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Innovation Economics (Pt. 2): “Push” Mechanisms, Mostly Private-Public Partnerships

Designing Strategies for Neglected Disease Research Law 284.26 Public Policy 190/290. Innovation Economics (Pt. 2): “Push” Mechanisms, Mostly Private-Public Partnerships. Stephen M. Maurer. Introduction. Old Business Hybrid Mechanisms Push Mechanisms Grants

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Innovation Economics (Pt. 2): “Push” Mechanisms, Mostly Private-Public Partnerships

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  1. Designing Strategies for Neglected Disease Research Law 284.26 Public Policy 190/290 Innovation Economics (Pt. 2): “Push” Mechanisms, Mostly Private-Public Partnerships Stephen M. Maurer

  2. Introduction Old Business Hybrid Mechanisms Push Mechanisms Grants Private Public Partnerships & Contract R&D Contract R&D Opening the Pipeline Mixing Push and Pull Interactions? Open Source Biology? < Discussion >

  3. Review Review: Toolbox Boosted Demand, Prizes, Advanced Purchase Commitments, Grants, Private Public Partnerships Contract R&D, Open Source. Agency Problems: Researchers Agency Problems: Sponsors Ex Post Efficiency “Access” Eliciting Privately Held Knowledge Ex Ante Efficiency (v-c) (Politics:) ? ? ? ? ? ?

  4. Discussion Review: Social Challenges Agency Problems: Researchers Agency Problems: Sponsors Ex Post Efficiency “Access” Eliciting Privately Held Knowledge Ex Ante Efficiency (v-c) (Politics:) ? ? ? ? ? ?

  5. Hybrid Solutions Prizes + Patents???

  6. Hybrid Solutions Why you might want patents after all… Sponsor can’t judge value Taking advantage of rich nation revenues Politics But… High Prices Crowding out Making claims on sponsor’s future budget A Possible Solution: Access Price Clauses

  7. Grants

  8. Grants Ex Ante Efficiency No attempt to judge “c” But: No internal financing problem! Agency Problems: Researchers Eliciting Privately Held Knowledge Agency Problems: Sponsors Ex Ante Efficiency (v-c) Ex Post Efficiency “Access” (Politics:) √ ? ? ? ? ?

  9. Grants Eliciting Privately Held Knowledge Short-term suppression, but reasonably quick disclosure. Agency Problems: Researchers Eliciting Privately Held Knowledge Agency Problems: Sponsors Ex Ante Efficiency (v-c) Ex Post Efficiency “Access” (Politics:) √ √ ? ? ? ?

  10. Grants Agency Problems: Sponsors Up-front or periodic payments Agency Problems: Researchers Eliciting Privately Held Knowledge Agency Problems: Sponsors Ex Ante Efficiency (v-c) Ex Post Efficiency “Access” (Politics:) √ √ √ ? ? ?

  11. Grants Agency Problems: Researchers Grant budget vs. Idea Quality S. Maurer & S. Scotchmer, “Procuring Knowledge,” in G. Libecap (ed.), Advances in the Study of Entrepreneurship, Innovation and Growth: Vol. 15, at p. 1 (JAI Press 2004). Agency Problems: Researchers Eliciting Privately Held Knowledge Agency Problems: Sponsors Ex Ante Efficiency (v-c) Ex Post Efficiency “Access” (Politics:) √ √ √ √ ? ?

  12. Grants Ex Post Efficiency: Access See above! Agency Problems: Researchers Eliciting Privately Held Knowledge Agency Problems: Sponsors Ex Ante Efficiency (v-c) Ex Post Efficiency “Access” (Politics:) √ √ √ √ √ ?

  13. Private-Public Partnerships & Contract R&D

  14. Private-Public Partnerships & Contract R&D Private-Public Partnerships (Definitions) DNDi, One World Health, etc. What’s New: Managing Drug Portfolios Drug Discovery is Not Monolithic! How Pharma Organizes Discovery Virtual Pharma Companies

  15. Private-Public Partnerships & Contract R&D Open Science Basic Research Finding Targets Optimizing Targets Finding Lead Compounds Optimizing Lead Compounds Process Development Pre-Clinical Testing Phase I Tests Phase II Tests Phase III Tests Approval Manufacturing Phase IV Tests Marketing & Distribution In Silico Biology “Wet” Chemistry & Biology Animal Models Clinical Testing Chemical Engineering Off Label Testing Irrelevant?

  16. Private-Public Partnerships & Contract R&D Reasons to Open The Black Box Different Incentives for Different Problems Adding a New Tool: Contract R&D

  17. Private-Public Partnerships & Contract R&D Contract R&D Part 1: Getting the Best Price Competitive Bidding Access to Financing Agency Problems: Researchers Agency Problems: Sponsors Ex Post Efficiency “Access” Eliciting Privately Held Knowledge Ex Ante Efficiency (v-c) (Politics:) ? ? ? ? ? ?

  18. Private-Public Partnerships & Contract R&D Ex Ante Efficiency Part 2: Enforcing the Best Price Buying Power & Repeat Business Economies of Scale Agency Problems: Researchers Agency Problems: Sponsors Ex Post Efficiency “Access” Eliciting Privately Held Knowledge Ex Ante Efficiency (v-c) (Politics:) √ ? ? ? ? ?

  19. Private-Public Partnerships & Contract R&D Eliciting Privately Held Knowledge Who Needs It??? Agency Problems: Researchers Agency Problems: Sponsors Ex Post Efficiency “Access” Eliciting Privately Held Knowledge Ex Ante Efficiency (v-c) (Politics:) √ ? ? ? ? √

  20. Private-Public Partnerships & Contract R&D Agency Problems (Sponsors) Progress payments Agency Problems: Researchers Agency Problems: Sponsors Ex Post Efficiency “Access” Eliciting Privately Held Knowledge Ex Ante Efficiency (v-c) (Politics:) √ √ ? ? ? √

  21. Private-Public Partnerships & Contract R&D Agency Problems (Researchers) Incentives to suppress bad news A history of scandal A Manageable Problem? Agency Problems: Researchers Agency Problems: Sponsors Ex Post Efficiency “Access” Eliciting Privately Held Knowledge Ex Ante Efficiency (v-c) (Politics:) √ √ ? ? √ √

  22. Private-Public Partnerships & Contract R&D Ex Post Efficiency The Usual Answer… Agency Problems: Researchers Agency Problems: Sponsors Ex Post Efficiency “Access” Eliciting Privately Held Knowledge Ex Ante Efficiency (v-c) (Politics:) √ √ √ ? √ √

  23. Private-Public Partnerships & Contract R&D Politics The Usual (Terrible) Answer… Agency Problems: Researchers Agency Problems: Sponsors Ex Post Efficiency “Access” Eliciting Privately Held Knowledge Ex Ante Efficiency (v-c) (Politics:) √ √ √ √ √ √

  24. Private-Public Partnerships & Contract R&D The Case for PPPs/Contract R&D Agency Problems: Researchers Agency Problems: Sponsors Ex Post Efficiency “Access” Eliciting Privately Held Knowledge Ex Ante Efficiency (v-c) (Politics:) √ √ √ √ √ √

  25. Private-Public Partnerships & Contract R&D Basic Research Finding Targets Optimizing Targets Finding Lead Compounds Optimizing Lead Compounds Process Development Pre-Clinical Testing Phase I Tests Phase II Tests Phase III Tests Approval Manufacturing Phase IV Tests Marketing & Distribution Large Agency Problems (Researcher) Manageable Agency Problems (Researchers)?

  26. Private-Public Partnerships & Contract R&D Basic Research Finding Targets Optimizing Targets Finding Lead Compounds Optimizing Lead Compounds Process Development Pre-Clinical Testing Phase I Tests Phase II Tests Phase III Tests Approval Manufacturing Phase IV Tests Marketing & Distribution 25% of Costs 75% of Costs

  27. Private-Public Partnerships & Contract R&D Pitfalls Can Non-Profits Pick Winners? Interactions Between Multiple Incentives Agency Problems: Researchers Agency Problems: Sponsors Ex Post Efficiency “Access” Eliciting Privately Held Knowledge Ex Ante Efficiency (v-c) (Politics:) √ √ √ √ √ √

  28. Private-Public Partnerships & Contract R&D Can Non-Profits Pick Winners? Why Is The Private Sector Efficient? Foundations as Shareholders? An Empirical Question

  29. Private-Public Partnerships & Contract R&D Interactions Between Incentives? End-to-End vs. Pay-as-You-Go Stage 1 Stage 2 E2E PaYG1 PaYG2

  30. Private-Public Partnerships & Contract R&D How Are Incentives Affected? Case 1: No Learning End-to-End = Pay-as-You-Go Yooki Park, Essays in the Economics of Innovation Incentives (2006) E2E PaYG1 PaYG2 Redecide?

  31. Private-Public Partnerships & Contract R&D How Are Incentives Affected? Case 2: Both Parties Learn – PaYG Preferred Case 3: Researcher Learns – E2E Preferred General Case? E2E PaYG1 PaYG2 Redecide?

  32. Open Source Biology?

  33. Open Source Biology? What? A Speculation Just Like PPPs were 10 years ago … Working Definition Voluntary, Organized Production Without Payment! Here: Primarily Non-Corporate Intuition DNA = Code, Sitting at Terminals

  34. What? Architecture: > > Gene Cards > Share Prices > > Database Queries > On-Line Forums

  35. Open Source Biology? Where? In silico Discovery Phase IV Trials Phase I – III Trials???

  36. Open Source Biology? How? Analogy to Conventional Open Source Motivations Ideology & Altruism Education Signaling

  37. Open Source Biology? Why? Advantages Ex Ante Efficiency “Free” Labor Inadequate Incentives? Ex Post Efficiency Free Information Indirect Effects on Price Transparency Valley of Death Drug Company Data FDA Approval ???

  38. Designing Strategies for Neglected Disease Research Law 284.26 Public Policy 190/290 Innovation Economics (Pt. 2): “Push” Mechanisms, Mostly Private-Public Partnerships Stephen M. Maurer

  39. Discussion Prizes Assumptions Offer $800 million Bare bones program costs $300 What Happens? What do you tell the first company? A secret program? What do you tell the second company? What do you tell the third company? How much industry effort is elicited?

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