PPP versus PPPP
What is wrong in Denmark?
By
Tvarnø* & Østergaard**
Copenhagen Business School, Denmark
Paper presented at PPP conference, at Sauder – UBC, Vancouver, June 2013
Abstract
This paper addresses Public Private Partnerships (PPP) and Pharmaceutical Public
Private Partnerships (PPPP) in Denmark or the lack of PPP(P)’s in Denmark. It
would seem, that the market for PPP(P)’s in Denmark is either very small, nonexisting or it might be disturbed by several factors: legal and political, business
and structural. Besides pointing out some relevant key factors preventing PPP’s,
the paper presents some new information: It is not only in the infrastructure
industry that the lack of PPP is significant. The idea of establishing PPPP’s
between the private pharmaceutical industry and the university sector is also
problematic. This paper identifies that the creation of a common PPP business
case is difficult in Denmark in both the infrastructure and the pharmaceutical
industry.
Key words: Public Private Partnership, Pharmaceutical Public Private Partnership, market
disturbance, business case, legal obstacles, joint utility, self-optimizing, contract law.
Introduction
PPPs have a long history in the EU as well as in North America, and today, PPPs
have received a boost in various countries undergoing processes of significant,
economic growth. By using PPP’s it is possible to: provide additional capital; set
up alternative management procedures and implementation skills; provide added
value to the citizens and the public area; and provide better identification of needs
and optimal use of resources.1 PPP has been precipitated by the globalization
*Christina D. Tvarnø, professor (wsr), ph.d., Law Department, CBS.
**Kim Østergaard, associate professor, ph.d., Law Department, CBS.
1
reflected in the public sector. The structural change has affected the public wealth,
and:
“The welfare state can no longer regard itself as having a purely domestic role in
an increasingly internationalised world where it is being forced to act more and
more like a market player.”2
The market for PPP and co-operation between the public and private sectors for
the development and operation of infrastructure for a wide range of economic
activities has increased.3 Years ago, PPP arrangements were only driven by
limitations in public funds to cover investments needs, but today PPP is also
driven by the interest of increasing the quality and efficiency of public services in
general. Today, PPP contracts should be based on public needs or functions
instead of demands or concrete descriptions.
Limited public funds, as well as efforts to increase the quality and efficiency of
public services, make Public-Private Partnership arrangements attractive. PPPs
have been developed in part due to financial shortages in the public sector, and
they have demonstrated the ability to harness additional financial resources and
operating efficiencies inherent in the private sector.4 PPPs are often used in
infrastructure projects, e.g. in sectors such as transport, public health, education
and national security, and provide a wide range of public services, such as
telecommunication, water plants, financial support, innovative financing, general
public services, education and research.
The Danish PPP infrastructure situation
In a theoretical context, a PPP should be characterized5 as a long-term contract
arrangement between a public authority and a consortium of private parties,
flipping the incentives, based on co-operation, aiming to provide a mechanism for
developing public service provision involving significant assets or services for a
long period of time. The asset or service is entrusted to the private sector, and a
part or all of the funding comes from the private sector. The latter means that the
1
See European Commission, Guidelines for Successful Public-Private Partnerships (March 2003),
p. 4.
2
Common, ‘The East Asia region: Do public-private partnerships make sense?’, in S. P. Osborne
(ed.), Public-Private Partnership (London: Routledge, 2000), p. 135.
3
The governments in the EU Member States had the same problem as in the private industries citizens in all the Member States want higher quality and better service, but wish to pay less tax.
The governmental attention to the market mechanisms and the success of privatization efforts in
several countries increased the interest in PPP. Companies had found ways to compete and meet
consumer demand, and the governments needed to find a way to serve the citizens with higher
quality and at the same time reduce taxes. See further, N. Pongsiri, ‘Regulation and public private
partnership’ (2002) 15(6) International Journal of Public Sector Management 487-495.
4
See Commission (EC), ‘Guidelines for Successful Public Private Partnerships’ March 2003.
5
See Commission (EC), ‘Green Paper on public-private partnerships and Community Law on
Public Contracts and Concessions’ (Green Paper), COM (2004) 327 final, 30 th April 2004.
2
private party in a PPP holds all equity and handles the works, operation and
maintenance of the project.6
In a practical context in Denmark, the lack of PPP is a significant issue. Denmark
has only 13operating PPP’s, even though, the aims of a PPP contract are:





to reduce the cost and price;
to increase the quality;
to reduce the risks and failures;
to improve co-ordination; and
to share responsibility and capacity
Thus, according to official data Denmark has 13 existing PPP projects; of which
nine have been conducted within the past three years.7
Danish, Government awarded PPP projects (private financed):
Include establishing new parking garages, day care centers and schools from 25
million dollars to over a billion DKK.
5 Government PPP buildings are entered into service
Project
Land Registration Court
National Archives
Tax Center
Freeway (public financed)
District court project (4
buildings)
Place
Hobro
Copenhagen
Haderslev
Sønderborg
Jutland
Date
April 2009
June 2009
January 2010
February 2010
2010
8 private financed PPP projects in regions and municipalities
Parking location
Day care center
Public school
Public school
Regional archive
Parking location
2 public funded schools
Randers
Skanderborg
Langeland
Herning
Aalborg
Århus University
Jutland and Sealand
June 2011
April 2011
August 2008
October 2005
May 2010
March 2010
2010 & 2011
See Arrowsmith, ‘Public Private Partnerships and the European Procurement Rules: EU Policies
in Conflict?’ (2000) 37 Common Market Law Review 709-737, p. 709, and Arrowsmith, The Law
of Public and Utilities Procurement, (2nd ed., London: Sweet & Maxwell, 2005), p. 415. See also
Commission (EC), ‘Green Paper On Public-Private Partnerships And Community Law On Public
Contracts And Concessions’ (Green Paper) COM (2004) 327 final, 30th April 2004.
7
The Danish Competition and Consumer Authority, Erfaringer fra de danske OPP-projekter,
konkurrence- og forbrugeranalyse 04, 2012.
6
3
3 Government PPP buildings – contract concluded:
Project
The High Court West
Local Police station
District court (public financed)
Place
Viborg
Hobro
Roskilde
Date
2014
2013
2014
4 PPP projects are under procurement: The Danish Building and Property Agency
has opened a public procurement tender procedure regarding 4 PPP projects.
Project
Provincial Archives
District Court
Main police station
Center for government office
Place
Viborg
Svenborg
Hobro
Copenhagen
Response to the completed 13 PPP projects:8
- “Both small and large projectsare rated as successful”.
- “This form of cooperation has led to total economic improvements and innovative solutions”.
“The quality of construction is higher or much higher than in a traditional building”.
- “The building was ready for use on time or earlier”.
- “The agreed price for the project was more or less maintained”.
- “In 7 of the PPP projects there were only one or two suppliers who made the final offer”.
- “The cooperation between the public and the private party has worked well in all the projects”.
- “There are transferred risks to the private party to all projects”.
Thus, the Danish data shows, that a PPP can achieve additional value compared
with other approaches, if there is an effective implementation structure and if the
objectives of all parties can be met within the partnership between the public and
the private parties.
Nevertheless, The Danish Competition and Consumer Authority only knows about
of approx.15 PPP projects in pipeline.9
Thus, there is a broad range of options in order to involve the private sector in
public projects; for example in regard to financing, physical development,
operation, transport and environment.
Nevertheless, the use of PPPs in Denmark normally is discussed in the case of
traditional buildings and in connection with climate adaptation solutions and
expansion of the Danish infrastructure.
The Danish Competition and Consumer Authority, ”Erfaringer fra de danske OPP-projekter”,
Konkurrence- og Forbrugeranalyse 04, 2012.
9
Ibid.
8
4
Why only few infrastructure PPPs in Denmark ?
It might seem that the Danish welfare state compared to common law countries
such as USA, UK, Canada and Australia (states that rely more on market economy
than is the case in Denmark, all of which have far more PPP projects) do not have
the same need for cooperation between the public and the private sector.
It might also relate to the internal, Danish legal and political structure. For
example, the interest rate for public authorities is below the market interest rate
for the private sector. Thus, it is cheaper to borrow money in the public sector
than in the private sector which increases the public sector cost of a PPP project.
Then, the positive gains from the collaborations and the private competences must
be even higher to obtain a solid business case.
It is perhaps also due - with reasonable certainty – to the “unique”, Danish legal
rule, which requires that municipalities and regions deposit an amount equivalent
to the private financing accounts.
The Danish rules on deposit apply to municipalities and regions in connection
with privately financed PPP projects (on works and infrastructure projects) when
the PPP project replaces a municipal or regional construction cost.
The deposit occurs in an ongoing basis in step with the construction of the
building. The deposited funds are tied for 10 years and then released over 15
years.
Due to the above mentioned rules regarding deposit, a municipality or a region
cannot carry out a PPP project if the municipality (itself) does not have resources
to implement the project. Although, the private party pays the full construction
costs, the municipality must deposit an equal amount.
The deposit rules are due to the principle, that municipality agreements on the use
of property, including rental and lease agreements must be equated with or
understood as loans and follow these rules even though the PPP project will be
paid for twice.
Although the public authorities regard PPP projects as successful, about half of
the respondents estimate that they have spent considerably more resources in the
procurement process than they expected,10 which may be due to an extremely
rigid and perhaps also too restrictive interpretation of EU procurement rules in
Denmark.
One example regarding a (too) strict interpretation of the EU public procurement rules is
the consisting idea that the service, operation and maintenance of a 30 year PPP contract
should be tendered out every 3-5 years. This interpretation would result in a business case,
in which the private party would optimize the total cost and life cycles of the project by
10
Kilde PVC, Denmark, http://www.pwc.dk/da/nyt/finance/deal/opp-er-en-succes.jhtml
5
building at a higher cost in the beginning to obtain lower cost in the long run. This
economic benefit should then be tendered out to the competitors every 3-5 years to test the
market price. But the competitors did not have the higher cost in time = 0 as the private
owner of the building.
This interpretation is not based upon a legal act, rule or practice but was to be found in
Danish legal text books without any legal source. It took more than 3 years to change this
interpretation in the Danish Governmental Guidelines regarding both competition and
PPP.11
Additionally, dialogues at various PPP meetings in a Danish context has shown
that the public authorities and their lawyers do not sufficiently provide an
economic PPP business case for the private sector by ensuring a sufficient return
on investment for the private party. It has been expressed that when the
government can borrow at a lower interest rate, the taxpayer’s money should not
be used to increase the private sector income on public goods such as schools and
roads.
The above mentioned problems concerning Danish infrastructure PPP are
regarded as a problem in the context of this paper and will be compared to the
data from the Pharmaceutical PPP’s below.
PPP(P) and game theory
When defining the PPPP as an alternative to the traditional contractual
arrangement, the important observation is that the PPPP contract must be the
specific and unique tool that eliminates the inefficient solution in game theory.
The prisoner’s dilemma game12 explains that two individuals choose not to
cooperate even though they can both see the common interest in collaborating, and it
illustrates the difference between individual and collective rationality. Decisions that
are rational from the individual’s hand are inappropriate when seen with common
11
See Tvarnø: Does the Danish Interpretation of EC Public Procurement Law Prevent PPP?,
Public Procurement Law Review, Vol. 3, No. 2, 2010, p. 73-89. Tvarnø: Offentligt-Privat
Partnerskab (OPP)- Behov for en ny vejledning?, Ugeskrift for Retsvæsen, No. 19, 15.5.2010, p.
190-196. Tvarnø: Offentlig-privat partnerskab-lovregler eller politisk strategi?, Ugeskrift for
Retsvæsen, Vol. 145, or. U.2011B.129.
12
See Rappaport, Prisoners’ Dilemma, The New Palgrave, Game Theory, [1998], Maxmillian, p.
100. See also Rappaport & Chammah, Prisoners Dilemma, Ann Arbor, University of Michigan
Press. MI.
The prisoner’s dilemma game: Two people have been arrested with some stolen goods. The
prosecutor has only enough evidence to get them prosecuted and convicted for possession of stolen
goods unless one or both of them confess to burglary. If the prosecutor only prosecutes the persons
for being in possession of stolen property, it will lead to a lower penalty than the burglaries. The
two people now called the prisoners are placed in isolation and therefore cannot talk to each other.
Each prisoner is visited by the prosecutor, and gets the same deal. If the prisoner confesses and by
that also gives evidence about the other prisoner, he himself will go free, while the other receives
the maximum sentence of four years. If both prisoners confess, they will each get two years in
prison for burglary. If neither confesses, each prisoner will get half a year in prison for possession
of stolen goods because the break-in cannot be proved.
6
eyes, even though an outsider can see the rational gains resulting from a common
perspective.
Keep quiet
Confess
Keep
quiet
- ½, - ½
-4, 0
Confess
0, - 4
- 3, - 3
"Confession" is the dominant strategy because "confession" is the optimal choice for
each player regardless of what the other player does. Prisoners 1 and 2 are in the
same situation and have the same information. Thus, the game ends by both players
spending two years in prison instead of only half a year.
When this paper addresses the idea behind joint optimization, the game theory
perspective is the theoretical basis. The idea is, that the PPP(P) contract must take
an active part in moving the parties from a self-optimizing perspective to a joint
perspective and write up the legal clauses from this perspective.
Pharmaceutical public-private partnership
Research has shown that substantial innovation losses in the pharmaceutical
industry’s development of new drugs are increasing13 and that the number of
approved, new, molecular entities has not increased in the past ten years, although
the cost side has increased significantly in both the US and EU.14 In both the EU
and the US the pharmaceutical industry has lost competitiveness and is looking to
invent new solutions with regard to competing in institutionalizing, sustaining
pharmaceutical innovation, and selling new products.15 This productivity
challenge in the pharmaceutical industry can, in general, be explained by an
increase in research and development (R & D) cost, reduced output, and depleted
pipelines; at the same time, pharmaceutical enterprises suffer from inefficient
internal processes and are owned by shareholders with high expectations for
dramatic returns from drug "blockbusters."16
Thus, competitiveness in the pharmaceutical industry is negatively affected by an
insufficient degree of competition, market fragmentation, and different research
systems. At the same time, competition and corporate behavior are shaped by
national health systems, national regulatory requirements for price and product
information, legal rules governing authorization procedures, and rules governing
13
Gambardella, Alfonso, Orsenigo, Luigi & Pammolli, Global competitiveness in
pharmaceuticals: A European Percpective, 2000. Fabio IMT institute for advanced studies, Lucca,
p. 2-3.
14
Hughes, Hu, Schultz, Sheu & Tschopp, The Innovation Gap in Pharmaceutical Drug Discovery
& New Models for R&D Success, Kellogg School of Management, March 12, 2007.
15
Gambardella, Alfonso, Orsenigo, Luigi & Pammolli, Global competitiveness in
pharmaceuticals: A European Perspective, 2000. Fabio IMT institute for advanced studies, Lucca,
p. 7.
16
Tralau-Stewart, Wyatt, Kleyn & Ayad, Drug discovery: new models for industry–academic
partnerships, Drug Discovery Today, Volume 14, Numbers ½, January 2009.
7
property rights. As a result of this competitive and regulatory environment, the
pharmaceutical industry has tried several strategies to increase new product
development and return on investment. Examples include increasing R&D
efforts, horizontal consolidation, biotech in-licensing, and outsourcing to “drug
discovery” firms.17
In general, globalization makes it difficult to maintain market power and market
share. A company no longer competes only with national companies, but now also
with companies all over the world. Consumers have had access to all kinds of
information and all types of products. Whatever their nationality, consumers have
been receiving the same information; they want the same kind of life style and desire
the same kinds of products, which has changed the market conduct. 18
Among other strategic possibilities, strategic alliances 19 and co-operation show new
ways to compete, ensure higher quality in the product, decrease the cost of Research
and Development (R&D), information technology, and sale and distribution, and
increase their competitive capacity. 20
If pharmaceutical enterprises try to operate all aspects of their businesses inhouse, demands on investment and its corresponding risk will increase, but if
instead pharmaceutical enterprises choose to cooperate and partner with external
forces, the risk and need for investment decrease and the cost can be shared with
the partner.
The contract terms in a PPPP should reflect the strategy that again must reflect the
market situation. If the pharmaceutical company chooses a strategic alliance with
a public academic center or university, the PPPP contract must reflect this
strategy.
A partnership strategy should be based on a strategic alliance in order to obtain an
efficient “win-win” output.21 The main objective of a social contract or a PPPP
agreement is to ensure joint utility between the parties, thereby ensuring the most
efficient product at the lowest price.22
The main scope of a PPPP agreement, based on relational norms, is to facilitate
joint utility between the parties, thereby ensuring the most efficient transaction.
17
Hughes, Hu, Schultz, Sheu & Tschopp, The Innovation Gap in Pharmaceutical Drug Discovery
& New Models for R&D Success, Kellogg School of Management, March 12, 2007.
18
Ohmae, The Global Logic & Strategic Alliances, Harvard Business Review, March-April 1989.
19
Dos & Hamel, Alliance Advantage, The art of creating value through Partnering (Boston,
Massachusetts: Harvard Business School Press, 1998), Preface, p. 9.
20
Dos & Hamel, Alliance Advantage, The art of creating value through Partnering (Boston,
Massachusetts: Harvard Business School Press, 1998), Introduction p. 15.
21
Masten, Transaction cost, mistakes, and performance: assessing the importance of governance,
Managerial and Decision Economics, 1993, 14, pp. 119-129. Macneil, The new social Contract,
Yale University Press, New Haven, CT, 1980. Artz & Bruch, Asset specificity, uncertainty and
relational norms, an examination of coordination costs in collaborative strategic alliances, Journal
of Economic Behavior and Organisation, 2000, Vol. 41, pp. 337-362. Rubin & Cartner, Joint
optimality in buyer-supplier negotiations, Journal of Purshing and Materials Management, 1990,
vol. 3, pp. 20-26.
22
See also the argumentations (“arguments”?) by Oliver Hart: Incomplete Contracts and Public
Ownership: Remarks, and an Application to Public-Private Partnerships, The Economic Journal,
Vol. 113, No. 486, Conference Papers (Mar., 2003), s. C69-C76.
8
This is in contrast to a traditional contract that often consists of each party selfoptimizing.
In a partnership contract the parties negotiate positive incentives opposite to a
traditional contract, in which the parties negotiate and allocate risks, costs and
benefits.23 If the contract objectives are joint utility and transaction optimization,
the fulfillment obligations must consider needs instead of demands in contrast to a
traditional contract in which the buyer sets up a strict set of demands in the order
and the seller fulfills the demand’s description.
An efficient Pharmaceutical Partnership (PPPP) must provide a significant
balance between the needs and interests of both the academics and the industry.
The academics must fulfill the need for creating and disseminating knowledge and
the industry must discover and develop innovative drugs and return on investment
in R&D.
To optimize the output of a PPPP, the industry and the academic/public sector
must understand the differences among each other. The industry needs the
resources in the public sector to fill the innovation gap and change the model of
drug development. From the start, what the public sector needs is completely
different from what the industry needs.
The joint utility from a societal perspective is that the end result of the PPPP is
consumer access to a new drug. The public party requires optimization of
publishing data and results in international journals with regard to career
opportunities and the private party must have access to the final drug to realize a
return on investment for its shareholders.
A PPPP example from US
Pfizer’s Centers for Therapeutic Innovation is an example of a strategic alliance
constructed as a PPPP. Such alliances can improve the competitive advantage of
pharmaceutical enterprises in the market.
Pfizer’s Centers for Therapeutic Innovation
Objective
To find biotherapeutic modalities (antibodies, peptides, proteins) across all therapeutic areas
in global partnerships between Academic Medical Centers and Pfizer - to transform R&D
through a focus on translational medicine.
The Centers for Therapeutic Innovation select the projects. A Steering Committee that
Management includes members from Pfizer and the Academic Medical Centers governs the partnership and
has overall accountability for program progress.
300 proposals from its first round of applications. Selected approximately twenty programs to
initiate in partnership. The incentives, operating model, and goals for participating academics
Organization
and Pfizer colleagues are designed to support achieving a positive Proof-of-Mechanism study
in humans.
23
This is to a great extent aligned with the concept of proactive law. See for instance BergerWalliser & Østergaard (Eds.), Proactive Law in a Business Environment, 1 st edition, 2012.
9
Funding
All research is sponsored by Pfizer.
Academic
partner
20 leading, academic, medical centers across the United States and supporting, collaborative
projects from four dedicated labs in Boston, New York City, San Francisco, and San Diego.
The Centers for Therapeutic Innovation laboratory staff include Pfizer employees working
side-by-side with leading basic and translational science academics. This model offers
resources to pursue scientific and clinical breakthroughs. Access is provided to select Pfizer
compound libraries, proprietary screening methods, and antibody development technologies.
All researchers work jointly on research projects within The Centers for Therapeutic
Innovation laboratory and in the Academic Medical Centers.
Project
At each critical milestone, the Steering Committee will review study findings and make
collaboration
go/no-go decisions. Once a project has progressed to the stage of a candidate, therapeutic
protein, the Steering Committee will review the data to determine wheter the project should
progress to preclinical development. If endorsed by the Steering Committee, the project will
gain access to a broad pool of flexible funds to pay for these critical-path activities. The
Steering Committee will review the project results prior to the initiation of human clinical
trials. If endorsed by the Steering Committee, the Centers for Therapeutic Innovation will
grant the project additional funds to execute first-in-human studies with a goal of
demonstrating Proof of Mecanism.
Publication
The demand for publishing is incorporated in the contract.
All joint inventions will be jointly owned, with Pfizer holding an exclusive option to license a
drug after proof of mechanism. In the event that Pfizer exercises its option, any jointly
developed compound enabling intellectual property (IP), would be licensed from the
IP
institution. If Pfizer declines, IP and other joint assets revert to the institution. The compound
may be licensed by the Academic Medical Centers or furthered through alternative means,
including out-licensing to another organization or spin-out into a separate company.
PPPP: IP-rights and incentives in Denmark
A fundamental issue in conjunction with a PPPP is the allocation of intellectual
property rights (IP) between the pharmaceutical company and a university, if they
conclude a PPPP contract. The pharmaceutical company is as a private company
driven by the principle of profit maximization, whereas a university is
traditionally driven by the ability to create state of the art independent research
and teaching.
In conjunction with the survey conducted among professors at Copenhagen
University, it was quite clear that the incentives driving this group, which must be
presumed to play a large part in a PPPP, were different from those incentives
which the top management at a university are driven by, as mentioned above. The
top common denominator for this group is a keen interest to unwrap the unknown
in order to facilitate new science which might be developed into a new drug at
some stage. However, they don´t consider that necessity, since new science might
just give a new insight into for instance a certain illness. Furthermore, incentives
such as publications and promotion are very important to this group of employees
at the Copenhagen University.
In general it seems that even public owned universities, as in Denmark, are under
an upward pressure to obtain private funding, since public funding is directly
decreasing or stays put at the same level. Thus, a university could through a PPPP
get “access” to private funding outside the traditional way of private funding and
get more independent of public funding and create new forms of income.
10
Furthermore, if there is supposed to be a joint title to IP 2425, which in the most
cases will be patents, between the pharmaceutical company and the university26, it
raises at least two significant questions in that respect. First, should the
pharmaceutical company or the university be entitled and obligated to utilize the
potential of the patent and thus the drug in the market place, or should it be joint
effort between the parties? Second, a keen interest to university researchers is the
possibility to publish scientific based articles in “A-Journals”, as mentioned
above, in order to among other things to get promoted within the university
system.27
Below is shown the main results of a survey which was conducted during 2013
among Danish pharmaceutical companies and professors at the Copenhagen
University (Academia) in order to identify possibilities and obstacles in order to
conclude a PPPP project taking IP into consideration.
Attitudes to the distribution of rights for cooperation’s28
Industry
All IP to the company
The company generally takes all rights,
exclusive license
We must have all rights
Semi-exclusive license
Rights to the CNS area
Semi-exclusive rights to application. In
some cases exclusive right in a limited
period
The host institution owns all rights unless
significant contributions from the company
No rights besides knowledge to discovery
before publishing
Academia
It is not a problem to assign title to
the IP to the company
If the discovery is within a key
topic, no rights can be assigned to
the company
Assigning title to IP is better than
making a licensing agreement
The company is better equipped to
exploit the market potential
The company might not have the
best strategy to utilize certain IPRights
24
In accordance with the information at hand, no legal system prohibits the access to have joint
title to IPR.
25
If the involved persons write a scientific article which is published, that is of course a question
of copyright.
26
An alternative scenario is that the university assigns title to the patent to the pharmaceutical
company at a fixed price.
27
It can of course be discussed, whether this criteria is more important as an assistant professor
compared to a full professor. However, a thorough interview done with four full professors at
Copenhagen University during 2013 clearly showed a persistent wish to publish scientific articles.
/an interview done thoroughly with 4…”
28
The following points are the questions they have answered:
Mono-specific products i.e. one product directed against one disease
Small products to a little circuit of patients (subgroup to #1?)
Product platforms for example based on one specific product molecular target
Technological platforms for example to target identification or screening
Basic research for understanding of the disease
11
As seen above, there is a fundamental obstacle to applying the principles of PPP
between the pharmaceutical industry and the Danish universities, since the
pharmaceutical industry has a disapproval of sharing IP with the Danish
universities. This attitude has to change on behalf of the pharmaceutical industry,
if a PPPP is to come into existence. It is hard or impossible to imagine that any
university, taking their financial situation into consideration, as mentioned above,
is willing to spend money in relational specified investments, which in turn should
be handed over to a pharmaceutical company for nothing. Somehow, the parties
must have or get a mutual understanding of the necessity to share or pay
eventually for the IP.
Apparently, there is the possibility that the university assigns the full title to the
patent for a certain amount of money to the pharmaceutical company.
One professor stated:
“I support the idea of assigning title to the rights to the pharmaceutical company
rather than a licensee agreement, since the latter is hard to control in terms of
correct handling royalty fees and alternative uses of the patent, which might be hard
to detect”.
Alternatively, the parties could conclude a licensee agreement with respect to the
utilization of the patent, despite certain unwillingness. Among the professors at
the Copenhagen University, there was a general willingness to enter into a
licensee agreement, where the university should act in the capacity of licensee,
since in their opinion; the pharmaceutical industry has the market knowledge and
thus the ability to exploit the market to the fullest potential.
Thus, in case a licensee agreement is concluded between the parties, the
pharmaceutical company should be delegated the right to produce and market
whatever drug derived from the patent, the parties share joint title to. One
professor was keen to get involved in the process of utilizing the patent, provided
it was developed within the professor´s key area of research.
12
Are there some key issues you know that you will never compromise upon
with respect to IP?29
Industry
Distribution of IP rights
Exclusive license
Public research institution
Is not included in a partnership for short-termed
profit or profit in general. Some research
institutions weigh sharing of knowledge higher
than profit
Rights in agreements is always negotiated on
market terms (according to the law) – no matter
if an external part has participated in the research
A compromise cannot be done with publishing in
research collaborations
Secrecy is limited typically to three years and
only in special cases for a longer period
With that type of collaboration there will be an
agreement regarding that we support the research
of the university with a certain amount (for
example per year) within a limited area (for
example CNS). We will be oriented about
progresses with an option to choose specific
projects. Thereafter the requirements to the rights
follows the same as above
Academia
The access to publish scientific articles
If the "discovery" is within the key area, it
can never be assigned to a company
As a supplement to the comments mentioned above in the to figures, it is worth
noting that the possibility to write a common scientific article between persons
from the pharmaceutical company and university is crucial under a PPPP. The
researchers from Copenhagen University regarded it as a “no-go”, if any
corporation, including PPPP with the pharmaceutical industry, would prevent the
possibility to publish a scientific article.
The researchers from the Copenhagen University did not perceive it as a problem
to write a joint scientific article with researchers from the pharmaceutical
industry, and they considered it as being standard procedure.
To sum up, there are some major obstacles, which have to be dealt with in order to
establish a PPPP, taking the surveys into consideration. Title to a patent, and the
29
The following points are the questions they have answered:
Monospecific products i.e. one product directed against one disease
Small products to a little circuit of patients (subgroup to #1?)
Product platforms for example based on one specific product molecular target
Technological platforms for example to target identification or screening
Basic research for understanding of the disease
Total response of the above five questions
13
market exploitation of such, is especially considered crucial by the pharmaceutical
industry, and there is basically a need for a change of attitude/culture, if a PPPP is
supposed to have a chance of seeing the light of day.
Something to learn from PPPPs – regarding diseases in developing countries
Social PPPPs are prominent for their role in the relatively unattractive market (from a
return on investment perspective) to develop drugs to comb diseases in developing
countries. The profit-oriented private sector, the non-profit-oriented private sector,
non-governmental organizations (NGOs), and the public sector each lack all of the
necessary skills and resources to create both the research and the development of new
products, as well as the delivery of new products to developing countries.30
Developing countries cannot keep up with the global pharmaceutical market because
products developed for global use are relatively slow to reach this population and
because such products are generally too expensive. Additionally, no special effort has
been specifically aimed at fighting diseases in developing countries.31 By definition,
poor populations do not produce a (good) profit. A solution could be public private
pharmaceutical partnerships that meet both funding sources such as philanthropists
and governmental and inter-governmental organizations, researchers, industry as weel
as non-profit organizations.32 In this situation, the social PPPPs are often transacted
between partners from government authorities and institutions at the international
level, such as WHO, the profit-oriented sector (pharmaceutical and biotechnology
companies), and research or non-profit organizations (NGOs and philanthropic
institutions).33
This type of Social PPPP is often defined as a strategic alliance on a contract basis
instead of legal entities as for example a joint venture. The contracts often make the
partners share a common set of objectives and conditions that motivate them to do
their part and pay for it. Most Social PPPPs involve shared decision making and a
high degree of risk tolerance.34 This specific experience must be transferred to a PPPP
in more general terms.
Does it matter – who needs who?
In a traditional PPP infrastructure project, the legal relationship has a relatively
long duration because the financing partner focuses on regaining the private
investment. Often, it is the public sector’s need of finance that results in a PPP,
but as a supplement the private sector’s key competencies are usually more
30
Roy Widdus, Public-private partnerships: an overview, Transactions of the Royal Society of
Tropical Medicine and Hygiene (2005) 99S, S1—S8.
31
Gardner, & Garner, Technology Licensing to nontraditional partners: non-profit health product
development organizations for better global health. Industry Higher Education 19, 241–247
(2005).
32
Widdus, Public-private partnerships: an overview, Transactions of the Royal Society of Tropical
Medicine and Hygiene (2005) 99S, S1—S8.
33
DeMonaco, Ali & Von Hippel, The major role of clinicians in the discovery of off-label drug
therapies. MIT Sloan Working Paper 4552-05 (2005).
34
Hughes, Hu, Schultz, Sheu & Tschopp, The Innovation Gap in Pharmaceutical Drug Discovery
& New Models for R&D Success, Kellogg School of Management, March 12, 2007. See also
Lyles, Creating Alternative Incentives for Pharmaceutical Innovation. Clinical Therapeutics,
Volume 28, Number 1, 2006.
14
efficient in regard to the project compared with the public sector. 35 Further, this
type of arrangement incorporates an alternative model of risk sharing with risks
generally borne by the public sector being transferred to the private party, if this is
efficient with regard to the transaction and the project.36
The Danish infrastructure PPP and the well-known partnering contract are based
on clauses incorporating trust, cooperation, information, positive incentives and
successive negotiation.37 The aims of the partnering contract are to reduce cost
and price; to increase quality; to reduce risk and failure; to improve coordination;
and to share responsibility and capacity. These objectives result in a shift of
content within the contract. By using a partnering contract, the parties can achieve
additional value compared with other approaches, if there is an effective
implementation structure, and if the objectives of all parties can be met within the
strategic alliance.
In the PPPP case, a pharmaceutical enterprise has a need for public research. In
this case the pharmaceutical enterprise needs the skills and funding of the public
sector due to its own lack of innovation and investment, as well as the significant
legal and financial risks with regard to developing, approving, and marketing new
products. Public research units, on the other hand, already have public funding,
lab facilities, and minimal or no market risk or capitalization costs.
Thus, a PPPP is actually the opposite of an infrastructure PPP and some of the
infrastructure PPP elements and results must be flipped when forming the
partnership.
Closing remarks – ”Is something rotten in the State of Denmark ?”
When the theory and data shows significant economic value from PPPs, but
Denmark only has 13 PPP projects in operation and 15 in the project phase,
something is wrong in Denmark.
When it is not possible to build on the economic evidence regarding total cost and
joint efficiency and by that create PPP(P)’s, something is wrong in Denmark.
35
The economic (private) operator plays an important role, participating in all the different stages
of the project (design, completion, implementation, funding). The public partner concentrates
primarily on defining the objectives to be attained in terms of public interest, quality of services
provided, and pricing policy, and it takes responsibility for monitoring compliance with these
objectives.
36
The European Commission notes that a PPP does not necessarily require that the private partner
assumes all the risks, or even the major share of the risks linked to the project. The precise
distribution of risk is determined case by case, according to the respective abilities of the parties
concerned to assess, control and cope with this risk.
37
Tvarnø, Why the EU Public Procurement Law Should Contain Rules that Allow Negotiation for
Public Private Partnerships: Innovation Calls for Negotiating Opportunities, EU Public
Procurement, Modernisation, Growth and Innovation: Discussions on the 2011 Proposals for
Procurement Directives. Eds. Ølykke; Hansen & Tvarnø. Jurist- og Økonomforbundet, 2012. s.
201-219.
15
When the public sector cannot create a market by tendering out an infrastructure
PPP because the lack of an economic business case and when the private
pharmaceutical sector cannot find a way to pay the academics at the universities,
something is wrong in Denmark.
Is something rotten in the State of Denmark?
Yes!
It is wrong not to accept that the other part (partner!) earns some money too in the
PPP(P). It is wrong not to try splitting the positive gains from the collaboration –
collaboration that in it self creates a more solid and efficient business case.
Why is something wrong in the state of Denmark? Is it caused by the wealthy
Danish welfare state? Do the actors – private and public – in Denmark not wish to
pay for cooperation between public and private sector?
This paper has addressed both PPP and PPPP in Denmark and presented that the
market for PPP(P)’s in Denmark is too small. The reasons are many: legal,
economic and political.
More research is indeed needed in this area because the lack of PPP(P)’s will in
the end be too costly for the Danish State, both in a competitive perspective and in
an innovative perspective. Thus, this paper will recommend that further research
will be conducted to ensure a PPP(P) market in Denmark in the future.
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