The baffling WHO EWG analysis of innovation inducement prizes

The World Health Organization (WHO) Executive Board will soon consider the Executive Summary of the Report of the Expert Working Group on Research and Development Financing, a document, formally identified as EB 126/6 Add.1.

In the section of the report on “Funding allocation proposals,” the EWG considers two types of innovation inducement prizes, including

31 (c) milestone prizes; and
31 (d) end-prizes (cash)

It is not surprising that prizes were considered by the EWG. Several prize proposals were formally submitted to the EWG, and the WHO Global Strategy for Public Health, Innovation and Public Health (WHA61.21) states:

4. Proposals should be developed for health-needs driven research and development that include exploring a range of incentive mechanisms, including where appropriate, addressing the de-linkage of the costs of research and development and the price of health products and methods for tailoring the optimal mix of incentives to a particular condition or product with the objective of addressing diseases that disproportionately affect developing countries.

We were thus baffled by the EWG analysis of innovation inducement prizes — a topic that was among the most controversial topics to be considered by the EWG, as evidenced by the leaked comments of the IFPMA and the extensive comments in the EWG web based hearings.

The EWG discussion of Milestone prizes

The brief EWG executive summary discussion of “milestone prizes” focused entirely on prizes managed by InnoCentive, a for-profit firm initially started by Lilly, to manage prize competitions detailing with discrete technical challenges. The EWG say that “Only one pure prize proposal was presented to the EWG,” and that “InnoCentive, for example, is a pure prize.” In fact, there is no record of InnoCentive having made a proposal to the EWG. In the 262 word discussion of milestone prizes, the EWG concludes with the following confusing statement:

maximum buy-in from the private sector is likely to be obtained by managing prizes within the intellectual property system.

Since it is difficult to imagine how InnoCentive, a private company, could operate outside of intellectual property laws, one assumes that the EWG is trying to say something about the way InnoCentive manages intellectual property rights in the competitions it manages. But in reality, how does InnoCentive management intellectual property rights? The short answer is: any way the entity funding the prize wants to. Here are a few examples, from the InnoCentive web page.

This is an example of a “Reduction to Practice” prize:

Biodegradable, Bioderived Elastomers for Medical Applications
Reward: $30,000 USD Type: RTP INNOCENTIVE 9046179

What is an RTP Challenge?
An InnoCentive RTP (Reduction to Practice) Challenge is a prototype that proves an idea, and is similar to an InnoCentive Theoretical Challenge in its high level of detail. However, an RTP requires the Solver to submit a validated solution, either in the form of original data or a physical sample. Also the Seeker is allowed to test the proposed solution.

Exclusive rights to the Intellectual Property are always transferred to the Seeker in an RTP Challenge.

This is an example of an eRFP prize:

Purification of a Biologically Active Membrane-bound Protein
Reward: varies Type: eRFP INNOCENTIVE 9006232 Share Challenge
deadline icon DEADLINE: Feb 02, 2010

What is an eRFP Challenge?
eRFPs allow Seekers to submit Requests for Proposals for a partner or supplier to provide materials or expertise to help solve a business challenge to the InnoCentive Solver community. This global community includes organizations and individuals, such as contract research organizations, scientists, university researchers, and technology companies.

After a Solver submits an eRFP response, the Seeker evaluates the responses to determine which Solver(s) to contact for further business discussions. With eRFPs, the Solver must not provide any confidential information in the eRFP response. If your eRFP response is selected, you negotiate the terms of the contract (including scope of work, tasks and duration) directly with the Seeker.

This Challenge type does not require Intellectual Property (IP) transfer. However, sometimes Challenges of this type do request that certain IP arrangements be made should a partnership be formed.

Another type of InnoCentive prize is the Theoretical Challenge prize.

Improved Granule Technology for Turf Applications
Reward: $20,000 USD Type: Theoretical-IP Transfer INNOCENTIVE 9025116

An InnoCentive Theoretical Challenge implements an idea but is not yet a proof of concept. A solution to a Theoretical Challenge will solidify the Solver’s concept with detailed descriptions, specifications and requirements necessary to bringing a good idea closer to becoming an actual product or service.

This Challenge is a Theoretical-IP Transfer Challenge, meaning that Solvers must relinquish all rights to the Intellectual Property (IP) for which they are awarded. By contrast, Theoretical-Licensing means that the Seeker is requesting non-exclusive rights to use the winning solution. For both forms of a theoretical Challenge, solvers that do not win retain the rights to their solution after the evaluation period is complete. The Seeker retains no rights to any IP not awarded.

If there is a common thread among the various InnoCentive rules for managing intellectual property rights, it is simply that the people who put up the money for the prizes often expect to use the prize winning innovations, either by acquiring the exclusive rights, or a license to use the innovation, or some other freedom to operate guarantee. Of course, all of this operates “within the intellectual property system.”

The EWG discussion of cash end-prizes

On page 14 of the report, the EWB making the following statements:

(d) End-prizes (cash)
42. Cash end-prizes propose providing a large lump sum at the end of the development process as a reward for product development. The prize can be awarded as a pure reward for innovation, allowing the intellectual property-holder to retain rights to their product, or as a “fee” to purchase the intellectual property rights from the developer to allow free exploitation by the prize-giver. Although the notion of cash end-prizes has been generally discussed, only one such proposal was submitted to the EWG, the prize fund for development of a low-cost rapid diagnostic test for tuberculosis.

43. End-prizes are likely only suitable for diagnostic development, where prizes sufficiently large to reward developers are within reach of public funders. The developing country health impact of the prize would be optimized by intellectual property-buyout prizes rather than prizes purely as a reward for innovation.

What is mind boggling odd about this discussion is the last sentence in paragraph 42, “only one such proposal was submitted to the EWG, the prize fund for development of a low-cost rapid diagnostic test for tuberculosis.”

In fact, several prize fund proposals were submitted to the EWG, including for example the following proposals that were submitted in the first EWG public hearing:

  1. PROPOSAL by Bangladesh, Barbados, Bolivia and Suriname: Chagas Disease Prize Fund for the Development of New Treatments, Diagnostics and Vaccines, Date: 09.04.15
  2. PROPOSAL by Barbados, Bolivia, Suriname and Bangladesh: A Prize Fund to Support Innovation and Access for Donor Supported Markets. Linking Rewards for Innovation to the Competitive Supply of Products for HIV-AIDS, TB, Malaria and Other Diseases for Humanitarian Uses, Date: 09.04.15
  3. PROPOSAL by Bangladesh, Barbados Bolivia, and Suriname: Prize Fund for Development of Low-Cost Rapid Diagnostic Test for Tuberculosis, Date: 09.04.15
  4. PROPOSAL by Bolivia, Suriname and Bangladesh: Prizes as a Reward Mechanism for New Cancer Treatments and Vaccines in Developing Countries, Date: 09.04.15

In addition to these prize fund proposals were quasi prizes, such as the Health Impact Fund, or the many prize like mechanisms such as the advanced marketing commitments or the priority review voucher, which were apparently evaluated by the EWG.

In the IFPMA comments that ended up on Wikileaks, and in the many comments in the public hearings and in various EWG documents, it was clear that innovation inducement prizes were among the most important and controversial proposals before the EWG. The IFPMA referred to them as “large prizes,” endstage prizes”, the “Economic Prize System” or to “specific prize models” for cancer or Chagas. A number of government submissions mentioned prizes, as did several NGOs, academics and others, including those who thought prize funds were a good or a bad idea.

This week, after KEI expressed considerable frustration over the lack of documentation to justify the EWG conclusions, the WHO published several papers that were distributed at the 3rd meeting of the EWG. Among the papers distributed was a November 2009 paper by Pedro Conceição titled “Financing for Health R&D that Addresses Challenges of the Poor: Context, Analytical Framework, and,Initial Compilation of Options,” that was prepared “with the Support of the WHO Secretariat on Public Health, Innovation and Intellectual Property.” This paper appears to be one of the main analysis of prizes for the EWG. It is thus worth mentioning that the only paper cited in the references that focuses specifically on innovation inducement prizes was a 1983 article in the American Economic Review by Brian Wright. Conceição’s entire understanding of the role of innovation inducement prizes seemed to be uninformed by any of the public submissions to the EWG, including in particular the notion that proportional reward mechanisms tied to the impact of inventions on health care outcomes have been the focus of the newer prize fund proposals explored since 2002, including the several proposals included in the EWG list of proposals under consideration.

We do not yet have the full EWG report, but we have seen the draft version of the report that was leaked by the IFPMA to its members and placed on Wikileaks. The analysis of prizes in the Draft report, which technically is not available yet, is surprisingly poor, and suggests that the EWG did not ever bother to talk to anyone who had the ability or inclination to read or understand any of the relevant literature. It is hard to describe how underwhelming is the EWG work on prizes.

In some discussions, persons from the EWG have indicated that opposition to the large end product prize proposals was due to an assumption that they were unacceptable to the private sector. While this is certainly true for some companies in the private sector, and for the lobbyists for the IFPMA trade association, it is not true in general. Gilead, now the largest seller of HIV drugs in the United States and a company with a healthy pipeline, and Johnson and Johnson, a big pharma company with an important profolio of products for TB and other infectious diseases, have said that a combination of a prize fund and a patent pool would be in principle a promising business model for developing countries, depending upon the details, such as the size of the prize fund and the diseases covered. Novartis has on occasion endorsed this approach for TB, and several small companies have also endorsed this approach. None of this is mentioned in any of the frankly biased EWG materials on prize funds. (Compare, for example, to the more balanced discussion of prizes in Paul Herrling’s article on the FRIND, discussed here)

Another weak area of analysis by the EWG in the leaked draft report concerns the assertion that prize funds are inferior because they would be ineffective because they would be “complicated” and difficult to manage. It is true that managing large sums of R&D funds does require some management and some complexity. But this is certainly true for administering grant programs, an approach endorsed by the EWG, for managing small technical challenge grants, which is endorsed by the EWG, and indeed can be said for managing the patent system itself. The issue is not the existence of management requirements, or some details that have to be addresses in the administration of the prize, but a real assessment of how this would work in practice — an analysis that apparently lied outside of the limited analytical powers of the EWG.

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