Pity the Patients if Exclusive Licensing is Undermined

We’ve learned from experience that just because a theory’s off base doesn’t mean it won’t take root, particularly when it involves patents and medicine. “No Vaccines Before the Next Zika Outbreak?: A Case for IP Preparedness”  by Professor Ana Santos Rutshman, a faculty fellow in Health Law and Intellectual Property at DePaul University, Co-Director of the Global Healthcare Innovation Alliances at Duke University, and consultant to the World Health Organization, previews  her upcoming UCLA law review article. It could be titled ” Developing Treatments Without Patents: Let’s Give it a Try.”

The article blames exclusive licensing for the lack of a Zika vaccine citing the failed  deal between the Department of the Army and Sanofi. The remedy: banning exclusive licensing for federally supported inventions related to specific diseases while imposing price controls on other life science discoveries.  Before this bandwagon rolls, let’s look at the quality of its construction.

Professor Rutshman observes that potential epidemics cause a spurt in research funding but “as the fear factor begins to decline, so does support for R&D.”  She claims when funding receded as Zika didn’t spread as predicted, a serious obstacle to treatment was revealed– patent licensing:

But Zika is teaching us something new about the role of IP in the development of vaccines through outbreak-spiked funding: we need to look at IP well beyond the realm of patents operating as incentives to prospective R&D players. Transfers of IP rights between R&D entities, if   poorly designed, can hinder the development and the availability of new vaccines (and of drugs in general).

We are seeing the consequences of such a bad licensing deal right now.

The National Institutes of Health and the Biomedical Advanced Research and Development Authority at the Department of Health and Human Services supported the R&D for a Zika vaccine based on an Army invention.  An industry partner was needed for commercialization and only Sanofi expressed interest. Eventually an exclusive license was proposed.

Here’s Ms. Rutshman’s objection:

Having been developed through government funding, the vaccine is subject to §207-§209 of the Patent Act (note: the Bayh-Dole Act) , which regulate the transfer of federally owned inventions. §207 allows an agency to grant both exclusive and non-exclusive licenses. §209, however, establishes that an agency can only grant an exclusive license if exclusivity is “a reasonable and necessary incentive” to bring the innovation to the public. The fact that Sanofi had already received a substantial amount of government money to develop the vaccine makes it doubtful that exclusivity was needed in this case.

The link is to a column by Sen. Bernie Sanders, which missed two points:

  • The government didn’t “develop” the vaccine, the licensee would have to assume considerable risk, and
  • If only one company was interested even with an exclusive license, how could the vaccine have been developed non-exclusively?

Nevertheless, based on her studies on “IP inefficiencies in the context of outbreaks and outbreak-spiked vaccine R&D” Professor Rutshman offers “a few simple solutions.”  Primarily, creating a list of diseases where related federally-funded inventions cannot be exclusively licensed. Here’s a slogan for that “solution:”

She advocates pricing restrictions on drugs developed under exclusive licenses outside the proscribed list, “or at least for outbreak-related technologies.”  But previous “reasonable pricing” requirements for government supported discoveries  didn’t lower drug prices–  they just killed partnerships when imposed on NIH ( see Proposal from Sen. King Won’t Reduce Drug Prices, Just Innovation).  Before anyone blunders down this road again, let’s examine the Zika case.

What halted the vaccine’s development wasn’t “the existence of a sole licensee,” the invention wasn’t licensed. The Sanofi deal fell through because:

  • The vaccine proved more difficult to develop than expected;
  • The Zika epidemic failed to materialize; so
  • The Biomedical Advanced Research and Development Authority shifted support to other priorities.

The Professor’s views aren’t shared by NIH which just announced it intends to exclusively license another Zika vaccine.  Dr. Anthony Fauci, Director of the National Institute for Allergy and Infectious Diseases, discussed the situation with Congressional Quarterly’s Healthbeat News on  Oct. 16, 2017:

… Fauci argued that the pharmaceutical companies take on a significant risk when developing vaccines, especially ones for conditions mainly found in poorer countries. For its Zika vaccine, the NIH put out a call for industry proposals last December. Fauci said that only four companies expressed interest, and once the NIH briefed them on its requirements, only one company made an offer. He said that without an exclusive license, companies would not want to sign on (emphasis added), and dismissed fears about a monopoly situation by noting that there are numerous Zika vaccine candidates in development.

Many companies don’t even want to be bothered with vaccines. They don’t want to be bothered with things that are consumed predominantly by the developing world, because it’s just not a money-maker for them,” he said.  While there were thousands of cases of Zika on the United States mainland last year, they were mostly related to travel to poorer places where the virus was much more prevalent, like Puerto Rico or Brazil…

“I have not seen in my experience, situations in which we were involved in the development of a vaccine, particularly for low- and middle-income countries that really needed it, where the pharmaceutical companies priced it out of their reach,” he said.

California-based PaxVax, Inc., was the one company that made a proposal to the NIH, and comments on the potential for an exclusive license are due by November 13. Fauci said that if another company comes forward with a better offer, they will consider it.”

Companies assuming the risks of commercializing federally funded inventions are one reason why the U.S. leads the world in drug development as shown in this chart from Bloomberg News:  

Reframing the Conversation on Drug Pricing” in the New England Journal of Medicine illustrates the problems with Professor Rutchman’s “solutions. ”

Consider Alzheimer’s disease.  It costs Americans $259 billion annually, an expense that’s rapidly rising. More than 400 clinical trials between 2002-2012 resulted in one approved drug– a failure rate of 99%.  Five Alzheimer drugs on the market do little more than treat the symptoms.  The government spends between $500 million to $1 billion on Alzheimer related research, a sum dwarfed by industry.

If government research results in a promising Alzheimer invention that could cost a licensee two billion dollars to develop in a field with a 99% failure rate, does anyone believe it can be licensed non-exclusively? And what about the demand that exclusive licenses for such inventions include “reasonable pricing” provisions, limiting the cost of a new drug/vaccine in the US to what’s charged in OECD countries? According to the authors, there’s a reason why OECD prices are lower:

It’s a chronic source of irritation for many in the U.S. that other countries get a relatively free ride, while the U.S. shoulders much of the cost of innovation. It’s true that we get earlier access to innovation and have more higher-paying jobs for highly trained individuals in the biopharmaceutical industry, but most people do not see these benefits as a sufficient offset…

We believe that if mechanisms were put in place to level the playing field, pricing would be more equitable across regions of the globe, especially in Canada and Europe. Furthermore, if all the countries of the world paid their fair share for medicines, it would help subsidize the cost of medicines for poorer nations. Currently, this is just a dream, as countries act primarily in their own self-interest rather than under ethical or moral imperatives, and there is no motivation for them to cooperate in subsidizing drug access for developing nations.”

Examining how wealthy nations leave the risks of drug development to us but demand discounted access to the benefits (while often acting morally superior) is a relatively unexplored topic. We already have a surplus of misguided attacks on exclusive licensing, a critical tool for commercializing federally funded discoveries to alleviate pain and suffering. Now we have one more.


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One comment so far.

  • [Avatar for Chris Gallagher]
    Chris Gallagher
    November 1, 2017 11:12 am

    In addition to Joe’s well-founded,documented concerns regarding patients afflicted with today’s incurable diseases, his warnings about misguided congressional efforts that surely will hobble tomorrow’s commercialization of breakthrough life science research are of crucial importance to all engaged in life science research. To avoid a congressional catastrophe, Dr. Fauci’s express analysis of the risk-filled realities of commercializing promising life science should be heeded and echoed on Capital Hill by every participant in our life science innovation ecosystem.