[refurb]

The government could offer, say a 1 billion dollar prize, to the first company that solves the problem.

There are a number of challenges with the "prize" system. Who judges whether or not an invention qualifies for the prize? Things aren't black and white in biotech. If you're drug cures a disease but has bad side effects, does that deserve a prize? What if you don't cure the disease, but you massively reduce the burden of the disease. Do you deserve a prize?

Second, the prizes would have to be much larger than $1B. Gilead (who sells the hepatitis C cure Sovaldi and Harvoni) sold $5B worth of the drugs in Q2 of this year. Their margins are likely >50%. Even relatively small drug have NPVs of several billion.

The other issue with the prize system is it makes the 2nd to market impossible. It's a disincentive to competition. Under the old system you could have two, similar drugs sold and they battle it out for market share. Even if you split the market it can be profitable. Under the prize system, if you're 2nd to market, well, tough, you get absolutely nothing. A lot of drug development is incremental. Lipitor was the 5th statin to market (and the best out of all of them). With the prize system you'd get one drug and that's it.