The Pharmaceutical Pricing Problem: A Call to Exercise Bayh-Dole Act March-In Rights Heard?

"finance & Insurance" Bayh-Dole Act drug pricing march in rights patents pharmaceutical pricing presidential race

The Pharmaceutical Pricing Problem: A Call to Exercise Bayh-Dole Act March-In Rights Heard?

The United States is struggling with the high cost of healthcare.  Notably, one cause of the high cost is the price of pharmaceuticals.  The importance of the issue and the pressure is exemplified by the focus of the various presidential candidates.  Not only are the Democratic candidates Bernie Sanders and Hilary Clinton concerned, but so is Republican candidate Donald Trump.  Interestingly, California, through an initiative, may directly confront pharmaceutical pricing for many Californians. 

One critique of the current system is that many pharmaceuticals were developed using government funding.  Thus, at least partially, the development costs to create a pharmaceutical may have been borne by the public.  Then, the argument goes, the public must pay again (in many cases) through the supra-competitive price set by a pharmaceutical company because of a patent. The publicessentially pays twice for the pharmaceutical.  The Bayh-Dole Act essentially allows this to happen.  However, the counter argument has been that without the patent private industry would be unwilling to invest in commercializing the invention.  We would end up with the pre-Bayh-Dole Act problem—inventions languishing on the government shelf.  The government, through the Bayh-Dole Act, does retain some rights in government funded inventions.  One such right is the ability to exercise march-in rights.  March-in rights can be exercised in the following situations:

(a) With respect to any subject invention in which a small business firm or nonprofit organization has acquired title under this chapter, the Federal agency under whose funding agreement the subject invention was made shall have the right, in accordance with such procedures as are provided in regulations promulgated hereunder to require the contractor, an assignee or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the contractor, assignee, or exclusive licensee refuses such request, to grant such a license itself, if the Federal agency determines that such-- 

(1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;

(2) action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees; . . . .

Section 201 in 35 U.S.C., subsection (f) defines “[t]he term “practical application” [to] mean[] to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms.”  Part of the problem is defining what are “reasonable terms.” Some scholars have rejected arguments that “march-in” rights should include concerns with pricing.  Additionally, the argument against the exercise of “march-in” rights is that the uncertainty interjected into the ordinary process of the Bayh-Dole Act would provide a disincentive for private industry to invest in the commercialization of Bayh-Dole Act funded inventions.  To date, March-in rights have never been exercised. 

Notably, over 50 congresspersons sent a letter to the Director of the National Institutes of Health [NIH] requesting that the NIH issue guidelines defining when “march-in” rights should be utilized.  The belief is apparently that the existence of guidance may provide an incentive for pharmaceutical companies to set prices “reasonably” because of fear of the actual exercise of rights.  Apparently, right now, the belief is that they will never be exercised. On March 16, in congressional hearings, BNA reported that the Director of the NIH noted that they are “open” to exercising the rights.  Will the indication of “openness” to exercise rights cause the pharmaceutical industry to pause before setting the price of a government funded pharmaceutical?  Is current pressure from presidential candidates and from a state like California enough to rethink the setting of the price of pharmaceuticals? 

The U.S. Presidential Race and Pharmaceutical Pricing (and More)

"finance & Insurance" Bernie sanders drug pricing market exclusivity patents prescription drugs sanders trump

The U.S. Presidential Race and Pharmaceutical Pricing (and More)

The U.S. Presidential Race is pressing ahead.  I’ve written a bit about Donald Trump and the value of his name, here.  Trump has continued to receive a mixed response to his ideas about immigration and has come under increased fire from his party.  Notably, (mostly) conservative commentator Charles Krauthammer recently confounded conservative talk-show host Bill O’Reilly of Fox News by making the case that Trump’s “rounding people up for deportation and possible reimportation” was not only illegal, but morally wrong (and prohibitively expensive).  Krauthammer pointed to the heart-breaking Elian Gonzalez episode.

The number two democratic candidate, Senator Bernie Sandershas introduced a bill in Congress designed to lower the cost of pharmaceuticals (press release).  The fact sheet is here.  While the bill apparently allows the negotiation of drug prices under the Medicare Part D prescription drug program, it also allows prescription drug importation from Canada.  Notably, “The bill also directs the United States Trade Representative to reject provisions in the negotiation of any trade agreement that would raise drug prices in the U.S., extend periods of patent exclusivity, or remove flexibilities in U.S. law regarding drug pricing.”  Additionally, the bill:

would prohibit anti-competitive arrangements between brand and generic drug makers where the brand name drug manufacturers pays the generic manufacturer to delay bringing their generic alternative to market. According to the FTC, these anticompetitive deals cost consumers and taxpayers at least $3.5 billion in higher drug costs every year. In FY 2012, the FTC found that there were 40 potential pay-for-delay deals involving 31 branded products with combined U.S. sales of $8.3 billion.

Finally, the bill also would terminate any market exclusivity if fraud is demonstrated, which would include “off-label promotion, kickbacks, anti-monopoly practices, and Medicare fraud.”  Interestingly, the bill further requires:

pharmaceutical companies to publicly report information that affects drug pricing, including the total costs incurred for research and development and clinical trials, as well as the portion of drug development expenses offset by tax credits or paid by federal grants.

The legislation also requires drug companies to report not only the price information charged to federal payers, but also requires companies to submit prices, profits, and sale information in other countries in which those products are sold.

The additional information will likely set the stage for more criticism about the current system.  More information about the subsidization of federal research through the Bayh-Dole Act for prescription drugs, particularly biologics, will be interesting.  The bill in its entirety can be found, here.