[Ip-health] Financial Times: Cash for answers

[Thiru Balasubramaniam]

>
> Feature: Cash for answers
>
> By Tim Harford
>
> Published: January 26 2008 02:00 | Last updated: January 26 2008 02:00
>
> In 1737, John Harrison, a self-taught clockmaker from Yorkshire,
> stunned London's scientific establishment by presenting an
> idiosyncratic solution to the most important and notorious
> technological problem of the 18th century. He was hoping to win a
> then-fabulous prize of =A320,000 (about =A35m today) for anyone who
> could devise a way for a ship's navigator to determine its longitude
> and therefore its position at sea. Harrison's approach was to build
> a clock that would keep Greenwich time faithfully; by comparing
> local time (measured using the position of the sun) with the time in
> London, the navigator would know how far east or west the ship had
> sailed. The theory was sound, but given the rolling of ships and
> changing temperature and humidity, the leading scientists of the day
> - including Sir Isaac Newton - reckoned that a sufficiently accurate
> clock would be impossible to build. Harrison proved otherwise.
>
> The longitude prize, sponsored by the British government, was not
> unique. Prizes were also offered in France for a functional water
> turbine, and for a method of preserving food for Napoleon's armies.
> The latter prize quickly inspired the tin can, more of a blessing
> than food snobs might acknowledge.
>
> But such prizes then fell out of fashion. For commercial
> innovations, we now rely on patents to encourage and protect
> innovators. Basic research is funded not by prizes but by grants.
>
> And yet two centuries after tinned fish hit the market, the way we
> look for solutions has come full circle. Governments, private
> foundations and even corporations are rediscovering the value of
> offering prizes for good ideas. Rather than paying for scientific
> and engineering effort as they have done for the past 200 years,
> idea-hungry patrons are returning to the 18th century, and paying
> for results.
>
> The most famous innovation prize of this century, the $10m Ansari X
> Prize, was designed to promote private space flight. The pot went to
> Mojave Aerospace Ventures in 2004, after the successful flights of
> SpaceShipOne. And even the Ansari X Prize is dwarfed by a quasi-
> prize of up to $1.5bn that is about to be offered by five national
> governments and the Gates Foundation to the developers and suppliers
> of a more effective vaccine against pneumococcal diseases such as
> pneumonia, meningitis and bronchitis. The prize, called an
> ''advanced market commitment'' or ''advanced purchase commitment'',
> takes the form of an agreement to subsidise heavily the first big
> orders of a successful vaccine. Given that the top companies in the
> UK's powerful pharmaceutical industry spent little more than =A35bn in
> 2006 on research and development, a $1.5bn prize should be taken
> seriously on hard-nosed commercial grounds alone.
>
> And if formidable obstacles to setting the prize conditions can be
> overcome, the pneumococcal diseases contest could be followed by a
> malaria vaccine prize twice as big and an Aids vaccine prize that
> would be bigger still.
>
> Prizes need not have such lofty ambitions. They can simply be a way
> of turning a solution into a commodity. One company, Innocentive,
> provides an exchange where ''seekers'' can offer cash to
> ''solvers''. Both sides are anonymous, which is one of the selling
> points of innovation prizes: they reward neither connections nor
> seniority, but solutions alone. Innocentive's problems read a little
> like the small ads on the world's least romantic lonely-hearts
> website. ''A technology is desired that produces a pleasant scent
> upon stretching of an elastomer film'' ($50,000). ''Surface
> chemistry for optical biosensor with high binding capacity and
> specificity is required'' ($60,000).
>
> Netflix, a film rental website which offers recommendations based on
> what you looked at, bought, rented or reviewed in previous visits,
> has skipped middlemen like Innocentive. In March 2006, the chief
> executive of Netflix, Reed Hastings, met some colleagues to discuss
> how they might improve the recommendation system, Cinematch.
> Hastings, inspired by the story of John Harrison, suggested offering
> a prize of $1m to anyone who could do better.
>
> The Netflix prize, announced in October 2006, struck a chord with
> the Web 2.0 generation. Within days of the prize announcement, some
> of the best minds in the relevant fields of computer science were on
> the case. Within a year, the leading entries had reduced Cinematch's
> recommendation errors by more than 8 per cent - close to the million-
> dollar hurdle of 10 per cent. And it has cost Netflix very little to
> mobilise all this effort. The company has had to pay out a mere
> $50,000 progress award, to a team of three AT&T data analysts.
>
> Even Netflix is surprised at how well it's been going. ''We just
> didn't think the relevant research community was so big,'' says
> Steve Swasey, vice-president.
>
> More than 2,500 teams from 161 countries and comprising 27,000
> competitors have entered the contest. Teams from California,
> Budapest and Toronto have been battling away at the top. Clearly,
> the million-dollar prize has mobilised far more than a million
> dollars worth of research effort.
>
> The Netflix prize has been helped by the ease of transmitting data
> around the world and the affordability of the computing power
> necessary to have a go. The fun of the challenge alone is one of the
> biggest attractions to participants. So, too, is access to Netflix's
> huge database of recommendations - a dream for statisticians and
> computer scientists. And the competition has also been fanned by the
> fact that all improvements are incremental and the company is able
> to publish listings of the current leaders, meaning the race is
> verging on a spectator sport.
>
> The X Prize and Netflix prize have managed to generate a tremendous
> amount of interest. That means more than free publicity for the
> organisers; it also means that the prize catalyses far more effort
> than one might expect on cold financial grounds. ''One of the goals
> of the prize is to transform the way people think,'' says Bob Weiss,
> vice-chairman of the X Prize Foundation. ''We were trying to create
> a sea-change.''
>
> Weiss says that the founders of the X Prize foundation wanted to
> revive their childhood dreams of a day when ordinary people would be
> able to travel into space - expectations formed in the heady 1950s
> and 1960s. They may get their wish. To Weiss's delight, Virgin
> Galactic claims it will soon be in a position to offer private space
> flights. It will be using the technology that won the X Prize.
>
> Future X Prizes, each one funded by corporate sponsors and
> philanthropic donors, aim to kick-start other new industries. The
> Archon X Prize for genomics will be awarded to the team that can
> sequence 100 human genomes within 10 days, at a cost of $10,000 per
> genome. That is unimaginably quicker and cheaper than the first
> private genomic sequencing in 2000, which, according to the X Prize
> foundation, took nine months and cost $100m for a single human
> genome. (Craig Venter, the director of that effort, is one of the
> backers of the new prize.) It is the kind of leap forward that would
> be necessary to usher in an era of personalised medicine, in which
> doctors could prescribe drugs and give advice in full knowledge of
> each patient's genetic susceptibilities.
>
> Another prize will be awarded to the manufacturer of a popular mass-
> production car that has a fuel efficiency of 100 miles per gallon.
> The model is the same each time. The X Prize foundation identifies a
> goal and finds sponsors; it announces a prize and whips up the
> maximum possible enthusiasm, with the aim of generating far more
> investment than the prize itself; the prize achieved, it hands out
> the award with great fanfare and moves on to set other challenges.
> The prize winner is left with intellectual property intact, and may
> capitalise on the commercial value of that intellectual property, if
> any commercial value exists.
>
> The X Prize foundation claims that the Ansari X Prize directly
> stimulated $100m of spending on research and development, 10 times
> the value of the prize itself. That is clever, and for a handful of
> sexy challenges it is likely to be a trick that can be repeated.
>
> But the X Prize and the Netflix prize may give too flattering a
> picture of what might be possible if prizes catch on. Rather, prizes
> could become humdrum. For the problems listed on Innocentive's
> website - ''The challenge is to produce a specific citric acid ester
> in a faster cycle under current specifications'' ($40,000) - the day
> of the humdrum has already arrived.
>
> In other cases, for example the advanced market commitment for a
> pneumococcal virus, the sums of money being invested in the research
> are so huge already that it is hard to imagine the mere glamour of
> the $1.5bn ''prize'' weighing heavily on the minds of scientists and
> inventors.
>
> For both the uninspiring innovation and the billion-dollar research
> programme, it is the prize money itself that has to do the talking.
> If that is not the case, the prizes will not multiply research
> efforts, as the Ansari X Prize and the Netflix prize have done, but
> will increasingly need to compete with alternative methods of
> funding innovation - that is, grants and patents - on a level
> playing field. To become a significant alternative to grants and
> patents, prizes will have to become very large indeed - large enough
> to cover, on average, all of the likely research expenditures of all
> those hoping to win. Is that desirable?
>
> Champions of prizes see them as a component of a wider system to
> promote innovation, rather than as an outright replacement either
> for grants or patents. Instead, the hope is that prizes will help to
> compensate for the specific weaknesses of those alternatives.
>
> The downside of a patent is fundamental to its design: in order to
> reward an innovator, the patent confers a monopoly. Economists view
> this as, at best, a necessary evil since monopolies distort prices.
> In the hope of raising profits from some customers, they will price
> others out of a market. The most obvious victims are consumers in
> poor countries.
>
> In an ideal world, prizes could replace patents. Instead of offering
> a patent for an innovation, the government could offer a prize. The
> inventor would pocket the prize but would not be allowed to exploit
> any monopoly power, so the innovation would be freely available to
> use in products for poor consumers - cheap drugs for Africa, for
> instance - and, importantly, in further innovations. But to explain
> that idea is to see its limitations. How could the government know
> enough about the costs and benefits - and even the very possibility
> - of an innovation to put a price tag on it and write the terms of
> reference for a prize competition? For this reason it is hard to see
> prizes replacing patents in most cases. But it is not impossible.
>
> The modern heir to 18th-century prizes for canning, water turbines
> and finding longitude at sea is the advanced market commitment for
> vaccines for the poor: the goal is clear, the costs and benefits can
> be guessed at, and the quasi-prize nudges the patent system to one
> side with a prize contract that respects the patent but, in exchange
> for a large subsidy, radically constricts the holder's right to
> exploit it.
>
> Prizes can also, in principle, supplement grants for basic research,
> paying scientists for results as well as for effort. There is, for
> example, an ''Mprize'' for creating long-lived mice. The eventual
> aim is to lengthen human life spans. And the Clay Mathematics
> Institute, a non-profit body set up 10 years ago by a Boston
> businessman, is offering million-dollar prizes for the solution of
> seven ''Millennium'' problems in mathematics.
>
> These prizes are exceptions; but prizes were once the standard way
> of encouraging basic research. According to Robin Hanson, an
> economist at George Mason University, more than twice as many 18th-
> century scientific societies paid for results using prizes or medals
> than paid for effort with grants. As that changed, scientific
> societies sometimes ignored the wishes of donors, or even had the
> wills of deceased donors voided, in order to hand out grants rather
> than the prizes specified.
>
> The standard historian's explanation of this trend is that once
> science became a profession rather than the province of rich
> amateurs, prizes were no longer a suitable way of funding
> innovation. Hanson is not convinced. ''Most academics who study the
> issue of prizes have focused on what a prize does to the behaviour
> of researchers, versus a grant,'' he says. ''But there's another
> aspect: what does the person giving the prize or the grant get out
> of it?''
>
> He argues that grants are more appealing than prizes to
> bureaucracies for many reasons, not all admirable: ''With grants,
> there's all sorts of possible patronage and corruption.'' Even
> leaving aside outright graft, there is plenty of opportunity for
> cosiness and cliques. Then there is the mundane fact that grants are
> easier to account for in an annual budget than a multi-million prize
> that could be paid tomorrow, in a year, or never. For Hanson, it was
> for these reasons, rather than any intrinsic merits, that grants
> elbowed aside prizes in the 19th century.
>
> Prizes may be making a comeback because of all the money now
> available from private foundations - which demand results. Not only
> the X Prizes and the Millennium problems prize, but even the
> pneumococcal vaccine prize is part-funded by private money. Yet
> governments are getting in on the act. The US space and defence
> research agencies Nasa and Darpa both use innovation prizes, and
> other government agencies look likely to follow with, for example,
> an ''H prize'' for advances in hydrogen fuel technology.
>
> If Hanson is right, this new trend is a welcome swing of the
> pendulum towards a modest use of prizes. But not everyone is
> convinced that prizes will live up to the hype.
>
> ''The literature has pushed them as a silver bullet; more recently
> there's been a bit more sobriety in the debate,'' warns Andrew
> Farlow, an expert in the economics of vaccines at Oxford University.
> ''How much genuine risk-taking can it pull along?''
>
> The problem is not the principle, he argues, but the details. A
> vaccine for HIV is a distant and costly prospect, and might require
> a $10bn or $20bn prize. Inevitably, companies and their shareholders
> will question whether the prize would be honoured in full. The
> triggers for releasing some of the prize money are difficult to
> define: early vaccines would probably be expensive, fallible and
> risky, but better than nothing. Donors would not want all the money
> to go to those efforts and leave none to encourage superior
> successors. Try framing ''good enough'' in legalese, when billions
> are at stake.
>
> Donors might pay a lot more than they needed to for a substandard
> product, or the prize might be too restrictive and too small to
> generate any interest at all. That would drain attention, enthusiasm
> and political will. ''It all sounds like good economics, but whether
> you could ever set a prize big enough or correct enough to work in
> those cases is doubtful,'' Farlow concludes.
>
> But the proponents of advanced market commitments (AMCs) believe the
> problems can be overcome. ''There's no question that there's going
> to be a way to deal with these challenges in a sensible,
> analytically based way,'' argues Ruth Levine, vice-president of the
> Center for Global Development, a think-tank based in Washington, DC,
> which has been a leading force in evaluating and advocating AMCs.
> ''By that I mean that a proposal or contract will be written that
> makes sense and is based on good empirical work.''
>
> The pilot is the pneumococcal vaccine pledge, made in principle back
> in February 2007, and now being hammered out. It is a big deal - a
> lot of money is on the table, with the potential to save many
> millions of lives at a low cost. Yet compared with other possible
> AMCs, the pneumococcal problem is relatively simple: two credible
> vaccines are in the late stages of development. Levine acknowledges
> that this example is as close to a procurement contract as to a pure
> innovation prize, but believes there is much to be learned from the
> exercise about whether donors can make a commitment together and
> handle the legal and accounting challenges. ''What this won't be is
> a pure test of whether putting a market-like offer out a long
> distance into the future will give firms an incentive to do early-
> stage R&D,'' she says.
>
> That is the dream of AMC proponents, but the true test - a malaria
> or HIV prize - is some way off yet. Only then will we see whether
> private companies will take the bait, and the public purse will get
> value for money. We can be sure that big Pharma will be checking the
> small print: John Harrison, master clockmaker, was eventually
> rewarded for his brilliant, accurate maritime clock only by
> appealing direct to King George III. Neither he nor anyone else was
> ever judged to have satisfied the conditions necessary to receive
> the longitude prize.
>
> Tim Harford's new book, ''The Logic of Life'', is published next week.
>


------------------------------------------------------------


Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
thiru@keionline.org


Tel: +41 22 791 6727
Mobile: +41 76 508 0997