For over 100 years, the U.S. has believed that investments in basic research were important for the public good – for our defense, for our health and for our economic prosperity. Furthermore, for these investments to be of value, any progress has to be broadly disseminated and made available so that it can contribute to the common good. Back in 1980, Congress was concerned about U.S. industry competitiveness believing that intellectual property being generated by government funds was not being utilized. This led to the passage of the Bayh-Dole Act which enabled small companies and universities to retain title to inventions made under federally funded research programs. This was instrumental in encouraging universities to participate in technology transfer activities thereby broadening access to research breakthroughs.
While Bayh-Dole was an important first step, there was still a need to encourage the timely transfer of technology from government labs to the private sector. Thus, in 1986 Congress passed the Federal Technology Transfer Act (FTTA) which allowed government labs like the NIH to enter into agreements with biopharma companies with the vision that collaborative research between NIH scientists and industry scientists would blossom.
Unfortunately, that didn’t happen. This legislation required that the price of any new drug that emerged from such collaborations had to reflect the taxpayers’ investment. In effect, the government would have the right to control the price of these medicines. Naturally, industry avoided such deals like the plague.
That was all changed by NIH Director and Nobel Laureate, Dr. Harold Varmus, who recognized the problem and ended the policy. As a result, the NIH-industry relationship began to flourish thereby spurring the discovery and development of drugs for AIDS, cancer and rare diseases.
The importance of this legislation was touted by none other than the late Senator Bob Dole himself in an op-ed he penned in 2020. Prior to Bayh-Dole, the government licensed just 5% of the 28,000 patents it retained as private firms had no incentive to partner with government research institutions. However, since its passage, the Bayh-Dole Act has bolstered U.S. economic output by $1.7 trillion, supported 5.9 million jobs and led to more than 13,000 startup companies. But, perhaps his most important point follows.
“Many research institutions and universities are responsible for the kind of foundational discoveries and inventions that ultimately lead to innovative cures and products. But it takes a massive investment and additional research and development by the private sector to bring these innovations to market. For every dollar the government spends, industry spends 10 – 100 times that amount.”
So, what’s inspiring this trip down memory lane? Last week, the Biden administration announced that it will try to exercise march-in-rights for costly drugs. As White House Economic Advisor, Lael Brainard, said in a press call: “When drug companies won’t sell taxpayer funded drugs at reasonable prices, we will be prepared to allow other companies to provide these drugs for less. If American taxpayers paid to help invent a prescription drug, the drug companies should sell it to the American public for a reasonable price.” Much as it has already done with the introduction of price controls via the Inflation Reduction Act, the government is seeking to control drug prices in yet another way. And, of course, “reasonable prices” means something different in Washington than it does in the halls of industry.
Ironically, the government is claiming that march-in-rights are allowed under the Bayh-Dole Act. But this is a misinterpretation of this legislation. Only in those rare cases in which companies have not made a good faith effort to commercialize the research is the government allowed to confiscate the patent and give it to others to develop. In fact, Bayh and Dole maintained that their law “makes no reference to a reasonable price that should be dictated by the government” and that march-in rights are “not contingent on the pricing of a resultant product or tied in the profitability of a company that has commercialized a product that has resulted in part from government-funded research.”
However, this all may be moot. A new study from Vital Transformation (VT) shows that the contributions by government institutions to the discovery and development of new medicines is grossly overestimated.
“New research released by Vital Transformation finds the pharmaceutical industry is the dominant source of innovation for funding new FDA approved medicines. By studying a cohort of 361 new FDA approved medicines and patents protecting the assets between 2011 – 2020, VT found that 92% of the medicines they researched were directly discovered by industry and have no government interest statement (GIS), federally funded co-development, or federal partnership program associated with any patents core to the development of the medicine.”
VT’s data shows that there are still 29 drugs that have some government ties. However, politicians make it seems like all biopharma does is capitalize on the work of the NIH and then simply manufacture new medicines. This isn’t anywhere close to reality.
So, it appears that the Biden administration’s latest attempt at price controls is not really rooted in existing legislation. In addition, the view that the government has march-in-rights to a vast majority of proprietary drugs is also unfounded. Yet, just the announcement of such an attack on the biopharma industry is problematic. As said at the outset, an important role of government is to invest in basic research to benefit the American people and even the world. However, it shouldn’t be punitive when it comes to entrepreneurs capitalizing on research results meant to improve the human condition. The government doesn’t set prices for iPhones despite the fact that much of the early technology used in these phones emerged from government funded research. Drugs should be priced based on the value they bring to the healthcare system and not some whimsical number arrived at by a bureaucrat with little understanding of the costly and challenging drug R&D environment.
The irony in all this is that it was the biopharma industry that miraculously saved us from Covid-19 a mere three years ago. Back then, the industry was praised for these life-saving achievements. That feeling of goodwill lasted all of nine months. These renewed attacks on biopharma continue to erode its reputation, thereby handicapping the industry’s ability to develop new cures and to confront any new pandemic. That will negatively impact us all.
(John L. LaMattina is the former president of Pfizer Global R&D and is the author of three books including: “Pharma & Profits: Balancing Innovation, Medicine, and Drug Prices.”)
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