The federal government rejected a petition to unilaterally slash the price of the prostate cancer drug Xtandi in a closely watched decision this spring. Making drugs more affordable is undoubtedly a worthy goal. But in this instance, American patients should be grateful for the government’s restraint.
In recent years, a number of organizations have formally petitioned the Department of Health and Human Services (HHS) to use its so-called “march-in” rights to lower Xtandi’s price. Had the government agreed to such a drastic intervention, the consequences for biotech innovation and innovation of all sorts would have been devastating.
On the day the decision was announced, HHS and the Department of Commerce announced a new interagency review of when march-in powers can be used. Hopefully, the new working group will remember that any deviation from long-standing march-in criteria and processes could lead to a drastic slowdown in start-up creation and American inventorship, which could then lead to fewer life-saving products.
March-in authority is a provision of the 1980 Bayh-Dole Act, the legislation that allows universities and non-profits to own and subsequently license the patents on their federally-funded discoveries for commercial development.
As someone who spent a good chunk of my career shepherding discoveries through this process at Stanford University, I can attest that this technology transfer system has worked well — and that march-in misuse would seriously erode this process.
It’s important to understand what start-up funding is all about. Yes, a discovery with great potential is necessary — but it’s not nearly sufficient. Many other elements are necessary, including investors. Before investors invest, they assess the market opportunity. They have to know there’s a market for the product they are considering developing. Given the long and costly path to the market for such products, exclusivity is often an essential element of start-up opportunities in the bioscience space.
March-in misuse destroys market opportunity by eliminating such exclusivity. Investors will not fund new ventures to develop a product if the government can destroy its initial market exclusivity on a whim. That’s exactly what allowing others to enter with an identical copy would do.
Since Bayh-Dole’s passage, more than 15,000 start-ups in areas from biotech to cloud computing have come out of the technology transfer system the law put in place. Today, the United States leads the world in bioscience innovation, generating well over half of all new medicines. That’s market opportunity and innovation working in tandem.
Lawmakers established march-in rights for use only in extraordinary circumstances. For instance, should a drug manufacturer be unable to produce its patented medicine in sufficient quantity during a public health emergency, Bayh-Dole would allow the government to march in on that drug’s patent and license it to other firms to boost supply.
March-in rights can also be exercised if an invention is not being commercialized at all, or if regulations governing public use of inventions aren’t being followed. Lastly, the government can march-in if a patent licensee is in violation of domestic manufacturing requirements.
The circumstances under which march-in rights can be used are very limited — so much so that these powers have never once been invoked by the federal government.
Lately, however, a growing chorus of activists and lawmakers have pressured the government to use march-in to reduce the price of certain expensive drugs — most recently Xtandi. Such a move would be disastrous.
First, it would deliberately run afoul of Bayh-Dole’s plain language and original intent. As the law’s namesake sponsors, Sens. Birch Bayh and Bob Dole, have written, “Bayh-Dole did not intend that government set prices on resulting products. The law makes no reference to a reasonable price that should be dictated by the government. This omission was intentional.”
What’s far more troubling, however, is the effect such an abuse of Bayh-Dole would have on the future of innovation.
If the government decides it can use its march-in rights whenever it sees fit in a putative attempt to cut drug prices, that could destroy the market opportunity. If that occurred, countless federally-funded medical and other tech breakthroughs could remain in university laboratories and never find their way to market.
Thankfully, the decision on Xtandi averted this bleak future — for now. But the government’s accompanying decision to review its authority in the area of march-in rights is concerning.
America’s unique approach to technology transfer has fueled pathbreaking discoveries in our economy for decades and fostered a tech start-up culture that remains the envy of the world. Misusing Bayh-Dole’s march-in rights would deal a blow to this system, squandering the enormous potential of America’s brightest scientists and entrepreneurs.