Thailand Law Journal 2009 Spring Issue 1 Volume 12

C. Alternative Models

Including public and private partners in an organization's business model ensures that the highest potential for intrinsically valuable resources and capabilities is available. However, it also ensures that the full range of public and private failures in drug development will act as obstacles to success, albeit in varying degrees. Two organizations, BIO Ventures for Global Health (BVGH) and the Drugs for Neglected Diseases Initiative (DNDi), were conceived explicitly as private-private and public-public partnerships to mobilize the private and public sectors, respectively, as effectively as possible. The optimism associated with each of these initiatives stems from the ability of each to circumvent the failures inherent in cross-sectoral collaboration. Still, their ultimate success will depend on addressing already-existing failures associated with only private or only public sector participation which led to the establishment of PPPs in the first place.

1. Private-Private Partnership: BIO Ventures for Global Health

In June 2004, BIO Ventures for Global Health was established, with Wendy Taylor at the helm, as an offshoot of the Biotechnology Industry Organization, which has over 1000 member companies. At this early stage, BVGH's mandate is to facilitate the flow of market information and investment capital from investors and the public sector to biotechnology companies so they can appropriately evaluate investment opportunities associated with neglected diseases. [FN125] It has been established that preconceptions of business leaders in engaging high-volume, low-margin poor markets have led to a lack of creativity in the creation of business models. [FN126] Even within developing countries, richer communities manage to obtain services far cheaper than poorer ones. For example, Dharavi, a shantytown of more than one million people in the heart of Mumbai, India, pays thirty-seven times as much for municipal-grade water and ten times as much for diarrhea medication as Warden Road, an upper-class community in a nice Mumbai suburb. [FN127] BVGH is convinced that this disturbing disparity can be partially overcome by equipping biotechnology companies with sharper tools to evaluate neglected communities. [FN128]

In order to facilitate information flow, BVGH will identify market research companies with experience with public health problems and links with developing countries, the World Health Organization, and other public health organizations. [FN129] Together, they will prepare business cases loosely based on real challenges facing biotechnology companies attempting to develop technologies with public health implications in the developing world. By presenting business cases sufficiently generally, BVGH hopes to encourage discourse within organizations regarding how business models might be developed to address neglected disease challenges.

In addition to enhancing information flow, BVGH is also playing a venture capitalist role in order to match private funds with promising projects. Since BVGH is linked with the largest existing biotechnology trade association, it is well-situated to determine the most optimistic technologies being developed. BVGH will then conduct background research on potential projects and possibly consult in the design and management of projects. [FN130] In this way, BVGH is seeking to facilitate liquidity in a non-traditional private equity market.

This organizational model has the effect of circumventing the public failures thwarting effective drug development activities. However, it is commonly accepted that the public sector has a dominant role to play in the provision of these international public goods. [FN131] Furthermore, it is unlikely that biotechnology firms will be able to succeed in discovery, development, and distribution in a vertically integrated fashion. Only a handful of biotechnology firms have succeeded in growing this way even in the presence of multibillion dollar markets. [FN132] To respond to these criticisms, BVGH intends on incorporating information regarding key public sector partners within its business cases in order to cause biotechnology companies to determine how best to structure public-private partnerships for their own commercial gain. As well, in crafting business strategies, biotechnology firms are encouraged to devise exit strategies, taking account of the competencies of other health sector private firms.

The strength in BVGH's business model lies in its ability to allow the invisible hand of the market to operate. Intellectual property issues that traditionally plague public-private interaction will be left in the private domain, where they arguably pose far less of a problem. Cultural divergence can be avoided, and business can proceed more traditionally. Since BVGH is so closely linked to the entire biotechnology community, it is well-suited to the task of coordinating private innovation.

With this mandate, BVGH is likely to expand the degree of overlap between public and private interests and, consequently, the extent to which the market can meet public sector need. However, one of the driving forces behind the development of PPPs has been the magnitude of neglected disease drug candidates orphaned partway through private sector pipelines due to the absence of a viable market. Since BVGH cannot affect the actual market attractiveness of poor countries, the scope of its potential effectiveness is limited. Inevitably, though some communities may benefit, the poorest countries will remain unprofitable and the most neglected diseases will remain unaddressed. Still, with its innovative character and capacity for rational drug design, the biotechnology sector in particular has a role to play in developing drugs for neglected diseases. *422 The interface which BVGH intends to create between the private sector and the developing world is much needed.

2. Public-Public Partnership: Drugs for Neglected Diseases Initiative

At the opposite end of the spectrum from BVGH is the Drugs for Neglected Diseases initiative (DNDi). The impetus for DNDi arose when physicians at Medecins sans Frontieres (MSF) realized that the medicines which they required to achieve the desired public health impact did not exist due to increasing resistance of existing drugs and an unwillingness of the private sector to commercialize poor-market drugs. [FN133]

Historically, MSF had succeeded in building satellite organizations to provide the core humanitarian aid organization with inputs-notably, in the logistics, epidemiology, and advocacy areas. MSF has been hugely successful in its core competency, with 400 aid projects in 80 countries amid famine, war zones, and epidemics. [FN134] It was precisely the diverging characteristics of the tasks involved in providing logistics, evaluating epidemics, and working within political structures which led to the spinoff of these tasks from the core organization so as not to disrupt the focus of MSF. In the same way as MSF succeeded in these earlier spinoffs, they undertook investment in a more challenging spinoff to develop the drugs which they perceived they would need to distribute in order to be more effective public health care providers. [FN135]

[FN125]. BIO Ventures for Global Health, “Our Approach,” at http:// www.bugh.org/approach/default.asp.

[FN126]. C.K. Pralahad & Allen Hammond, “Serving the World's Poor Profitably,” (September 2002) Harvard Business Review R0209C.

[FN127]. Ibid.

[FN128]. Interview of Wendy Taylor, Executive Director of BVGH (6 August 2004).

[FN129]. Ibid.

[FN130]. Ibid.

[FN131]. C.f., A. Schiepatti, G. Remuzzi & S. Garattini, “Modulating the Profit Motive to Meet Needs of the Less-Developed World” (2001 Nov. 10) 358(9293) Lancet 1638-1641 (discussing U.S. Orphan Drug Act, union provides market exclusivity for products designed for the treatment of rare diseases).

[FN132]. George Wolff, The Biotech Investor's Bible, (New York: John Wiley & Sons, 2001).

[FN133]. Interview of Dr. James Orbinski, former President of MSF (11 August 2004).

[FN134]. Ibid.

[FN135]. Ibid.

This article is published with the kind permission of Nathaniel Lipkus. The article originally appeared in Michigan State University Journal of Medicine & Law, Spring 2006 issue.