Available to one, developed by none, 2

We are working through the political argument that without a patent monopoly, federally supported research will never get used or developed into commercial products or ever benefit the public. It’s flowery language meant to lead those who hear or read it to believe it’s true, while the particulars of the argument end up being rather more along the lines of “without a patent monopoly, those speculators who are fixated on exclusive control as a condition of their investment won’t put their money toward commercial product development and so will refuse to participate, but federal law should be structured not only so that they will invest but moreover so that they will have first access.”

For the pharmaceutical industry, the basic pattern of research funding, development costs, and “return” is even more dramatic–what appears to be a tiny research allocation of public money discovers a class of compounds that will require a decade of screening, synthesis, animal testing, formulation, and human testing, and maybe after that time, if the patent claims one of the lucky compounds out of 10,000, then there will be a product, and that product may well generate billions in profits. In that case, the figure with rectangles looks more like this:

This pattern converges to the idea of “winning the lottery.” A tiny investment (in a lottery ticket) could result in a trip to lottery headquarters (development) to collect a check for a huge amount (I won, I won!). The business idea at work is to find small investments that pay off with huge profits. Bayh-Dole’s extension of the idea is to have the public subsidize the initial tiny investment, and in exchange, once every 2,000 to 5,000 inventions or so, there may be a big payoff in which the university and the inventors get 1% of the payoff and a pharmaceutical company gets 99%.

Imagine, then, this same pattern repeated thousands of times, with roughly the same grant funding and invention patenting cost, but with tiny blips for development and then no return at all:

Now repeat this little bit, sometimes with some development funding, and way more often without any:

In one view, these are all failed efforts toward development, often financed by the pharmaceutical industry. Sometimes–rarely–the development cost is significant, but often there’s no license, no development, nothing. In another view, then, this image represents the sequestration of many, many inventions in the hope that a very few will be developed–but all must be held back with an audacity of hope that patenting combined with institutional ownership will make research results attractive to speculative investors who otherwise wouldn’t pay any attention.

As we move toward this image of the situation, the question arises: if the research and patenting activity is such a tiny, miniscule portion of the total cost, why doesn’t the pharmaceutical industry pay for all of it? What is the point of leaving this tiny tail of the buffalo to public money and all the hassle of dealing with university bureaucrats over licenses and all the weirdness of Bayh-Dole? Even multiplied over thousands of grants a year that might result in a patentable candidate cluster of compounds, even with a few billions of federal dollars in play in those grants, that expenditure is nothing compared to the hundreds of billions of dollars in profits in the pharmaceutical industry each year (total global revenues, over $1.1 trillion, with nearly half the market in North America).

If one were cynical about all of this, one might think that the pharmaceutical industry was perceived by government folks at the time Bayh-Dole was proposed as already successful and that the attraction of Bayh-Dole was that it would allow the federal government and universities both to take credit for that success by offering to subsidize 1% (or less) of the industry’s effort. Taking credit would allow universities and government agencies to pitch for more research money to keep the success going, and to pitch the idea that other industries will benefit, too, with amazing results just around the corner, any day now, just you watch… (er, pay no attention to the Bayh-Dole-induced fiascos in nanotech, green/clean tech, software, and research tools). But that’s only if one is cynical.

Admittedly, there is an attraction to this operating model. Find an area in which people have a compelling need–how about public health? Check. Find an area in which the risk is great, so not just anyone is willing to participate. Check. Find an area that requires (apparently) substantial amounts of money, so not just anyone can compete. Check. Find an area in which, if something is developed, it reaps billions in profits, and a huge margin over the cost to acquire and develop it. Check. For prescription drugs, then, the one thing that is the weakness in this model is that once something is discovered (from the untold many possible compounds and combinations of compounds) that offers a therapeutic effect, and that something is developed, and tested, and shown to have at least statistically a beneficial effect, it is often relatively inexpensive to produce it. For the pharmaceutical industry, the cost is in the testing for safety and efficacy (and paying for all the compounds that fail), not in manufacturing. And actually, the industry cost is in selecting what to test–because most things don’t test out, but with a speculative model, most everything that is promising has to be brought into the system. Things don’t work as hoped, or there are side effects, or the effect doesn’t last, and the like. If the cost to choose a drug is the big expense, and the cost to manufacture is low, then this operating model pushes to spread the cost of all the poor choices across the few drugs that do become commercial products.

But there is one compelling observation in this analysis: in reality, most of the therapies developed by the pharmaceutical industry are amazingly low cost to make and use. The high price is connected to the determination to sell as a monopoly. It’s not merely that the monopoly allows a high price to be set. The approach itself provides the justification for the high price–the high price is necessary to sustain the speculative approach. The critical element, then, for public messaging is that there is no other way that the public can benefit but for this expensive, slow, relatively unproductive speculative approach. And that’s the role for the advocates of Bayh-Dole–that the law is successful, that new drugs have been produced (no matter the cost of the approach), and that no alternatives should be considered as a matter of public policy.

In the pharmaceutical approach, patents play a dual role. First, they prevent competitive development of compounds in a broad class of compounds. A patent on a drug discovery is generally much broader than a single compound–whole classes of compounds, hundreds, thousands, are generally claimed by a single patent. Plus there may be additional patents on methods of producing this class of compounds, or selecting for them. Thus, the first role of a patent is to prevent anyone else from working in the same claimed area. It’s like filing a mining claim to a whole state, even if the company will open up only a single mine shaft. A good deal if one can get it.

One can see, too, the wackiness of Bayh-Dole’s working requirement. It insists merely that an “invention” be “utilized.” For drugs, an invention may be a class of thousands of compounds–any combination of this and that and another thing, each selected from a list of a bunch of things. What does it mean for the “invention” to be “utilized”? Is it enough that just one compound of a thousand is developed into a commercial drug? What about all the rest? If they aren’t used, are they just “sitting on the shelf”–and worse, they are sitting there locked up by a patent rather than available to all, if someone finds a use? It would seem so. Thus, patents on research in medicinal chemistry claim broad swaths of compounds but in practice only a tiny bit of the swath is ever used. The patent prevents anyone from using any of the unused portions of the claimed invention. That is, prevent anyone from competing to find a better alternative to the compound initially selected for development, and to prevent anyone from competing to find a better application of that compound–to treat a different disease, or to treat the same disease but in a different formulation or method of delivery.

The second purpose of patents in the pharmaceutical industry is to prevent others from manufacturing a drug once it has been developed and approved. This is the part that supports monopoly pricing–price what people (or their insurance, or the government) is willing to pay. When it’s a matter of life and death, apparently, people are willing to pay quite a lot–a thousand dollars a pill, even, where the cost to manufacture and distribute may be three dollars, or maybe ten.

It is this part where people don’t accept the claim that the monopoly prices are necessary to provide the money to support more drug development. They don’t accept that the money goes to drug development, that the drug development really costs as much as the industry claims, and in any event, the drugs generally don’t prevent or cure–they prolong, often with nasty side effects. In essence–and this is the appearance–the drug industry perpetuates its profit-taking using the cover of needing the money for more research and development. Really, though, much of the money goes into the pockets of those involved in the scheme. It’s here that the argument for “reasonable terms” comes into play. People understand that if there’s a cost to develop, then that cost ought to be recovered, along with a reasonable profit margin for the effort and the risk. If there’s a bridge built with private money, then a toll might be a way to recover the cost and reward the builder, but after that, the toll should end, or should be reduced to only that needed to maintain the bridge. That would be “reasonable terms.” In the pharmaceutical model, the toll should stay as high as possible for twenty years, regardless of how much money beyond the cost to develop has been earned.

And here’s what the goal is, then. In twenty years, develop a new drug or new variation on the existing drug that is enough better that the old version is obsolete and won’t be used. Then a new patent on the new variation replaces the old patent,–a new bridge gets built so the old one can be abandoned–and the high toll can be maintained for another two decades. It doesn’t really matter what company builds the next bridge, so long as overall, the toll stays in place and stays high. That’s the model. Bayh-Dole advocates argue that this is a great thing, a wild success. That without high tolls, these companies will not build bridges–produce drugs–or at least will not do so with compounds discovered with public money. And that argument may indeed be true. But that is not a point that carries the argument. There are other ways to build bridges that don’t require the speculative investor who insists on a high rate of return and an indiscriminate gathering of all possible bridge sites in order to attempt to build just a handful of bridges a decade.

Bayh-Dole is designed to help the pharmaceutical industry use patents (i) to preclude any competition with its chosen operating model (ii) to support monopoly pricing on the drugs that are approved for use. One bit of illogic in Bayh-Dole is that the pharmaceutical industry does not need the public money subsidy in order to operate. You have to take this part really slowly or you will miss it. Think, watching a magician’s hands. The argument is–if federal research results are not conveyed to the pharmaceutical industry as patent monopolies, then the industry won’t use the results. So far, so good. That’s just what happened in the early 1960s when the industry boycotted federally funded research results, worked themselves into a lather over it so that a whole chapter of the Harbridge House report in 1968 detailed the terrible fight, giving the industry insiders at the NIH the leverage they needed to re-start the IPA program in 1968, which ran for another ten years, and upon which Bayh-Dole is largely based, give or take some drafting foolishness.

But so what? So what if the pharmaceutical industry won’t take up whole classes of compounds that might have therapeutic benefits? The pharmaceutical industry is not the only path by which compounds might be used or developed. Or, if the pharmaceutical industry refuses to use these compounds, will the industry fail? It does not appear that this would be the case. If the industry would fail, then surely those in charge would move to expand their research base. The competition would be between faculty at universities who wanted their work packaged into patent monopolies for consumption by the pharmaceutical industry and those that did not want such a thing. Faculty choose the work they will undertake and choose who will provide the support. No-one pushes the work on them, nor the funding. University administrators do not assign extramural research and do not dictate the funding sources. The pharmaceutical industry could compete with the federal government and with charitable foundations for their research services and discoveries.

And we might ask one further question: so what if the pharmaceutical industry failed because it could not obtain monopoly positions on federally supported inventions and therefore cut off a critical supply of candidate compounds. Given that the pharmaceutical industry specializes in chronic medications rather than cures or prevention, perhaps the primary outcome of federally supported research ought to be exactly this: to put out of business an industry specializing in making acute conditions chronic. If we had prevention and cures, we would not need the pharmaceutical industry, at least not in its present form, with its present business interests, with its present operating methods. Wouldn’t that be the goal for federally supported research? Isn’t that the goal of research funded by charitable foundations?

The proposition in Bayh-Dole, however, subverts this goal. Bayh-Dole makes it appear that federal research funding is awarded to prop up the pharmaceutical industry, not to do away with it. The stuff that the pharmaceutical industry lives on is stuff that beats disease back a bit–often without good science, just a statistical showing of significance, a prolonging of the ability to pay. Isn’t it rather misguided that universities have oriented their patent management programs toward the pharmaceutical industry (and now its proxy, the biotech industry) rather than toward strategies that would make the industry obsolete, or at least not dominant, and certainly not the world leader in profiting from pain and suffering? Is this, then, the wild success of Bayh-Dole–that it has pushed a couple hundred drugs to pharmaceutical companies to profit from, at the expense of some 30,000 other inventions that sit behind patent paywalls?

The fake version of Bayh-Dole, the version struck down by the Supreme Court in Stanford v Roche in 2011, was dedicated to forcing university faculty inventors to give up their inventions to be conveyed as patent monopolies to industry. Or, rather, to give up their inventions to the control of university administrators, who were fixated on the idea of sudden wealth from at least one invention every twenty or thirty years. That was enough to get administrators to buy into the scheme and permit the capture of all inventions, not just those in medicinal chemistry, to suffer the same fate in the name of “being fair” to everyone and preventing those inventors who might profit on their own from being accused of being unethical for not placing their inventions with administrators to be destroyed with good intentions like all the others.

This entry was posted in Bayh-Dole, History, IP, Policy, Projects. Bookmark the permalink.

Leave a Reply