Open Therapeutics – All scientific knowledge and data should be openly accessible and readily exploitable through common rights licensing.
“Open source is not magic pixie dust.” - CatBBy Jin Kong (CC BY)
Currently, the industry is in a crisis. There are large number of industry patents expiring. This can put more than $200 billion in annual drug sales at risk for the industry. Experts estimate large-cap pharmaceutical companies themselves will only be able to replace 26 cents for every dollar lost to the patent expirations by 2012. Everyone in the industry agrees that without increasing R&D productivity dramatically, the industry cannot sustain itself economically. There are other problems in the industry. The patent-driven “closed” system helps proliferate patent trolls who do not promote innovation. The closed model also promotes inefficiencies: each step of the therapeutic development requires specialized knowledge and a different set of expertise; front end R&D work requires scientific expertise, clinical trials require regulatory and medical expertise, productions and product monetization are even more complex and cost intensive requiring a range of manufacturing, promotion and sales entities. These critical steps in the development of a single therapeutic make vertical integration likely the only true efficient way to deliver products to market in an closed commercialization model. But vertical integration concentrates risks for the few large-cap players. The success rate for bringing products to market is about seven or eight percent. Given the concentrated risks and low success rate, large-cap players is unlikely to increase R&D following the strict close-model. It is no wonder new therapeutic options are slow to meet the demand.
There are also public policy and ethical issues specific to synthetic biology. New therapeutic options based in synthetic biology are rooted in the public domain (the Human Genome Project (HGP)). The individual development power for a synthetic biology-based therapeutics is seriously outmatched by the amount of genetic information present. Due to the complexity and rapid maturity of the science itself and the need for the public accountability, it makes good policy to collaborate, copyleft, and share knowledge to ensure ongoing product quality, safety, and continued public benefits from the HGP.
Industry players are already dabbling in Open Therapeutics: Novartis, Eli Lilly, Pfizer, AstraZeneca, Sanofi, for example. NGOs, consortia, and other loosely formed organizations are working hard moving forward Open Therapeutics (e.g., tranSMART, Structural Genomic Consortium, BioBricks Foundation and the Asian Cancer Research Group). A number of academics and professional experts have also joined the Open Therapeutics conversation. Yet these efforts are dispersed. The industry as a whole have yet to come to grip with the economics of Open Therapeutics. For example, Deloitte's recent 2015 article is an excellent analysis of the problems and path forward in Open Therapeutics, but it referenced the economic shift as “Open Innovation” rightly to focus on the front end work-in-progress that is lacking in the industry product pipeline. But the Deloitte article also discussed network characteristics, rights and talent management, as well as general governance issues. These are critical elements of open commercialization which co-exists with open innovation by necessity. These are means by which one can manage the open commercialization of therapeutics. The end goal is not about feeding industry R&D pipelines, however; the end goal is to lower cost, shorten development time, and put more life saving drugs into the under-served. This requires a broader sense of open commercialization than the industry currently acknowledges. This will require other tangible efforts to (1) building a productive conversation around, and the understanding of, our vast new dimensions of synthetic biology-based scientific options; (2) set standards and expectations, and open peer-reviews for open publications; (3) support annotation, analysis, and algorithm automation to make future developments more efficient; (4) involve all stakeholders to innovate and participate in downstream commercialization, and (5) provide ongoing community-driven, product support environment to ensure product safety and quality improvements. To achieve these goals, some fundamentals must be cataloged.
First, there are two important economic theories in an discussion of open commercialization: (1) Coase theorem (cost-benefit analysis) and (2) strategic complements and substitutes (Nash equilibrium) in game theory. Coase theorem generally states that a firm will expand until the costs of organizing an extra transaction within the firm becomes equal to the costs of carrying out the same transaction on the open market. So long as the transaction cost internally is lower, the firm will decide to keep that cost internal to extract value. Once the cost of executing a particular operation internally exceeds the cost of doing the same externally, the firm will consider outsourcing to extract value. Information cost is a large part of the overall transactional cost that drives the Coase type considerations. There are three types of costs of information: search cost, contracting cost, and coordination cost. Strategic complements and substitutes are categories of market competition. Generally speaking, every product in the marketplace has substitutes and complements. A complement is something that is purchased together with the product itself. A substitute is another product that a consumer may buy when the first product is too expensive or otherwise unattainable. Usually the demand for a product is inversely correlated with the prices of its complements. When one strategic complement market participant changes its direction, the other player usually follow in the same direction. Strategic substitutes, works differently: when on firm sets a quantity below market equilibrium, the best responding firm will set the quantity of substitutes above the equilibrium. These two economic and game theories helps us understand how players make their choices on the “spectrum of openness” given the market reality. These are theoretical frameworks as a starting point. The process of open commercialization in the social/legal context must also be carefully analyzed.
Socially speaking, voluntary standardization is a powerful tool to lower transaction costs and promote market efficiency. Standardization can also become a market inhibitor and can corrupt market integrity if left in the hands of oligarchies. The concept of open standards have been around in the U.S. and Euorpean legal/social context for some time now. Global standard setting organizations (SSOs) have long adopted the “fair, reasonable, and non-discriminatory” (F/RAND) commitment requirements for their members to facilitate open collaboration and control anti-competitive behaviors. Generally, SSOs and participants follow a set of principles to efficiently move forward with the market. These principles include: open meetings, consensus building, due process rights for members, open intellectual property rights (sharing), global standardization, open change, open documentation, open interface, open access, and community support. A more recent phenomenon of legal standardization directly aimed at open innovation is Creative Commons. Creative Commons is a legal copyleft licensing structure designed for the public to facilitate sharing of documents and content. Creative Commons is GNU inspired, Creative Commons today makes available “flexible, customizable intellectual-property licenses that artists, writers, programmers and others can obtain free of charge to legally define what constitutes acceptable uses of their work.” Creative Commons supports two categories of legal rights models: (1) public domain notices (or no rights reserved), and (2) licenses (some rights reserved). The licenses are divided into six types randing from “Attribution” only (allowing for commercial exploits and derivative works) to “Attribution-NonCommercial-NoDeriv licenses offering the most restrictive legal mechanism on the copyleft open spectrum.
Finally, an important aspect of open commercialization is the conceptual paradigm that it is an open spectrum and the market participants have their own rational choices to make. Assuming Nash equilibrium holds, rational players recognizing the industry pressure from expiring patents, the increased risks, cost, and development time for therapeutics, and assuming the Internet will continue to lower transaction cost enabling better cost-benefit analysis, participants will make more rational decisions based on Coase theorem, and the courts will refine its enforcement of the F/RAND terms: the synthetic biology-based therapeutics development will accelerate the cascade towards open commercialization.
Once critical mass is achieved, Open Therapeutics becomes a culture of new economics of therapeutics: all scientific knowledge and data are openly accessible and readily exploitable through common rights licensing enabling better treatments and better patients.
“Adoption at the most open end is still infrequent and slow, mainly due to concerns about intellectual property (IP) rights, adopting new [Open Innovation] OI-based R&D models, and cultural and management style issues. Nontheless, for biopharma companies, OI seems to be the way forward, as it appears to be a more cost- and time-effective way to bring drugs to market. In fact, several key trends will likely continue to drive the adoption of OI, especially at the most open end of the spectrum.”
1. Eric S. Raymond, The Cathedral and the Bazaar: Musing on Linux and Open Source by an Accidental Revolutionary (referred to as “CatB”), available at http://www.catb.org/esr/writings/cathedral-bazaar (first presented in 1997 at the Linux Kongress).
2. Paul, S. M. et al. How to Improve R&D Productivity: the pharmaceutical industry’s grand challenge, Nature Rev. Drug Discov. (2010) available at http://www.nature.com/nrd/journal/v9/n3/full/nrd3078.html.
3. Goodman, M. Market watch: Pharma industry performance metrics: 2007–2012E. Nature Rev. Drug Discov. 7, 795, (2008) available at http://www.nature.com/nrd/journal/v7/n10/full/nrd2730.html.
4 . R. Feldman & M. A. Lemley, Does Patent Licensing Mean Innovation? Stanford Working Paper Series, Paper No. 473 (2015) available at http://ssrn.com/abstract=2565292 (stating “patent licensing seems to be an activity almost entirely divorced from innovation, a fact that has troubling implications for the patent system as a whole.”).
5 . Tufts Center for the Study of Drug Development, Cost to Develop and Win Marketing Approval for a New Drug is $2.6 Billion, (November 18, 2014), available at http://csdd.tufts.edu/news/complete_story/pr_tufts_csdd_2014_cost_study); see also Nature Reviews, Drug Discovery, How to Improve R&D Productivity: the pharmaceutical industry’s grand challenge, http://www.nature.com/nrd/journal/v9/n3/full/nrd3078.html (2010).
6. Copyleft is a play on the word “copyright”. It is designated to mean the right to freely distribute, copy, and modify versions of a work with the stipulation that the same rights be preserved in the derivative works. See GNU Operating System, What is Copyleft? https://www.gnu.org/copyleft (Last visited May 20, 2015).
7 . The U.S. Patent and Trademark Office (USPTO) called for a “patent pool” approach in 2000. United States Patent and Trademark Office, Patent Pools: A Solution to the Problem of Access in Biotechnology Patents? (Dec 5, 2000) available at http://www.uspto.gov/web/offices/pac/dapp/opla/patentpool.pdf (“No single company or organization, however, has the resources to develop any significant fraction of the genetic information present in an organism. If proprietary information is not freely available or licensed in an affordable manner, researchers will be precluded from using these protected nucleic acids to develop new therapeutics and diagnostics. It would be, however, shortsighted for a patent holder to demand such a prohibitively expensive licensing agreement that would preclude anyone else from utilizing a patented invention. . . . By minimizing licensing fees and extending non-exclusive licenses, potential infringers were inclined to obtain licenses and the technology was therefore broadly distributed. . . .).
8 . E.g., W H Lee, Oxford University, Open Access Target Validation Is a More Efficient Way to Accelerate Drug Discovery, PLOS Biology, (CC BY), http://www.plosbiology.org/article/fetchObject.action?uri=info:doi/10.1371/journal.pbio.1002164&representation=PDF (June 4, 2015) (“What was clear at the outset was that adhering to open access principles allowed cross-leveraging of public and private funds to explore novel areas of human biology in an organized way, thus reducing duplication and sharing the risks and costs that no single institution could bear alone.”); Deloitte, Executing an open innovation model: Cooperation is key to competition for biopharmaceutical companies, (2015) http://www2.deloitte.com/content/dam/Deloitte/us/Documents/life-sciences-health-care/us-lshc-open-innovation.pdf.
9 . .g., Deloitte, Executing an open innovation model: Cooperation is key to competition for biopharmaceutical companies, (2015) http://www2.deloitte.com/content/dam/Deloitte/us/Documents/life-sciences-health-care/us-lshc-open-innovation.pdf.
10 . D. Tapscott, A. Williams, WIKINOMICS, (Portfolio, 2006).
11 . J. Potters & S Suetens, Cooperation in Experimental Games of Strategic Complements and Substitutes, The Review of Economic Studies, available at http://www.researchgate.net/publication/4867103_Cooperation_in_experimental_games_of_strategic_complements_and_substitutes, (Sep 2008) (“A straightforward but important implication of strategic complementarity is that a change in one player’s choice gives the other player an incentive to move in the same direction, whereas with strategic substitutability the incentive for the other player is to move in the opposite direction.”).
12 . There have been many cases in recent years focused directly on SSO members’ FRAND commitments. Within the United States, Broadcom alleged that Qualcomm’s patent licensing policies violated its FRAND commitment to the European Telecommunications Standards Institute (ETSI). See Broadcom Corp. v. Qualcomm, Inc., No. 05-3350 (D. N.J. Aug 31, 2006). Nokia also filed suit alleging similar grounds and enforceable contractual obligations claiming that Qualcomm breached its contract by offering licensing terms that are not fair, reasonable, and non-discriminatory. See Nokia Corp. v. Qualcomm, Inc., No. 06-509 (D. Del Aug. 16, 2006).
13 . A. Layne-Farrar et al., CEMFI Working Paper No. 0702, Pricing Patents for Licensing in Standard Setting Organizations: Making Sense of FRAND Commitments, (Jan 2007) available at ftp://ftp.cemfi.es/wp/07/0702.pdf.
14 . K. Krechmer, Open Standards Requirements, (Feb 2005, originally published Nov. 1998), available at http://www.csrstds.com/openstds.pdf. See also OpenStand, Principles, https://open-stand.org/about-us/principles (Last visited May 18, 2015) (The OpenStan Principles are jointly affirmed on August 12, 2012, by the Institute for Electrical and Electronics Engineers (IEEE), the Internet Society (ISOC), World Wide Web Consortium (W3C), the Internet Engineering Task Force (IETF), and the Internet Architecture Board (IAB). The joint affirmation contributed to exponential growth of the internet and related technologies.); ITU-T, Definition of “Open Standards”, http://www.itu.int/en/ITU-T/ipr/Pages/open.aspx (Last visited, May 18, 2015).
15 . H. Plotkin, All Hail Creative Commons / Stanford professor and author Lawrence Lessig plans a legal insurrection, http://www.sfgate.com/news/article/All-Hail-Creative-Commons-Stanford-professor-2874018.php (Feb 11, 2002, 4 AM, Special to SF Gate).
16. See Deloitte, Executing an open innovation model: Cooperation is key to competition for biopharmaceutical companies, (2015) http://www2.deloitte.com/content/dam/Deloitte/us/Documents/life-sciences-health-care/us-lshc-open-innovation.pdf (referring to the “open spectrum”).
17. Mathematician John Nash originated a theory proving the likely occurrence of several players making decisions at the same time cascading towards an equilibrium of rational decisions – if each player has chosen a strategy and no player can benefit by changing strategies while the others do not, then the current set of strategic choices are said to have reached a Nash Equilibrium. J. Nash, Equilibrium points in n-person games, Proceedings of the National Academy of Sciences, 36(1): 48-49, available at http://www.sscnet.ucla.edu/polisci/faculty/chwe/austen/nash1950.pdf; see also J. Nash, Non-cooperative Games, The Annals of Mathematics, Second Series, Volume 54, Issue 2 (1951), available at http://www.cs.upc.edu/~ia/nash51.pdf.
18. Deloitte, Executing an open innovation model: Cooperation is key to competition for biopharmaceutical companies, (2015) http://www2.deloitte.com/content/dam/Deloitte/us/Documents/life-sciences-health-care/us-lshc-open-innovation.pdf.