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New Biomed Unit Under Pressure to Use Untried Drug Patent Grabs

May 2, 2022, 9:16 AM

The NIH could find itself wading into the drug pricing debate as it houses a new biomedical accelerator, despite its longstanding policy not to get involved in the cost of new therapies.

There’s been a push, particularly among progressives, for the NIH to exercise what’s known as march-in rights to temper drug prices—most recently on Astellas’ cancer drug Xtandi. Established under the 1980 Bayh-Dole Act, march-in allows the government to seize patents for inventions created with government funding and license them to other entities for commercialization.

No federal agency has ever exercised its march-in rights, and the NIH has denied all march-in petitions.

The Advanced Research Projects Agency for Health, or ARPA-H, will sit within the National Institutes of Health under a plan to get the new entity off the ground. That setup means NIH dollars will have a more direct hand in publicly-funded technologies that come to market—raising questions over whether the NIH should intervene in high prices.

“As NIH is going to get more involved in late-stage drug development, with taxpayer funding, the risk that the taxpayer through NIH is assuming in the development of these products is much higher,” Ameet Sarpatwari, a faculty member at Harvard Medical School’s bioethics center, said in an interview.

The NIH has historically held the position that it can exercise march-in rights if a company were to license a product but never do anything with it—but not as a way to control costs.

“If ARPA-H is going increase the amount of commercial products that have direct federal funding, I suspect that this may increase the quantity of march-in discussions and petitions,” said Jorge L. Contreras, a law professor and director of the University of Utah’s Program on Intellectual Property Law & Policy.

“If that’s the case, well maybe the director or the secretary of HHS will start to pay more attention. And it could affect the shift in sort of political attitudes towards these march-in petitions,” he said.

The NIH noted in statement to Bloomberg Law, “While ARPA-H and NIH employ different business models, their missions to advance research are fundamentally the same.”

The statement further noted the senators behind Bayh-Dole never intended for the government to set prices on products brought to the market and omitted such language intentionally to encourage collaboration between the public and private sectors.

“The Bayh-Dole Act does not reference high prices as one of the four criteria for use of march-in authority,” the agency said.

Drug companies spend about $985 million in research and development costs to bring a new drug to market, according to an analysis published March 2020 in the Journal of the American Medical Association.

March-In Debate

ARPA-H aims to shepherd medical and health discoveries the same way that existing programs in the Departments of Defense and Energy paved the way for the internet and GPS. Health and Human Services Secretary Xavier Becerra said in April that he transferred fiscal 2022 money to establish the biomedical incubator within the NIH.

Contreras said ARPA-H doesn’t necessarily affect whether the NIH can or should should step in on drug pricing. If the agency has a right to march in, the percentage of investment wouldn’t impact that, he said. Whether NIH funds 10% of the cost or 90% of the cost doesn’t change the underpinning legal argument.

Francis S. Collins, the former longtime NIH director who’s now the acting White House science adviser, has maintained that the agency shouldn’t play a direct role in controlling drug costs, but the agency can bring down costs by making the technology more efficient.

Once ARPA-H gets off the ground, an argument could be made for using march-in in cases where a company’s unreasonable price would make the product inaccessible, Stacie B. Dusetzina, an associate professor at Vanderbilt University Medical Center who specializes in drug policy, said.

“It does make a lot of sense that if we really do see this sizable investment from the government—and more steps towards drug development and approval processes, rather than just the basic science piece—that you would expect the access for those drugs to be greater,” Dusetzina said.

The NIH rescinded a reasonable pricing clause out of its contracting requirements in 1995 out of concern that the measure would drive industry away and discoveries would collect dust instead of improving health. Sarpatwari, whose work includes drug development and pricing, argued in a 2020 opinion paper that the evidence doesn’t back up that perception. But industry has said the use of march-in rights would have a chilling effect on innovation, leading to fewer new medicines.

The arguments against using march-in for pricing “never really held water,” however, and ARPA-H doesn’t change that, Liza Vertinsky, as associate professor at Emory University’s law school, said.

“It’s not designed to be a price control mechanism. It’s designed to make sure that technologies are reasonably available to the public,” Vertinsky said. " If no one can afford it, that’s not reasonably available.”

Political Will

Tom Miller, senior fellow at the American Enterprise Institute, expressed skepticism that the political will exists to start using march-in rights given challenges to pass drug pricing legislation. Democrats want the government to negotiate with drug companies and place caps on what millions of Americans pay for medicines but have faced the same hurdles that stalled President Joe Biden’s domestic spending package.

“The straightforward approach of various ways to put some curbs on drug pricing” already have faced challenges mustering enough political support, he said. “This is grasping at another straw, rather than something that automatically falls into place.”

March-in can apply under unique circumstances, such as a national emergency or public health crisis, Miller said. “But to use it as just an alternative ramp for trying to get drug price controls, no, I don’t think that’s what it was set up for. “

Programs like ARPA-H, which Vertinsky described as producing “welfare-improving innovations,” must have a robust public-private partnership that includes a profit incentive for companies. But the NIH may have an argument in favor of stepping in if companies end up charging exorbitant prices for their products because the government assumed more of the risk, she said.

Concerns about march-in rights may be valid if the government exercised them as price controls that took no account of private sector incentives to profit, Vertinksy said. “But they won’t.”

There may be an alternative. Contracts that set up these ARPA-H projects could include pricing controls that still allow companies to turn a profit, similar to what already happens in the defense industry, Contreras said. “Companies can still make a ton of money on a cost plus basis.”

There wouldn’t be the same opposition that exists with march-in because the company would have to agree to it up front, Contreras said. “The alternative is, ‘If you don’t want to do that, then go back to the stock market, sell a new issuance of bonds. Just don’t take the government money, because the government money comes with strings attached.’”

That upfront pricing negotiation would mean a major departure from NIH’s culture, Sarpatwari said, arguing the agency has put its focus on rolling out new technologies.

“What we need is a change in mindset to say that’s not our only marker of success. Our marker of success needs to be that those products actually get into people’s hands, and that they are affordable,” he said.

To contact the reporter on this story: Jeannie Baumann in Washington at jbaumann@bloombergindustry.com

To contact the editor responsible for this story: Alexis Kramer at akramer@bloomberglaw.com