The Unintended Cost of Federal Drug-Price Controls
By Lou Berneman
You'd be hard-pressed to find someone that opposed making innovative drugs more affordable. Indeed, President Biden said as much in his State of the Union address and proposed a solution. But, he and lawmakers do not have the votes to pass drug price control legislation. So instead, as an end-run, some lawmakers and activists have asked the Department of Health and Human Services (HHS) to misuse a provision in the Bayh-Dole Act of 1980 to seize patent rights to a prostate cancer drug.
These lawmakers and activists seek to use the Bayh-Dole Act of 1980 and its so-called "march-in" authority, which -- in very limited circumstances -- permits the government to reclaim the patents on products that were invented, in part, thanks to federal funding. Cost concerns aren't one of those circumstances.
The Bayh-Dole Act permits universities to patent their researchers' inventions, even if that research was partly funded by the federal government. The law facilitates technology transfer from academia to the private sector. In the past two decades alone, Bayh-Dole has had a huge positive economic impact, contributing up to $865 billion to our gross domestic product and supporting 5.9 million jobs.
The lawmakers' and activists' current end-run petitions HHS to "march in" on the drug company that licensed a discovery from UCLA, which had received $500,000 in research funding. The company then invested $1.4 billion to develop the prostate cancer treatment Xtandi. The $500,000 in government funding, in the activists' view, entitles HHS to "march in" and grab rights to the patent.
I am the former head of the University of Pennsylvania's Center for Technology Transfer and founding partner of Osage University Partners, which invests in startups based on university inventions. As such, and as a past president of the Association of University Technology Managers (AUTM), I can attest first-hand to how well Bayh-Dole works. I can also attest to the debilitating harm a "march-in" on Xtandi would do, broadly creating uncertainty in an environment that demands certainty of rights to justify billion-dollar investments.
Before Bayh-Dole, the government retained rights to patents on inventions discovered with federal research funding. This previous system failed miserably. Few companies took licenses to patents to develop embryonic academic discoveries. By the end of the 1970s, the government had licensed fewer than 5% of its 28,000 patents.
The Bayh-Dole Act transformed this technology stagnation, producing an explosion in innovation and new products and services that have changed the way people live, work, and play. The number of patents from government-funded research shot up over tenfold in the years since Bayh-Dole, reaching more than 40,000 in 2017. Gleaming new labs sprouted up at research universities nationwide thanks in part to revenue streams from licensing and generous charitable contributions.
Since its passage, universities have launched more than 15,000 American startups and 300 new medicines based on patented discoveries. That's how you get the most out of government funding for research.
Lowering drug prices and increasing access to innovative new therapeutics -- especially for life-saving treatments -- are serious issues. "Marching in" on Xtandi is the wrong solution. It would create uncertainty in a system that demands certainty to justify the costs of technology development.
Lou Berneman is the founding partner emeritus of Osage University Partners (OUP.vc). Previously, Lou was managing director of UPenn CTT. This piece was originally published in PennLive.
