No. 37, Spring/Summer 1995
by Ana Sittenfeld & Anthony Artuso
The biological and chemical diversity of nature remains a largely untapped source of innovation for pharmaceutical companies, agrochemical firms, fragrance and flavor manufacturers, biotech enterprises, and crop breeders. In recent years, nature's chemical creativity has received renewed attention from the private sector as competition for product innovation has increased and as new technologies have reduced the cost of isolating and extracting useful compounds, including genetic material, from biological samples. As evidenced by the Convention on Biodiversity signed at the Earth Summit in Rio, there also is a growing awareness among national and international policy makers that the potential commercial value of biodiversity could provide an important economic incentive for its protection.(Back to top)
Elevating the value of nature's biological resources by promoting its economic use and at the same time providing incentives for biodiversity conservation is a complex endeavor. It requires the cooperation of governments, intermediary institutions, private enterprise, and academia, as well as the incorporation of scientists, lawyers, managers, and economists from developing and developed countries. It also requires a conducive macro-policy environment at the national and international levels and an integrated set of biodiversity prospecting activities, including biodiversity inventories and information management, business development, and technology access. The combination of macro-policy and more focused research and development can be thought of as constituting a Biodiversity Prospecting Framework.
Macro-Policy. On the international level, treaties and conventions establish the relationships and protocols for conduct between countries. For example, the Biodiversity Convention calls upon the 157 countries that signed the treaty to create a framework for: (1) regulating access to and control of biological resources, (2) protection of intellectual property rights, (3) environmental protection, and (4) commercial laws that promote development, conservation, and fair and equitable sharing of benefits derived from the sustainable use of biological/genetic resources. Article 3 of the Convention recognizes the important principle of sovereign rights over biological diversity, thus dramatically changing the concept that in the past has held these biological resources to be the "common heritage of humanity."
On the national level, sovereign governments determine the macro-policies that deal with issues such as land ownership, the creation of conservation areas, access to and control of biological resources, nationally recognized intellectual property rights, and the creation of incentives or deterrents to use of resources in the public domain. Such policies create a national context in which biodiversity prospecting either can develop favorably or be effectively stifled.
In Costa Rica, the creation of a favorable macro-policy environment began with the establishment of clearly defined, private and public protected areas encompassing 27 percent of the nation's territory and organized into a National System of Conservation Areas (SINAC). With a strong base for conserving natural resources in place, the Instituto Nacional de Biodiversidad (INBio) was created by an act of the national legislature. INBio's mission was to conduct a biological inventory and, in collaboration with other national and international institutions, to encourage economic and intellectual use of the nation's biodiversity, thus amplifying possibilities for biodiversity prospecting agreements. Knowing that biological resources will be preserved and protected within a given area makes it easier to justify the major investment required to undertake biological surveys. The systematic and careful collection process is one component of an infrastructure of information that can increase biodiversity's economic and intellectual value.
The protected status of these conservation areas, coupled with effectively enforced laws that regulate ownership of, access to, and use of the biological resources discovered, substantially reduces the risk for potential industrial partners; there are many examples of pharmaceutical and agrochemical companies that have identified lead chemical compounds from an initial plant sample only to discover that the source material has disappeared with the conversion of forest to pasture.
Similarly, a lack of explicit laws regarding land ownership makes collecting from those areas inherently risky, since uncertainties arise as to who has the authority to grant legitimate access to materials and under exactly what conditions. In December 1992, a new Wild Life Protection Law was approved by the Costa Rican Congress to regulate access to and control of biological samples in the country, thus providing the legal framework within which to negotiate prospecting agreements. Under the new law, any entity that wants to collect or manage biodiversity samples from a Conservation Area for research or other uses must obtain a permit from or sign a concession agreement with the Ministry of Natural Resources.
Still other sets of macro-policies affect the dynamics of biodiversity prospecting. For example, in Costa Rica a heavy investment in education has created both a base of highly skilled technicians and scientists and well developed laboratories at Costa Rican universities, which have and will continue to support the country's biodiversity prospecting efforts with industry. Macro-policies of a social nature are extremely important in providing the human resources needed to implement Biodiversity Prospecting Frameworks.
Biodiversity Inventories and Information Management. Given a favorable policy environment, particularly with regard to the organization and management of conservation areas, biological surveying and biodiversity information management systems become feasible and important steps in creating a Biodiversity Prospecting Framework. Biodiversity inventories, through the development and management of biological, ecological, taxonomic, and related information, increase the value and promote the sustainable use of raw biological resources. The biodiversity inventory of Costa Rica's wildlands builds on a long history of specialized taxonomic research conducted by national and international researchers. INBio's present inventory program is intended to complete this biological survey and to induce broad national and international participation in the gathering of that information.
The basic field work is being conducted by a group of lay people trained in the vocation of the parataxonomist. The parataxonomist is not merely a collector, but also is the initial cataloguer of specimens and a direct link to the communities in and around Costa Rican Conservation Areas. Parataxonomists receive feedback, planning assistance, and guidance from INBio's staff of curators, who work within a larger network of national and international curators and taxonomists.
INBio also is in the process of making biodiversity information, proceeding from the biological inventory databases and The Nature Conservancy database resident at INBio, available to a larger cross-section of society, both inside and outside Costa Rica. Such knowledge is essential for increasing biodiversity's value to society. To facilitate the management and manipulation of species and conservation information accumulating in INBio's databases, INBio is collaborating with the Intergraph Corporation, a world leader in computer-aided graphics, to design and develop a computerized Biodiversity Information Management System capable of handling textual and numeric information on the biogeographic, taxonomic, and other characteristics of species and ecosystems.
Business Development. Business development, which covers the entire process from identifying markets through strategic planning to negotiating collaborations and contractual agreements, often is neglected in the emerging literature of biodiversity prospecting. Nevertheless, business development is essential to creating successful biodiversity prospecting endeavors because it combines information obtained from biological inventories with an understanding of market opportunities.
To begin addressing the question of what INBio and Costa Rica really had to offer in terms of information and services that increased the value of biological resources, INBio conducted an informal audit of in-house and in-country strengths and weaknesses. Having taken note of domestic technical and institutional capacities for biodiversity prospecting, INBio set out to identify and understand the fundamental needs and characteristics of the resource's potential users. INBio has used market surveys and industry contacts to help identify major industry trends, to explore potential market opportunities, and to locate potential collaborators in the pharmaceutical and biotech industries. Additional research into other industries using biological resources--agribusiness, cosmetics, and flavor and fragrance manufacturers--has provided INBio with information concerning the basic characteristics of other potential industrial markets.
Based on the results of its market research and a keen awareness of in-country research skills and capacity, INBio has developed institutional and financial goals and objectives that include: (1) facilitating acquisition and/or development of technology and products that increase the value of biological diversity and that are capable of being transferred to private enterprise to promote sustainable economic development and create jobs, and (2) generating income, through direct research fees and potential future product royalties, to help support both the Conservation Areas and INBio's research activities.
Multisectoral Collaborations. Over the past year, INBio negotiated several collaborative research agreements with the pharmaceutical and agrochemical industries and began negotiations for several new partnerships. Each of these collaborations expresses the need for a multisectoral approach, based on the sustainable use of biological or genetic resources. Public or private institutions (such as INBio), which act as intermediaries, fill the critical role of broker among biological/genetic resources, industries, and other institutions interested in accessing and using those resources. One of the primary actors that mediating organizations must approach and attempt to include is the developing country's government, which frequently acts as a gatekeeper, regulating access to and control of biological materials. Another key actor is private enterprise; that is, a particular company interested in converting biological diversity into a biological/genetic resource. Frequently it is the private enterprise or industrial partner in the collaboration that has access to economic resources to finance the partnership. The industrial partner often will be willing to transfer technology in exchange for access to biological material and in-country collaboration and support services.
INBio's contractual research agreements concentrate on increasing the value of biological materials by fostering knowledge about their ecology and taxonomy at INBio and by conducting some processing and research inside Costa Rica. Agreements typically include a research budget covering costs for sample collection, identification, processing, and laboratory research, with a direct contribution to the maintenance of national parks and other protected areas. Royalty payments support conservation efforts if commercialization is successful, according to an existing agreement between INBio and the Ministry of Natural Resources.
Where research and processing activities that add value to the resource are involved, collaborations frequently seek to involve academia by making use of university laboratories to assist in the research and development of technologies and new products derived from biological/genetic materials. Involving the academic institutions of developing countries has the distinct advantage of ensuring that the technologies transferred or advanced remain in the country to be used by other university research programs and eventually by domestic industries and entrepreneurs. Involving the academic laboratories of developed countries is valuable because these institutions typically are more inclined than corporations to share valuable technology with research counterparts.(Back to top)
Contract negotiation, an essential aspect of Biodiversity Prospecting Frameworks, can be divided into two basic sets of issues: (1) business issues, and (2) legal issues and frameworks. While the two are related, it often is helpful to broadly define the business issues first and later struggle to place them in a legal framework.
To negotiate any type of business venture, an organization needs to have a good sense of its own fundamental needs and those of its potential collaborators. The typical institutional needs that INBio focuses on in negotiations are:
The needs and expectations of the private enterprise partner include:
In these negotiations, bargaining power and the ability to identify mutually beneficial contractual arrangements are considerably enhanced by a detailed knowledge of the scientific and technological, legal, and economic characteristics of the user industry and of the market for biological material within that industry. Pairing up a team of institutional representatives and environmental lawyers from the developing country with developed-country management consultants and pro bono corporate lawyers, a scheme that INBio has adopted, has proven to be highly effective. INBio has used this approach in three recent negotiations (between INBio and Merck and Co., INBio and British Technology Group, and INBio and the Bristol Myers Squibb Corporation) in order to obtain favorable terms for INBio and Costa Rica with regard to scientific activities, technology transfer, royalties, direct payments, and other contractual issues.
The establishment of appropriate compensation mechanisms and assignment of intellectual property rights for products derived from biological materials are two of the most critical issues that must be resolved during biodiversity prospecting contract negotiations. A principal means of allocating risk and return between the contracting parties involves how the total compensation for the biological material will be divide between guaranteed payments and various forms of compensation that are contingent on the outcome of the prospecting effort (e.g., royalties). Because INBio has been a pioneer in negotiating compensation with academic and industrial partners, it has had to rely on estimations of biodiversity conservation costs and the application of other industry precedents in negotiating appropriate compensation arrangements. (e.g., precedents from the biotechnology industry and subjective perceptions regarding resource supply and demand).(Back to top)
Among the major components of successful biodiversity prospecting efforts, access to appropriate technologies, as underscored by the Biodiversity Convention, deserves significant attention. Acquisition or development of technology and its transfer to industry provides developing countries with the means to convert the raw materials of biological diversity into industrial inputs and products of greater value. However, before negotiating technology transfer, technical assistance, or training programs included in a biodiversity prospecting research collaboration, institutions representing the host country should develop a strategic plan for technology development that is tailored to the country's needs and capabilities and is responsive to market opportunities. In general, technology must first be obtained and mastered on a pilot scale before it can be transferred and used successfully on an industrial level.
To date, INBio's effort's have been focused largely on this necessary first phase of technology access. The long-term goal, however, is to transfer appropriate technologies to the private sector in order to promote sustainable economic development and to provide continued incentives for biodiversity conservation. In its collaborations with industry, government, and academia, INBio works hard to involve leading national laboratories (1) as recipients of technology transferred from developed-country partners and/or (2) as in-country research partners in the efforts to develop technology in collaboration with partners from developed countries. This approach to accessing technology attempts to take into account the role these laboratories play in training new scientists and in fostering entrepreneurial activity.(Back to top)
Supportive macro-policies, combined with an integrated set of biological research, business development, and technology transfer options, are needed to develop an on-going biodiversity prospecting program that yields long-term benefits for developing countries. This combination of public policies, scientific research, and entrepreneurial activity, which we have referred to as a Biodiversity Prospecting Framework, can only be achieved through a series of public and private, industry and academic collaborations. We have used INBio's experience to illustrate one particular framework that is being developed in Costa Rica. It is important to realize that although its basic concepts are broadly applicable, this framework cannot simply be adopted "off the rack" by other developing countries. Cultural, biogeographical, and technological differences create different strategic opportunities and require policy initiatives and institutional arrangements uniquely tailored to respond to individual experiences, needs, and circumstances.
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