Strategies for Public Benefit Corporations in Pharmaceutical R&D

Author: Callie Davidson | UC Berkeley School of Law | J.D. Candidate | Posted: August 14, 2019

Social enterprise models have the potential to address unmet needs in pharmaceutical development.[1] This is an ideal space for public benefit corporations because patients have often gotten short shrift due to big pharma’s duty to maximize stakeholder profit. The lack of attention to diseases of poverty, scandal-worthy price gouging (i.e. Daraprim and EpiPen), and scarcity of orphan drug development are all notable manifestations of this troubling phenomenon.[2] Narrowly-focused pharmaceutical development PBCs could fill these gaps in research and development by being less concerned with their bottom line and being more strategic than pharmaceutical industry giants that can afford to take a shotgun approach in developing blockbuster drugs.[3] Strategies that pharmaceutical development PBCs should consider include piggybacking, product development partnerships, and taking advantage of approval flexibilities in the orphan drug space.

Trek Therapeutics, founded the former chief medical officer of “biotech juggernaut” Celgene, has taken a deep dive approach by focusing on Hep-C.[4] Core to their mission is to “provide therapies for the treatment of infectious diseases that are accessible and affordable.”[5] Trek Therapeutics has employed the piggybacking strategy by focusing on developed drugs that got “stuck halfway through the pipeline.”[6] Working off pre-existing information is much more cost-effective than starting from scratch in developing small molecule drugs and conducting clinical trials.[7]  Similar strategies have been employed by the non-profit organization, Drugs for Neglected Diseases initiative (DNDi), which has looked for promising drugs in “compound libraries generated by biotechnology and pharmaceutical companies.”[8]

Pharmaceutical start-ups looking to put impact over profit should look into alternative funding schemes and non-profit product-development partnerships (PDPs).[9] Often, middle and late-stage research rely on either large pharmaceutical companies that can absorb the cost of failed trials or venture capitalists with a high-risk, high-reward mentality.[10] These funding strategies funnel funds away from neglected diseases that may impact millions of patients and patients who are unable to pay for even relatively low-cost treatments. Fortunately, independent funding for neglected diseases has been on the rise.[11] PBCs looking to develop drugs to treat diseases of poverty can tap into increasing alternative funding arrangements, such as government grants, philanthropic donations, PDPs, including partnerships with non-profit funding bodies such as DNDi or NGOs like WHO.[12] The outsourcing of clinical research to academic institutions is another promising cost-saving partnership for PBCs. PBC’s will have to compete with big pharma to outsource research to academia.[13] But, the positive publicity linked to their social benefit mission may help PBCs get their foot in the door with top-notch researchers that have opted for the academic-track, rather than cushy industry positions. If a PBC does develop a drug useful for treating diseases of poverty, they will benefit from the lack of competitors while still being able to resist pressure to hike the price of their drugs.[14]

PBCs are particularly well situated to address rare diseases that profit-motivated companies are unwilling to invest in due to small patient populations with limited revenue-generating potential. Where typical corporations do enter the market for orphan drugs, companies have stronger incentives than normal for price gouging due to lack of competition for a given rare disease as there is often no other treatment available. PBCs can combine the above-mentioned strategies while also taking advantage of provisions of the Orphan Drug Act which incentivize drug development for rare diseases.[15] Piggybacking also works particularly well in the rare disease space because the FDA has followed a trend of “extraordinarily reasonable flexibility” in the rare disease space. [16]  This flexibility has been demonstrated in requiring fewer efficacy studies for approval, a willingness to grant accelerated approval status, and more leniency in accepting studies using surrogate markers rather than the desired clinical endpoint itself.[17] These flexibilities in approval for orphan drugs could help PBCs working in the orphan drug space to save costs in the development phase.

[1] Arnold R. Eiser & Robert I. Field, Can Benefit Corporations Redeem the Pharmaceutical Industry?, 129 The American Journal of Medicine 651–652 (2016); Arran Frood, Mission control: Drug developers test the “benefit corporation” business model, 23 Nature Medicine 1117 (2017).

[2] Andrew Pollack, Drug Goes From $13.50 a Tablet to $750, Overnight, The New York Times, December 21, 2017, https://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html (last visited Jan 29, 2019); Preventing Price Gouging in the Pharmaceutical Industry: A Comprehensive Policy Approach, , https://publicpolicy.wharton.upenn.edu/live/news/2390-preventing-price-gouging-in-the-pharmaceutical (last visited Jan 29, 2019); Jill Disis, Lawmakers say EpiPen hikes made Mylan executives “filthy rich” CNNMoney (2016), https://money.cnn.com/2016/09/21/news/companies/mylan-epipen-house-oversight-committee/index.html (last visited Jan 29, 2019).

[3] Frood, supra note 1.

[4] Carolyn Y. Johnson, These researchers think they have a solution to the global crisis in drug prices –, The Washington Post, November 3, 2016, https://www.washingtonpost.com/ (last visited Mar 6, 2019).

[5] Id.

[6] Id.

[7] Id.

[8] Amy Maxmen, Busting the billion-dollar myth: how to slash the cost of drug development, 536 Nature News 388 (2016).

[9] Declan Butler, Neglected diseases fund touted, 465 Nature 277–277 (2010).

[10] Development Institute of Medicine (US) Forum on Drug Discovery, Current Model for Financing Drug Development: From Concept Through Approval (2009), https://www.ncbi.nlm.nih.gov/books/NBK50972/ (last visited Mar 6, 2019); Drugs for Neglected Diseases Initiative, DNDi – Best science for the most neglected (2019), https://www.dndi.org/2019/media-centre/news-views-stories/news/dndi-endorses-global-call-for-action-mycetoma/ (last visited Mar 6, 2019).

[11] Amy Maxmen, Neglected-disease research funding hits record high, Nature (2019), http://www.nature.com/articles/d41586-019-00244-4 (last visited Mar 6, 2019).

[12] World Health Organization’s (WHO) & Special Programme for Research and Training in Tropical Diseases (TDR), Health Product Research and Development Fund: a Proposal for Financing and Operation (2016), http://www.who.int/tdr/publications/r_d_report/en/ (last visited Mar 6, 2019); DNDi – Best Science for the Most Neglected, , https://www.dndi.org/ (last visited Oct 15, 2018).

[13] Marco Caceres, Big Pharma Pays Universities for Most Medical Research in U.S. Today The Vaccine Reaction (2018), https://thevaccinereaction.org/2018/04/big-pharma-pays-universities-for-most-medical-research-in-u-s-today/ (last visited Mar 6, 2019).

[14] Maxmen, supra note 8.

[15] How Orphan Drugs Became a Highly Profitable Industry, The Scientist Magazine®, https://www.the-scientist.com/features/how-orphan-drugs-became-a-highly-profitable-industry-64278 (last visited Mar 6, 2019); Taeho Greg Rhee, Policymaking for Orphan Drugs and Its Challenges, 17 AMA Journal of Ethics 776–779 (2015).

[16] Frank J. Sasinowski, Erika B. Panico & James E. Valentine, Quantum of Effectiveness Evidence in FDA’s Approval of Orphan Drugs: Update, July 2010 to June 2014, 49 Ther Innov Regul Sci 680–697 (2015).

[17] Frank J. Sasinowski, Erika B. Panico & James E. Valentine, Quantum of Effectiveness Evidence in FDA’s Approval of Orphan Drugs: Update, July 2010 to June 2014, 49 Ther Innov Regul Sci 680–697 (2015).