This document discusses the benefits of open source and open standards models compared to traditional pharmaceutical models. It notes that open source and open standards approaches enable very broad global collaboration, voluntary participation and sharing of intellectual property. This results in thousands of new efforts launched each year, ubiquitous adoption, low costs and proliferation of platforms for innovation. The key to their success is that participants trust the system and believe in the rewards. Some of the rewards include building ecosystems with network effects, level playing fields that ensure equal opportunities, and intellectual property rules that benefit all participants. The lessons are that open models work best for certain domains, and their design must provide a valuable proposition to all key stakeholders to default to success.

1. What Can we Learn from Open
Source and Open Standards?
September 1, 2015
Andrew Updegrove
Gesmer Updegrove LLP
andrew.updegrove@gesmer.com

2. What does Traditional Pharma
Look Like?
All R&D costs borne by one company
All risk borne by one company
All patent rights held as long as possible by
one company

3. What do Traditional Pharma
Results look like?
Limited number of new drugs per year
Limited number of diseases/conditions addressed
Delayed sharing of research and results
Ongoing consolidation due to costs
Limited distribution
Marketing is profits-driven (regardless of efficacy)

4. What do Open Standards and
Open Source Look like?
Very broad, global collaboration
Voluntary participation
Voluntary sharing of burdens
Voluntary sharing of valuable intellectual
property
Voluntary uptake of deliverables

5. What do Open Source and Open
Standards Results Look Like?
Thousands of new efforts launched every year
Ubiquitous global adoption
Lowest cost implementation
Springboard for new businesses
Proliferation of platforms for innovation
Immediate, or rapid disclosure of results

6. Why does this happen?

7. Because the participants trust
the system and believe in the
rewards

8. Rewards Credibility
Open Standards and Open Source Build
Ecosystems
Diverse examples of the economic benefits of
network effects (railways,
telecommunications, Internet, Wi-Fi, etc.)
Networks are much easier to create
collaboratively than proprietarily
Lower strategic risk, more predictability

9. Level Playing Fields
Rules ensure that all have an equal
opportunity to benefit
In open standards, it’s open admissions,
strict IPR policies, and RAND implementation
In open source, it’s open participation and
licensing rules that assure equal ability to
implement
In open standards, it’s consensus rules
In open source, it’s meritocracy

10. Intellectual Property
Each approach has found a way to deal with
intellectual property that is acceptable to
the IP owner
In standards, “Necessary Claims” will be
available to all on RAND terms, and indirect
benefits exceed direct benefits to IP owners
In open source, IP owners have ample
opportunity to monetize IP, dramatically
lower R&D, and dramatically lower strategic
risk

11. Common Goals
Everyone benefits from the same success
In open standards, the wider the uptake, the
wider the marketplace and the more certain
the rewards
In open source, the more successful the
project, the more prestige for the
developers, and the more customers for the
sponsors

12. What are the Lessons for Us?
Success depends on:
Appropriateness of domain (not every
development type needs broad collaboration)
Credibility of outcomes (will network effects,
or similar drivers result)
Governance systems that ensure a level
playing field
IPR rules that are acceptable and effective
to the industry in question
Willingness of target participants to embrace
approach

13. Key Lessons
All domains are different – while the high level
principles must be applied, each domain will
require a unique implementation of the open
model
The art in designing an open model is to make it
want to default to success
In order to default to success, all key stakeholder
groups must be identified and provided with an
often unique valuable proposition
The model must lead naturally to rapid
implementation by the same participants

14. R&D Through Availability in the
Field
Who are the stakeholders in the resulting
network effect ecosystem?
Government health agencies
Foundations
Research Labs
Production facilities
Test vendors
Distributors
NGOs active in the field
Others?

15. How to Address the Clinical Gap?
Form a non-profit investment fund
Applies a triage approach to funding, from
infectious diseases (I) to high-profit margin drugs
(III) and funds all types
No royalties on I, modest on II, and industry-
standard royalties on III
All royalties are reinvested
Exclusive licenses scale by tier as well (0 for I, 2
years for III, five years for III); generic thereafter

16. Fund Governance and Funding
Balanced board of directors that includes
representatives of all stakeholders, but controlled by
non-commercial Directors
Advisory Boards from certain classes of stakeholders
(Pharma, Government, Foundation, Manufacturers)
Initially funded by government, Foundations and
Pharmas (who thereby become eligible to become
licensees)
Also accepts “targeted” funding for specific projects in
any tier

18. Questions?