On March 24, 2022 a group of public interest organizations filed a petition urging the Department of Health and Human Services (“HHS”) to use its “march-in” authority to lower the price of several drugs,[1] including three drugs used for the treatment of COVID-19. Senators Elizabeth Warren (D-Mass.) and Amy Klobuchar (D-Minn.) and Representatives Lloyd Doggett (D-Tex.) and Peter DeFazio (D-OR.) have urged the Biden Administration to exercise march-in rights to lower the cost of the drugs as requested.
March-in is one of three key rights the U.S. federal Government retains under the Bayh-Dole Act when it funds an innovator’s development of new patentable technology. It is highly relevant to biopharmaceutical companies given that virtually all drug products in the U.S. were developed, at least in part, with government funding.[2] Usually this takes the form of grants to universities and other non-profits, who eventually license their government-funded IP to biotechs and pharmaceutical companies. As such, acquirers of federally funded drug products should be aware of the federal government’s rights in such products and the obligations that come with those products.
Under the Bayh-Dole Act,[3] grant recipients and other federal contractors may elect to retain ownership of patents they develop using federal funding—but, as a quid pro quo, the government retains certain rights in these federally-funded inventions. These rights are intended to benefit the U.S. taxpayer (either directly or indirectly) and include (i) a statutory non-exclusive license to use federally funded inventions for government purposes,[4] (ii) the right to require exclusive licensees of federally-funded inventions to “substantially” manufacture such inventions in the United States,[5] and (iii) the aforementioned “march-in rights,”[6] through which the federal government can require a patent holder or exclusive licensee of a federally funded invention to out-license the invention under reasonable terms.
Of all the government’s rights under Bayh-Dole, “march-in” tends to create the most trepidation among innovators. However, the government’s right to march-in is circumscribed both by statute and the implementing regulations,[7] the latter of which require the government to conduct an agency proceeding intended to ascertain, based on facts provided by both the funding agency and the funding recipient, whether exercise of march-in authority would be appropriate. These inquiries generally focus on whether the grantee has shelved the technology or sought to bring it to “practical application”—the operative theory being that march-in would be inappropriate if the funding recipient did attempt to develop and commercialize the technology in the U.S., even if that attempt ultimately resulted in failure. Of note, in each of the five cases in which HHS commenced march-in proceedings, HHS concluded that it would be inappropriate to use its march-in right[8]—and, in two of such decisions, expressly rejected the premise that march-in could be used to lower prescription drug prices.[9] Thus, for many years, march-in has largely been considered an academic concern rather than a practical one.
Nonetheless, as non-profits and other activist groups look for levers to force drug companies to lower drug prices, they continue to cite the march-in provisions of Bayh-Dole as one possible mechanism available to the government. As noted above, almost all new drug products originating in the U.S. are funded, at least in part, by the federal government, with one study showing that every new drug approved by the FDA between 2010 and 2019 was developed with research funded by the NIH.[10] Additionally, most drug products sold in the U.S. are manufactured abroad—a 2019 FDA report stated that 88% of manufacturing sites making Active Pharmaceutical Ingredients and 63% of sites making Finished Dosage Forms were abroad.[11] In view of the foregoing, it is worth noting that one of the statutory bases for exercising march-in authority is the grant recipient’s failure to comply with the U.S. manufacturing requirement.
For the first time, these arguments may carry more weight with the U.S. Government. There was an unprecedented level of scrutiny on taxpayer-funded pharmaceutical research and development during the height of the COVID-19 pandemic, with Congressional hearings conducted regularly during the summer of 2020 to ascertain whether pharma manufacturers were responsibly using COVID-19 funding awards.[12] Several Congresspeople have indicated their support for the March 2022 march-in petition, stating, in a letter to HHS, “It is our strongly held view that it is not reasonable to charge U.S. residents as much as five times the cost for a drug invented using American taxpayer dollars than the price offered to residents of other high-income countries.”[13] And, although it did not specifically reference Bayh-Dole or march-in, a September 2021 report from HHS indicated that the agency is willing to use administrative levers as a means of lowering drug pricing.[14]
Thus, with public sentiment increasingly becoming skeptical of the high cost of drugs in the U.S. and an administration that has signaled an intent to use administrative action to lower drug prices, potential acquirers of federally funded drug products should remain cognizant of the federal government’s rights in such drug products and the requirements that come with such drugs.
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[1] Letter from Make Meds Affordable to Secretary Becerra, U.S. Dept. of HHS (Mar. 24, 2022), https://makemedsaffordable.org/becerra-letter/.
[2] Government as the First Investor in Biopharmaceutical Innovation: Evidence From New Drug Approvals 2010–2019, Institute for New Economic Thinking (Sept. 2020), https://www.ineteconomics.org/research/research-papers/Government-as-the-first-investor-in-biopharmaceutical-innovation-evidence-from-new-drug-approvals-2010-2019 (hereinafter Evidence From New Drug Approvals 2010-2019).
[3] 35 U.S.C. §§ 200-212.
[8] See, generally, Policies & Reports, National Institutes of Health, https://www.ott.nih.gov/policy/policies-reports (last visited on Apr. 14, 2022).
[9] See, e.g., Elias A. Zerhouni, Director, NIH, In the Case of Norvir Manufactured by Abbott Laboratories, Inc., at 3 (July 29, 2004), https://www.cogr.edu/sites/default/files/March-In-Norvir.pdf (In response to a 2004 petition urging the NIH to use its march-in authority to lower the price of Norvir®, a treatment for HIV/AIDS, NIH stated that “march-in is not an appropriate means of controlling prices” because “the market dynamics for all products developed pursuant to the licensing rights under the Bayh-Dole Act could be altered if prices on such products were directed in any way by NIH.”); see also Letter from Francis S. Collins, Director of NIH to Andrew S. Goldman, Knowledge Ecology International (June 20, 2016), https://www.ott.nih.gov/sites/default/files/documents/policy/pdfs/Final_Response_Goldman_6.20.2016.pdf (Regarding the request to march-in in respect of Xtandi).
[10] Evidence From New Drug Approvals 2010-2019, supra note 2.
[11] Drug Shortages Report: Root Causes and Potential Solutions 2019, U.S. Food & Drug Admin, at 27 (Feb. 21, 2020), https://www.fda.gov/media/131130/download; see also Pathway to a Vaccine: Efforts to Develop a Safe, Effective and Accessible COVID-19 Vaccine, U.S. House Subcomm. On Oversight and Investigations of the H. Comm. On Energy and Com., at 103 (July 21, 2020), https://www.congress.gov/116/meeting/house/110926/documents/HHRG-116-IF02-Transcript-20200721.pdf (hereinafter July 21, 2020 Transcript) (Testimony of Mr. Carter).
[12] See, e.g., July 21, 2020 Transcript, supra note 11; Damian Garde, Pharma promises lawmakers, again and again, industry won’t cut corners with Covid-19 vaccines, STAT (July 21, 2020), https://www.statnews.com/2020/07/21/pharma-promises-cut-corners-covid-19-vaccine; CNBC Television, Pharma executives testify at coronavirus hearing on vaccines, YouTube (July 21, 2020), https://www.youtube.com/watch?app=desktop&v=6i4E8XoF2as.
[13] Press Release, Peter DeFazio, U.S. Congressman 4th Dist. of Ore., Defazio, Doggett Lead Members in Urging HHS to Lower Cost of Prostate Cancer Drug (Feb. 8, 2022), https://defazio.house.gov/media-center/press-releases/defazio-doggett-lead-members-in-urging-hhs-to-lower-cost-of-prostate.
[14] Xavier Becerra, Comprehensive Plan for addressing High Drug Prices: A Report in Response to the Executive Order on Competition in the American Economy, Report to the White House Competition Council, U.S. Dept. of HHS, (Sept. 9, 2021), https://aspe.hhs.gov/sites/default/files/2021-09/Competition%20EO%2045-Day%20Drug%20Pricing%20Report%209-8-2021.pdf?pdf.
