[Ip-health] The IPWATCHDOG debate on Bayh-Dole March-In rights

James Love james.love at keionline.org
Thu May 16 04:56:02 PDT 2019

On May 12, IPWATCHDOG.Com published an article from Frederick Reinhart, a
former president of AUTM, the University technology transfer managers’
association, claiming a letter by KEI, Health GAP; Housing Works; Doctors
Without Borders USA; Public Citizen; Social Security Works; The Institute
for Agriculture and Trade Policy; Union for Affordable Cancer Treatment;
UNITE HERE; Universities Allied for Essential Medicines; and Yale Global
Health Justice Partnership, "misleads on March-in Rights."  This was in the
context of comments on the NIST Green Paper on the Bayh-Dole Act.

Reinhart's blog quoted unpublished data from another former AUTM president,
Ashley Stevens, to support his claims.  A third AUTM President, John
Fraser, who lists "Entrepreneur in Resident" at NIST on his linkedin page,
chimed in on the comments section, making similar criticisms.  The Reinhart
blog is here:


I asked IPWATCHDOG if I could respond on their platform, and they
graciously agreed.  In my 1700 word response, I primarily focused on two of
the central arguments that Reinhart, Stevens, Frazer and other like minded
critics of march-in rights frequently offer: (1) the claim that public
sector investments in products are trivial, relative to private sector
investments on products, and (2) that the NIH’s 1989 to 1995 experience
with the fair pricing clause in CRADAs was evidence against using march-in
rights to address excessive prices.

This was my response:


Jamie Love Responds to Criticism of Knowledge Ecology International Letter

By James Love

May 15, 2019

“Reinhart and AUTM are arguing that ‘available to the public on reasonable
terms’ does not mean the price has to be reasonable. We disagree, and so do
many others.”

On May 12, Frederick Reinhart published an article titled “Knowledge
Ecology International Letter Misleads on March-In Rights.”

Reinhart is a past president of the Association of University Technology
Managers (AUTM), and his views echo those expressed by many in the
university technology transfer field, including a frustration that not
everyone acknowledges and appreciates the considerable investments and
risks undertaken by the for-profit companies that license patents to
inventions funded by the federal government.

Knowledge Ecology International (KEI) recognizes the importance of the
private sector in bringing therapies to the market, even when federal
funding of R&D has played a role, and also that robust returns on those
investments have a positive impact on innovation.

I was surprised and disappointed, however, at the way that Reinhart
deliberately downplays the importance of the public sector investments.
Reinhart dismisses the federal government’s contribution to the development
of enzalutamide (sold by Astellas as Xtandi), by claiming that “less than
$2 million in federal money was invested in related early work at UCLA,”
which he compared to $900 million by “companies like Astellas that
developed it,” citing Ashley Stevens’ unpublished data.

The original 2016 march-in petition on Xtandi did provide a fairly detailed
account of both public and private sector investments in Xtandi. The $900
million figure cited by Reinhart was certainly not accurate regarding the
investments to obtain the initial 2012 registration of the drug.

The 2012 Food and Drug Administration (FDA) medical review relied upon
evidence from clinical trials involving only 1,426 patients. The 2016
march-in petition noted that “the two earliest trials (NCT00510718,
NCT01091103) received subsidies from the National Cancer Institute and
Department of Defense, in addition to funding from the Prostate Cancer
Foundation and other non-profit institutions.” You can take anyone’s
estimates of per patient trial costs you like, ignore the federal and
charity funding received, and you still don’t get close to the $900 million
Reinhart cites.

Reinhart Undervalues Public Investment

But more important is Reinhart’s undervaluing the public’s investment. The
public’s investments in enzalutamide also involved risks. Not every
Department of Defense (DOD) or National Institutes of Health (NIH) grant
results in a successful product. Joseph DiMasi, in his 2016 paper (which
Reinhart cites with approval), got to an estimate of $2.6 billion in R&D
costs by including $1.1 billion for pre-clinical costs. Both the $2.6
billion and the $1.1 billion are of course adjusted for risks of failures
and capital costs. However, take note of what Reinhart and his AUTM
colleagues are doing. The private sector investments are adjusted for risks
and capital costs, but the federal government investments are not. One
could make the case that the DOD and NIH investments in preclinical work,
including the patented invention, were worth $1.1 billion, once risks are
taken into account. In fact, how much did UCLA sell the patent rights for?
That would be $1.14 billion, to Royalty Pharma.

In his blog post, Reinhart also writes that the number of NIH Cooperative
Research and Development Agreements (CRADAs) executed dropped off when a
reasonable pricing clause was introduced, and “increased significantly and
quickly” when the clause was eliminated. This claim, made frequently by the
technology transfer community, bears some scrutiny. KEI obtained data from
the NIH on CRADAs under the Freedom of Information Act (FOIA), which is
available here. Until 1996, the NIH only reported what are now called
“Standard” CRADAs. Beginning in 1996, the NIH added a new category,
“Materials” CRADAs. All of the CRADAs involving the reasonable pricing
clause were standard CRADAs.

>From 1990 to 1994, the calendar years when the reasonable pricing clause
was used for the whole year, the average number of standard CRADAs executed
was 33. There was also a significant biotech stock market crash in 1992 and
1993. From 1996 to 2000, the number of standard CRADAs increased, to an
average of 46 per year. But a lot was happening that had nothing to do with
the reasonable pricing clause.

The average NIH budget was 55% higher in 1996 to 2000 than in 1990 to 1994.
Probably more consequential, from year end 1992 to year end 1994, the
NASDAQ biotech index declined from 170.64 to 81.54, a decline of 48%,
whereas from year end 1995 to year end 2000, the same index increased from
133.77 to 634.32, an increase of 374%.

More significantly, regarding the CRADA data, the number of standard CRADAs
fell to 28 by 2005, and was relatively flat from 2000 to 2013, despite a
massive 17-fold increase in the NASDAQ biotech index, and a 64% increase in
the NIH budget. Are we supposed to conclude that increases in the NIH
budget or rising share prices and new private investments aren’t good for
innovation because the number of CRADAs did not increase from 2000 to 2013?

What Is the NIST Green Paper Really About, and Why is AUTM Unhappy with KEI?

What is at issue in the NIST Green Paper are the safeguards in the
Bayh-Dole Act designed to protect the public from “unreasonable use of
inventions.” This is not just KEI’s rhetoric, it’s a quote from 35 USC §
200, the policy and objective of the Bayh-Dole Act.

When the Bayh-Dole Act was passed in 1980, it had several public
safeguards. One safeguard was a five-year limit on exclusive rights for
federally-funded patents held by universities and small businesses. The
five-year limit was subject to possible extensions, based upon a compelling
need. That safeguard was eliminated in 1984, in P.L. 98-620. The 1980 Act
also reserved for the federal government a royalty-free right to use
patented inventions it funded anywhere in the world, and to exercise
march-in rights. The 1980 Act also limited the secrecy of government patent
licenses and required a minimum of 60 days’ notice before granting an
exclusive license. Later, that provision on secrecy was amended, making
licensing more secret, and the public comment period was reduced from 60 to
15 days.

Reinhart is focusing on the march-in right, and in particular, the question
of whether pricing can be addressed as an abuse or factor in granting a
march-in. It should be noted that Senator Bayh himself, in a March 3, 1997
letter to then-HHS Secretary Donna Shalala, proposed regulations on
licensing to protect consumers from unreasonably high prices for medical
care in the Cellpro case, when he represented Cellpro. Later, when Bayh was
a lobbyist and Dole was a Pfizer spokesman for Viagra, they made claims
about the legislative intent of the Bayh-Dole Act, but what we know for
sure is that the act defines “practical application” of an invention to
include an obligation to make the benefits of the invention “available to
the public on reasonable terms.”

Reinhart and AUTM are arguing that “available to the public on reasonable
terms” does not mean the price has to be reasonable. We disagree, and so do
many others, including, recently, Professor John Thomas in an April 18,
2019 Washington Post report on the NIST Green Paper.

AUTM and others have asked NIST to change the regulations for the Bayh-Dole
Act so that march-in rights can never be used when prices are the issue.

This brings us back to the Xtandi case. In July 2017, the Senate Armed
Services Committee issued the following directive to the Department of
Defense (a funder of the Xtandi Orange Book patents).


Licensing of federally owned medical inventions

The committee directs the Department of Defense (DOD) to exercise its
rights under sections 209(d)(1) or 203 of title 35, United States Code, to
authorize third parties to use inventions that benefited from DOD funding
whenever the price of a drug, vaccine, or other medical technology is
higher in the United States than the median price charged in the seven
largest economies that have a per capita income at least half the per
capita income of the United States.

115TH Congress, 1st Session, 2017, Senate Report 115–125. National Defense
Authorization Act for Fiscal Year 2018. Report to accompany S. 1519, on
page 173. July 10, 2017.


Subsequently, my brother, Clare Love, an Army veteran of the Vietnam War
and a prostate cancer patient, and Dr. David Reed, another prostate cancer
patient, asked DOD to enforce the directive, in the case of Xtandi. The
petition stated:


The price of Xtandi in the United States is more than four times the median
price in the seven high income countries identified by the U.S. Senate
Armed Services Committee in 2017 to be used to determine if the U.S price
on a Department of Defense (DoD)-funded drug is reasonable. The price in
the U.S. is five times the reimbursed price in Japan, where Astellas is
headquartered. The failure by Astellas to make the drug available to the
public on reasonable terms can and should be remedied by the U.S.
government through exercising the federal government’s royalty-free or
march-in rights in the patents.


This is a very expensive drug, for a very common type of cancer. In January
2018, the average wholesale price of Xtandi was $159,215.80 per year (four
capsules per day dose) for the treatment of prostate cancer.

This is what Reinhart is fighting for: the right of a large Japanese drug
company to charge U.S. prostate cancer patients five times as much as the
list price in Japan, for a drug invented with grants from the NIH and the
U.S. Army.

For KEI, the fact that the government has failed to enforce the obligation
to make inventions “available to the public on reasonable terms” is the
definition of insanity, not (as suggested in the comments by former AUTM
president John Fraser in the Reinhart blog post), KEI’s continued
insistence that this obligation be honored.

James Love.  Knowledge Ecology International
U.S. Mobile +1.202.361.3040
U.S. office phone +1.202.332.2670
http://www.keionline.org <http://www.keionline.org/donate.html>

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