The National Cancer Institute Didn’t Deserve This Treatment From the New York Times

By Joseph Allen
January 3, 2017

UnfairImagine that you found a drug at a government lab that others passed over which promises to cure, not just treat, certain blood cancers. You entered into a cooperative R&D agreement where your funding doubled the lab’s budget in a critical research area while they leverage the expertise of your company. You’re a small American company taking on the big boys, with a state of the art facility hoping to be first to market with a revolutionary therapy.

Now imagine you’re a researcher at the National Cancer Institute (NCI, part of the National Institutes of Health) working on what could be a major breakthrough. But it will never help desperate patients without a commercial partner. Suddenly there’s a company that shares your vision, with a co-founder who spent time at NCI and deeply respects your research team. They raise millions of dollars for clinical trials required to develop the drug. You’ve negotiated an agreement securing funding for research you couldn’t otherwise perform.  If the invention is successful NCI will receive millions of additional research dollars, but most importantly, lives that would have been lost will be saved.

That probably sounds like a success story. But anyone reading “Harnessing the U.S. Taxpayer to Fight Cancer and Make Profits”  in the New York Times could believe the public has been cheated. That’s a recent NY Times theme. “Lives and Profits in the Balance: The High Stakes of Medical Patents”  suggests the government is failing to use the Bayh-Dole Act to control drug prices, a charge repeated in the NCI story.  These articles are part of the campaign seeking to misuse the law for compulsory licenses against drugs deemed too expensive.

Let’s examine their criticism of the partnership between NCI and Kite Pharma to commercialize a promising discovery.

Kite’s treatment, a form of immunotherapy called CAR-T, was initially developed by a team of researchers at the National Cancer Institute

Not only wasn’t the drug “developed” by NCI– it’s not developed.  NCI followed their 2009 discovery with mouse tests, a single patient study and data from a clinical study of eight people. That’s far from development. Because of Kite’s financial backing the drug is in Phase I testing.  The odds of going from there to the marketplace are about 10%. That’s the stage where the costs– and risks– of drug development increase exponentially.  This burden falls on Kite. The other drugs being developed in the partnership are not even in Phase I yet.         

Kite’s first drug, called KTE-C19, could help thousands of patients each year in the United States with certain blood cancers. If it succeeds, it could generate sales of $1 billion to $2 billion annually, according to Wall Street analysts, making it among the most lucrative drugs to come from government research.

It “could generate sales of $1 billion to $2 billion annually”– or it could generate nothing.  It’s too early to know if it’s “among the most lucrative drugs to come from government research” or another promising treatment that dies in clinical trials. When drug trials backed by small companies fail, people lose their jobs, investors lose their money and businesses go under. While we don’t know the result yet, we do know that without companies like Kite these government-funded discoveries would never get out of the lab.

But the government’s share of any Kite success would be modest, much lower than some academic research groups have wrangled in immunotherapy deals worth hundreds of millions of dollars.

NIH has a 5% royalty of Kite’s sales. Under the law royalties must be spent on more research and to reward their inventors, so these funds support NCI’s mission.  The average university royalty rate is 2% according to data from the Association of University Technology Mangers’ 2012 licensing report. NIH cannot take an equity like a university in spinout companies, but that’s irrelevant– Kite isn’t a spinout.  It seems like NCI negotiated a good deal.

Defenders say that the partnership will likely bring a lifesaving treatment to patients, something the government cannot really do by itself, and that that is what matters most.

Critics say that taxpayers will end up paying twice for the same drug — once to support its development and a second time to buy it — while the company reaps the financial benefit.

“If this was not a government-funded cancer treatment — if it was for a new solar technology, for example — it would be scandalous to think that some private investors are reaping massive profits off a taxpayer-funded invention,” said James Love, director of Knowledge Ecology International, an advocacy group concerned with access to medicines.

Federally funded inventions are usually early stage discoveries, far removed from being useful products. The risks and expense of commercial development fall on the private sector. Drug development normally costs hundreds of millions to billions of dollars over many years with huge failure rates.  It was the concern that potentially important medical discoveries were wasting away that led Congress to enact the Bayh-Dole Act creating incentives for industry to partner with universities and federal labs so these inventions could benefit taxpayers. They are not “paying twice for the same drugs” but finally have a system transforming publicly funded research into new products, jobs and companies benefitting the nation. It’s also given the U.S. undisputed leadership in the life sciences.

The debate goes squarely to one of the nation’s most vexing challenges: rising health care and drug prices. Kite is one of a growing number of drug and biotech companies relying on federal laboratories. Analysts expect the company to charge at least $200,000 for the new treatment, which is intended as a one-time therapy for patients.

While the law allows the government to demand drug-price concessions from its private-sector partners, the government has declined to do so with Kite and generally disdains the practice.

Bayh-Dole only allows agencies to “march-in” requiring compulsory licenses if good faith efforts are not being made to commercialize a federally funded invention or if the licensee cannot produce enough product to meet a national security or health emergency (see NIH Director Collins Stands Up to the March in Mob).  Regardless, persistent efforts are underway to coerce NIH into misapplying the law.  That appears to be a goal of this story.

Insisting on lower prices, federal researchers say, would drive away innovative partners that speed the drug-development process and benefit patients. But with the government   doing so much pivotal research, others say that the private sector cannot afford to walk away.

“The market is so reliant on the knowledge and know-how that comes out of the government and academic labs,” said Dr. Aaron Kesselheim, director of the Program on Regulation, Therapeutics and Law at Brigham & Women’s Hospital in Boston. Price curbs, he said, “would not suddenly lead to a total abandonment of this pipeline. It couldn’t possibly.”

Drug makers would be especially unlikely to turn away from immunotherapy, where the promising science has set off a “gold rush mentality,” according to Mark Edwards of    Bioscience Advisors, a company which tracks pharmaceutical licensing deals.

But companies did turn away when this was tried before.  In 1989 NIH was pressured by critics into including “reasonable pricing” language in its Cooperative R&D Agreements (CRADAS) for resulting products.  Six years later NIH Director Varmus announced:  “An extensive review of this matter over the past year indicates that the pricing clause has driven industry away from potentially beneficial scientific collaborations with PHS (Public Health Service) scientists without providing an offsetting benefit to the public.” “Eliminating the clause will promote research that can enhance the health of the American people” he added, rescinding the requirement. Thinking that because industry sees universities and federal labs as valuable research partners we can pull the rug out from under them as they have nowhere else to go is short sighted.  China is targeting our leadership in the life sciences, pouring billions into their universities. They would welcome U.S. biotech and drug companies willing to move research there with open arms.  They could also pull their own bait and switch after pumping our companies of their expertise.

Under the second type of contract, known as a cooperative research and development agreement, Kite provides money to the N.C.I. to support research. Kite is now paying $3 million a year to Dr. Rosenberg’s lab and has provided $7.5 million to it in total since 2012. Based on its regulatory filings, Kite is paying $7.8 million a year for research agreements and licenses in total, with at least $4 million of that going to the cancer   institute and the rest to academic or corporate partners.

The taxpayer has invested, too. Dr. Rosenberg estimated that the government has spent roughly $10 million over the years on what has become KTE-C19. He said Kite’s $3 million a year is about equal to the taxpayer funding in that area and has helped speed research.

The government’s $10 million funding spans many years.  Receiving the same amount of money in just four years through the partnership with Kite significantly increased NCI’s research in a field with tremendous potential for protecting public health.

But government officials say few, if any, other companies were interested in the technology at the time Dr. Belldegrun came calling. Dr. Rosenberg said that before Kite, a few companies, including Johnson & Johnson, had looked at an earlier version of his technology but were wary because treatment involved processing each patient’s cells.

Government-developed technology available to be licensed to companies is posted on the website of the National Institutes of Health. And when the agency intends to grant a license to a particular company, it publishes that in the Federal Register, inviting public comment and possible competing offers. Both steps were taken in the case of Kite, officials said.

In December, 2010 NIH advertised their inventions were available for licensing. They remained so for two years.  NIH published a notice in January, 2012 that it intended to award a license to Kite, inviting public comments. The process was open and fair.  One of the hallmarks of U.S. entrepreneurship is that small companies like Kite seize opportunities missed by larger competitors.  If they succeed, good for them. If they fail, they take the hit.       

Dr. Rosenberg (NCI researcher) professes no interest in the business side of the Kite relationship. He does not own stock in any company, even Kite, though he could get up to $150,000 a year in patent royalties if some of Kite’s efforts pay off.

Federal law mandates that agencies must share royalties with their inventors when patents are licensed. If Dr. Rosenberg made “among the most lucrative drugs to come from government research” then God bless him and his team. It’s potentially lucrative because it might be a significant breakthrough protecting public health. It also might fail.

The N.I.H. does not take equity positions in companies to avoid an appearance of a conflict of interest. So, to critics of the government deals, drug prices are crucial to understanding taxpayer value. After all, they ask, is a drug truly widely available — which is what the government says is its measure of success — if it costs too much for   some people?

Rachel Sachs, an associate law professor at Washington University in St. Louis and expert in innovation policy, said the government had every right to seek price concessions. She noted that the government, through Medicare and Medicaid, was effectively buying its inventions back from itself. “The public is paying for the research and to the extent that many people, if not most, will pay through public insurance, we’re paying again,” she said…

One mechanism to control pricing already exists. It is called march-in rights, and it lets the N.I.H. take back control of a patent on an invention made with federal funding if the   drug is not being made available to the public on reasonable terms. The tool has gone unused.

How many new products don’t “cost too much for some people?” Developing new drugs requires tremendous amounts of time and money with daunting odds against success, which is why only a handful of countries (primarily the US) develop them.  Taxpayers are paying for early stage research, not for costly commercial development.  The genius of our system is that we injected patent incentives into public R&D so companies will assume this risk. When they fail, the company, not the taxpayer, foots the bill.  The goal of the Bayh-Dole Act is commercialization, not having the government second guess pricing decisions.  If Congress wants that, they must amend the law — and assume responsibility if the system collapses.

Meantime, the relationship between Kite and the National Cancer Institute is expanding to develop treatments for other cancers, including one technique Dr. Rosenberg thinks could be used to attack solid tumors like colon, breast and lung cancer.

“The potential for broad applicability is huge,” he said.

That could mean many lives saved and maybe more billion-dollar drugs for Kite and its investors, with the American taxpayer right in the middle of the deal.

While those in the military are often thanked for their service, let’s also thank researchers like Dr. Rosenberg and his colleagues who spend their lives trying to alleviate human suffering.  But that can only happen when their discoveries are commercialized– otherwise they are merely generating interesting research papers.

Rather than deserved accolades, NCI and Kite Pharma got a pie in the face from the NY Times.  A 17th century dramatist wrote: “He that doth public good for multitudes, finds few are truly grateful.”  I hope that isn’t true. But if trying to develop a cure for cancer doesn’t deserve gratitude, what does?

The Author

Joseph Allen

Joseph Allen Joe Allen is a Featured Contributor on IPWatchdog.com, and a 30-year veteran of national efforts to foster public/private sector commercialization partnerships, and author of numerous articles on technology management for national publications.

Joe served as a Professional Staff Member on the U.S. Senate Judiciary Committee with former Senator Birch Bayh (D-IN), and was instrumental in working behind the scenes to ensure passage of the historic Bayh-Dole Act. He is our resident Bayh-Dole expert, and will write frequently about Bayh-Dole and issues surrounding the commercialization of university research.

In 2008, Joe founded Allen & Associates, through which he offers consulting services assisting clients in technology transfer issues, including developing effective communication strategies with national policy makers.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 2 Comments comments.

  1. Simon Elliott January 4, 2017 12:55 pm

    The NY Times article unintentionally makes an apt analogy to solar technology. The Obama administration was savaged for investing $500 million in the solar company Solyndra, which failed. But that would be just a drop in the bucket if the government was paying for the clinical trials of drugs, with average costs per trial (win or lose) of hundreds of millions, hence the averaged cost per successful drug in the order of $1 billion.

    You can make an economic and political argument that the government should be paying for clinical trials. But the government doesn’t pay. Instead, it expects those costs to be borne by industry. Industry won’t invest without profit, and the profit will not exist if the royalty rate is too high.

  2. Chris Gallagher January 10, 2017 10:07 am

    Great post Joe and Simon Elliott (above) is correct. Development of commercially promising federally-funded basic science must be funded by private sector investment. No one is paying twice for the same product. Basic research has many purposes, but it is (and should be) fundamentally different from the applied research, development and distribution required to make it available to the public when promising results occur in university labs. Commercialization public-private partnerships have been economically fruitful since Bayh-Dole was enacted in1980. Encouraging such life science partnerships is a mission -critical component of NIH.