In 2001, Jon Soderstrom, Director of Yale’s Office of Cooperative Research, found himself in the midst of a maelstrom of negative publicity. Yale's patent on the drug Zerit had become the target of international activists and campus protests. Protestors asserted that the patent and Yale's licensing of the pharmaceutical to Bristol-Myers Squibb (BMS) was preventing low-cost generics from reaching millions suffering from HIV/AIDS in South Africa. After a meeting between Soderstrom and BMS, BMS lowered the price of Zerit in South Africa and other developing countries and the crisis cooled. But student protestors and others continued to question university policy on the use of patents in the development of new pharmaceuticals, the close relationship between big pharma and universities, and the ethics and goals of university research.
Bristol-Myers Squibb's Zerit, the brand name of oral medication stavudine, was discovered at the Yale Medical School. In 1985, scientists found the compound d4T had the potential to be effective against the HIV retrovirus. Yale patented d4T and in 1998 licensed exclusive pharmaceutical rights to BMS. After six years and hundreds of millions of dollars for development and trials, the new drug became part of a treatment regimen that saved millions of lives and changed an HIV diagnosis from near-certain death sentence to a chronic illness. Zerit became a top-selling pharmaceutical, and Yale's patent revenues rose to $40 million a year. Under Yale's policies, a third of the revenues went to the researchers, and the rest stayed with the university. In summer 2001, Yale completed a securitization of its revenue stream for the next five years, receiving a $155 million upfront payment.
Zerit's use as part of a three-drug cocktail to treat HIV/AIDS treatment was expensive, far out of reach to the millions afflicted with HIV/AIDS in the developing world. Médecins sans Frontières (known In English as Doctors Without Borders) appealed to Yale and to BMS to release the patent and allow a low-cost generic for Zerit in South Africa. When Yale and BMS seemed unresponsive, Doctors without Borders launched a highly visible media campaign berating the school. The protests grew in the press and on campus, within days encompassing many students and faculty.
Soderstrom knew that Yale's revenues from Zerit were funding new facilities for medical research. He also knew that the research revenues enhanced the university's financial resources and prestige. But he could not ignore the publicity or the human need. After BMS and Yale met to resolve patent issues, BMS agreed to drop Zerit's price dramatically in developing countries, promised not to challenge the use of generics in South Africa, and made major contributions to South African health organizations.
But the larger questions remained. Did the close connections and financial partnerships between not-for-profit research institutions like Yale and for-profit companies like BMS create problems for the university? Did it change university research goals and results in unintended ways? Did the use of patents by universities and other research institutions challenge their mission to benefit society?
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Jean Rosenthal, Ian Shapiro, and Jaan Elias, “Zerit,” Yale SOM Case 17-011, February 24, 2017
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This case has been made possible by the generous support of the Robert J. Silver ’50 Fund for Innovation in Management Education.