The NIH Drug-Pricing Plan Puts Politics over Policy

T oward the end of a president’s term, there’s typically a frenzied effort to rush “legacy” projects — initiatives consistent with campaign promises — that somehow receive attention from appointees only when it is too late to accomplish anything lawful and thoughtful. In the waning days of the Reagan administration, I had to shoot down several such initiatives, and I know that my colleagues in the White House Counsel’s Office had to shoot down many more.

It is a bad sign for President Biden that this policy frenzy has started early — with the December announcement that the administration would overturn the Health and Human Services Department’s decades-long interpretation of the Bayh-Dole Act, one of the most successful pieces of legislation in recent history, in a doomed and illegal effort to institute drug-price controls through the National Institutes of Health. Moreover, the administration indicated that it would not honor the rulemaking requirements of the Administrative Procedure Act but would simply use an informal process to create a “guidance document.”

Prior to the passage of Bayh-Dole in 1980, most drug development was done by large companies that used chemical libraries to screen biological targets. Most of the research “hits” used to develop drugs were the results of random luck rather than a detailed understanding of the underlying biology, and the usefulness of this method has slowly declined over time.

The Bayh-Dole Act and the Orphan Drug Act of 1984 were the catalysts for the creation of the American biotechnology industry, which is now the envy of the rest of the world (particularly the Chinese). Prior to Bayh-Dole, biological discoveries made by universities rarely led to important new drugs, in large part because the ownership of the relevant patents was unclear: A company could not recoup its development costs when other companies could immediately copy the products it had developed. Once these ambiguities of ownership were eliminated, there was an explosion of biotechnology research and development that improved hundreds of millions of lives in America and around the world.

Washington loves to mess up a good thing, and after about a decade of Bayh-Dole, senior officials at NIH and progressive members of Congress began to make noise about their potentially using the statute to dictate drug prices. When I was HHS general counsel, I watched Anthony Fauci brutally threaten one of the developers of the first two approved HIV drugs with use of the Bayh-Dole Act’s “march-in” provision, which allows the government in certain circumstances to relicense the patent of a drug developed with federal funding. (And shortly afterward I read in the Washington Post Fauci’s denial that he had done so.) A few years later, when I was Biogen’s general counsel, I watched my CEO kill a promising HIV program out of fear of exactly that kind of administrative bullying.

That now-controversial statutory section of Bayh-Dole provides that HHS can use or license intellectual property that it has funded at universities if “action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees.” This is primarily a pro-competitive provision designed to keep companies from protecting product franchises by licensing key patents to keep them away from potential competitors. In short, it is a requirement of due diligence, not a provision designed to control pricing. The legislative history supports only this interpretation — and Senators Bayh and Dole were emphatic about it for many years after the passage of the law. Such a significant reversal of HHS’s long-standing interpretation of the statute — allowing the NIH to interfere liberally in drug-pricing — should require at least notice-and-comment rulemaking, not just an informal “guidance document.”

The Biden administration’s current initiative has a strange history. The Trump administration in its final month issued a notice of proposed rulemaking that included a provision that march-in by federal agencies “shall not be exercised exclusively based on the business decisions of the contractor regarding the pricing of commercial goods and services arising from the practical application of the invention.” That notice provoked more than 81,000 comments, and President Biden obliquely withdrew it the following July with Executive Order 14036, which directed HHS to:

not later than 45 days after the date of this order, submit a report . . . with a plan to continue the effort to combat excessive pricing of prescription drugs and enhance domestic pharmaceutical supply chains, to reduce the prices paid by the Federal Government for such drugs, and to address the recurrent problem of price gouging.

With 30 months to implement President Biden’s executive order, the best his appointees could manage was a desultory rehash of the Trump proposal — stripped of the legally required formal rulemaking.

It is striking that the administration’s request for comments on its draft informal-guidance document, made on December 8, 2023, fails to respond to Executive Order 14036 in any meaningful way or provide meaningful guidance about how and why NIH would discharge its new responsibilities. There is no definition of “price gouging” and no plan for enhancing supply chains. There is vague ranting about high pharmaceutical prices but no specific guidance as to how “high” would be determined or what the process would be for the removal of rights granted by the federal government that, by definition, would have yielded drugs approved by the FDA.

The administration’s plan also seems to be relying on an out-of-date view of the technologies of drug development and the patent system. It is true that some of the early biotech pioneers gamed the system by fragmenting their initial patent applications and then finding innovative ways to slow down the reviews by the Patent and Trademark Office, a process that resulted in some inventions getting far more than the 17 years of protection provided at that time. However, Congress in 2011 reformed the American patent system into one similar to the system used by most of the rest of the world. This system’s reliance on filing dates rather than fact-laden invention dates effectively eliminated the “fragment and delay” patent strategy; the number of products still protected by the old system is dwindling rapidly.

If you look at “high priced” drugs, the government’s withdrawal of a core patent wouldn’t be sufficient to allow another company to manufacture a similar drug. Most of the highest-priced drugs rely on innovative enabling technology, such as gene therapy, gene editing, and RNA interference. Use of these technologies requires multiple patents, and obtaining a license for each of them is never easy, always time-consuming, and sometimes just not possible. Accordingly, NIH’s confiscation of a patent through Bayh-Dole could not possibly introduce new competition for many years. If, alternatively, the HHS plan is to strip companies of patents so it can take drugs off the market for patent infringement, then millions of desperately ill patients will suffer.

If you define “high priced” as “most expensive for the federal government,” HHS has already put in place a heavy-handed process for unilaterally cutting the prices of the products that cost Medicare the most. Are their producers going to be subjected to a duplicative administrative process under the new initiative? Given that it is about 13 years from “Eureka!” in the lab to product launch, and given that a competitor needs at least five years to run the trials for a copycat product, the patents for such products almost surely would have expired or be close to expiration before any agency could relicense them per the new guidance. Even NIH noted this problem in rejecting a 2023 petition for exercising march-in rights for the cancer drug Xtandi:

NIH’s analyses in response to the petition request have found Xtandi to be widely available to the public on the market. In addition, given the remaining patent life and the lengthy administrative process involved for a march-in proceeding, NIH does not believe that the use of the march-in authority would be an effective means of lowering the price of the drug.

The most principled course for the Biden administration would be to propose legislation to modify Bayh-Dole so that there is clear guidance as to NIH’s new responsibilities. A less principled path would be for NIH to use notice-and-comment rulemaking, as required by the Administrative Procedure Act, to issue regulations. The totally unprincipled approach would be for the administration to continue on its current path, one that would inflict unnecessary costs and uncertainties on the companies we rely upon to improve the lives of people with cancer, autoimmune diseases, cardiac disease, and thousands of horrific rare diseases.

The health of Americans and others around the world will not benefit from standardless edicts by unpredictable NIH officials. Congress should stand up for the Bayh-Dole Act and shut down any HHS “informal guidance” that would undermine it.