How intellectual monopolies profit from open access and knowledge commons. Illustrative experiences

There are multiple examples of intellectual monopolies engaging in developing open access or joining knowledge commons. What is the rationale for this behaviour? Reputational gains could be an underlying reason. According to Orsi (2012), big pharmaceuticals get involved in commons as a strategy to regain governments and public opinion’s sympathy. We suggest a complementary -and possibly more compelling - explanation. IPRs (and other forms of closed knowledge) may not always be the best alternative for triggering greater economic profits from successful innovations. We will elaborate on this statement by analysing big pharmaceuticals’ participation in knowledge commons and high-tech intellectual monopolies engagement in OSS.

Knowledge commons in the pharmaceutical innovation system

The literature agrees that big pharmaceuticals changed their R&D strategy when existing blockbuster patents were expiring while they failed to discover new blockbuster drugs. Their new R&D strategy combines mergers and acquisitions with the outsourcing of most of their R&D (Collier, 2011; Lazonick et ah, 2017; Montalban & Sakinq, 2013; Tralau-Stewart et ah, 2009). As identified by Tralau-Stewart et ah (2009), this new strategy meant a new division of intellectual labour. Universities deliver new therapeutic entities, and companies remain in charge of pre-clinical and clinical development. The result of this process, however, has been an unequal distribution of intellectual rents. As shown in depth in Chapter 6, while big pharmaceuticals have dense R&D networks that include all major universities in the world, they do not share with these institutions the resulting IPRs.

This turn in big pharmaceuticals’ R&D strategies towards relying more on outsourced innovation systems is in line with Gagnon’s (2015) findings, which put into question the relevance of big pharma’s R&D investments. The author has shown that in 2011 US pharmaceuticals spent more on promotional activities directed to healthcare professionals (US$54 billion) than on R&D (USS50 billion). In the same year, they paid US$8.4 billion to physicians, US$4 billion were paid in direct-to-consumer advertising and US$228 million in lobbying. Anyway, big pharmaceuticals remain among top companies in the world in terms of business expenditure in R&D, with five big pharmaceuticals in the top 20 (European Commission, 2019).

Big pharmaceuticals’ new R&D strategy includes participating in commons-based initiatives. Using different forms of property over knowledge for their own benefit is not new for these intellectual monopolies. According to Rai (2007), in the late 1990s, big pharmaceuticals attempted to put all the single nucleotide polymorphism (SNPs) information into the public domain to prevent small biotechnology companies from owning a large number of SNP patents. The SNPs are used to identify genes useful for finding cures for complex diseases and for predicting responses to therapies. The same happened with the Genetic Association Information Network (GAIN) created in 2007. The outcome of this project (information about the haplotypes associated with particular diseases) was also put into the public domain following action by big pharmaceuticals (Rai, 2007). Pharma intellectual monopolies are interested in these initiatives because they reinforce their dominant position.

Besides limiting rivals and potential reputational gains, big pharmaceuticals profit from knowledge commons to find new promising businesses. Sheridan (2011) studies knowledge commons involving universities and big pharmaceuticals. The author analyses experiences where the latter socialize their R&D resources and facilities with academic researchers so they can develop their research with state-of-the-art technology. If they arrive at a successful result, the big pharma hosting them has the privilege of being the first one to negotiate the exclusive license or, in some cases, it can share the IPRs. This strategy has almost zero cost for the intellectual monopoly since researchers use their already installed equipment and facilities. Sheridan (2011) also points out the example of Eli Lilly’s “Open Innovation Drug Discovery”, where academics and researchers can submit new structures that are tested against known diseases’ targets in Eli Lilly’s laboratories. The big pharma keeps the right of first negotiating IPR agreements over the results. Even if results are not patented, the enterprise will learn from top researchers working for free in its laboratories. Thus, both alternatives represent a source of greater profits for the pharmaceutical company.

Other examples of knowledge commons deal with finding new cures or treatments for malaria. A specific malaria project was driven by the Drugs for Neglected Diseases Initiative and resulted in the improvement of an existing drug based on a molecule patented by Sanofi. The project relied on the free work of public laboratories in France and different affected countries. As part of the deal, whenever this improved drug is bought for public provision in affected countries, the price is meagre, while Sanofi can freely decide the price when selling it to privates (Branciard, 2012). It is crystal clear that peripheral countries would have never been able to buy a new malaria drug unless it was affordable. Therefore, Sanofi has cross-subsidized the price of this drug. Without compromising further R&D investments, Sanofi got an improved drug that it sells globally but at differentiated prices according to states’ payment capacities. Furthermore, even if it sells at low but profitable prices to peripheral countries, selling millions of drugs to affected countries’ public sector3 still assures greater revenues without additional costs.

Sanofi does not have the exclusive licence of this resulting drug, leaving the door open for generics production. However, intellectual monopolies like Sanofi do not necessarily depend on owning patents in order to profit from innovations. Their lobby, advertising and direct payment to physicians contribute to place their products as the preferred ones over generic versions. Moreover, scale and planning capacity allows intellectual monopolies to overcome potential competition, in this case, from generic producers. This is why they can accept not having the exclusive license of a result that was anyway produced elsewhere.

Moreover, generic producers do not necessarily sell at prices that would compromise big pharmaceuticals’ profits. In the case of HIV/AIDS drugs, Sagaon-Teyssier et al. (2016, p. 8) showed that “formal or informal agreements between generic firms may de facto slow down or even reverse longterm trends towards price decreases” and that the expiration of a patent is not enough to boost generic companies.

Another example is the WIPO Research4 project, born in 2011. It is based on the royalty-free licence of thousands of molecules whose patents are owned by big pharmaceuticals (such as Alnylam Pharmaceuticals, AstraZeneca, GlaxoSmithKline, Merck, Novartis, Pfizer and Sanofi), universities and public and not-for-profit organizations. The aim is to promote research for neglected tropical diseases, malaria and tuberculosis. This project represents a source of additional profits without capital expenditures for big pharmaceuticals; they only have to release their IPRs, patents that low-income countries would not have been in the position to license anyway. Without engaging in additional R&D, they still get extra profits when selling successful results. Hence, big pharmaceuticals’ production costs will only include the reproduction value, which is negligible compared to the R&D investment done by universities or public research organizations in order to find vaccines or treatments from molecules.

Summing up, allowing universities to access patented molecules or equipment and facilities freely allows big pharmaceuticals to organize R&D within their innovation networks that may eventually open up commercial opportunities. Earnings from renting facilities or from royalties from their patented molecules are lower than potential intellectual rents in case successful discoveries are achieved without likewise investments, thus at low (or even zero) risks. Hence, these initiatives not only contribute to clean big pharma’s reputation but also to expand their profits.

 
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