Funding Research
As any schoolchild knows, the voyages of Christopher Columbus were financed by the Spanish throne. Before stock markets were established to spread risk broadly, governments were typically the source of funds for projects with uncertain outcomes. Today, government's cost of capital remains lower than it is to private industry. And the returns from high-risk medical research often far exceed the gains that could be captured by a patent holder. Hence, we would expect under-investment in high-risk research by the private sector. One way or another, then, it is widely understood that it should be government's job to move the risk-return tradeoff into territory that makes the potential payoff from blue-sky efforts attractive to private investors.
The great inefficiency—indeed, the tragedy—is that government agencies, with mandates to fund basic research, are also inclined to tilt toward lower-risk investments. While government decision-makers are not under the same pressure to generate tangible results as their private counterparts, they are prone to turning to older, established researchers for direction, and new ideas often get sidetracked in the process.
"A lot of the best investigators use their National Institutes of Health funding to keep their labs going," explains Judith Rodin, President of the University of Pennsylvania, "and then look for other money to do the things that are more interesting and ambitious."
Private philanthropy can cover part of the funding shortage for high-risk research—for example, it is a primary mission of The Prostate Cancer Foundation. But philanthropy can cover only a small part of the shortage. The sums involved demand direct government funding or heavy subsidies for private, for-profit investment. It would be foolish to think that it is easy to fine-tune incentives with respect to risk. But the potential payoff from improving the mix of research projects could be large.
FasterCures will evaluate the system of incentives that encourage or discourage researchers from undertaking these high risk/high reward projects.
Dr. Samuel Broder, the former director of the National Cancer Institute and now chief medical officer of Celera Genomics, sees promise in a radical decentralization of responsibility for a portion of government outlays for medical research. "We need to trust individual researchers," he argues, offering them substantial budgets and minimal second-guessing while they pursue novel approaches.
Dr. Broder is even optimistic that the same committees that now make such conservative choices in what research to fund could be persuaded to revise their thinking. "If you change the mandate, the decision-makers could implement the change," he says.
The payoff for thinking outside the box can be quite dramatic, Dr. Broder notes. In 1982, Australian physicians Robert Warren and Barry Marshall had the radical insight that most stomach ulcers (and cases of stomach cancer) were probably caused by a common bacterium rather than by stress or diet. Yet it took many years for this insight to filter through the medical establishment and for ulcer therapies to be redirected to antibiotics.
Read further on Unprofitable Treatments.
