How change to corporate patent laws could aid in fight against tropical diseases

The Foreign Affairs journal has put the spotlight on an innovative adjustment to intellectual property law that could encourage corporations to get involved in the low-profit generating yet crucial to millions battle against tropical diseases and parasites affecting agricultural crops. Caliber.Az reprints this article.

"Every year, a set of illnesses that the United Nations and the World Health Organization have termed 'neglected tropical diseases' affect more than a billion people and kill around half a million of them—most of whom subsist on less than $2 a day. Those who survive are often disabled or disfigured for life. Take schistosomiasis, which is caused by parasitic worms living in fresh water in the tropics. Every year, an estimated 200 million people are infected. The disease kills about 200,000 people each year; many more are left with damaged organs. But unlike malaria—which, because its mortality rate is so high, has been the focus of an enormous amount of private investment, foreign aid, and philanthropic giving—schistosomiasis has never been a global health priority. As a result, it attracts very little private or public investment. Eradication is now a possibility for malaria, thanks to new vaccines, but no schistosomiasis vaccine exists.

A similar dynamic affects tropical agriculture. There are many crops that are important to diets and livelihoods in poorer countries in Africa, Asia, and Latin America, but are not traded much internationally, such as millet, yam, and enset. Crops such as corn, wheat, and soy—which are cultivated, traded, and consumed in richer countries in heavy volumes—benefit from R & D in technologies that boost their resilience and productivity. Some of those gains spill over into the low-income world, but often with productivity losses due to differences in soils, pests, and climate. But the so-called orphan crops of the poorer world have been mostly ignored by investors, governments, and philanthropists. As a result, hunger and malnutrition are on the rise again in the developing world. Over three billion people today cannot afford a healthy diet, in part because of low agricultural productivity in poorer countries.

Making progress on neglected tropical diseases, orphan crops, and other challenges specific to poorer countries would make a huge difference in reducing poverty, improving health and productivity, and increasing stability all over the world. There is no shortage of money to invest in R & D in these areas. Companies such as Apple and Alphabet each sat on $140 billion to $160 billion in cash at the end of 2022; add in only the rest of the firms listed in the S&P 500, and corporate cash on hand exceeds $2.5 trillion, the vast majority of it earning low returns, given prevailing interest rates. But for the most part, the private sector is sitting on the sidelines despite the fact that the average social return—the social, health, environmental, and economic value of a business or project—on investment in these research areas can be very high. According to estimates compiled for the World Health Organization, the average net benefit to affected individuals per dollar when invested in R & D in neglected tropical diseases is between $17 and $28. This reflects what happens when people are cured: they can resume their lives and their livelihoods, putting money back into their local economy. When CGIAR, an international agricultural research consortium, undertakes R & D on tropical agriculture, the average social return is roughly $10 per dollar invested.

Meanwhile, most corporate cash is sitting in money market funds or in US Treasury bills, yielding four to six percent interest. A massive gulf exists between these low private returns on companies’ cash holdings and the high social returns on R & D to address problems that plague poor countries. Why? Because poor people cannot afford to pay much, even for life-altering or even life-saving discoveries. Although people living on just two or three dollars a day can spend enough to cover firms’ manufacturing and distribution costs—which is why Unilever and Coca-Cola deliver profitably to remote, poor villages all over the world—they cannot afford the added margin that firms need to recoup significant upfront R & D costs. But consumers in rich countries can and do willingly absorb those markups to make R & D profitable, even on nonessential technologies such as video games, home electronics, or cosmetics. Even with huge numbers of people affected, the feasible price markups are simply too low for profit-seeking firms to justify to their shareholders large-scale R & D investment in solutions to poor people’s problems. As a result, the world misses out on R & D with very high societal returns.

For those reasons, when it comes to neglected tropical diseases and orphan crops, the global market alone is not producing the best possible outcomes. And although rich countries and philanthropies could—and should—give more, their potential impact is limited compared to what the vast sums of private capital sitting on the sidelines could do. What the world needs is government intervention to create an incentive for private sector investment. Governments need a new tool to put all that money to work.

An innovation in intellectual property law could make it lucrative for companies to invest in drugs and agricultural technologies for people who cannot afford to pay the full cost of the R & D. The idea is simple: if a company applied for a 'benevolent' patent for a treatment for a neglected tropical disease or an orphan crop and promised to either release it into the public domain or provide global, nonexclusive, royalty-free, unrestricted access to it, the company could be granted not only a patent for that discovery but also an extension on an existing patent for a profitable 'luxury' product. It wouldn’t even have to be a related product, nor a patent held by the original discoverer of the new, benevolent patent. For example, if a pharmaceutical company developed an innovative treatment for schistosomiasis, it could be granted an extension on a patent for a profitable drug that treats erectile dysfunction. Likewise, if a life sciences company applied for a patent for a genetically modified orphan crop that was more resilient than other variants to drought and pests, and also made it universally available royalty free, it could receive not just that patent but also an extension on an existing patent for lawn fertilizer.

Now consider what could happen if the extension were transferable. In that case, a laboratory in Senegal working on developing an effective schistosomiasis vaccine could commit to, say, Apple, to transfer any future benevolent patent on the vaccine. In exchange, Apple would provide the lab in Senegal with the up-front funding needed to carry out research and clinical trials. If the vaccine proved safe and effective and thus won regulatory approval, Apple would own the patent. It would never have to produce the vaccine, but it would just have to let others produce it royalty-free or release the patent into the public domain. Apple wouldn’t profit from the manufacture, sale, or distribution of the vaccine. What it would get, instead, is an extension on an existing patent for one of its highly profitable electronic devices. That would create a powerful incentive for Apple—and for hundreds of other cash-rich companies—to invest in medical treatments and agricultural innovations for the poor at levels that could outstrip current aid and investment by orders of magnitude.

This innovative tool could be called a 'benevolent patent extension', or BPE. It would use one of the most powerful elements of the market economy—the profit motive—to incentivize the kind of R & D investments that poorer countries need: ones tailored to the distinctive problems that poor people face. Regulators and lawmakers in the United States and elsewhere should urgently consider adopting such a measure.

Unmet goals, unspent cash

The lack of investment in solving the problems of tropical diseases and orphan crops reflects a larger disregard for the poor. Rich countries have never met a commitment that OECD member states made in 1970 to donate at least 0.7 percent of their gross national incomes as foreign aid. In 2022, only Denmark, Germany, Luxembourg, Norway, Saudi Arabia, Sweden, and Turkey met that target. Meanwhile, other rich countries, such as the United Kingdom, have sharply reduced their foreign aid since 2020. The United States, the largest global donor in aggregate financial terms, contributes just 0.2 percent of its gross national income. Poor countries receive plenty of rhetorical support from rich ones, but not a lot of money. As a result, there is a roughly $3.9 trillion gap between what rich countries are likely to give and what the world needs to meet the UN’s Sustainable Development Goals by 2030.

To compensate, governments and especially multilateral development banks are increasingly trying to mobilize private finance for sustainable development, largely through guarantees and other financial leverage mechanisms, which grow ever more problematic with many low-income countries struggling to pay their existing external debts. In 2021, however, this amounted to just $40 billion in funding, the same amount provided in 2017. Traditional aid models are clearly not working.

The question is how governments can create more powerful incentives that would induce private companies to invest their enormous cash holdings to help address the major problems afflicting the world’s poor. State-sponsored prizes have existed at least since Napoleon used them to incentivize the private invention of canning to preserve food safely. And, more recently, countries have tried some new ideas. In 2007, the US Congress created priority review vouchers to help encourage development of drugs for neglected tropical diseases. This lets pharmaceutical companies that develop a treatment for one of 27 listed diseases jump to the head of the US Food and Drug Administration review queue for some other drug, typically enabling them to bring the latter, more lucrative drug to market four to five months sooner. Those vouchers have sold for as much as $350 million. In 2010, a group of foreign aid agencies and the Gates Foundation made advanced market commitments, promising to buy pneumococcal vaccines for low-income countries in sufficient volume and at a high enough price to induce the private R & D that successfully led to the discovery of three new vaccines estimated to have saved 700,000 lives. And today, the European Union is considering a transferable exclusivity voucher to stimulate antimicrobial innovation. The hope is that an extra year of data exclusivity on some other medical product will make it worth companies’ while to pursue research to address the growing challenge of antimicrobial resistance.

But these policies all have important limitations due to limited public funding for the prize or purchase and to the limited domain of the vouchers. The private sector is also uncertain about whether states and philanthropies will maintain their commitments, especially through leadership changes. These programs are steps in the right direction, but the R & D funding that they will create will be a drop in the bucket compared to what the private sector could produce if it had the right incentives.

SKin care for vaccines

The central idea of a BPE is to swap the considerable profitability of an established, patented product that is not essential to protecting an active and healthy life—think of your favorite new electronic device or a cosmetic treatment that you saw advertised on television—for the high social return of a discovery that benefits mainly people too poor to provide a profitable market. Such discoveries would be labelled 'benevolent' because they generate high social gains but have negligible [or negative] commercial return.

The way the process normally works that is an inventor seeks a patent from the government to guarantee that it alone controls the market for the patented product or process for a fixed period of time, typically 20 years. The monopoly markup the patent holder earns is the return on its earlier R & D investment that yielded the discovery. The standard motive for patenting is to secure that profitable, monopoly hold over the discovery. But that expires after a time, at which point competitor firms are free to enter the market, replicating the product or process using the publicly available patent filing, and thus charge a lower price, because the new entrant does not have to pay for the R & D costs behind the discovery.

The twist with a BPE is that when filing for a patent on a benevolent discovery, an inventor could request the option to receive not only the patent but also a BPE that confers the right to extend the patent of some other, nonessential discovery still under patent. This would ensure no extensions and monopoly control of patents on life-saving drugs or essential devices or vaccines, only on luxury items that people have already demonstrated a willingness to buy at a marked up price while under patent. To be awarded the BPE, when filing for a patent the inventor would have to attest to a 'public use' condition, that in the event of the award of a BPE, the inventor would either release the benevolent discovery to the public domain—that is, give up its patent—or provide global, nonexclusive, royalty-free, unrestricted use of it. If the company didn’t hold true to that pledge, it would immediately forfeit both the new patent and any existing one to which it applied the BPE, thereby releasing both discoveries into the public domain. The BPE option would trigger only if the public use condition remained satisfied and if the discovery’s safety and effectiveness were certified by an independent review authority, such as the Food and Drug Administration. Then the patent authority [in the United States, the Patent and Trademark Office] would extend the patent for a nonessential product of the owner’s choosing by a duration equivalent in expected revenue terms to the social value of the benevolent discovery. For example, imagine a lab develops an effective vaccine against Chagas disease, a potentially life-threatening illness that mainly affects people in rural Latin America, that generates an estimated $50 million in net societal benefits through saved and improved lives. The lab could request a BPE for a patent on a product that brings in $100 million per year in sales revenue, extending its monopoly hold for six months or the equivalent in net social benefits of the vaccine. The BPE would be tradable, so its value would not be restricted to that of an inventor’s existing patent portfolio. As a result, the BPE would substitute the [considerable] consumer surplus of high-income buyers of nonessential, patented products in any industry for the [modest] willingness and ability to pay of poor people who need vaccines or medical treatments against tropical diseases and semi-subsistence farmers seeking seed adapted to the tropics.

Many nonessential patents generate profits of hundreds of millions of dollars annually, far beyond the realistic commercial market potential of any discovery related to neglected tropical diseases or orphan crops. With a BPE, however, the considerable value of extending by a few years a patent protection on, for example, a device for nonemergency plastic surgery or a nutraceutical would become the value of, say, an effective vaccine for leprosy, the disfiguring infectious disease that even today afflicts more than 100,000 people worldwide annually.

Making the BPE a transferable, tradable asset would draw investors to even small, not-for-profit laboratories that own no patents but do pathbreaking work on the problems of the poor. BPEs would make discoveries of new treatments for obscure diseases and improvements for orphan crops valuable not only to the people who might access them and the companies that might develop them but also to a far broader world of firms and investors, who might pay huge sums to inventors for the right to extend their own nonessential patents. That’s why the cash holdings of Alphabet or Apple are relevant to the seemingly unrelated cases of orphan crops and neglected tropical diseases. One can imagine, for example, an investment firm financing research by a nonprofit African agricultural research institute and a US-based agricultural firm working on advanced plant breeding, in exchange for the option to later purchase from them the resulting BPE, which could be worth millions, even billions of dollars. The public use condition on the new IP would ensure wide, low-cost availability of benevolent discoveries, while regulatory review and approval of the benevolent discovery and its valuation would minimize gaming of the system. Firms couldn’t make money off discoveries that proved unsafe or ineffective.

An added benefit of inducing R & D investment in benevolent discoveries is that this would almost surely induce investment in R & D capacity and lead to funding for laboratories and scientific staff in low-income countries. Investments in scientific capacity in poorer countries would boost the scientific workforce and infrastructure in places that are short on both, generating considerable spillover benefits for productivity and broader economic growth, and in international scientific cooperation. The induced economic growth would also stimulate demand for exports from high-income countries. In this way, a policy tool to induce private investment in solving problems faced by poor, semi-subsistence farmers could yield dividends for European and North American farmers who can sell more to those distant communities as their living conditions improve.

Unwanted facial hair saves the day

The history of two drugs illustrates the potential for this innovation to intellectual property law. Eflornithine was first developed as a cancer treatment, but it proved ineffective. But it was discovered to be highly effective in treating advanced trypanosomiasis, which is known as 'sleeping sickness' and affects about 1,000 people every year in sub-Saharan Africa, causing them to sleep more and more until they fall into a coma, killing victims if left untreated. Eflornithine earned the nickname 'the resurrection drug' and the World Health Organization categorized it as an essential medicine. The patent holder, the drug company Aventis, stopped producing eflornithine in 1995, however, because the meager commercial market made the drug unprofitable, threatening the drug’s availability. Miraculously, eflornithine production resumed just as the last remaining doses were running out after the discovery that a cream formulation of it was effective in removing unwanted facial hair on women. It is now used in the cosmetic product Vaniqa. R & D investments didn’t aim to discover a curative treatment for sleeping sickness. A drug that has saved perhaps hundreds of thousands of lives emerged only as a serendipitous discovery during an ill-fated pursuit of a lucrative cancer treatment, and remained in production only after a profitable market could be found for a luxury product in high-income countries.

Ivermectin offers a parallel story. The world’s first endectocide—a drug to treat veterinary parasites—the drug launched in 1981 to treat parasites in livestock and pets. This blockbuster drug regularly yields billions of dollars in annual sales. Ivermectin subsequently proved extremely effective in treating tropical diseases such as onchocerciasis and lymphatic filariasis, which devastate and disfigure poor people around the world; as with eflornithine, the World Health Organization listed it as an essential medicine. But it is available to the people who desperately need it for their health and well-being only because people in rich countries buy it to treat their pets and commercial livestock.

The lesson of eflornithine and ivermectin is that the great profit potential of patented luxury products for well-off consumers can finance discoveries that demonstrably improve the lives of the poor. The innovation of the BPE is to make the two discoveries separable, meaning that the same drug need not be both lifesaving and lifestyle-improving. The world’s poor would no longer need to rely on serendipitous discoveries of a dual-use drug. Instead, companies would extend their patents on a luxury product in exchange for spending to create a different drug or discovery that could improve the lives of millions around the world. In this way, BPEs could unlock vast amounts of private capital to tackle problems specific to the global poor.

Any national government could introduce BPEs. It would require consultation by national regulatory and scientific bodies to agree on definitions of 'benevolent' and 'nonessential', on protocols for public review of patent-protected products under either category, and on methods of social valuation of benevolent discoveries and of existing patents. Legislatures would then need to empower their patent offices to confer BPEs according to that guidance.

The COVID-19 pandemic demonstrated both the world’s incredible ability to mobilize private sector funding and scientific expertise to develop lifesaving discoveries as well as the inequitable distribution of those gains. High-income countries quickly bought vast quantities of the best COVID-19 vaccines as soon as they became available; poorer countries had to wait in line. A relatively simple extension to existing IP law could begin to address these inequities. Through the development of BPEs, governments could use intellectual property to substantially boost private R & D investments to benefit the global poor, at negligible cost to taxpayers. Doing so would harness the power of capital by using one set of market forces to address the distortions caused by other market forces".