An R&D Treaty and Medical Innovation Prize Fund

June 10, 2005

The Consumer Project on Technology ( has proposed a Medical R&D Treaty. The aim is to replace trade agreements that focus on patents or drug prices with minimum national obligations for supporting medical R&D. There would be freedom for countries to decide for themselves how to fulfil their commitment to support R&D, using their chosen combination of intellectual property rules and patents, public funding, advance commitments, or open source collaborations. The treaty would give priority to investments in R&D that is agreed to have particular social value, such as in neglected diseases, through a system of tradable credits for investments in particular projects.In addition, The Consumer Project on Technology proposes in the United States a medical innovation prize fund, which would replace profits earned as a result patents as the incentive for firms to bring new medicines to the market. New medicines would become generics as soon as they are approved, with the investment in R&D being rewarded by payments to innovators from a massive prize fund. The size of the payments would be based on the estimated incremental social value of the innovation. This proposal has been introduced in Congress as HR417, sponsored by Rep Bernie Sanders.Dr. Aiden Hollis, an economics professor at the University of Calgary's Institute of Health Economics has writen a more in-depth peice on the functioning of a Prize Fund for medicines - An Efficient Reward System for Pharmaceutical Innovation.These two proposal are complementary, in the sense that the innovation fund could be introduced as a different way for the United States to meet its obligations under the proposed R&D Treaty.Owen's comment: There is an interesting common feature of the medical innovation prize fund and advance market commitment proposals. Both try to separate the mechanism for regulating access to new products from the reward paid to the innovator. The advance market commitment does this by have a co-payment that means that the price paid by the purchaser is substantially lower than the price received by the producer. The prize fund does this by making direct payments to the producer, while allowing competition to drive down the price to the consumer. This is important because it removes the trade-off that otherwise exists between having sufficient incentive to innovate and allowing consumers to buy medicine at affordable prices. But the R&D treaty and innovation fund represent a much more substantial paradigm shift than the advance market commitment, which can be "bolted on" to the existing intellectual property system.


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