Cancer Drug Price-Cutting Pitch Mulled by HHS as Industry Waits

The Biden administration is weighing a drug pricing control proposition that attorneys and industry watchers say could bolster efforts to lower prescription costs even if it isn’t adopted.

Astellas Pharma’s blockbuster cancer drug Xtandi is a prime candidate for the Biden administration to try seizing drug patents to lower its cost. That’s the argument Knowledge Ecology International (KEI) and other interest groups are making to the Department of Health and Human Services, adding that under the proposed approach, the government would also be off the hook for paying the drugmaker royalties.

Astellas is no stranger to attacks over the drug’s price, since Xtandi’s average list price can come out to over $14,000 a month for someone without insurance. KEI and others have previously petitioned the government to lower Xtandi’s price.

This latest effort takes a more aggressive approach, intellectual property experts say, and could have stark consequences for drug investments and development, compromising the value of patents that companies rely on for profits when bringing new products to market.

The effort partially relies on 28 U.S. Code § 1498, which allows patent owners to sue the government whenever their patents are used for the US without license. The law previously has been used for contracting purposes. But when it comes to drug pricing, Section 1498 is “a weapon the government has in its back pocket but has been reluctant to use” said Robin Feldman, a University of California San Francisco law professor.

An HHS spokesperson said the agency is reviewing KEI’s letter and that it “is committed to ensuring that all people who are served by the Department’s programs have access to comprehensive, affordable health care, including prescription drugs and therapies.”

Pharmaceutical industry experts, attorneys in the drug space, and others are skeptical that the government will adopt the plan. But they won’t rule it out.

That’s because the Biden administration has been more aggressive than previous administrations on lowering drug costs, launching the first negotiations with pharmaceutical giants over what Medicare pays for drugs.

The administration also proposed a framework for “marching in” on drugmakers and allowing outside companies to produce lower-cost versions of their products. In addition, it signed off on a plan for Florida to import cheaper drugs from Canada.

Even if the HHS doesn’t turn to Section 1498, Feldman noted that “the more Xtandi is in the spotlight, the more dangerous it is for the company” to face pressure directly from the federal government to lower prices.

“No one wants to be on the short list for Medicare negotiations. No one wants to be the first drug targeted with a march-in right action,” Feldman said.

‘Complete Distortion’

Section 1498 has never been used as a vehicle for controlling drug prices, intellectual property experts say. KEI is asking the HHS to change that.

In a letter to the department’s Centers for Medicare & Medicaid Services, the group and others told the government the law gives it the authority to seize Xtandi patents and authorize companies to make generics. They also list nearly 10 manufacturers that they say would be able to produce US copycats as needed.

But KEI takes that argument a step further. Whereas Section 1498 would normally allow Astellas to sue the government for compensation, KEI contends another section of US code dubbed the “disposition of rights” would shield the government from having to pay.

That’s because three Xtandi patents were based on government grants, KEI said. And under 35 USC § 202(c)(4), the government has a “worldwide paid-up license” that “can be used at any time” for acquiring generic drugs for government programs.

Not everyone buys the argument.

Andrei Iancu, who led the US Patent and Trademark Office under former President Donald Trump, called KEI’s legal theory “a complete distortion” of laws around patents.

Under the Hatch-Waxman Act, a patent owner gets exclusivity over the drug its intellectual property covers for a certain period, and then generic manufacturers can produce lower-cost copycat products. Throughout the process, the generic manufacturer can come in and challenge the validity of a patent.

Iancu, now a partner at Sullivan & Cromwell LLP, said the KEI letter seems to imply “we toss all that aside” as under its argument, the “government can at any time just authorize a generic manufacturer to make the patented product.”

“The Hatch-Waxman system would no longer have any meaning,” Iancu said.

‘Stalking Horse’

Xtandi has faced price control efforts in the past.

For years, the drug has been the target of activist and lawmaker attempts to prod the federal government to exert authority over private patent rights to drive down prices.

The government declined a request to “march in” on Xtandi in 2023. Later that year, however, the Biden administration proposed a new framework for using march-in rights, in which it supported applying the practice as a way to control drug prices.

Using Section 1498 isn’t an entirely new idea either. Sen. Elizabeth Warren (D-Mass.), Rep. Lloyd Doggett (D-Texas), and other lawmakers wrote to the Biden administration in February, lauding the march-in proposal, though they noted it didn’t go far enough. They also urged the administration to use Section 1498 for price controls.

Using 1498 for drug prices is “a stalking horse,” said Joe Allen, executive director of the Bayh-Dole Coalition, an interest group focusing on patent rights. Iancu is on the group’s advisory council. David Kappos, a USPTO director under former President Barack Obama, is also on the advisory council.

Those advocating for the government to assert greater authority over privately owned patents “haven’t got what they want for march-in rights for 20 years, so now they’re trying another door,” Allen said. The pharmaceutical industry and other entrepreneurs “better be” worried, he said.

While Allen contends KEI’s pitch is a misinterpretation of the law, he doesn’t rule out the Biden administration trying it, especially ahead of a presidential election this November.

“This is a big deal,” Allen said “Because who knows what people will do in an election year?”

Steve Knievel, advocate for Public Citizen’s Access to Medicines program, said KEI’s argument is not only “totally viable” but “definitely something that has legs.”

In 2016, KEI pitched the Obama administration on authorizing generic Xtandi production on Section 202 grounds, though it wasn’t successful.

“Academics that support march-in rights by in large have supported the use of these royalty rights, if not more than march-in rights,” Knievel said. March-in rights have statutory criteria that need to be exhausted, he said, while sections 1498 and 202 don’t have the same barriers.

“This is very worth pursuing,” Knievel said.

Bringing Drugmakers to the Table

A drug industry professional speculated it’s difficult to imagine the Biden administration actually signing off on KEI’s pitch, though noted it would be “a nightmare scenario if they did.”

They also noted the plan is at odds with the US Constitution’s takings clause, which prohibits the seizing of private property for public use without compensation.

While the administration has signaled its openness to deploy march-in to reduce drug costs, Iancu said that doesn’t necessarily mean it’s open to KEI’s idea for using sections 1498 and 202, which he says “would be even bigger leaps.”

Knievel said his group would prefer to see the Biden administration go ahead with the plan, but even bringing “drug companies to the table” would “be a major step forward.”

Drug companies can “change their behavior depending on the moves the government might take,” Feldman said.