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Legal Considerations for Public–Private Partnership Governance in Global Health

Through a problem-solving exercise,¹ panelists in the workshop’s second session explored legal considerations within different sectors when developing global health PPPs. The problem-solving exercise, posed by session moderator Lauren Marks from the U.S. Department of State, was framed through a hypothetical scenario in which a pharmaceutical company has developed a relatively new drug used to vaccinate children and intends to donate one million doses for children in sub-Saharan Africa in partnership with a consortium of organizations. The partners have a shared vested interest in children’s health and a goal of vaccinating one million children. The partners include a philanthropic organization that makes strategic investments in children’s health, a multilateral alliance representing country governments and their ministries of health that is the lead coordinating body for global vaccination programs, an NGO that implements programs on the ground, and a U.S. government agency that has an office dedicated to setting policy and providing foreign assistance for children’s health. This office, explained Marks, happens to provide funding to the NGO to implement programs and the undersecretary who heads the office has a seat on the board of the multilateral alliance. After describing the scenario, Marks posed a set of related questions to the panelists—Douglas Brooks from Gilead Sciences; Anthony Brown from Gavi, the Vaccine Alliance; Kenneth Miller from the Bill &

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¹ See http://www.nationalacademies.org/hmd/~/media/Files/Activity%20Files/Global/PublicPrivatePartnerships/8%20Oct%202017/Fact-Pattern.pdf (accessed May 16, 2018).

Melinda Gates Foundation; Nina Nathani from Matalon & Nathani, LLP; and Valerie Wenderoth from the U.S. Department of State.

To begin, Marks asked the panelists how joining a PPP would differ from being part of a joint venture, corporate deal structure, or similar arrangement that brings parties together. Brooks responded first by noting the firewall at a pharmaceutical company between its commercial activities and its public affairs, grant-making activities, and community engagement efforts, where this PPP would fall. Miller added that for a foundation, all partnerships it enters would have a charitable purpose and mission to improve the lives of the target beneficiaries, regardless of how the arrangement is structured.

In the next phase of the scenario, Marks stated that the parties decide to put together a memorandum of understanding (MOU) outlining their respective roles and responsibilities in the partnership. Similar to any corporate deal, the parties start doing due diligence on each other. The routine due diligence search reveals several potential sources of conflicts of interest: the pharmaceutical company was recently involved in litigation related to its business operations; the undersecretary of the child health office at the U.S. Department of State owns stock in the pharmaceutical company; and the president and benefactor of the philanthropic organization is on the board of the NGO. Marks asked the panelists to describe how they would evaluate these potential conflicts and weigh their relevance versus the value these entities may add to the partnership.

At the Gates Foundation, Miller would try to weigh the risks against the rewards of involving a conflicted party. “I think conflict of interest can be challenging for all of us, but at the Gates Foundation, conflict is not a binary event where there is a conflict and you cannot be involved,” said Miller. In this scenario, the president of the philanthropy’s seat on the NGO board could provide beneficial insight into how the NGO partner is using the funds. On the other hand, the president would have fiduciary responsibilities to both the foundation and NGO. If the partnership is not achieving the desired impact or is off mission, it could be difficult for the president to represent the interests of both the NGO and the philanthropy. Other complications include potential confidentiality issues and reputational risk for the foundation if favoritism for the NGO is perceived. Depending on the specific goals of a PPP, one solution Miller might suggest would be for the foundation president to have a role as a nonvoting observer on the NGO board.

When the issue of conflict of interest comes up, Brown noted that attention usually turns to the industry partner. However, he stressed that conflicts must be evaluated for all partners. “When we think about conflicts, we have conversations around how we manage conflicts in an

environment where a number of stakeholders are receiving funds or have other aspects of their role that is a conflict,” said Brown. The challenge, he said, is to develop a balanced approach where pros and cons are weighed before making a final decision.

Marks added that from a programmatic perspective, evaluating conflicts based on risks and rewards gets tricky. “You want people who are knowledgeable experts and who are committed [to be] involved in the project,” said Marks. It is important to ensure is that the conflicted party’s interests are aligned with the partnership’s interests. In some cases, added Brooks, being intentional about disclosing potential conflicts and being thoughtful about dealing with them is enough.

Nathani agreed with Brooks’s statement about disclosure. Disclosure opens the door to weighing the value of moving forward given whatever conflicts exist. The first step she advises for clients when they start talking to potential partners is to execute nondisclosure agreements. From a U.S. government perspective, Wenderoth’s first step in due diligence is assessing internal conflict of interest, as in, determining if any individuals within the department have a relationship with a potential partner. “We cannot have an actual or even perceived conflict of interest in terms of any financial gain that a person within the department might receive from that partner,” said Wenderoth. The U.S. Department of State requires an internal agreement with department lawyers before even engaging in formal discussions with potential partners. In the hypothetical scenario, she would challenge the undersecretary’s participation in the partnership given that he owns stock in the pharmaceutical company.

Marks stated that one of the functions of an MOU is to identify the contributions each partner will make. Identifying contributions raises the question of how to value them and leads to discussion on whether the value of a contribution equates to voting power. In the hypothetical scenario, the pharmaceutical company wants to value the research and development that it put into the drug development. Wenderoth emphasized that the word contribution is avoided at the U.S. Department of State because it requires statutory authority to make contributions. In the case where a partner wanted to value what each entity brings to the table, she would advise the U.S. Department of State to stay out of the conversation. She also noted that a valuation process does not happen with every partnership.

Miller shared that the Gates Foundation would examine the overall cost of a project and the percentage of which the foundation would be funding, and then weigh it against the impact its funds will have and how it relates to the foundation’s charitable mission. Relative valuation might influence the structure of a deal, but from the foundation’s perspective, it is not a critical component. Brown said that Gavi takes the same

basic approach that Miller described when joining a PPP and does not necessarily value what each partner or stakeholder brings to the table. He did note that Gavi sometimes enters into what he calls opportunistic partnerships that are partnerships with a commercial organization or an NGO to achieve a specific outcome. “In those instances, we have to value what has been provided to us,” said Brown. Gavi uses generally accepted accounting principles and market determination. To value vaccines, for example, Gavi uses publicly available data posted on the UNICEF website. Gilead values its contributions using a set formula for calculating fair market value, said Brooks, and it follows a policy that its contributions will never be more than a small percentage of any organization’s budget. Cate O’Kane, an independent consultant, commented from the audience on the challenge of navigating as a partner versus as a procurer when the organization is compensated for services or products. She noted, too, that many partnerships are based on intangibles, such as expertise in a country or government connections, rather than money. Valuing those intangibles can be an issue for an NGO that is trying to maintain its 501(c)(3) status, for example.

The hypothetical scenario dealt with intellectual property (IP). As part of its contribution to the partnership, the philanthropic foundation will fund the pharmaceutical company to adapt its drug compounds to make them more fit for purpose in developing countries. “Who owns the intellectual property, which in this case would be the drug compound that has been adapted with funding from the philanthropic organization?” asked Marks. Brooks replied that his company would own what it brought to the table, but any decision on who would own any new formulations of products that resulted from this funding would be negotiated. Miller responded that in negotiating IP ownership, the Gates Foundation would need assurances that the IP is used to meet its charitable objectives. Typically, that would mean allowing the pharmaceutical company to own the IP and, in return, the foundation would expect the company to agree that it would provide access to the drug at an affordable price in developing countries. “If we are thinking about sustainability and engagement and how we incentivize the for-profit world to work with us on these charitable projects, allowing them to retain ownership of their intellectual property provides that type of incentive and a pathway for engagement,” said Miller. He added that IP ownership is one of the biggest “hot-button issues,” along with liability, when negotiating partnerships.

In the hypothetical scenario, the U.S. government will provide funding through an existing, openly competed grant to the NGO to handle supply chain distribution and programmatic implementation on the ground. Marks asked the panelists, in this scenario, what the NGO’s role

would be in the partnership, whether it should be a party to the MOU, and if it can have a seat on a steering committee of any governance body. Nathani responded that most NGOs would want a seat on the steering committee and perhaps even a coequal role in the partnership. The NGO, she said, is participating in the partnership because it is consistent with its own charitable mission rather than acting as a general service provider. In many instances, the NGO will have worked in the geographic area and therefore brings needed expertise to the partnership. “Most NGOs would feel they have just as much to bring to the partnership as the other members,” said Nathani. “They would want to be a party to the MOU.” Wenderoth emphasizes to her colleagues at the U.S. Department of State that a grantee can be a partner, but the organization will still be held accountable to its grant agreement. Including an NGO as a partner with a seat on the steering committee would require a justification beyond being a grantee.

In the hypothetical scenario, the NGO would conduct monitoring and evaluation, including data collection and analysis. This raises the question of who owns the data and who has the right to publish the results of the evaluation. Nathani explained that a recipient of a U.S. government grant has the right under current regulations to own all intellectual property developed or created during the performance of the grant. However, “there is always the responsibility to share intellectual property developed under a federally-funded grant with the federal government,” said Nathani, and there may be additional requirements to deposit data and the intellectual works that support that data with the Development Data Library and the Development Experience Clearinghouse of the U.S. Agency for International Development (USAID), for example. Beyond complying with government requirements, she suggested that most NGOs would take the position that sharing data with all members of the partnership would be appropriate. She noted that some countries assert the right to own the data from any projects conducted in their country. In this case, the NGO will often need to request permission from the government to share data with other members of the partnership and allow other members to analyze the data and publish the results. “That definitely can be a tricky issue and has to be explored very carefully, and everybody’s potentially prior obligations have to be understood by all members of the partnership so it can be addressed upfront,” said Nathani. “This is not something you want to be addressing 6 months into the partnership when the data has already been collected.”

The Gates Foundation, said Miller, has an open-access policy that requires that any publication resulting from a project it funds be published in an open-access, peer-reviewed journal and that the underlying data are made available. The foundation has encountered issues when

the data are owned by the Ministry of Health, and the ministry may be concerned that the data will reflect poorly on its programs. Other issues arise when partners have access policies that conflict with the foundation’s policy. In these cases, negotiations are needed to determine how to comply with those different policies.

In addition to the planned donation, the hypothetical scenario includes both the U.S. government and the multilateral alliance procuring additional drugs from the pharmaceutical company to treat more children. Marks asked the panelists to describe their views on the difference between procurement and partnership. “When are we partnering with the private sector, and when are we contracting for its services?” she asked. Brown said Gavi often has several relationships with the same entity, and the question he asks is whether the company is simply providing goods and services or if it is making a high-level commitment to Gavi’s mission. If it is the latter, they are a partner, and if it is the former or if there is some sort of tender or competitive process, they are in a procurement relationship with Gavi. This is a complicated process, he emphasized, because being a partner in a PPP can give a company a competitive advantage in a country over a company that makes a similar product but is not part of the PPP.

Brown explained that partners agree to an MOU with aspirational goals on how the partner will use its expertise to help the PPP achieve its goals, while a procurement arrangement uses a formal contract with delivery terms and prices of goods and services. There are also hybrid arrangements that involve donated services that need to be valued. He added that risks are allocated differently in each of these relationships and noted that there are different individuals in Gavi who manage these different types of relationships. Marks added that it is important when entering into these different types of relationships to understand the potential partners’ motivations. “Partnership does not mean all the motivations have to be the same, but I think it means you have to agree on the end goals,” said Marks. Miller added that it may be necessary to think more holistically about governance when organizations have multiple relationships with the same entities. Marks agreed and noted that the U.S. Department of State has had conversations with other government agencies about creating a standard MOU template.

Through the hypothetical scenario, the panelists were asked how the PPP should approach liability. Nathani replied that liability can extend to the NGO that participates in the supply chain, and the NGO should request that a quality assurance agreement or a pharmacovigilance agreement be executed with the company donating or supplying the vaccines. “That would be an important aspect of the legal part of the MOU and governance to ensure that those responsibilities were addressed appro-

priately,” said Nathani. In addition to a quality assurance agreement, the MOU should also require that the drug manufacturer take responsibility for giving the NGO instructions on storage and use of the drug. She also noted there could be additional issues regarding which organization is responsible for registering the drug with national regulatory authorities in the countries in which it is to be distributed.

Miller said the Gates Foundation tries to structure agreements in a way that limits or eliminates its potential liability on the ground, typically by only providing funding and not being involved in operationalizing or implementing programs. In general, though, liability is a difficult issue for partnerships. He explained that while the presumption would be that the pharmaceutical company would bear most of the liability, the NGO is ultimately responsible for the storage and distribution of the drug and it could be argued that the NGO would be liable for issues that arise on the ground. However, few NGOs would have the resources to represent all of the in-country partners who are also part of the supply chain. Thus, it is necessary to consider various risk mitigation strategies, such as insurance.

Brown said that Gavi indemnifies and holds harmless any of the parties that fund a program regarding product liability. It also builds provisions that national governments will be responsible and Gavi will not be liable for in-country issues into its MOUs with national governments. He acknowledged that these provisions do not prevent a class action lawsuit being brought in the United States, but the reality is that the NGO is implementing a program on behalf of the national government in this scenario. Often with PPPs, said Brown, many of the partners have privileges and immunities, and they invoke those and drop out of the PPP, leaving a limited number of partners, often foundations, to bear the cost of litigation.

Marks returned the panel to a point Brown raised earlier regarding how to handle a situation where more than one company manufactures a vaccine. One approach would be to issue a tender or request for proposal that would be inherently competitive, but doing so would not be appropriate when one of the manufacturers is a member of the PPP. Wenderoth said this situation is why the U.S. Department of State has internal discussions with the program office before considering being part of a PPP that delve into why one particular company will be a partner over its competitors. “We cannot be seen as giving preference to any individual or company,” said Wenderoth. “It is critical that the program office explain that objective criteria were applied in each instance where a private-sector partner is engaged in a potential partnership with us.” If the program office cannot define those objective criteria, the U.S. Department of State will not join the partnership.

This would be a difficult situation for Gavi, said Brown, because it

is hard to imagine a situation where a pharmaceutical company would have competitors and donate products without an ulterior motive, such as the desire to be first in a market or to be perceived as being endorsed by association with the U.S. government or an organization such as Gavi. The key issue here, he said, is to examine those ulterior motives and deal with them in an MOU. “This is a complex situation because you may have a specific goal that you want to address and there could be a clear reason why this manufacturer is appropriate for this scenario,” said Brown.

Changing topics, Marks introduced the question of deciding on the appropriate governance structure for a partnership. “Do you create an independent organization or will it be nested within one of the partner organizations?” she asked. “What does voting power look like? How do you resolve conflict? How do you ensure that you are representing the fiduciary duty of your own organization vis a vis that of the partnership itself?” Brooks said that answering those questions starts with the core group of organizations who are coming to the table with a common goal. In his experience at Gavi, Brown has found that operating as an independent entity, rather than being nested within an international organization, allows the entity to enter into creative deals to meet the project goals that might not be possible within the rules and procedures of a parent organization. He shared that he has conversations at least once per year with partnerships and programs that want to move outside of a nested relationship.

Unlike a large-scale partnership like Gavi, said Nathani, most PPPs have a defined end, and it is important to define the ultimate objectives of a particular PPP before deciding on a governance structure. If there is a limited objective, a secretariat structure where every partner has an equal seat at the table is appropriate. However, the issue of governance structure becomes far more complicated and difficult to navigate when the PPP has a broader objective and scope.

Marks added a final dimension to the scenario: the partners agree on the objective but are divided on the approach. In this case, the NGO and multilateral organization want to ensure broad coverage and are willing to take great efforts to find hard-to-reach children. The U.S. government has prioritized impact. The foundation is focused on sustainability and wants to ensure that there is a plan for absorbing costs in the future. The pharmaceutical company wants to operate at scale. None of these goals conflict with the objective, said Marks, but finding a way to harmonize the philosophical, strategic, and cultural differences among the partners is still necessary. Miller shared that this situation arises regularly and the important first step is developing the MOU in a way that is transparent about the different motivations, roles, and responsibilities of each party. In his experience, if the overall goal is important enough to all of the part-

ners, these questions can be addressed and the details worked out, but getting these issues on the table early is critical. He added that it is important to include provisions for a dispute resolution process in an MOU to manage inevitable unexpected developments that can lead to conflict.

DISCUSSION

Muhammad Pate asked the panel how a PPP might address conflicts between the partnership agreement and laws of the nations in which the partnership will work. Brown said that most MOUs would include language stating that each party must comply with national and local laws regardless of where the organization is established. Wenderoth agreed that this must be dictated in the MOU. She noted that this can create an issue for the U.S. Department of State if it has an employee on the governing board or secretariat because that individual cannot bind the U.S. government to another country’s laws. She said that if the U.S. Department of State oversaw procurement, for example, it would follow U.S. federal rules on procurement while ensuring that it is not overtly violating an in-country regulation.

Justin Koester from Medtronic commented that a manufacturer may be incentivized to join a PPP if the PPP itself has the potential to create a market where one does not exist. Wenderoth responded with concern that these PPPs may not be a place where the U.S. Department of State should get involved. Miller responded that in these situations, the foundation ensures that its funds are used to further charitable purposes and not create a profit motive for a commercial enterprise. Gavi, as well as the Global Fund, recognize that they often create market opportunities for a company, and they have a framework to evaluate these scenarios. Miller noted that innovative companies seeking market opportunities can play an important role in helping Gavi find solutions to difficult problems with the potential to create a winning situation for everyone.

Cate O’Kane pointed out that giving a company first-in-market status can also mean that company was first to raise its hand and be ready to act. It may be possible, then, to structure an agreement that allows competitors to join the partnership or provide products later. Wenderoth replied that this was a new insight for her and gives her a new way to think about participating in a partnership if it provides a mechanism that would allow similarly situated private-sector entities to join later. Brooks commented that his company often learns of new ways to address problems or improve the way it does its business by participating in PPPs. He added that as someone who worked in government before joining industry, he believes there is a role for the U.S. government in creating opportunities to solve difficult problems in public health.

Jeffrey L. Sturchio from Rabin Martin noted that the United States has the Millennium Challenge Corporation, an independent U.S. foreign aid agency, as well as USAID, the U.S. Trade and Development Agency, and others that have been shaping markets in developing economies for decades. The U.S. President’s Emergency Plan for AIDS Relief, through its contributions to the Global Fund and the establishment of the Partnership for Supply Chain Management, has been instrumental in creating one of the largest markets in Africa and other parts of the developing world for antiretroviral medicines. The key to each of these mechanisms is that the partners disclose their interests, that there is transparency, and that the partnerships create a fair opportunity for companies to participate and benefit. “Creating those markets actually does help to accomplish the good that many of these partnerships are set up to do, so I do not see those as in conflict,” said Sturchio. “It is just a question of using these principles to manage issues of transparency, accountability, and impact.”

Brenda Colatrella from Merck noted that risk and risk management are important components of managing conflicts of interest. When working with lawyers to structure partnerships, she has perceived a desire to manage to zero risk. Miller said that the Gates Foundation does not manage to zero risk because that would severely affect its ability to have an impact, so it tries to be solution focused. “In some cases there may be a high degree of risk, but the potential reward and impact on our target beneficiaries is such that it is worth taking that risk,” said Miller. He said he does not see his role as managing to zero risk but instead as finding solutions. Nathani said her role is not to manage to zero risk but to make sure everyone understands the potential risks so they can make informed decisions about costs and benefits.

Responding to a question about whether it would be possible to develop a gold standard agreement or framework that could guide PPPs, Miller replied that there can be best practices and lessons learned, but each partnership is unique in terms of the nature of the participants, geographies, and goals. As a final comment, Brooks said the critical question to ask is what is the purpose of the PPP. In his opinion, staying focused on the partnership’s central purpose can help mitigate the other challenges.