Scientists across America are working hard to develop treatments for and vaccines against the novel coronavirus that causes Covid-19. Unfortunately, several activist groups are making their jobs harder.
Doctors Without Borders is urging governments to seize the patents on any coronavirus therapies that benefited from taxpayer-funded research. Universities Allied for Essential Medicines is making a similar push. These groups claim that such steps are necessary to prevent industry price gouging.
Their efforts are misguided. Confiscating patents would damage the innovation ecosystem that has generated breakthrough therapies and enabled scientists to work so quickly on Covid-19.
Several firms have already pledged to make coronavirus treatments widely accessible. Gilead says it will donate enough doses of its experimental antiviral remdesivir to treat 140,000 seriously ill patients. Johnson & Johnson promises that if its vaccine proves effective, it will provide 1 billion doses at cost. Cigna and Humana, two of the nation’s biggest health insurers, have already waived all coronavirus-related copays and coinsurance.
And leading research universities, through an initiative led by Harvard, Stanford, and MIT as well as one led by the organization I once led, AUTM, have promised to make patented inventions requiring less investment and risk freely available so they can be developed quickly.
Despite these actions to ensure that coronavirus treatments are widely available, activist groups still want the government to seize patents outright or to exercise the “march-in” rights detailed in the Bayh-Dole Act of 1980. To see why such action would backfire, consider how the drug development process currently works.
The federal government funds much of the country’s basic scientific research. Typically, this research has no immediate medical application. University and nonprofit labs receive relatively small federal grants — generally less than $3 million — to investigate unanswered questions, such as whether a specific genetic mutation puts patients at higher risk of developing a particular disease.
These investigations often don’t lead anywhere. But sometimes academic scientists discover crucial insights. The Bayh-Dole Act allows those them to patent their findings and license them to private companies, which have the resources to turn the insights into tangible products.
Those resources don’t guarantee success, of course. Just 12% of experimental medicines that enter clinical trials ultimately receive FDA approval. Accounting for this failure rate, firms spend $2.6 billion, on average, to bring a single drug to market. A federal grant of $3 million is just one-tenth of 1% of this cost.
When the process does succeed, the results can be awe-inspiring. The Bayh-Dole Act played a role in the creation of almost 300 new vaccines and drug therapies, including breakthrough treatments for human papillomavirus, hepatitis B, HIV, and Crohn’s disease.
Before the law was enacted, the government retained ownership of patents filed by academic institutions that received federal grants. But before 1980, the government licensed fewer than 5% of its 28,000 research patents to private firms. The rest effectively sat in folders gathering dust — a huge waste of taxpayers’ dollars and scientists’ hard work.
Universities have done a much better job of licensing patents than the government ever did. In 2018 alone, academic institutions issued 9,350 licenses to commercialize their discoveries.
All told, the law has grown the U.S. economy by up to $1.7 trillion, helped launch over 11,000 technology startups and, from 1996 on, supported over 5.9 million jobs — a stellar return on investment for taxpayers.
Bayh-Dole could soon play a role in the production of lifesaving coronavirus therapies. Consider Moderna, a biotech firm that’s already conducting human trials for its coronavirus vaccine. According to the firm’s website, its intellectual property estate includes “licenses to pioneering discoveries from Harvard University and the University of Pennsylvania.”
Researchers are also studying potential Covid-19 therapies at the University of Pittsburgh, Johns Hopkins University, Duke University, the University of Texas at Austin, Colorado State University, the University of Wisconsin-Madison, Washington University in St. Louis, and others.
They will likely license any discoveries to private-sector firms — unless politicians stifle this cooperation by misapplying Bayh-Dole’s “march-in” rights. That provision allows the government to force the relicense of patents in rare instances, such as when a firm has licensed a patent but deliberately not commercialized it.
Activist groups want the government to use march-in rights as a price control — but that was never Congress’ aim. In 2002, Sens. Birch Bayh (D-Ind.) and Bob Dole (R-Kan.) explicitly clarified in a letter to the Washington Post that their law “did not intend that government set prices on resulting products. The law makes no reference to a reasonable price that should be dictated by the government. This omission was intentional …”
No administration has ever employed the Bayh-Dole march-in rights for that purpose — and for good reason. Doing so would undermine America’s innovation ecosystem. After licensing university patents, private firms spend enormous sums on additional research and development.
If the government could arbitrarily march in and seize intellectual property, investors would hesitate to fund the research that has brought us so many innovations. There would be far fewer partnerships and licensing deals between companies and universities. And that would inevitably slow the development and reduce the availability of new treatments and vaccines, hurting patients everywhere. Affordability is a goal all parties share, but without a pipeline of novel products, pricing becomes irrelevant.
Fred Reinhart is a past president of AUTM with 35 years of experience in academic technology transfer at the University of Massachusetts, New England Medical Center, Wayne State University, and the University of Michigan.
Thank you for this article. I’ve been researching this law for personal education.
I believe I understand why the law was written without a “price control” measure and how that could stifle innovation. Especially given the huge amounts of money invested by pharmaceutical companies.
Do you see value in an amendment to the law that would provide price stabilization after an initial return on investment. Or a possible limit on percentage of profit for life saving drugs like cancer treatments and epinephrine?
Forgive my ignorance and the Bayh-Dole Act may not be the correct law to address this issue. It seems to me we can strike a balance between allowing pharmaceutical companies to make a profit and making medication affordable for people.
To Lydia: You raise some good Qs and I agree that the B-D Act is not the correct mechanism. I don’t see price stabilization or profit limits as a workable approach in the context of a drug that was developed as a result of a small (relatively) amount of federal funding followed by a huge company investment. If I had a company that developed such a drug and later faced price stabilization or a profit limit (and how would either of those be determined and by whom?) I would regret ever having licensed the technology in the first place. I might also be tempted to say to the federal government “here you can have the $3 million back and I have made the taxpayers whole”. In a case where no federal money was involved, there may be workable approaches but if they are not developed in a spirit of cooperation by the various stakeholders (e.g., industry, insurers, government and patient groups) I question whether the goal you stated, “a balance of profit and affordability”, can be achieved.
BTW, 35 USC 1498 allows the government to appropriate patent rights through a kind of eminent domain where the public interest requires it. If it does so, the patent holder may recover in the Court of Claims it’s “reasonable and entire” compensation. A number of academic commentators have advocated using 1498 to address egregious pricing of critical drugs, and I believe that that should be considered, not as a standard practice, but as a drug pricing course correction mechanism.
Richard, correct. I just mentioned that in one response and as you point out, there needs to be compensation so in that respect, there could be fairness. However, if we think about TIMING, I see an interesting economic problem. We wouldn’t know if a drug was being “egregiously priced” (and good luck defining that anyway) until it was on the market. At that point, the pharma or bio company would have already invested millions or billions in development, securing regulatory approval, synthesis/manufacturing and marketing. So to begin with, compensation would likely include a pay back for the accrued costs. But what about projected future net profits? I would expect the company would argue for an NPV or future payment schedule for those. In that case, has the overall health system really saved any money? I am not saying that drug pricing shouldn’t be addressed, just wondering if the 1498 approach would really solve anything.
If something controversial like this has never been done before, then the one and only president that might exercise march-in rights could be Trump. Not right now, as he needs Big Pharma money – with the election that he is pushing right through the escalating Covid crisis. But after – when the crisis has gone totally out of control, and remdesivir is more successful than now presumed, and when conflicts already being duked out in the courts (Gilead versus government versus re HIV drug) do not get resolved. There clearly is a place for this law, that protects US taxpayers in a dire emergency like this pandemic.
To Peter B: Bayh-Dole does indeed provide for march-in in specified circumstances but the procedure is a formal one and would not or could not be initiated legally by a president although he or she could advocate for it. There is an appeals process to allow a licensee (let’s assume an exclusive licensee) to argue against a march in action. In the Gilead case you cite, one fair rationale for march in would be a failure by the company to supply enough product to meet an unprecedented health emergency like a pandemic. But a high price, unfortunate as that might be, is not a basis for the action.
Fred’s history is right — Bayh-Dole was never intended as a price control mechanism. I also agree that wide-spread use of march-in rights would stifle investment in innovation. However, drug pricing has gotten way out of control, limiting access to the fruits of the innovation Bayh-Dole is intended to foster and driving insurance costs up for all. Under these circumstances — and where high pricing on a COVID-19 therapy would be exactly the right situation — I think a shot across the bow of the pharmaceutical industry in the form of a march-in would send the right message. Hopefully, it would encourage more reasonable pricing and would be the only shot needed.
To Richard: Clearly high drug prices (i.e., un-affordable prices) are a big concern in every country and you are right to mention high insurance costs as a related outcome. Perhaps government intervention will occur in the future but what justification would there be for it to occur in the context of Bayh-Dole? The difference in the amount invested by government in a research grant to a university, for example, compared to the follow on investment by a pharma or bio company is beyond immense so I don’t see the fairness and a march in “shot across the bow” would make a company think twice about developing technology “tainted” by a small amount of fed funding. If government wants to intervene, it should use other routes, some of which may not even exist yet. Under Section 1498, the government can seize patent rights but there is a constitutional catch concerning such a taking. The company or patent owner affected must be fairly compensated. I don’t know the wisdom of such a course but at least there is some fairness built into that process.
AUTM? Aren’t they a bunch of patent trolls?
How much did you pay to get this published?
To Prince Gristle: I am not sure your comment is adding much to what can and should be a productive discussion. I believe AUTM members are sensitive to the issue of patent trolls (which I define as an entity that is abusive in threatening legal action, e.g., by means of threatening letters that do not clearly document alleged infringement) but it is important to remember that every patent owner has the right to enforce their rights and doing so does not constitute troll behavior. Most academic institutions want to avoid litigation because of the cost and time involved and, once a patent is licensed, it is up to the licensee to go after infringers. RE: your 2nd comment, the answer is nothing. STAT is a professional, high quality publication not an advertising channel for those who submit opinion pieces or articles. The opinions are mine alone and do not represent those of AUTM.
To Drug Cszar, it is certainly possible that some companies exaggerate the amount but please consider this: if you don’t believe the Tuft’s data, pick a number. How about an average of only $500 million per drug. Still a lot of money and a typical university federal grant ($3 million or less) is still .6% of total cost to bring a therapeutic to market.
Perhaps, but there’s tremendous, quantifiable value in having (public grant-funded) academic researchers do the preliminary legwork of figuring out which potential treatments show promise. That increases the “hit” rate for pharma companies substantially.
The specter of the government “arbitrarily” marching in is also a red herring. The fact that march-in has never been exercised is strong evidence of a lack of arbitrariness. Doing so in a world-history-making pandemic is not arbitrary at all. Pharma companies and the patent-transfer infrastructure will survive strong government intervention on behalf of the public for once. They’re resilient and strong and bold and innovative, right?
A final thought: I also feel like the pharma-skeptical public (read: the public) is told that there’s an inherent loss of “innovation” whenever there’s interest in increased regulation. I don’t buy it. I do buy the idea that pharma is implicitly threatening the public: “if you regulate us any more, people *will* die.” The current lack of regulation and lack of affordable access to medication kills far more people than any theoretical lack of innovation that could happen. Millions of Americans would accept a small loss of pharma-pipeline “innovation” for affordable insulin, and that’s not going to change without tremendous and sustained public pressure and, yes, government action.
to B. Thoughtful: Paragraph 1: I understand what you are saying but am not sure academic work increases the hit rate. It increases the number of NCEs or targets to explore. To my knowledge, the hit rate is still pretty low regardless if the potential therapy came from inside or outside the company.
RE: Paragraph 2, I should be more clear about the word “arbitrarily”. In this context I meant to refer to the arbitrariness of deciding exactly what is a “fair and reasonable” price for a drug. How is that to be defined? There are some very good discussions going on about that but it is a tough one to figure out. I disagree that the absence of any march in to date is proof of a lack of arbitrariness. It is proof that B-D does not and never was intended to control prices. I do agree that in a pandemic situation, if a university licensee was not developing important technology or could not supply enough life saving material, march in might be entirely appropriate and that is what B-D intended.
Paragraph 3: Very provocative and some good points that industry should think about. However, can you really back up your statement in the 4th sentence? For example, over 85% of the medicines on the WHO Essential Medicines list are off patent.
After licensing university patents, private firms spend enormous sums on additional research and development.
surely, not even close to as enormous as they claim it to be. Like men bragging with ladies