In the early part of this decade, the Ansari X Prize Foundation offered a prize of $10 million for the first reusable spaceship.  This X Prize generated a significant amount of media attention and public excitement, and it jumpstarted an industry that did not exist at the time.  In a race to win the prize, 26 engineering teams from 7 nations spent $100 million.  The goal of the X Prize Foundation is now to create a world-class “prize institute.”  The foundation currently offers prizes related to energy and the environment, global development, education, aerospace engineering, and the life sciences.  The X-prize model offers investors a new way to encourage innovation.

The idea of offering a prize to encourage innovation is not a new one.  In the early eighteenth century, the British government offered a substantial prize to the first person who could come up with a way of reliably measuring a ship’s longitude while at sea.  Prizes such as the longitude prize and the X prize are designed to define a problem and to promote innovation in a new area.  The leverage of such prizes is often very high.  Consider, for example, that investors spent $100 million in the competition for the first $10 million prize.  A prize can prompt investment in areas that venture capitalists would otherwise hesitate to fund.

The life sciences present unique challenges to the concept of prize-based innovation.  Biological and clinical sciences are usually “messy,” and progress is often incremental.  The regulatory environment extends the time horizon for many potential prize ideas.  The strategy of the X Prize Foundation is to avoid prizes with large regulatory hurdles and to offer prizes in areas that are currently underfunded.  One such area is disease prevention.  The X Prize Foundation is now offering a large prize to the team able to get the greatest number of people to stop smoking for one year at a cost per quitter of less than $1,000.  Another prize is being offered for a reliable diagnostic tool for tuberculosis.  One advantage of this prize-based innovation is that good ideas immediately enter the public domain and are available to all who want to improve upon them.  The victor may claim the glory, but the world will claim the spoils.  

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