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Policy

'Marching In' on NIH-funded Drugs

Consumer group asks agency to use rights under Bayh-Dole Act to ensure reasonable drug prices

by SUSAN R. MORRISSEY, C&EN WASHINGTON
September 20, 2004 | A version of this story appeared in Volume 82, Issue 38

SOARING
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Credit: PHOTO BY JEFF TRAN
Abbott increased the cost of its drug Norvir by 400% last December, while keeping the cost of Kaletra, which contains Norvir, unchanged, raising issues of unfair business practices.
Credit: PHOTO BY JEFF TRAN
Abbott increased the cost of its drug Norvir by 400% last December, while keeping the cost of Kaletra, which contains Norvir, unchanged, raising issues of unfair business practices.

In 1988, Abbott Laboratories received a National Cooperative Drug Discovery Group for AIDS grant, administered by the National Institute of Allergy & Infectious Diseases at the National Institutes of Health. The $3.5 million, five-year grant supported Abbott scientists in the discovery of the protease inhibitor ritonavir, which was further developed and marketed by Abbott as Norvir. This successful drug, which was introduced in 1996, was thrust into the spotlight when Abbott raised its price in the U.S. by 400% last December.

In many ways, the case of Norvir is a good example of how technology developed with federal funds can be effectively transferred into the commercial sector where it can be developed into a product that benefits countless people. This outcome is, in fact, the goal of the Bayh-Dole Act of 1980--the legislation that governs the transfer of federally funded research from the lab to the marketplace.

The Norvir case, however, has also raised the question of whether Bayh-Dole gives government agencies the right to regulate the price of drugs that are developed with federal funds when pricing abuses are reported. At issue is the language used in the legislation to define the conditions under which agencies can exercise their rights to step in to change licensing agreements.

It is this language that is at the heart of a petition filed with NIH by Essential Inventions, a Washington, D.C., consumer advocacy group. In the petition, Essential Inventions claims that Abbott's price increase for Norvir violates the spirit of the Bayh-Dole law, and it requests that NIH use its rights under the law to make the patents involving the active ingredient ritonavir available to a third party. This third party could then produce a generic drug and make it available to the public at a reasonable price, Essential Inventions argues. Norvir is currently scheduled to go off patent in 2014.

To understand Essential Inventions' petition, it is first necessary to understand Bayh-Dole, which governs these activities. Bayh-Dole was put in place 24 years ago to give universities and businesses the ability to patent and hold the rights to inventions they make with federal funding. The institutions can then license the invention to a third party, giving preference to small businesses, for commercial development. The government retains a nonexclusive license to the invention, meaning the government is free to use the resulting patented material without paying a royalty. And most important to the Norvir case, the government also keeps the right to step in and issue a license if the benefits of the patented technology are not being realized--referred to as "march-in" rights.

But the government cannot just march in as it pleases. The legislation requires that the patent holder make the invention available to the public on "reasonable terms" and sets forth four conditions to determine if this criterion is violated. If any one of the four conditions is not met, then the government agency has the authority to act.

As outlined in Section 203 of Title 35 of the U.S. Code, the government can march in and ensure a license is issued if the patented technology is not being made available to the public in a reasonable time frame. In other words, the patent holder or its licensees simply cannot put federally funded inventions on a shelf to collect dust.

THE LAW also allows for these rights to be exercised if the patent holder or its licensees are not able to meet emerging or existing public health or safety needs.

The final two conditions--which are not at issue in the Norvir case--cover the instances where the patent holder or its licensees are unable to meet conditions specified by federal regulations or if the product will not be made in the U.S.

Requests to government agencies such as NIH to exercise their march-in rights under Bayh-Dole are rare and have never resulted in any formal action from the agencies. In the past, these requests involved situations where products weren't making it to market in a reasonable time, an NIH official notes.

For example, in 1997, the pharmaceutical company CellPro Inc. asked NIH to use its march-in rights with respect to an invention related to stem cell technology made by Johns Hopkins University and licensed to Baxter Health Care Corp. At issue was a device for which Baxter failed to take reasonable steps to bring it to market, according to the CellPro petition.

"This case involved two parties that were competing with each other to get a product on the market," an NIH official explains. In fact, CellPro filed the petition only after a U.S. district court ruled that the device marketed by CellPro was a willful infringement of the patents licensed to Baxter. NIH ultimately decided that march-in proceedings were not necessary because Baxter had a device available under premarket approval.

The grounds for the Norvir petition filed this year by Essential Inventions are different, however. Norvir is a drug that can be used by itself to treat HIV or as a booster drug to increase the effectiveness of other protease inhibitors. Last year, Abbott raised the price of this drug by 400% in the U.S., which impacted the cost of HIV regimens that include it. The price increase, however, did not apply to another Abbott HIV drug, Kaletra, which contains Norvir.

In addition to its Norvir petition, Essential Inventions has filed a second petition related to unreasonably high drug pricing. That petition focuses on Pfizer's glaucoma drug latanoprost (marketed as Xalatan), which is being sold at a price in the U.S. that is two to five times higher than that in Canada or Europe. This drug was developed in the early 1980s at Columbia University and licensed to Pharmacia Corp., now Pfizer. NIH, through the National Eye Institute, contributed more than $4 million to support the development of this drug.

"IN GENERAL, our view is that the prices for products that were developed with taxpayer money should not be multiply more expensive in the U.S. than they are in other industrialized countries," says Robert Weissman, general council for Essential Inventions. "Under Bayh-Dole, you have to make things available on 'reasonable terms,' " he explains. "What else does it mean besides price?"

Rai
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Credit: PHOTO BY GREG PLACHTA
Credit: PHOTO BY GREG PLACHTA

The intent of the law is not so clear-cut to those who have studied it, however. "The question of whether when Congress talked about making federally funded inventions available to the public on reasonable terms they contemplated that it would include pricing is a very disputed question," explains Arti K. Rai, professor of law at Duke University. "From the legislative history, it's not entirely clear."

"When I first heard about the suggestion of reasonable pricing, I thought it was ridiculous," says John Raubitschek, patent counsel for the Department of Commerce and coauthor of a review paper in preparation on the issues of march-in rights. But he admits, after taking a closer look, it's not so straightforward. "From the history of Bayh-Dole, it's fairly clear that the focus was on utilization as opposed to the benefits being available on reasonable terms. It's just that somehow utilization shifted to the idea of reasonable terms and the question is, How far should you take it?"

To help decide if a formal march-in hearing was warranted in the Norvir case, NIH held a public meeting in May to gather information (C&EN, May 31, page 6). At that hearing, Essential Inventions presented its case that the phrase "reasonable terms" in the law was intended to mean reasonable price and, therefore, NIH should exercise its march-in rights. Abbott, on the other hand, defended its 400% price increase by noting that the drug is still the "lowest priced drug in its class at its common dose and remains the lowest cost component of a typical HIV regimen."

Also at the NIH meeting was former Indiana Sen. Birch Bayh, cosponsor of Bayh-Dole, who offered his insight into the legislation. He said that the "clear intent" of this law was to bring inventions to market, and march-in rights were intended to ensure the public's health and safety needs were met, not to set prices.

Although legally Bayh's opinion is not binding, Rai notes that "NIH probably considered that opinion quite heavily in determining what to do." And it appears that that was the case.

In August, NIH released a statement from agency Director Elias A. Zerhouni saying march-in proceedings were not warranted in this case (C&EN, Aug. 9, page 12). Zerhouni noted that Norvir has been publicly available to patients for eight years and there was no evidence march-in could alleviate any health or safety needs not already reasonably satisfied by Abbott.?

"NIH agrees with the public testimony that suggests that the extraordinary remedy of march-in is not an appropriate means of controlling prices," Zerhouni wrote. "The issue of drug pricing has global implications and, thus, is appropriately left for Congress to address legislatively."

If the decision had gone the other way, it would have undercut the incentive system that Bayh-Dole gives, Raubitschek says. "Bayh-Dole is a balancing of interests and if you affect the balance, the whole thing could get out of kilter. To the extent that NIH chose not to have a march-in rights proceeding, I think the balance of Bayh-Dole is retained," he says.

However, NIH's decision not to pursue march-in proceedings has caused some members of Congress to join Essential Inventions in calling on the agency's parent, the Department of Health & Human Services, to reconsider the issue. To date, HHS has not replied.

The Federal Trade Commission was also asked by Congress to look into whether Abbott violated any antitrust laws, but FTC decided not to open an investigation.

With respect to Essential Inventions' petition dealing with Xalatan, the verdict is still out. An NIH office tells C&EN that a decision is expected soon but would not elaborate as to what the decision would be.

These two cases highlight a broader issue in which Congress has been interested for years. Most recently, language in the Conference Report of the Consolidated Appropriations Act of 2004 requested that NIH prepare a report on the affordability of inventions and products developed with federal funds.

In July, NIH released a report to Congress called Affordability of Inventions & Products. It notes that the federal government holds rights to only a few commercial products and inventions. In fact, the report cites the 2003 General Accounting Office (now the Government Accountability Office) report "Technology Transfer Agencies' Rights to Federally Sponsored Biomedical Inventions" (GAO-03-536), which found that only five of the top 100 pharmaceuticals procured by the Department of Veterans Affairs in fiscal 2001 involved active government rights.

"Even in those few cases in which an NIH invention is an identifiable part of a final product, the invention would typically be one of numerous components that would go into building the product," the report says. "A good analogy would be that of an automobile, where different components are invented and manufactured by a variety of entities. Just as the provider of any one component of an automobile cannot dictate the cost of the final vehicle, the provider of a single technology in the development of a therapeutic drug cannot dictate the final cost of the drug," the report explains.

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