The aim of intellectual property management in the context of public-private sector partnerships at Concept Foundation is ultimately to provide reproductive health products at top quality with lowest possible prices for widest public sector availability in developing countries.

Concept Foundation is an independent not-for-profit organization with a more than 10 years long history of private sector collaboration with pharmaceutical industry in the field of reproductive health. Among not-for-profit organizations Concept Foundation has the largest number of licensees in developing countries to manufacture contraceptives at preferred prices for use in the public sector of the developing world. Concept Foundation has also the longest history among all not-for-profit organizations in partnering with and setting up license agreements with pharmaceutical industry for manufacturing and sales of top-quality, low-cost contraceptives.

Concept Foundation has accumulated a wealth of experience and know-how in the field of contraceptive commodity supply to the public sector. The expertise from managing intellectual property for hormonal contraceptives, setting up license agreements as a licensor to pharmaceutical manufacturers as our licensees, and providing the public sector with preferred pricing privileges for products manufactured under Concept Foundation's licenses has already benefited numerous countries in the developing world by having access to low-cost, top-quality contraceptives. 

WHO, UNFPA, the World Bank, and IPPF looked during the late 80’s for a mechanism to bring top-quality contraceptives and other essential reproductive health care products into the markets of the developing world at the lowest possible cost. They initiated the establishment of Concept Foundation in 1989 as an organization to realize this target with all its related tasks.

We are represented now in more than 30 developing countries, mostly Latin America and Asia, through our products and licensees. Concept Foundation is a very small organization with only a few people. Our working principle is to rely on outsourcing as the modus operandi to provide quality services through local consultants, local companies, and international organizations such as PATH and others, to keep a lean organization and keep operational costs down rather than hiring internal technical staff. This also guarantees optimal flexibility when it comes to the choice which other organizations to involve and what cost to pay for their technical services and support activities in completing our projects and strategies. In this way we maintain the freedom to choose best-practices-organizations as our cooperation partners in any field of activities that may come up as part of our work.

The most important product in our portfolio is Cyclofemâ , a monthly injectible contraceptive. It was introduced to the market in 1993 and sold in more than 50 million units worldwide until now. In the diagnostics market segment we make available a rapid blood test for HIV1/2 detection; we manage a collaboration agreement for the Consortium for Emergency contraception with the producer of Postinor-2 to make this emergency contraceptive pill available to developing countries at a very special preferred public sector price, and we manage a project for the Rockefeller Foundation in China together with the State Family Planning Commission for the clinical development of mifepristone in the field of emergency contraception.

Based on the broad spectrum of experiences and the large pool of specific know-how in public-private sector collaboration and partnerships, the business model of Concept Foundation has proved to be very successful in supplying top-quality, low-cost contraceptives.

In detail, the business model of Concept Foundation deals with the following main components:

• License out IP, which is mostly know-how, to pharmaceutical companies in developing countries.
• Transfer manufacturing technology to these private-sector licensees.
• Train in quality manufacturing processes and set up a GMP-compliant quality manufacturing environment, if not yet existing.
• Enable top-quality production for successful private-sector competition and sales.
• Mandate low-cost access for public sector as part of the licensing agreement.
• Mandate top priority for public-sector access over sales into the private markets as part of the licensing agreement.
• "Pre-finance" licensees’ market entry through practical support measures.

Manufacturing quality is a special focus of Concept Foundation. It is our philosophy that all licensees need to produce top quality for top competitiveness in private sector markets to supply the public sector with high-quality products. Licensees need to gain highest levels of competitiveness in private sector markets for being able to reach their commercial objectives. This is very much in the interest of Concept Foundation, too, since we obtain royalties from private sector sales of the license products; there are no royalties on income from public sector sales.

It is important to note, however, that we mandate as part of the licensing agreement the product introduction into the public sector coming first before a commercial launch into the private market is being done. Several articles in our license agreements deal with the public sector priority of our mission and clarify the related public sector obligations of our licensees. By experience, pharmaceutical companies judge these public sector obligations in a different light once a product is available for sales. Clear regulations from the beginning of the cooperation set the stage to avoid misunderstandings.

It is important, too, to note that exceptions to the rules are always possible when individual local conditions require or support this; however, we strongly recommend that the conditions, under which exceptions are acceptable, are clearly set initially as part of the license agreement to fix the conditions for cooperation. If not possible at all, comprehensive ground rules need to be set at the time of signing the license agreement to capture the spirit of the agreement, to facilitate the identification of conditions for exceptions at a later point in time, and to rule out a failure to come to an agreement over exceptions.

Central to the business model of Concept Foundation is the task to balance out the desired public-sector benefits with the primary interest of industry to generate operational profits.

The Concept Foundation pre-finances the market entry of its licensees through a variety of practical support measures. What kind of financial support is actually being used by the Concept Foundation depends on the actual needs of the company. In general, we are using the following tools to support our licensees:

• Technology transfer
• Training and education: GMP, ISO, QC, and more
• Clinical research in-country by public sector organizations
• Clinical trial data = intellectual property as part of the license package
• Comprehensive registration dossier for in-country drug regulatory approval
• Introductory/acceptance trials in-country as competitive positioning tool
• Quality assurance schemes
• Provide registered trademark to the licensees, owned by the Concept Foundation.

All these types of support have one common factor: they represent a Value for the company that is utilizing any of these tools.

Successful support tools need to carry a Value Proposition, which is an industrial marketing term used to characterize one set of criteria that influence purchase behavior. Important Value Propositions for pharmaceutical companies are listed in the slide. As a short characterization for the different value propositions it is enough to mention here: an earlier market entry allows for higher market shares; if clinical trials don’t need to be organized for product launch, human resources and cost for clinical trial monitors could be saved; better cash flow utilization is appealing to many companies and a very important aspects for investors. There are more tools available than listed here. These tools are the typical tools that the Concept Foundation is utilizing regularly.

There is a very wide scope of workable Value Propositions for pharmaceutical companies as partners in public-private sector partnerships and limited only by our imagination and/or intimate knowledge of how pharmaceutical industry works. It is important that our imagination for designing a value proposition deals specifically with the nature of the partnership, and that the successful proposition(s) present(s) an authentic and actual value to a company as a potential partner, based on their existing capabilities and the gaps that need, or could, be bridged and filled. Such genuine values are "save time to market", "save resources", and "save investments".

The business model of the Concept Foundation balances basically the primary objective of pharmaceutical companies to generate a high-margin business against the public sector requirement to have access to top quality drugs at lowest possible cost. The question is always how to balance this well. The Value Propositions forwarded through the Concept Foundation result ultimately in favorable access conditions for the product(s) in developing countries. The more value we can present to our partners, the better the access conditions can be for the public sector, the lower the prices can be for the drugs, and the more developing countries can be served.

The Concept Foundation has also Pharmacia Pharmaceuticals among its licensees for the monthly injectible contraceptive. It is sold under the brand name Lunelle® in the US. The important value proposition was in this case primarily the horizontal portfolio expansion for segment dominance with injectible contraceptives, followed by time-to-market. It is very remarkable to recognize that Cyclofem/Lunelle itself is a non-patentable product. In marketing terms of the pharmaceutical industry it is understood to be a Branded generic. Basic medical/technical/chemical information about the compounds used in this injectible is in the public domain for more than 20 years now. However, the value proposition of the licensing package from the Concept Foundation was attractive enough to license in the product. This is an important example for the kind of value propositions from the public sector that make commercial companies a successful partner in public-private sector partnerships.

The first issue is the very popular belief and business proposition: piggyback public sector access on private market profitability. On first thought this sounds very smooth and makes a lot of sense. On second thought, however, the difficulties involved in this smooth proposition become clear:

• how can satisfactory commercial business success be defined if we want to base public sector access on success in the private market?
• How much money needs to be generated from private market sales before the public sector could be supplied? How will this be determined?
• What is an acceptable commercial return for a company that has committed to supply the public sector, too, before we are ready to "piggyback"?
• How many years we have to wait until public sector supply will ultimately start?
• In private markets, products are normally subject to life cycle effects and competition.
• What happens if volumes go down and unit cost for the product increase? Will public sector pricing increase in this instance, too? How much? Immediately or with some delay?

If the "piggyback" effect is wanted, then these details need to be regulated at the beginning of an agreement and those questions need to be regulated satisfactorily at the beginning of the partnership (many) years ahead of actually getting the product.

Within the framework of this very complex issue we shouldn’t get carried away too easily by a model thinking in terms of "merit of scale" in production. This models promises a reduction in unit cost for a product as a function of output volume increases. As a matter of fact, based on experience, in pharmaceutical production of microcrystalline suspensions of hormones, used for contraceptives, in vaccine production, or in production of other biological preparations this effect is not as dramatic as frequently perceived. It has to be calculated in each individual case if at all, and from what volume on, unit cost will actually decrease, and how much! If that is calculated it is equally important to express the results in absolute terms of real currency at the end user side, rather than just in differences of percent values, which planners and companies usually prefer. However, since only real currency can buy goods but percent values don’t, it is a preferable and realistic practice to translate projected relative cost reductions into actual currency values to judge the effects. It is then possible to determine if a "piggyback" effect is significant enough and adequate to support public sector supply at the price levels that are really needed, or not.

In summary, the model of piggyback public sector supply on private market success requires a lot of regulations, a lot of provisions in partnership agreements to plan for the time when piggybacking actually is to take place. The biggest problem of this model is that its proponents risk and even possibly support the marginalization of the poor in the small and smallest countries through applying this model too easily. As an example: How long should the poor in a small country –let’s say Nicaragua- wait after the product had been introduced into Brasilia, Mexico, Argentina, and other larger countries in Latin America? Will Costa Rica ever get the product, or Panama, Uruguay? The list of other countries in similar situations to the ones named here is long!

There are no great business opportunities in these countries. Among the questions to be answered before applying this model are:

• What could we "piggyback" on in particular?
• How long do these countries have to wait until they are being served?
• What are the exact conditions for "piggybacking"?

Again, the greatest danger of this model is the marginalization of the poor in small and smallest countries who are already chronically underserved and who may not be in reach of the products if private market success remains an unspecified and indeterminate parameter, scheming product supply into the public sector of developing countries.

At the Concept Foundation we recommend clear cost calculation models for public sector pricing over any other scheme to envisage public sector supply. That allows a commercial insight and direct control over the cost position of the product. This is regulated through calculation models for product cost as part of our license agreements. Based on these calculation models and regular financial audits of actual production cost, as well as the details of the product calculation of fully loaded cost for private sector marketing, the license agreements allow for a mark up of roughly 5% - 8% in a cost-plus model that provides a minimum profitability to the licensee for public sector supply.

In combination with the mandate to serve the public sector in developing countries with first priority over private market sales anywhere, the license agreements do effectively support public sector supply of the products even in the absence of private sector markets. Very detailed conditions and adequate, specific regulations in partnership agreements do wonders for public sector access! The Concept Foundation recommends utilizing straightforward cost-plus models over other schemes that might involve a higher degree of regulations and/or more provisions under which the products reach the poor and disadvantaged population in the developing world.

Access conditions for the public sector are the next issue. The listed topics provide an overview of the experiences and recommendations from the Concept Foundation.

A prioritized list of countries to be supplied, together with specific timelines until when supply is expected is very helpful to avoid the marginalization of smaller countries. Even if those timelines might not be fully controllable at the beginning of a partnership, adequate regulations on how to revise/update these timelines parallel to the progress of the program provide a mechanism to preserve the spirit of an agreement at a very early point in time, so that disputes over realization of public sector targets versus commercial goals at the manufacturer can be widely avoided at the end stage of the program. This is one of the challenges of public-private sector partnership management.

It is especially important to be very smart about exclusivity provisions for product distribution to private sector markets. This is a very common request from a commercial partner. It is necessary to regulate as early as possible what public sector targets need to be achieved through the partnership and under which conditions territorial exclusivity will exist. This is important to cope with a situation that may exist later when product availability is behind schedule or local marketing runs into difficulties and public sector supply doesn’t measure up to initial expectations.

Without defined exclusivity conditions, this may result in the public sector being underserved without the possibility for a remedy since the commercial partner rests on exclusive rights to the territory. The suggestion is to link the exclusivity conditions to specific milestones. If specific milestones aren’t reached, the exclusivity may be revoked and replaced by semi-exclusivity; alternatively, royalties on private sector sales may be increased significantly until the original targets are met; all kinds of other conditions are feasible to make sure that a contract partner is serving the agreed upon obligations under a partnership agreement. License agreements of the Concept Foundation do normally not grant exclusivity to a license partner, neither for private market nor for public sector sales. All licensees are free to sell to public sector markets of any developing country. The Concept Foundation preserves the commercial interests of its licensees in private markets by not assigning overlapping territorial rights to different licensees. This is upheld as long as service to the public sector develops as expected. This concept provides an additional degree of freedom to model public sector access efficiency without lengthy renegotiations of possibly inadequate contract conditions.

Milestones for success are a third issue to be taken care of. Before result-oriented milestones can be formulated successfully, a laborious phase of intensive preparations is necessary to understand the detailed conditions of each different market, to do the market analysis well, and to match conditions with the capabilities as well as the aspirations of the contract partner. It is beneficial to come up with very detailed targets to measure the public sector achievements and performance of licensees or contract partners in supplying the public sector of developing countries.

A very common tool to express fulfillment of contractual obligations is the so-called best efforts clause. We recommend not resorting to this kind of formulation since it should merely be regarded as a way out of the difficulties to define detailed targets and is used in absence of milestone criteria from market or product experts. We recommend setting up very well defined and detailed milestone criteria to measure product and public sector success for any partnership, regardless of the intensity of trust relationship between the partners. Milestones don’t hurt a trust relationship, but are very helpful in case of unforeseeable difficulties to reconstruct the original spirit of an agreement.

The last issue to be mentioned here is a very common question from public sector organizations or groups that want to make a public-private sector partnership work well: What is my leverage in a public-private sector partnership if I don’t own the intellectual property? The answer is not simple to realize but straightforward: This leverage needs to be developed through the development process of the partnership!

It is not only the IP that needs to be developed, but it’s also the partnership itself. This relationship development process helps to better understand the needs of the partner in business. Since needs develop and change over time, the partnership development process will reveal a variety of needs over time for which solutions can be found, and for which value propositions can be developed. Case in point here is the example of Merck & Co. in southern Africa. In absence of adequate health infrastructure Merck runs in the meantime AIDS clinics to overcome this barrier for effective treatment. Had this been available through the public sector already earlier, the leverage of the public sector to negotiate access conditions for several of Merck’s pharmaceuticals could have been much higher.

Before the formalization of a partnership through an agreement it is preferable to utilize the advantages of a partnership development process than just to negotiate conditions between different parent organizations. Negotiations from pre-determined platforms and positions limit the degree of flexibility as a matter of fact. The creation of an inventory of capacities and related value propositions provides the leverage that can be applied in a partnership through utilizing one or the other capacity and value proposition that a partner holds. Such an inventory develops as the partnership develops, and know-how expands.

Based on experience, the commercial partner will narrow its focus more and more on the product development process while the public sector partner has the chance to include more and more environmental aspects into its inventory of capacities and deliverables. Ultimately, environmental factors do represent equally important value propositions to pure product related factors. That, however, is mostly not seen at the beginning of a product development partnership when the focus is (almost) exclusively on getting a product in hand.

Finally, the question of "what can be my leverage?’ comes often up in situations when there was a rush into a product- or IP-development partnership without the adequate preparation and time for the development of the partnership itself. Already the selection process to find a suitable partner may show if quality and quantity of shared values are enough and if a large enough common overlap between partners does exist to find leverage later. If this selection process is done well and time for partnership development is used to understand and match mutual needs, then the question of leverage doesn’t remain a barrier to successful public sector access and supply.