the $100k, or someone else pays the $100k. It's not available throughout the world. It's going to be a monopoly for some period of time. And then eventually the IP will disappear. That's the way we finance the drugs. It's effective in the sense that some people who have resources and insurance, they do and they are compelled by the monopoly, the consequences of not having the drug. In order to replace the system, there has to be an incredible story, an atlernative source of revenue, or it's not interesting to the investment community. But the advantages of de-linkage are really huge.

Here's a simple example- lipitor is a drug for cardiovascular disease. Zocar and lipitor are very similar products. Zocar was developed by Merck before Pfizer came along and developed its product, it was a little bit better in clinical. The rewards of being second were really high. A lot of products, paid by a third party, well they just switch, and lipitor became the dominant product. The reward of the increments was rewarding- everything plus a little bit more. Economically it does not make sense to rweard prorudcts in that way; you have the first product already, how much does it advance beyond what you already have, not the other way around. TYou can't think of a reward system where there you can .. an alternative reward system. That's part of the idea.

I am going to zip through a lot of this stuff. You're going to remember me, and decide to read some stuff I do, I decide to explain the basic details of everything I do then I will run out of time. Here's the thing. You've heard about the Longitude Prize, right? Difficult problem, figure out hwo to calculate longitude. There were several longitude prizes- one in the netherlands, one in france, and the famous one was the watchmaker in England, and that prize was a high threshold to win the prize. It's a hard prize to win. You have to spec out the problem, and the prize, and you have to know how to do that. A problem in this is speccing out.. there's a prize being promoted by three different groups for a low cost tuberculosis device, and it's $20M to $100M, and you have to spec out what you have to do to get the prize money. What are the terms? How fast does it have to operate, how cheaply can you manfuacture it, or a bunch of considerations like that?

The problem with that kind of prize, and you still do it anyhow, you have to have enough insight into what's feasible, without guessing the actual path to achieve the result. It's not completely easy, that's one of the shortcomings of prizes, and you have to know how much to set the prize purse for. You have to know a ballpark, maybe not the exact price.

Prize funds with lowest thresholds. These aer the ideas that Abe and I and others are working on for some time now- it's the idea now that the prize fund itself is, you put money up there, and it's easy to get money out of a fund that gives prizes, you can design a prize, where everyone in this room gets money from it, but you cuold design it in a way that others would get mmoore moenyyyyyyyyyyyyyyyyyyyyyyyyy. That's how Abe's proposal works, and how others work. Tim Hubbard worked on this with me in 2002, to design prize funds where you don't have to spec out the exact nature of what you have to do. The medical innovation prize fund- to qualify for a prize, you just have to register a drug with the US FDA, but how much money a drug would get, would depend on the impact of the drug, or whether it was a drug that didn't do much that people didn't already have. You would compete against other people supplying innovation, and so to be a competitive supply market for innovation that- demand by fund.. completely delink.. the product could be generic, anybody could sell it, and if it did well, then you could make a lot of money depending on the size of the prize fund was.

That'st he low threshold model. There are other examples, like a single disease for .. there's a donor prize proposal, which is useful for HIV/AIDS, sustainability, priority medicines. Lyon Prize Fund. One of the interesting prize funds was a low-threshold- Lyon Prize Fund was around the silk industry, and they had a sort of open source prize fund system, and if you had an innovation for the textile industry, you couldn't monopolize it, but you cuold get money out of the tax on raw silk. There were three different committees, and it lasted for decades. They would calculate the impact of your innovation on the taxes and silk trade. Your profit was the impact on the silk trade. They also had a feature where you got more money for every artisan that you traded.. your incentive was to train as many artisans as possible. Within Lyon, yes. Outside, they might kill you. Within Lyon, you were supposed to share information.


Selected innovation prizes and reward programs, KEI Research Note 2008:1

Radical IPR Scenario #1

This is a bit of an editorial

Burton A. Weisbrod on delinkage - Solving the Drug Dillemma


MSF TB Diagnostic Prize

DNDi interim results prize

Hollis/Pogge Voluntary

oChangas Disease


Chagas Disease Prize Fund

Prize Fund for Donor Supported Markets

Priority Medicines and Vaccines

Gales Foundation/X-Prize B diagnostic prize

Reasonable Rx: solving the drug price criss by Stan Finkelsten, Stan N. Finkelstein, Peter Temin

Burton A. Weisbord, Solving the drug dillema

Skip through some of these things that have happened, and an open source dividend idea. Let me just go through the basic idea of the open source dividend. New products are developed through the contributions of investors for a commercial product, but the people who benefit are from the knowledge and materials. Share a fraction of commercial reward with communities and entities, and use the open source contributions of knowledge, databases and materials. And so, the key challenge is how would you manage such a fund, and some of the explorations have been on agency approaches, jury approaches, if you think abuot how you might implement a competitive intermediary, mandatep eople to .. mandates to resource open source dividend programs, and competing entities to be the managers of the money, just like people compete to manage your pension fund or your assets. Rather than an agreement of a social agreement, you have a competition for intermediaries, whoever is mumbo jumbo, legitimized by the people of the- rather than a central agreement on the evaluation proposal. I think this will be introduced this year-

Take one percent of pharmaceutical profits; 1% would be about $4B, and creation of an independent agency to administer the open source dividend.

The idea is that you .. you can have a priority strategy for your data, patent innovations, materials, you could put it into the vault, lciense it, and you could hope the commercial market will pay you off... or you could open source it. Under the open source dividend, you would have a chance to participate in the $4B rewards system. Do I become a proprietary player or do I become an open soruce player? The difference would be the open source players wuold be cashing in- 1% of the pharma market, $4B, there's a strong economic incentive to move information to where it has the highest social value.

I think this is the last slide. European parliaments are going to have two meetings on the de-linkage policies. They are trying to reconcile high prices in the northern part, and the lower poorer population in the southern places. Possible application of de-linkage for cancer in developign countries, antibiotics, or HIV treatments in the U.S.