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The pharmaceutical world is ripe for transformative innovation and experimentation, not only in the exploration and development of new life-changing drugs but also in how we finance scientific research and development. Decentralized Autonomous Organizations, or DAOs, have the potential to change how we fund the future and how we find new cures and treatments for disease.
What is a DAO?
It’s all in the name really. DAOs are digital decentralized organizations that operate autonomously through smart contracts, ultimately controlled via voting by its members. Think of a DAO as a kind of corporation. A corporation is an entity that exists only on paper but has the legal backing of the sovereign state that gives it certain rights. DAOs differ in that they are registered in the digital world and not necessarily as traditional legal corporations.
Also, unlike a traditional corporation, there is no central governing authority in a DAO. Instead, token-holders use their voting power to influence the DAO’s decision-making directly. Voting power is generally distributed according to the total tokens owned by each member, not unlike how traditional corporate voting schemes also give shareholders the right to vote proportionally to the number of shares they own. To read more about the drawbacks of this kind of voting and alternatives, read my work on Square Root Voting.
DAOs are an outgrowth of the “crypto” family of technologies. As with other crypto tech, they reside outside, and parallel to, the existing financial, legal, and regulatory structures. Outside the constraints of the traditional regime, they offer extraordinary flexibility to operate in areas that traditional businesses will not or can not.
What Can a DAO Do?
DAOs could be particularly useful in the pharmaceutical industry. As I have written ad nauseam before, modern patenting comes with serious drawbacks. A patent is a government-sanctioned temporary monopoly on an idea that gives the IP owner the ability to charge monopoly prices. Monopoly pricing is a necessary evil to encourage/reward the initial R&D that spawned the idea.
Therein lies the problem. While the patent is in force, the drug is too expensive for many to afford, but once a drug is out of patent, there is no longer any incentive to invest further in that formulation. It turns out, many drugs can be useful for diseases that they were not initially intended for, if someone was willing to invest the time and money in Phase II/III clinical trials to establish their efficacy.
That is the goal of Crowd-Funded Cures. According to Crowd-Funded Cures, there are over 20,000 safe off-patent drug candidates on the market today. These are 20,000 products that have the potential to be repurposed into new life-changing treatments, a potential that the traditional pharmaceutical industry is neglecting, preferring instead to invest in patented alternatives that bring in high-profit margins.
Now, in theory, generic or off-patent drugs could be re-patented as reformulations to treat new diseases. But the pharma industry will not invest in clinical trials for an off-patent drug that can be prescribed off-label…meaning they cannot receive a monopoly market price.
DAOs can fill this void, raising funds from investors by selling digital tokens (voting rights) and using the revenue to direct funding toward promising new uses for old drugs. Crowd Funded Cures, for its part, has developed an innovative financing system that spreads risk among market participants that makes financing of repurposed drugs finally possible.
Decentralized Science
DAOs are just one small part of an emerging “de-sci” movement that aims to democratize the financing, creation, and dissemination of new technology and ideas. These new mechanisms have the potential to fill gaps in our existing R&D infrastructure, accelerate human progress, and improve the lives of billions.