Knowledge Ecology International Letter Misleads on March-In Rights

“To claim, as KEI and other critics do, that the public is paying for the research and development of drugs using taxpayer dollars, is at best, disingenuous and at worst, deliberately misleading in order to elicit a desired political response.”

https://depositphotos.com/6496641/stock-photo-looking-at-the-opinion-section.htmlRecently, Knowledge Ecology International sent to Congress a letter objecting to the draft “Green Paper on Unleashing American Innovation” disseminated by the National Institute of Standards and Technology (NIST) in December, 2018. The KEI letter was signed by 10 other organizations* (the Organizations).

The letter, unfortunately, is full of misstatements, distortions, falsehoods and disingenuous arguments. Examples include:

“ . . . proposals recently published by NIST . . . are designed to limit the government’s rights in patented inventions;

“NIST is proposing regulations that would greatly narrow the government’s ability to curb excessive prices on drugs . . . that were invented on federal grants and research contracts . . .”;

“[The] government’s royalty-free right to inventions . . . would be narrowed [and] prevent the government from using the royalty-free right to provide affordable drugs to Medicare . . .”;

[The false claim that] “March-in rights on federally-funded inventions [have been] available . . . to curb excessive prices on government funded inventions.”

It would be easier to focus on the letter’s one accurate statement:  that high drug prices are a serious concern for people everywhere. It is very unfortunate that KEI, in my opinion, utilizes tactics which continually sacrifice fair and constructive dialog in favor of apparently achieving goals “by any means necessary.”

The most disturbing element of the letter is KEI’s advocacy of inappropriate and unjustified use of government march-in rights under the Bayh-Dole Act as a purported means of controlling drug prices. In doing so KEI and the Organizations are threatening medical advances and thereby undermining their own missions.

A Complete Misunderstanding

The KEI and Organizations’ advocacy for march-in ignores and undermines the role and importance of universities (and academic teaching hospitals) in the innovation pipeline that leads to new therapies that address critical health needs. The letter’s objections demonstrate a complete misunderstanding of drug development and how academia and academic technology licensing to industry contribute to public health.

Consider these points:

  • The Bayh-Dole Act does have a march-in provision that can be deployed in four situations:
    • 1- when a contractor (e.g., a university) or assignee has not taken, within a reasonable time, effective steps to achieve practical application of a subject invention;
    • 2- to alleviate health or safety needs which are not reasonably satisfied by the licensee, e.g., when there are not adequate supplies of a critical licensed product available;
    • 3- to meet the requirements for public use specified by federal regulations; or
    • 4- when an exclusive licensee has not adhered to U.S. manufacturing requirement regulations.

The law does not address nor was it ever intended as a mechanism to control prices.  NIH has, for that reason, rejected all march-in requests to date. KEI’s endlessly repeated claims that march-in is an effective and legitimate price-control  mechanism does not make it true.

  • Critics like KEI say that taxpayers are paying twice for drugs—first, when the federal government funds university research that led to a new chemical entity; and second, once a therapy is approved, for the resulting expensive medicines. Certainly KEI and the Organizations know this is untrue. Tufts University estimates the cost of bringing a new drug to market at $2.6 billion. . The average federal grant to an NIH-funded university researcher is $520,000, thus taxpayers have paid only a tiny fraction of the total cost. To claim, as KEI and other critics do, that the public is paying for the research and development of drugs using taxpayer dollars, is at best, disingenuous and at worst, deliberately misleading in order to elicit a desired political response. Take the drug Xtandi® as an example. It is an admittedly expensive therapy, but less than $2 million in federal money was invested in related early work at UCLA versus almost $900 million invested by companies like Astellas that developed it (Ashley J. Stevens, unpublished data).
  • Related to the preceding point, those who advocate expanded use of march-in rights are ignoring other facts about drug discovery and intellectual property (IP) protection. Their demand that the government march-in and grant additional licenses to other commercial entities is a misleading diversion. Such a move would have little effect for two reasons: first, a march-in request would not occur until a product is “unreasonably” priced for sale so it will take other licensees years to catch up with the first licensee in the manufacturing and distribution.  Therefore a competing, allegedly cheaper therapy will not arrive quickly. Second, drugs and therapies typically are protected by a bundle of associated IP rights. The original licensee will have established the numerous additional patents, know-how and trade secrets needed to justify the huge expenditures required for Investigational New Drugs through Phase III clinical trials. Forcing additional licenses will not provide a second licensee with the necessary combination of IP protections nor will it result in the early introduction of competing, less expensive products.
  • Finally, by supporting a false narrative about the use and alleged benefits of a “march-in strategy,” KEI and the Organizations are undermining the contributions of academia to innovation in medicine. Why? Because, for the reasons stated above, march-in will have no positive effects, but will have one substantial and provable negative effect. It will ensure that pharmaceutical or biotechnology companies will avoid licensing and developing any therapeutic that has been “tainted” with federal money given to a university grantee. This outcome was shown in the early 1990s when NIH CRADAs (Cooperative Research and Development Agreements) contained a “reasonable pricing” provision for resulting products. The result was a sharp drop off in the number of public-private partnerships in areas including drug development. As soon as the clause was removed and the policy changed by Harold Varmus in 1995, the number of partnerships increased significantly and quickly.

Undermining Innovation

A 2011 paper published in The New England Journal of Medicine reported that 153 new FDA-approved drugs, vaccines or new indications for existing drugs were discovered through research carried out in public sector research institutions during a 40-year period.  Follow on research indicates that number has risen to 285. (Ashley J. Stevens, unpublished data)  What if, during that period, the kind of march-in rules advocated by KEI, and unfortunately endorsed by the Organizations, had been in place? It is likely that few, if any, of these advances would have been developed because industry will avoid investments where outcome and profitability could be threatened by political considerations. The recent Information Technology & Innovation Foundation (ITIF) report discusses the life science innovation cycle and the key role played by Bayh-Dole. It notes the Act’s catalytic role in stimulating innovation across many sectors, especially in the life sciences. Further, it states that calls to use march-in provisions to control drug prices threaten to undermine a successful innovation ecosystem and reduce the pace of U.S. biopharmaceutical innovation.

There are legitimate strategies and initiatives that could address high prices and the inequities extant in health delivery in the United States and globally without threatening IP rights and university innovation. However, the contribution of academia in the drug development innovation pipeline and the critical role of academic-industry licensing arrangements are real and indispensable.

KEI is propagating, and the Organizations are endorsing, the false argument that Bayh-Dole march-in is a legal and effective way to lower drug prices. This threatens and undermines one of the most effective and proven ways that new therapies and medical advances reach the public:  out-licensing of promising early stage academic discoveries for investment and development by the commercial sector.

* The Organizations include: Health GAP; Housing Works; Doctors Without Borders USA; Public Citizen; Social Security Works; The Institute for Agriculture and Trade Policy; Union for Affordable Cancer Treatment; UNITE HERE; Universities Allied for Essential Medicines; and Yale Global Health Justice Partnership.

 

The Author

Frederick-Reinhart

Frederick-Reinhart is a past president of the Association of University Technology Managers (AUTM), a global professional organization that advocates for development and commercialization of academic discoveries and trains the skilled practitioners who facilitate the movement of novel technology to the private sector for further development. He does not receive compensation from nor hold equity in any individual pharmaceutical or biotechnology company except such equity as may be part of a mutual fund. He has never received royalties or other compensation resulting from the sale of any therapeutic drug or vaccine.

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 10 Comments comments. Join the discussion.

  1. John Fraser May 13, 2019 7:37 am

    Thank you Fred Reinhart for taking such a clear stand against the continuing KEI request for March-In Rights using Bayh-Dole.

    The definition of insanity is doing the same thing over and over again and expecting a different result. These words are usually credited to the acclaimed genius Albert Einstein.

    Seems an appropriate observation in this case.

  2. EG May 13, 2019 7:54 am

    Hey Fred,

    What KEI says in this letter is nothing new from them. And as you correctly point out, what KEI says about march-in-rights is utterly FALSE, deserving of no credibility.

  3. James Love May 13, 2019 10:52 am

    Will IP-Watchdog alow me to publish a rebuttal to Reinhardt’s attack on our letter?

  4. Eileen McDermott May 13, 2019 11:04 am

    Absolutely, James – please email me at emcdermott@ipwatchdog.com.

  5. Richard May 13, 2019 11:43 am

    Very early, my father taught me to consider the source when evaluating any argument. A valuable lesson, of which I am often reminded when reading blogs on patent issues. Of course AUTM opposes the use of march-in rights, which could impact its members’ licensing revenues. But where is the data establishing the impact of exercising such rights? None are offered, leaving untested the proposition that a selective exercise of such rights in egregious cases would stifle innovation in drug discovery and development. Meanwhile, AUTM assures us with a wave of the hand that there are “legitimate strategies” that could address skyrocketing drug costs. Really? What are they, and what new legislation would be needed? How likely is it that such legislation will be passed in a divided Congress? And how long will it take?

    To be clear, I am not advocating the widespread use of march-in rights as a price control mechanism — it is too blunt an instrument. But the path we are on right now — in which pharmaceutical companies compensate through pricing for a discovery and development process that is so inefficient that the industry IRR on R&D is now below 2% — is unsustainable. And for those with serious disease who cannot afford even the co-pays and deductibles on drugs that cost hundreds of thousands of dollars each year, it is life-threatening. What is the value of the therapeutic innovation that AUTM supposedly seeks to protect if patients cannot afford the therapies? As part of a larger strategy designed to reduce drug prices, I believe that the selective use of march-in rights should be seriously considered. When the people cannot afford bread,dogmatically insisting that innovation incentives must be inviolate is like telling them to eat cake.

  6. Fred Reinhart May 13, 2019 4:42 pm

    Thanks for those comments Richard. Let me respond about a couple of things. First, I no longer speak for AUTM but can point out that less than 0.5% of all university licenses generate >$1MM. Academic technology is hardly a lucrative endeavor and profits are not what drives TTOs. Some schools, like Northwestern with Lyrica, have received huge royalties which are then plowed back into scientific research and education and which, BTW, occurred only because millions of people benefitted from the drug. RE: the effects of March-in, two things. One, by asking for evidence that March-in is not bad, you are essentially asking TTO advocates to prove a negative. Two, as a colleague said recently, once you let the March-in horse out of the barn, you won’t get it back in and the damage is done. The CRADA example I cited is instructive. This post is already long so leave it to others to name some potential legislative strategies but would like to make one final point to show the fallacy of those like KEI that advocate for March-in: they claim the government via tax dollars paid for the development of drug X now sold by Company Y and should therefore be able to rein in its unreasonable price. OK. So how much did the government actually contribute? Let’s say a $2MM grant to PI Smith. Fine. If Company Y simply paid back that amount, tell me why that level of compensation doesn’t make everyone even.

  7. Richard May 13, 2019 9:49 pm

    Fred, thanks for your reply. While I do not agree w/ your arguments for a variety of reasons — CRADA contracts, for example, are a fundamentally different animal than NIH RO1 and RO2 grant funding — I think they miss the point. From price-fixing indictments to pay-for-delay schemes to complex and opaque discounting arrangements, there is significant misbehavior in the pharmaceutical industry that has contributed to the current problem. Neither litigation nor even prosecution have been effective remedies — Daraprim, the drug whose price was hiked 5000% by Martin Shkreli, who is now serving a 7 year prison sentence, is still selling for over $750 per pill. If the leverage created by the exercise — as opposed to the mere threat — of march-in rights puts the fear of God in pharmaceutical bad actors and their boards of directors and shareholders, I think that’s a win, and one that would not entail the kind of structural “reforms” to the patent system that would apply more broadly and do more harm than good.

  8. zoobab May 14, 2019 10:48 am

    The Bayh-Dole Act is designed to turn universities into patent trolls, and make the public pay multiple times.

    Research paid by public money should be in the public domain, end of story.

  9. Anon May 14, 2019 3:37 pm

    zoobab,

    You are wrong on several fronts, and appear to use terms for their “buzz word” effect rather than the terms reflecting their proper meaning.

    Any point that you think that you may have is lost in the noise of your post.

  10. James Love May 16, 2019 7:59 am

    IPWATCHDOG graciously allowed me to respond.

    I primarily focused on two of the central arguments that Reinhart, Stevens, Frazer and other like minded critics of march-in rights frequently offer: (1) the claim that public sector investments in products are trivial, relative to private sector investments on products, and (2) that the NIH’s 1989 to 1995 experience with the fair pricing clause in CRADAs was evidence against using march-in rights to address excessive prices.

    https://www.ipwatchdog.com/2019/05/15/jamie-love-responds-criticism-knowledge-ecology-international-letter/id=109239/

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