In a recent episode of Last Week Tonight, John Oliver turned his sardonic attention to patents in the for-profit psychedelic business world. He referenced a Compass Pathways patent application that included claims describing the basic setting of psychedelic therapy, saying, “It’d be like me patenting the concept of wearing a suit while sitting at a desk.”
I wrote about this patent application in 2021, and since then there has been both a continuing increase in the number of psychedelic patents filed, and a recognition that the psychedelic industry won’t be able to avoid patents.
Why should we still care about them? Patents are not a bad thing on their own. But nor are they always good. They are tools, important ones that incur investments, power and fund research, yet they are also tools that are widely known to be abused.
Patents exist to incentivize innovation; they are about money. They give an inventor the sole rights to what they’ve created for 20 years, which gives a company or individual the chance to make the money back that they spent developing that invention by excluding competition. Crucially, patents are a key way that companies solicit investment. If they can show they have patents, it signals to investors that they’ll get their money back later, since there will be an exclusively-owned asset to make profits from.
Even within academia, if a researcher wants to commercialize their work, they can either start their own company, formed around patents, or go to a university’s technology transfer office to license their intellectual property to other companies.
This whole process is recognized to have flaws. The story that I have been reporting the last two years regarding the problems with pharmaceutical patents in particular has been covered by many other reporters following different types of drug development. Patents do not always function the way they were intended to, or in ways that benefit patient populations. Drug patents often lead to patent thickets, high drug prices, and patent trolling.
Companies have gotten away with filing for many patents for each drug, an average of 140 applications per product. Last year, a bipartisan group of U.S. senators wrote a letter to the United States Patent and Trademark Office (USPTO) asking them to stop allowing companies to have multiple patents for a single drug, which the non-profit Initiative for Medicine Access & Knowledge (I-MAK) has directly associated with higher drug prices. It would be a mistake to assume that psychedelic companies, because they deal in psychedelics, will be immune to repeating these behaviors that the patent system allows.
“Those set and setting patent applications are still pending,” Oliver said. “But the very fact they applied for them at all is a pretty clear sign of just how aggressive companies in this space intend to be going forward.”
At a psychedelic business conference in Miami last fall, former Vice journalist and Compass Pathways chemist Hamilton Morris described media articles on psychedelic patents—by myself and others—as “moralistic handwringing.” But dismissing the intrinsic issues around biotech and pharmaceutical patents as “imaginary,” as he said, doesn’t make space for the efforts to raise money in new ways, and clarify the relationship between patents and innovation.
Innovative Funding Strategies for Psychedelics
Because psychedelics are a new industry, where everything is not yet set into stone, people are starting to think about how to finance research, clinical trials, and companies outside of patent’s business-as-usual.
There are ideas emerging that go beyond the non-profit, for-profit dichotomy that involve reforming the existing patent system, creating new incentives for research on unpatentable products, and even leaving the patent system behind and creating decentralized organizations where research can be co-funded, co-owned, and co-regulated.
Again—patents are about money. Soon, psychedelic research and medicine might need these alternative funding models if, as many advocates hope, psychedelic drugs are decriminalized or legalized. The traditional ways of raising money, and recouping that money with monopoly pricing, may not be available.
If organizations want to continue to develop novel psychedelic molecules, conduct research on psychedelic mechanisms, or study the therapeutic application of psychedelics, procuring funding based only on what’s patentable narrows the scope of what can be studied. New approaches might help the psychedelics industry avoid the patent pitfalls that have come before it, and create better ways to pay for research, collaborate with those with shared values, and innovate with less restriction.
Reforming the Patent System
Patent protection exists to encourage innovation, but depending on how you define innovation this connection is tenuous. Seventy-eight percent of drugs associated with new patents aren’t new, they’re modifications made to existing drugs.
“Patents drive innovation,” said Robin Feldman, a professor of law and the director of the University of California Hastings Center for Innovation. “And they can also leave potential innovative areas lying in the dust.”
Relying only on patents can push companies to focus on the development of similar products that are patentable, but not necessarily better. Companies often won’t spend time and money researching a known and unpatentable molecule, since patent protection is the lynchpin of their business model.
“I wholeheartedly disagree with the thesis of what typically big industry proponents say: that IP is necessary to drive innovation,” said Chris Byrnes, a patent lawyer at Calyx Law.
Restrictive patents on new medicines can negatively impact patients in a number of ways, Feldman said. It can drive drug prices higher. It can create drugs that are no better than existing options, but more expensive. It can generate drugs that are somewhat better, but only for a narrow set of patients—but are the only option for all patients.
Patents can also thrust innovation into areas that are actively harmful to patients, what Feldman calls “negative innovation.” For example, companies have chosen to commercialize higher doses of medication because they can get a patent on it, even though a lower dose would be as effective, and safer.
Some of these issues could be addressed through reform within the patent system itself. I’ve written about many areas that advocates say need addressing, including more time given to patent examiners and better ways of screening for prior art, but there are even more reforms that could improve the patents that are granted.
One is more communication between The United States Food and Drug Administration (FDA) and the USPTO to strengthen patent quality. Just a small amount of liaising between FDA and USPTO could address evergreening practices that pharmaceutical companies use to extend patent protection. (In January, there were listening sessions on this very topic.)
When companies tell the FDA that a drug product doesn’t need further testing because it’s similar to other existing versions of the drug, they could be stopped from applying to the patent office for a patent on that same drug. “Either it’s new, or it’s the same as what has come before, it can’t be both,” Feldman said.
Companies could also be stopped from obtaining a patent on a claim that the FDA hasn’t allowed. If the FDA prevents a company from saying that their drug causes fewer headaches than other drugs on the market because of lack of evidence, for example, that company wouldn’t be able to obtain a patent on that claim.
If the FDA tells a drug company to investigate or take an action on their drug, the company could be blocked from filing a patent claiming those results are novel. “If the FDA directs your action, the action isn’t your own novel idea,” Feldman said. “It was certainly obvious to try.”
Patentable inventions are also supposed to be “useful,” but this requirement isn’t well defined or enforced. It could get an overhaul, and more stringent standards could be created to meet “usefulness.”
“Perhaps society could consider what actually makes something useful,” Feldman said. “This becomes particularly relevant with minor modifications of existing medications. Minor modifications may be useful to some patients in some circumstances. But that doesn’t mean it’s a great innovation.”
Finally, there could be more public participation in how the patent system works. In an op-ed in The Hill, I-MAK co-founders Tahir Amin and Priti Krishtel wrote that members of the public could be given seats on the USPTO’s advisory committee, “and create a new public-led committee that can regularly identify emerging issues and propose solutions.”
Looking Outside the Patent System
Some things exist outside the patent system, like generic drugs, known molecules, and therapeutic applications that are obvious. When patents are the only way to generate money, these therapies can be ignored.
“The whole industry is focused on creating the most patentable drugs, having the most enforceable monopolies, and those might not necessarily be the best drugs,” said Savva Kerdemelidis, a patent lawyer and founder of the New Zealand charity, Crowd Funded Cures. “It ends up skewing medicine in the direction of what’s the most patentable versus the best.”
Companies will need new forms of incentives to focus on unpatentable products or research. This is where “interventional pharmacoeconomics” can play a role, when clinical trials are designed to pay for themselves by comparing lower cost drugs to more expensive drugs, via the savings created by the outcome of the trial.
For example, this model has incentivized clinical trials on lower drug doses. A trial on abiraterone, a drug for prostate cancer, found that a quarter of the dose could be used when taken with food, compared to taken on an empty stomach. This meant that patients could take less of the drug; the money saved in the end was much more money than the cost of the trial.
“This creates a scalable business model powered by payer cost savings and without reliance on patents,” Kerdemelidis said. This is a version of a “pay-for-success” contract, when the financial benefit is dependent on a successful outcome, like showing that the lower dose is more effective. This kind of contract has been used in social impact bonds, which repay investors based on how well a project meets predetermined social outcomes. Investors give money to these projects and get money in return if they are successful, like achieving a certain prisoner recidivism rate, for instance.
Pay-for-success contracts could incentivize investors to successfully repurpose an off-patent molecule or treatment protocol to obtain regulatory approval; they would receive money back when they did so. A trial that compared generic ketamine to esketamine for treatment resistant depression, for example, could ultimately pay for itself given the cost difference between the two drugs. Money saved from successful clinical trials on off-patent therapies could then be reinvested into more pay-for-success contracts.
“That would create a market for something that previously didn’t exist that could provide significant value,” Kerdemelidis said.
Kerdemelidis thinks that companies could end up participating in these models because they will provide better business models as psychedelic drugs become more legally available. These patent alternatives models could also become more alluring when and if patent trolls enter the psychedelic space, shell companies that buy up IP and make money just from litigating around those patents, rather than bringing products to market themselves. One of Byrnes’ more radical ideas is to create an ethical patent trolling company, that would demonstrate how trolls use IP, but which gives the settlement money to indigenous reciprocity initiatives.
“Once we see the negative externalities and market failures of the IP system hit the psychedelics market, we’ll start to push joint ventures of other kinds and enterprises into more experimental IP strategies,” Byrnes said.
Alternative IP Models
The most recent example of these types of enterprises comes from the marriage of the tech world and psychedelics in the form of DAOs, decentralized autonomous organizations, and IP-NFTs, non-fungible tokens. When it comes to Web3, NFTs, and blockchain, it’s easy to spiral into jargon and lingo—so let’s keep it very simple: A DAO is an organization that exists on the internet, and isn’t run by one person or a determined set of people, like the staff of a company. Instead, it is run by all the people who join the organization. A non-fungible tokens (NFTs) is a one-of-a-kind digital asset, and an IP-NFT is a one-of-a-kind digital container that can hold contracts, agreements, data, and even patents, if desired.
PsyDAO is one example of a group focused on psychedelic research, which means that the people who make up that DAO are interested in investing money on psychedelic projects they find meaningful, whether or not there is IP attached to it. An IP-NFT allows people to make contractual agreements with each other to fund projects, with the promise for some exchange of future benefit. The technology side of the NFT—the blockchain—is intended to allow for a relatively simple and fast way to house, enact, and exchange money around those agreements.
IP-NFTs are a creation of the company Molecule. Tyler Golato, one of Molecule’s co-founders and its chief science officer said that, like Kerdemelidis, he views problems in the healthcare system as rooted in problems with the underlying incentives. He envisions a future where the way a drug is researched, made, and sold becomes more collectively owned. For example, if the production of insulin was collectively owned by diabetics.
“How might a diabetic price insulin?” he asked. “How might a diabetic or diabetic advocacy organization ensure access to insulin if you can change the stakeholder dynamics? What if the future intellectual property around the method of use for psychedelic therapy was collectively owned by mental health advocacy organizations, as opposed to for-profit biotech companies?”
The IP-NFT model provides a potential mechanism to move away from a single patent owner, but without going fully open source, or losing the ability to have a business model. The IP-NFT could theoretically allow for a wider variety of funding sources: a funder could be an individual, it could be a group of patients, a research collective, and they can make a wider variety of contractual agreements with fewer lawyers involved. “By tokenizing intellectual property with these non-fungible tokens, you enable a lot of interesting things that are typically not available in the patent space,” Golato said.
If enough people participated, it could make it easier to interact with, invest in, and collaborate around early stage intellectual property, before it’s attached to a company, or while it’s still being researched. It can create value around data that isn’t (or shouldn’t be) patentable.
“Let’s say you had self-reported data from 1,000 different people that had taken MDMA to deal with Post Traumatic Stress Disorder,” Golato said. “That underlying data would have value, but it’s not necessarily something that you would create a patent around. But you can now transact with it and create a market around it.”
IP-NFTs could set up what Golato called a “sustainability loop.” Funders and researchers can get together, pool their money and resources and identify early stage projects, often affiliated with academic institutions. Then they can fund those projects via IP-NFTs, and in exchange, receive ownership in the intellectual property that emerges from that project.
Once that project is brought to market, the proceeds of commercialization would be returned to the treasury of the DAO with a mandate to fund further research, creating a continuous source of money, compared to grants or investment that eventually run out. This actually happened for the first time in 2021, when a biopharma IP-NFT was transferred to VitaDAO, which will fund longevity research at the University of Copenhagen.
There are ways to emulate this kind of approach without the technology part of it, like patent pools or IP commons, when people or businesses share intellectual property with one another. But Byrnes said that he thinks DAOs are a better way to realize ideas like these.
“The idea is ultimately to have intellectual property that is exchanged for that initial financing, that can be co-governed, and co-commercialized,” Brynes said. “I think if that were to happen, it can be a paradigm shift in how drug development occurs.”
New Approaches Carry Risk
These alternative approaches to intellectual property are simply attempts to generate money for research that don’t leave companies or researchers beholden to filing patents and having to return large amounts of money to investors. Instead they prioritize good science, with an eye towards accessibility and lower costs of high quality medicines down the line. But it is still highly conjectural.
NPR called 2022 the “the year crypto came crashing down to Earth.” Tying funding of psychedelic research to technology that can change in value dramatically is risky. Why should a company create an IP-NFT out of their early research, when they could file a patent instead and get traditional funding?
“I do agree that for the current model for drug development, there is too high a risk for any big pharma company to not follow the path that’s been laid out in front of them,” Byrnes said.
There is some movement on DAOs in other areas of pharma. Pfizer recently invested money into VitaDAO, which is focused on longevity research. It’s not unheard of for large companies to be innovative with how they use IP. But as newcomers on the scene, a group like PsyDAO will have to prove its longevity and ability to raise funds before it will be trusted more broadly.
Combining Strategies To Be Competitive
Ultimately, a combination of alternative strategies, within the patent system and outside of it, could be most effective when it comes to ensuring the psychedelic industry doesn’t fall prey to well-trodden pharmaceutical woes. Golato hopes that DAOs focused on drug development will attract the best researchers, which will entice larger companies, since they rely on the work coming from academia. His ideal end result would be communities holding larger companies to price or ethics standards by only licensing their IP-NFTs to companies that meet those standards.
In the end, larger companies may need to be more creative to remain competitive. “We’ve seen big tech, the largest patent holders in the world, Samsung, Apple, Google, these entities have been much more experimental with intellectual property, using things like springing licenses to stop patent trolls, being more willing to participate in patent pools, embracing things like open source licensing for software,” Byrnes said.
In almost every field, there has been a rapid increase in patents, said Aakash Kalyani, a PhD candidate in the Economics Department at Boston University. Yet economic growth and productivity don’t necessarily grow alongside that increase. A patent for patent’s sake may not always be the best way to make money.
In a recent paper, Kalyani made the case that creativity in patents has fallen over time. To measure this, he looked for two-word combinations in the text of patents that did not appear in previous patents, and found that patents that were creative, not derivative, were associated with a company’s stock market valuations. The large increase in patents over the past few decades, Kalyani said, has been driven by derivative patents.
There are ongoing broader discussions about patents becoming less creative, and science in general becoming less disruptive. In a recent paper in Nature, the authors analyzed 45 million papers and 3.9 million patents, and found that “papers, patents and even grant applications have become less novel relative to prior work and less likely to connect disparate areas of knowledge, both of which are precursors of innovation.”
In regards to psychedelic patents, and especially those filed by Compass which have received outsized attention, the concern isn’t necessarily that one entity would exclusively own the rights to all psilocybin, natural and synthetic, according to Graham Pechenik, a psychedelic patent lawyer at Calyx Law. Instead, the worry is about the cost of therapeutics that might be available down the line, especially the kinds that are subject to insurance reimbursement. There is also concern about the skewing of VC money towards companies that have enough capital to pursue aggressive IP strategies, and especially ways that innovation is molded by the need for patents, and how creativity is stifled as a result.
“The medicinal chemistry strategies that are employed, are they working to create better drugs?” Golato said. “Are they working to create something that you could slap a patent on? That question persists through all of biotech.”
Some analysts believe that alternative finance structures are also better equipped for a decriminalized drug future, since they anticipate wider forms of access outside the medical model. These systems still recognize that it is important for there to be money to fund early stage research, and create affordable, safe, and effective therapeutics also within a medical model, that aren’t creatively dictated by what’s patentable, but by what scientist and patient groups want and need.
“My ideal is that we would start to have a culture shift with IP more generally, that would really begin at an individual level, and show people a new way to kind of network that, or have intellectual property that looks more like ground-up change,” Byrnes said.