Jamie Love Responds to Criticism of Knowledge Ecology International Letter

By James Love
May 15, 2019

“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.”

https://depositphotos.com/13449947/stock-photo-debate.htmlOn 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work at UCLA,” which he compared to $900 million by “companies like Astellas that developed it,” citing Ashley Stevens’ unpublished data.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.

 

The Author

James Love

James Love is Director of Knowledge Ecology International. His training is in economics and finance, and work focuses on the production, management and access to knowledge resources, as well as aspects of competition policy. The current focus is on the financing of research and development, intellectual property rights, prices for and access to new drugs, vaccines and other medical technologies, as well as related topics for other knowledge goods, including data, software, other information protected by copyright or related rights, and proposals to expand the production of knowledge as a public good. James Love holds a Masters of Public Administration from Harvard University’s Kennedy School of Government and a Masters in Public Affairs from Princeton’s Woodrow Wilson School of Public and International Affairs.

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 6 Comments comments.

  1. http://www.vigzig.info May 16, 2019 6:08 am

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  2. John Fraser May 16, 2019 9:42 am

    I have been active in US academic technology transfer activities for several decades and followed the many KEI initiated March-In Rights requests over the years.

    Each request has been based on the statement that allowing March-In Rights under the Bayh-Dole Act for the particular situation addressed will reduce Drug Costs in the US. Each such request has been carefully reviewed by the appropriate people in the government agencies responsible for such reviews. And, thus over the many years by different people in different administrations.

    All came to the same conclusion: That none of the requests fulfilled the stated written requirements sufficiently to grant the March-In Rights. While people may believe that the requests are well-meaning, none of the requests is believed to meet the requirements set by the creators of the Bayh-Dole Act. Furthermore, the original creators of the Act – Senators Bayh and Dole have gone on public record that their legislative language was not intended to address Drug Prices at all.

    My suggestion is this: Let’s give this whole Bayh-Dole/March-In Rights argument a rest. Overall, nobody with the power of decision making believes it will work in the cases presented, over the years. Let’s stop beating a dead horse.

    Rather than relying on a piece of Legislation which is now over 45 years old, to control a few of the factors responsible for Drug Prices in the US, let’s try something more modern. (btw, would you tweak a dial-up modem to get better Internet access these days?).

    Instead, try this: The Wall Street Journal today (May 16) carries an article entitled: White House Wants Patients to Know Health-Care Prices Up Front (Administration wants to require up-front disclosure of prices patients will pay for treatment—and rates insurers negotiate with providers).

    This isn’t the first time an administration has tried to come to grips with Drug Prices, it is simply the latest. BUT it seems to focus on the one area that everyone agrees on: Make Pricing more transparent (and in addition, include Drug Prices as part of the larger problem – Overall Health Care Costs and Access) !

    So, let KEI and AUTM take some small credit for getting the real issues on the table. Let’s abandon the silly March-In Rights augment which got us here and shift gears and address the factors that really influence Prices.

  3. James Love May 16, 2019 11:47 am

    John, Senator Bayh argued in favor of march-in being used to address unreasonable prices for health care, years before he, later working as lobbyist (including for a firm representing Abbott, during ritonavir case), took the contrary position (in a letter linked to this blog). Dole was doing ads for Pfizer when he offered an opinion on legislative intent.

    The AUTM, etc lobby against march-in has been pretty robust. But why did AUTM recently ask for changes in regulations to prevent march-in from being used in these cases? I don’t think AUTM or others are confident that march-in will lie dormant forever. The abuses are too extreme to ignore.

  4. Anon May 16, 2019 1:13 pm

    BUT it seems to focus on the one area that everyone agrees on: Make Pricing more transparent

    Sorry John, but you must have missed several of the naysayers that responded to the very call of clarity that I have made across several of the Pharma-price articles on this blog over the last week or two.

    It is rather unbelievable (to me), but there are actually people getting “upset” with calls for clarity.

  5. Fred Reinhart May 16, 2019 9:31 pm

    Jamie, your claim that AUTM asked for changes in regulations “to prevent March-in from being used” is not correct. I believe AUTM and its members (and many others possibly even including federal agencies) support clarifying language for one reason: to put an end to the flawed interpretation of B-D by KEI and others and the resulting multiple unfounded march-in requests. NIST’s Green Paper provisions aren’t taking something away, rather they are stating once and for all that the ability you claim for march-in, that it can be used to control prices, was never there in the first place. The same goes for the KEI claim that the government’s retained rights can be used to compete with a university’s licensee to force lower prices. That has never been the case. I agree with John Fraser that we need to move on. There are over 20 bills before Congress that are attempting to address high drug prices. Let’s hope one of them can actually make a difference.

  6. Richard May 17, 2019 4:20 pm

    The blog posts and comments seem to conflate two separate issues. First, does the specified provision of Bayh-Dole, which requires a party taking title to federally-funded inventions to make the patented technology “available to the public on reasonable terms,” apply to pricing? Second, if it does, would it be good policy to use the statute in such fashion?

    While I certainly have a point of view on the first point, I think that the issue is uncertain, given the seeming conflict between the plain language on the one hand and the legislative history on the other. Seems like an issue that should be decided by the courts, and the best and perhaps only way to obtain clarification is by way of a challenge to a priced-based assertion of march-in rights. Are there really no drug pricing outrages associated with federally-funded patents that could be used as a test case?

    With respect to the second issue — whether using march-in rights to impact pricing is good policy — I can see arguments on both sides. As I’ve said in earlier posts, I have no problem w/ using march-in rights to discipline greedy pharma companies in egregious cases, though I hardly think it an ideal tool to apply more broadly. But let’s have that debate on its merits, and not obscure it behind a legal issue that can and should be resolved one way or the other.