Pharmaceuticals: Marching into Trouble

T he National Institutes of Health recently rejected a request by private petitioners to exercise “march-in rights” under the 1980 Bayh-Dole Act to control the price of an expensive prostate-cancer drug, Xtandi. This marks the second time the agency has rejected march-in rights for this drug and the eighth time in the statute’s 43-year history that NIH has rejected march-in petitions in which the government is asked to vitiate private companies’ patent rights by granting licenses to other companies to produce a drug that resulted, in part, from government-funded research.

At the same time though, NIH’s parent agency, the Department of Health and Human Services, along with the Department of Commerce, announced the formation of an Interagency Working Group to develop “criteria and processes for making determinations where different factors, including price,” can justify application of Bayh-Dole’s march-in provisions. This effort to include consideration of drug prices in march-in determinations violates the explicit intent of the statute, exposes the Biden administration’s ignorance of how drug development occurs, and will destroy medical innovation — all while doing nothing to bring down drug costs.

Bayh-Dole — also known as the Patent and Trademark Law Amendments Act — was intended to ensure that the public would not be deprived of the benefits of inventions that resulted from government-funded research. Prior to its enactment, the government owned inventions made with federal funding and granted only nonexclusive licenses to developers. Companies would not invest the money and time to turn an invention into a practical product unless they could own and exclude others from exploiting it. Consequently, the federal government owned tens of thousands of patents that languished unlicensed and undeveloped. None were used to develop therapeutics or vaccines.

Bayh-Dole facilitated the commercialization and availability of inventions developed with public funds by allowing universities, non-profits, and small businesses to retain ownership of patents for inventions discovered with the aid of federal funding. It recognized that while the government funds basic research that sometimes suggests drug candidates, the lengthy and costly process of turning discoveries into usable products is always performed by private companies. As Senators Birch Bayh and Bob Dole noted, “Government alone has never developed the new advances in medicines and technology that become commercial products. For that, our country relies on the private sector.”

The act was highly successful, leading to the development of the nation’s biotechnology sector. Universities created offices of technology licensing, and the number of patents, licenses, and new drugs skyrocketed. The statute has been credited with “unlock[ing] all the inventions and discoveries that had been made in laboratories throughout the United States with the help of taxpayers’ money.”

To ensure that beneficial inventions are utilized, the Act allows the federal government to “march-in” to the intellectual property rights of the inventor and grant a license to “a responsible applicant or applicants” in two circumstances: if 1) the patentee and its licensee have not taken effective steps to achieve “practical application” of the subject invention — defined elsewhere in the statute as making the invention “available to the public on reasonable terms,” or 2) action is necessary to alleviate health or safety needs which are not being reasonably satisfied by the rights-holder — an example of this would have been if a company had developed an effective Covid-19 vaccine but had been unable to produce it in adequate amounts.

Nothing in the statute suggests that price should be considered as part of being available on reasonable terms. In turning down march-in rights for Xtandi — invented at UCLA with NIH funding, then developed and sold by private companies — the NIH noted that more than 200,000 patients were treated with the drug between 2012 and 2021, documenting the drug’s “availability to and use by the public.” Senators Bayh and Dole argued that “the law makes no reference to a reasonable price that should be dictated by the government,” that march-in rights are “not contingent on the pricing of a resultant product or tied to the profitability of a company that has commercialized a product that results in part from government-funded research,” and that government should march in “only when the private industry collaborator has not successfully commercialized the invention as a product.”

But that hasn’t stopped progressive legislators from arguing that price should be considered in march-in decisions. In 2016 Obama-administration NIH officials rejected a petition, supported by 51 congressmen, to exercise “march-in” rights to discourage drug “price-gouging.” They claimed march-in rights were intended to combat high drug prices that make drugs “[un]available to the public on reasonable terms.” And in 2021, Senators Elizabeth Warren (D., Mass.) and Amy Klobuchar (D., Minn.) and Representative Lloyd Doggett (D., Texas) asked HHS and the Department of Defense to apply march-in rights to set the price of drugs developed with government support.

The folly of this approach has been amply demonstrated. In 1989, the NIH instituted a “reasonable pricing” clause in its patent licenses and cooperative research and development agreements with private companies, giving the agency the option to review the introductory price of products developed from government-sponsored research. Six years later, the agency abandoned the policy after private-company development plummeted. Then-NIH director Dr. Harold Varmus said reviews had shown that “the pricing clause has driven industry away from potentially beneficial scientific collaborations with [government] scientists without providing an offsetting benefit to the public.” He concluded: “Eliminating the clause will promote research that can enhance the health of the American people”

Even if the NIH were to grant march-in rights, it is unlikely they would do much to lower drug prices either generally or where federal funding had been involved. March-in rights only give additional companies the right to utilize patents that were directly derived from the government-funded research. Yet, less than 15 percent of new drugs are based on at least one patent derived from public funding. And nearly all these drugs covered by Bayh-Dole patents are also covered by additional privately held patents that pharmaceutical companies obtained during the process of turning a basic science discovery into an FDA-approved drug. The government has no claim to these private patents.

Moreover, march-in rights do not empower the government to directly control prices. They only allow the NIH to increase competition by giving other companies the right to utilize the subject invention. There is no guarantee anyone would step up to undertake the lengthy and expensive process of developing and producing a competing, lower-priced drug.

In reality, the administration’s proposal to consider price as a factor in granting march-in rights will likely discourage firms from developing new drugs. Few companies will undertake the risky and expensive process of developing a drug — it costs an average of $2.6 billion to develop and gain FDA approval for a new medicine, largely because 90 percent of drug candidates fail in clinical trials — if march-in rights threaten their ability to recover their investment. Beneficial discoveries funded by the government will languish, undeveloped and unused, just as they were before Bayh-Dole was enacted.

Disregarding the spirit and intent of the highly successful Bayh-Dole Act is a recipe for suppressing the innovation that improves Americans’ health and saves lives. The administration should back out of its effort to consider prices in determining march-in decisions.