There are four main kinds of funding mechanism for medical R&D:
Five circumstances are important when choosing which funding mechanism is the most appropriate:
In seeking to promote medical innovation, policy-makers should aim to maximise two things: access and innovation. It is vital that medicines are available to those who need them; at the same time innovation needs to be sufficiently incentivised and rewarded so that future patients can also be treated. There are a wide variety of different funding mechanisms which respond to different parts of this policy challenge. Understanding the logic of these mechanisms and how they relate to access and innovation is a prerequisite to making decisions on the funding of medical innovation - decisions which ultimately have life-and-death implications.
There are many possible ways of classifying funding mechanisms for medical innovation, and no standard approach. For example, Joseph Stiglitz uses a broad categorisation of patents, prizes and government funding.1 Steven Hoffman and Karen So classify funding mechanism reform into five classes: intellectual property reforms, regulatory reforms, financing reforms, market reforms, and legal reforms.2 Many researchers simply separate mechanisms into ‘push’ and ‘pull’,3 or add a third category, such as drug price reduction4 or hybrid mechanisms.5 This lack of uniformity in describing kinds of funding mechanisms is reflective of a space which is in reality multidimensional and messy. There are many axes on which to position a funding mechanism (funding source, funding purpose, exclusive or competitive manufacture, compulsory or optional system, etc.) and these axes cut across one another. What is important is to find a usable categorisation that fits the purpose of inquiry.
We have identified four main types of funding mechanism: grants, monopoly rights, prizes and remuneration rights. These are summarised in Table 1 below.
*The column entitled ‘Example proposal types’ contains examples of proposals that have been put forward under the relevant mechanism to improve either access or innovation or both.
| Mechanism | Description | Example proposal types* |
|---|---|---|
| Grants | A mechanism which funds innovation through unconditional, upfront funding. Grants are unconditional in that there is no direct conditioning of payment on outputs or outcomes, i.e. the researcher is paid irrespective of what their research produces. They are upfront in that the researcher is paid or promised payment prior to the work being done. Almost all university research is grant-based, and grants account for a good portion of all research funding and the majority of funding for basic research. | - Direct grants to companies, especially in low-income countries - Traditional research grants to universities |
| Monopoly rights | A mechanism which funds innovation by granting innovators a temporary monopoly (a patent) for a new discovery (such as a drug), and which allows them to set prices at the profit maximising point rather than health impact maximising point or linked to cost of research and manufacture. There are many small variations that can be made to improve an essentially monopoly rights based mechanism. We have included all such proposals under monopoly rights. | - Bulk buying - Compulsory licensing - Equitable access licences (EAL) - Foreign filing licence approach (FFL) - Patent buyouts - Patent donations - Regulatory harmonization - Differential pricing - Patent pools - Transferable Fast Track (TFT) - Transferable Intellectual Property Rights (TIPR) - Volume-based pricing |
| Prizes | A mechanism which funds innovation through pre-defined payments for specific one-off innovations or interim achievement, for example a new vaccine for HIV, or a new drug for Leukemia. | - End prizes - Milestone prizes - Tournaments - Advanced Market/Purchase Commitments (AMC/APCs) |
| Remuneration rights | A mechanism which funds innovation through the allocation of payments upon creation of a product. Innovators receive these payments according to some set of principles or conditions based on outcomes, usually including health impact and access provision. In return, innovators make their discoveries public and open | - Prize funds |
There are also kinds of proposal which fall outside this schema, as well as mixed mechanisms which combine elements of several mechanisms from Table 1. These limitations notwithstanding, we believe that the classification of grants, monopoly rights, prizes and remuneration rights is a good approximation of the funding mechanism space. It is important to note at the outset that the mechanism types are not mutually exclusive: a prize system can coexist with a monopoly rights system, grants with remuneration rights, and so on. We will now examine each mechanism in terms of access and innovation.
Grants are a push funding mechanism, unlike the others we considered: grants fund research upfront, rather than after the fact.6 Currently, grants are a very widely used form of funding in medical R&D, and are uncontroversial. Even strong opponents of the current system agree that grants should continue to operate as a funding mechanism.7 Grants are the most suitable mechanisms for early stage research, as information remains open for others to build upon and funding is not tied to specific outcomes, allowing exploratory work. Among the many proposals to improve the current state of medical R&D, few proposals concern improving the grants system, which also suggests that this funding mechanism is working reasonably.8 However, as a funding mechanism, grants have little to do with access. They provide no incentive to translate research into a marketable product, so this stage in development is usually undertaken by commercial firms who then patent the results.9 This makes grant funding poorly suited to dealing with the problem of access. Grant funding does provide a significant boost to innovation, but does not exert strong incentives regarding health impact. This is because grants are provided upfront, and it is very difficult to predict health impact before the fact. It might also be undesirable for all funding to be directly tied to health impact: we need basic research, and grant funding is excellent at resourcing this. Essential though grant funding will remain, its functioning is only distantly related to the problems of access and impact-based innovation.
A large proportion of medical R&D is currently funded via our second mechanism type, monopoly rights. There are numerous examples of proposals of this kind which have been successfully implemented. However, while monopoly rights based proposals can improve access and increase innovation, they tend not to do both. It is more common for proposals in this group of this mechanism type to focus on increasing access rather than improving incentives for innovation based on health impact. Examples are patent pools, differential pricing, patent donation, patent buyout, foreign filing licensing, equitable access licensing and compulsory licensing, all of which can reduce the cost of drugs but do not provide strong incentives for innovation based on health impact.
On the other hand, where monopoly rights based proposals do incentivise innovation strongly, they often fail to address the problem of access, as is the case with tax relief, transferable fast track and transferable intellectual property rights. In a monopoly rights based system, there is a fundamental tension between access and innovation: monopoly rights support innovation via high sale prices, which restrict access. While many of the individual reform proposals mentioned here have had a very positive health impact, it is hard to resolve this fundamental tension at the heart of the monopoly rights system. Such proposals are valuable but they are limited and essentially act as small patches on a faulty system, and are pursued because of their near-term political feasibility.
Prizes as a funding mechanism also boast many implemented proposals. Prizes take many forms, including milestone prizes, end prizes, tournaments and advanced market commitments. In terms of access and innovation, there is a disjunct between the technically possible and the actually implemented where it comes to prizes. Prizes can be made conditional on access provisions, and there is no reason that a prize should not be made conditional on health impact and thus provide an efficient incentive. However, while prizes often come with access requirements, they are not usually set in relation to health impact because of the difficulty of measuring these same. Instead, prizes tend to focus on a specified research achievement. This means they do not necessarily incentivise innovation in relation to health impact, and so are only a partial solution to the access and innovation problem.
This leads us to consider remuneration rights. Under this system, innovators would apply for remuneration rights, just as they would apply for patents today, and would then be entitled to a share of a remuneration rights funding pool. Payment to rights holder would be proportional to a set of criteria, usually including open access and health impact. This means that remuneration rights both promote access and incentivise innovation directly based on health impact.
While no remuneration rights based system has so far been implemented, there is considerable current interest in remuneration rights proposals. Two proposals in particular are currently under consideration. The Medical Innovation Prize Fund was raised again by Bernie Sanders in March 2017, and has been referred to the Senate’s Committee on Health, Education, Labor, and Pensions.10 Meanwhile, a Cancer Innovation Fund proposal has been under discussion in 2017. This led in May to a WHO resolution on cancer, which contains many actions including a commitment to a feasibility study into full delinkage.11 With this current momentum, now is a good time to build consensus and raise the profile of remuneration rights as a possible funding mechanism for medical R&D.
The funding mechanisms discussed above have different advantages and disadvantages. Which funding mechanism will be appropriate depends on the precise situation in question. For example, grant funding is usually considered the best way to fund early stage research. Remuneration rights may be the best way to incentivise the creation and distribution of drugs for neglected diseases. Table 2 summarises a range of criteria indicating which funding mechanisms are appropriate in given circumstances.
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