Generic Open License Revisited

Early in 2008, Prof. Kevin Outterson of Boston University’s  School of Law and Dr. Aaron S. Kesselheim of the Division of Pharmacoepidemiology and Pharmacoeconomics at Brigham and Women’s Hospital (Boston) addressed a way in which the pharmaceutical originator (innovator) companies could make their patented products available at affordable prices to underserved populations.  In the article, published in online January 8, 2008, and in the January/February issue of Health Affairs, the authors proposed that an originator company use a template license agreement (the Generic Open or “GO” License) with a pre-set royalty rate and other terms to license a generic pharmaceuticals manufacturer to make a patented product for a “local” market (their specific example is Gardasil, the Merck vaccine for most HPVs, although the authors imply a broader use for essential medicines’ licensing).  To assure fair compensation, the license revenue would be tied to the originator company’s costs of discovering and developing that particular drug.  Although the intent of the GO License, to accelerate and rationalize the licensing of patented products to manufacturers with lower costs and willingness to address under-served markets, is sound, the scheme has a number of basic flaws, which may be why the idea has not been adopted (or even commented on) by the parties to whom it is directed, not an unusual response to a proposal from academics.

One flaw, pointed out by Amie Batson (Senior Health Specialist, World Bank) and Julie Milstien (faculty member, University of Maryland) in a comment article in the same issue, is that originator companies are more concerned about securing a reliable revenue stream- management of market risk- than excluding generic companies from low margin markets through the threat of an infringement suit.  For the originator companies (and yes, we need them, big and small, to tackle the challenge of the neglected diseases), steady, predictable cash flow is king.  But in addition to assuring revenue, I think an originator company contemplating a license to a generic company partner would want a license that:

  • -prevents the erosion of primary markets by importation of counterfeit or “gray market” versions of their patented drugs;
  • -avoids injury of patients by a counterfeit version or, moreover, a poorly-made licensed generic and the subsequent international approbation; and
  • -controls of the costs of establishing, maintaining, and possibly enforcing the license especially if the partner is incorporated only overseas.

The GO License needs more, and more inventive, clauses to address these concerns.

What’s the path forward?  As implied by Outterson and Kesselheim, the vaccine industry is a good place to start with an attempt to standardize licenses since the primary customers are governmental entities that can (or should be able to) make advance market commitments, assure quality through approval processes (hopefully harmonized), and assume liability.  Although some originator companies see no need for partners/licenses and plan to go it alone (e.g., GlaxoSmithKline applied to WHO for approval for its HPV vaccine, Cervarix, in 2007), others may be interested in licensing (e.g., Sanofi-Aventis has said it is looking for licensees for its dengue fever vaccine [http://www.fiercevaccines.com/story/sanofi-advances-new-vaccine-dengue/2009-04-22]).  Such companies may recognize the cost-effective technical capability and potential for market access (especially in middle-income countries) offered by licensees.  Were a next-generation, standard, GO-type license be proposed, more important to its utility are not the financial terms (which are likely to be highly product and company-specific) but those addressing technology transfer; manufacturing licensure; quality control; liability and insurance; product differentiation, labeling, and trade-marking; marketing; and customer support, and probably lots of other stuff a non-lawyer like me can only guess at.  These terms, probably already worked out in licenses between companies already in the vaccine industry club, would need to be modified to work internationally and in the context of existing IP and trade law and most importantly with a degree of financial incentive for the licensors.  Any volunteers to write the next-gen GO license?

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