[kotharia]

The pharmaceutical industry is usually given as the prime example of an industry where patent protection is necessary; however, this is far from obvious. See Robin Feldman's book Drug Wars (there is an interview with her about it here: http//www.econtalk.org/robin-feldman-on-drug-patents-generics-and-drug-wars/)

[jernfrost]

I would solve it with a combination of public funded research and prizes awarded to those solving important medical needs.