Monday, March 16, 2015

The State as Pharmaceutical Entrepreneur: Moving from Laws that Stifle to Laws that Foster

Guest Blogger

Liza Vertinsky

For the Innovation Law Beyond IP 2 conference, March 28-29 at Yale Law School

The U.S. government is acting increasingly as an entrepreneurial partner with the private sector in pharmaceutical innovation. Government actors such as the NIH and the FDA are relying heavily on public-private partnerships, contractual arrangements that involve a sharing of risk, cost and control between public and private sector participants, to accelerate the pursuit of cures for complex diseases in areas where private sector efforts have proven to be inadequate. They are working with private partners in areas of drug discovery and development that were previously left primarily to the market.

Recent high profile U.S. government initiatives aimed at combating antimicrobial resistance,  supporting neuro-technological innovation, and facilitating personalized medicine approaches to disease illustrate the reliance on public-private partnership strategies to redesign the drug discovery and development process. These initiatives and many others undertaken by the government to spur biomedical innovation share in common a role for government that goes beyond funding and provision of public goods. It involves the government directly in the creation and implementation of new approaches to drug discovery and development, with the government working alongside private sector participants in cost and risk sharing arrangements at all stages of drug discovery and development.

The expanding role for public-private partnerships can be largely attributed to a combination of shrinking public and private sector R&D budgets, rising R&D costs, the complexity of those diseases that account for much of the U.S. public health burden, and a growing gap between private sector efforts and public health needs. The enormity of the task of developing drugs for some of these complex diseases requires the mobilization  and pooling of both private and public resources and expertise in new forms of collaborative production in order to lower costs and improve results. The legal framework that governs state involvement in drug discovery and development has failed to respond to this changing innovation paradigm, however.

There is a disconnect between the entrepreneurial nature of government participation in pharmaceutical innovation and the continuing focus of the legal framework on technology transfer from public to private hands. In these public-private partnerships the government is participating as a risk taking, cost sharing, knowledge producing, market-shaping partner with its industry collaborators. The relevant legal framework nevertheless continues to treat the government role as if it were limited to supplying public goods and addressing other market failures. The framework is designed to support public funding and public provision of research (viewed as a public good) followed by technology transfer of resulting discoveries to the private sector for development and commercialization – what I refer to as the technology transfer paradigm. State involvement in pharmaceutical R&D continues to be squeezed into this technology transfer framework.

I suggest that this approach imposes four kinds of limitations on government involvement that stifle rather than enhance the potential social welfare benefits of government as pharmaceutical entrepreneur. First, it has the effect of socializing the costs but not the benefits of drug discovery and development efforts. Second, it interferes with opportunities to recalibrate the distribution of benefits among many diverse contributors to the innovation process. Third, it does not allow public actors sufficient weight in decision making over project choice, project boundaries, and dissemination of results. Finally, it does not adequately confront and address the challenges of preserving the government focus on public health goals as government actors work increasingly closely with industry as entrepreneurial partners focused on product-driven goals.        

Realizing the potential of government as entrepreneur, and balancing this with the role of government as regulator, requires adjustments to the legal framework governing public involvement in the pharmaceutical innovation process. I explore some alternative ways in which the legal framework governing federal government involvement in drug discovery and development could become more responsive to the growing role of public-private partnerships in innovation. Policy tools range from relatively minor adjustments in technology transfer laws, such as modifications to the rules and requirements attaching to federally funded research and development activities, recoupment provisions, and recalibration of intellectual property rights in contexts of public-private partnership, to more substantial legal interventions, such as profit sharing arrangements for drugs that are produced with the help of the government, price controls, and compulsory licensing. I seek to evaluate these measures both in terms of their ability to support the role of government as entrepreneur and in terms of their ability to balance this with the role of government as regulator acting with the public interest in mind

Liza Vertinsky is Assistant Professor of Law at Emory School of Law. She can be reached at lvertin at


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