“Reinhart and AUTM are arguing that ‘available to the public on reasonable terms’ does not mean the price has to be reasonable. We disagree, and so do many others.”
On May 12, Frederick Reinhart published an article titled “Knowledge Ecology International Letter Misleads on March-In Rights.”
Reinhart is a past president of the Association of University Technology Managers (AUTM), and his views echo those expressed by many in the university technology transfer field, including a frustration that not everyone acknowledges and appreciates the considerable investments and risks undertaken by the for-profit companies that license patents to inventions funded by the federal government.
Knowledge Ecology International (KEI) recognizes the importance of the private sector in bringing therapies to the market, even when federal funding of R&D has played a role, and also that robust returns on those investments have a positive impact on innovation.
I was surprised and disappointed, however, at the way that Reinhart deliberately downplays the importance of the public sector investments. Reinhart dismisses the federal government’s contribution to the development of enzalutamide (sold by Astellas as Xtandi), by claiming that “less than $2 million in federal money was invested in related early work at UCLA,” which he compared to $900 million by “companies like Astellas that developed it,” citing Ashley Stevens’ unpublished data.
The original 2016 march-in petition on Xtandi did provide a fairly detailed account of both public and private sector investments in Xtandi. The $900 million figure cited by Reinhart was certainly not accurate regarding the investments to obtain the initial 2012 registration of the drug.
The 2012 Food and Drug Administration (FDA) medical review relied upon evidence from clinical trials involving only 1,426 patients. The 2016 march-in petition noted that “the two earliest trials (NCT00510718, NCT01091103) received subsidies from the National Cancer Institute and Department of Defense, in addition to funding from the Prostate Cancer Foundation and other nonprofit institutions.” You can take anyone’s estimates of per patient trial costs you like, ignore the federal and charity funding received, and you still don’t get close to the $900 million Reinhart cites.
Reinhart Undervalues Public Investment
But more important is Reinhart’s undervaluing the public’s investment. The public’s investments in enzalutamide also involved risks. Not every Department of Defense (DOD) or National Institutes of Health (NIH) grant results in a successful product. Joseph DiMasi, in his 2016 paper (which Reinhart cites with approval), got to an estimate of $2.6 billion in R&D costs by including $1.1 billion for pre-clinical costs. Both the $2.6 billion and the $1.1 billion are of course adjusted for risks of failures and capital costs. However, take note of what Reinhart and his AUTM colleagues are doing. The private sector investments are adjusted for risks and capital costs, but the federal government investments are not. One could make the case that the DOD and NIH investments in preclinical work, including the patented invention, were worth $1.1 billion, once risks are taken into account. In fact, how much did UCLA sell the patent rights for? That would be $1.14 billion, to Royalty Pharma.
In his blog post, Reinhart also writes that the number of NIH Cooperative Research and Development Agreements (CRADAs) executed dropped off when a reasonable pricing clause was introduced, and “increased significantly and quickly” when the clause was eliminated. This claim, made frequently by the technology transfer community, bears some scrutiny. KEI obtained data from the NIH on CRADAs under the Freedom of Information Act (FOIA), which is available here. Until 1996, the NIH only reported what are now called “Standard” CRADAs. Beginning in 1996, the NIH added a new category, “Materials” CRADAs. All of the CRADAs involving the reasonable pricing clause were standard CRADAs.
From 1990 to 1994, the calendar years when the reasonable pricing clause was used for the whole year, the average number of standard CRADAs executed was 33. There was also a significant biotech stock market crash in 1992 and 1993. From 1996 to 2000, the number of standard CRADAs increased, to an average of 46 per year. But a lot was happening that had nothing to do with the reasonable pricing clause.
The average NIH budget was 55% higher in 1996 to 2000 than in 1990 to 1994. Probably more consequential, from year end 1992 to year end 1994, the NASDAQ biotech index declined from 170.64 to 81.54, a decline of 48%, whereas from year end 1995 to year end 2000, the same index increased from 133.77 to 634.32, an increase of 374%.
More significantly, regarding the CRADA data, the number of standard CRADAs fell to 28 by 2005, and was relatively flat from 2000 to 2013, despite a massive 17-fold increase in the NASDAQ biotech index, and a 64% increase in the NIH budget. Are we supposed to conclude that increases in the NIH budget or rising share prices and new private investments aren’t good for innovation because the number of CRADAs did not increase from 2000 to 2013?
What Is the NIST Green Paper Really About, and Why is AUTM Unhappy with KEI?
What is at issue in the NIST Green Paper are the safeguards in the Bayh-Dole Act designed to protect the public from “unreasonable use of inventions.” This is not just KEI’s rhetoric, it’s a quote from 35 USC § 200, the policy and objective of the Bayh-Dole Act.
When the Bayh-Dole Act was passed in 1980, it had several public safeguards. One safeguard was a five-year limit on exclusive rights for federally-funded patents held by universities and small businesses. The five-year limit was subject to possible extensions, based upon a compelling need. That safeguard was eliminated in 1984, in P.L. 98-620. The 1980 Act also reserved for the federal government a royalty-free right to use patented inventions it funded anywhere in the world, and to exercise march-in rights. The 1980 Act also limited the secrecy of government patent licenses and required a minimum of 60 days’ notice before granting an exclusive license. Later, that provision on secrecy was amended, making licensing more secret, and the public comment period was reduced from 60 to 15 days.
Reinhart is focusing on the march-in right, and in particular, the question of whether pricing can be addressed as an abuse or factor in granting a march-in. It should be noted that Senator Bayh himself, in a March 3, 1997 letter to then-HHS Secretary Donna Shalala, proposed regulations on licensing to protect consumers from unreasonably high prices for medical care in the Cellpro case, when he represented Cellpro. Later, when Bayh was a lobbyist and Dole was a Pfizer spokesman for Viagra, they made claims about the legislative intent of the Bayh-Dole Act, but what we know for sure is that the act defines “practical application” of an invention to include an obligation to make the benefits of the invention “available to the public on reasonable terms.”
Reinhart and AUTM are arguing that “available to the public on reasonable terms” does not mean the price has to be reasonable. We disagree, and so do many others, including, recently, Professor John Thomas in an April 18, 2019 Washington Post report on the NIST Green Paper.
AUTM and others have asked NIST to change the regulations for the Bayh-Dole Act so that march-in rights can never be used when prices are the issue.
This brings us back to the Xtandi case. In July 2017, the Senate Armed Services Committee issued the following directive to the Department of Defense (a funder of the Xtandi Orange Book patents).
Licensing of federally owned medical inventions
The committee directs the Department of Defense (DOD) to exercise its rights under sections 209(d)(1) or 203 of title 35, United States Code, to authorize third parties to use inventions that benefited from DOD funding whenever the price of a drug, vaccine, or other medical technology is higher in the United States than the median price charged in the seven largest economies that have a per capita income at least half the per capita income of the United States.
115TH Congress, 1st Session, 2017, Senate Report 115–125. National Defense Authorization Act for Fiscal Year 2018. Report to accompany S. 1519, on page 173. July 10, 2017.
Subsequently, my brother, Clare Love, an Army veteran of the Vietnam War and a prostate cancer patient, and Dr. David Reed, another prostate cancer patient, asked DOD to enforce the directive, in the case of Xtandi. The petition stated:
The price of Xtandi in the United States is more than four times the median price in the seven high income countries identified by the U.S. Senate Armed Services Committee in 2017 to be used to determine if the U.S price on a Department of Defense (DoD)-funded drug is reasonable. The price in the U.S. is five times the reimbursed price in Japan, where Astellas is headquartered. The failure by Astellas to make the drug available to the public on reasonable terms can and should be remedied by the U.S. government through exercising the federal government’s royalty-free or march-in rights in the patents.
This is a very expensive drug, for a very common type of cancer. In January 2018, the average wholesale price of Xtandi was $159,215.80 per year (four capsules per day dose) for the treatment of prostate cancer.
This is what Reinhart is fighting for: the right of a large Japanese drug company to charge U.S. prostate cancer patients five times as much as the list price in Japan, for a drug invented with grants from the NIH and the U.S. Army.
For KEI, the fact that the government has failed to enforce the obligation to make inventions “available to the public on reasonable terms” is the definition of insanity, not (as suggested in the comments by former AUTM president John Fraser in the Reinhart blog post), KEI’s continued insistence that this obligation be honored.