Bayh-Dole on 200 drugs, 2

We are working through claims that Bayh-Dole has produced 200 new drugs where before there was nothing, nothing, nothing at all. In back of it all are three key points:

Bayh-Dole means nothing if federal contractors and agencies license non-exclusively. Bayh-Dole does not prevent non-exclusive licensing or require exclusive licensing. Contractors and federal agencies decide to deal in patent monopolies on their own, with no help or mandate from Bayh-Dole.

The only reason for Bayh-Dole to exist is to offer to contractors and federal agencies the opportunity to deal in patent monopolies–to license exclusively or assign and to hold back everything else in the hope of one day attracting an exclusive licensee or assignee.

Without reasonable pricing, Bayh-Dole fails utterly. There is no point to Bayh-Dole or any of its public protection apparatus if pricing is unreasonable. This is only one way Bayh-Dole fails. It fails in practice all sorts of ways! But this one way is plenty for now.

Here is another instance of the 200 drugs claim, from the fake history of a front organization:

The Bayh-Dole Act led to a tenfold increase in academic patenting in its first 20 years and over 80,000 patents and 12,000 start-ups resulting from academic tech transfer. In addition, the legislation has facilitated over 200 drugs and devices through public-private partnerships. The federal government plays a vital role in funding research, but the private sector invests in innovation too; in fact, there is $100 of private investment for every $1 of public investment in a new drug.

There may have been a ten-fold increase in “academic patenting” but there’s no evidence in that for Bayh-Dole’s effect. University patenting was on the rise before Bayh-Dole–mostly via Research Corporation and other external agents, since only a few universities operated their own patent and licensing shops, notably the University of California, MIT, and Stanford. In the Bayh-Dole era, universities have acquired around 120,000 patents, but only about 55,000 cite federal contracts. Increasing the number of patents, however, is not a Bayh-Dole objective.

There’s nothing–not even in Bayh-Dole–that argues that we need new medical treatments and these will be better if they come with a patent and a speculator hoping to price-gouge attached. The startup count is now “resulting from academic tech transfer.” But even that’s just made up. The AUTM counts of startups don’t mean that the startups involve patents, or patents on inventions made in federally supported work. Academic startups are based on software, games, consulting services, educational materials, databases, pitching research for SBIR funding, biomaterials, 3d printing services–pretty much anything but needing a patent monopoly on an invention that won’t ever be used unless a speculator committed to monopoly pricing shows up to save the day. Counting start ups for any purpose has no connection at all with Bayh-Dole, which has to do only with patentable inventions (oh, and sigh, plant varieties), and only those made in federally funded work.

And there are our 200 drugs again, such a magically round number. But now with an additional spurious detail–$100 of private investment in a new drug for every $1 of public investment. Set aside this word “investment.” The public does not “invest.” What does the claim even mean? If the federal cost in operating the FDA taken into account here? Or are we comparing the federal grant funding resulting in a particular invention with the amounts booked against a single company funding the screening and development and testing of 10,000 compounds for possible medical use, where some one of those compounds eventually becomes a mass-produced medical product?

For what it is worth, the claim appears to come from an article championing NIH inventions behind a paywall at Nature Biotechnology. That article has this:

In doing so, the direct financial investments of public and private sectors should not be equated, because the private sector spends 100-fold or more to bring the product to market than the PSRI spends in research directly leading to the invention.

That’s just a ballpark statement of magnitude, starting with the size of a specific research grant cited for patenting purposes and disregarding all the other research on which that research might be based. Even that ignores the possibility that the inventive insight might have nothing to do with the purpose of the funding–may even be the realization that the funding points in a spurious direction–in which case the direct funding for the insight is close to $0.

That article in turn cites two others (here and here). The first is a story about Abbott Laboratories (now AbbVie) raising by a factor of 8 the price of Norvir, an HIV drug based on an invention made in federally supported work. The article cites an Abbott executive arguing that (this is a quote of a paraphrase): “the federal grant covered less than 1% of Norvir’s development cost of more than $300 million.” A nonsense comparison, but for its political spin.

The NIH awarded Abbott $3.5 million to do the work leading to an invention. According to the article, Norvir grossed $95 million in 2003 and other sources point to sales of over $800m per year by 2014. By 2010, 1/3 of all HIV-positive patients in the U.S. were using Norvir, at an annual cost of nearly $50,000 per year, after Abbott’s price hike. And that’s just for the stand-alone version. Norvir was also used to “boost” the effect of other HIV drugs, and those combination products also increased in price. According to Essential Inventions, which requested Bayh-Dole march-in on Abbott (which was refused by the NIH), the actual cost to Abbott for clinical trials was about $15 million.

If the cost of discovery is so low, why don’t the drug companies step in and fund all university research that’s health-related? Of course, it’s because there’s so much research that does not produce inventions but lays the ground work for such things. Essential Inventions identified 574 federal grants to study ritonavir. Given that the NIH had granted Abbott an exclusive license to the compound and all its variants, that additional research ends up largely going to the benefit of Abbott. Not quite the 100x calculation invited by the political spin.

And for all that, the issue has nothing to do with either the federal funding resulting in inventions or any single company’s unaudited claim regarding cost to develop a product–the issue is the company’s right to charge unreasonable prices, especially after it has more than recovered what it claims is its development expenditures. Here’s how Essential Inventions put it:

Abbott’s pricing of ritonavir is unreasonable, anticompetitive and threatens the health and safety of people with AIDS. The Department of Health and Human Services has the authority to use the march-in provisions of the Bayh-Dole Act to remedy Abbottís abuse of its patent rights, and increase access to a needed medicine.

In the view of Joseph Allen, Abbott’s pricing of Norvir is what Congress intended, not only by Bayh-Dole but by creating the patent system in the first place. The subtlety is that Allen argues that Bayh-Dole was not intended to balance the general opportunities of the patent system for use with federal funding and for health-directed research. If nothing changes, then Congress intends to subsidize unreasonable, anticompetitive pricing. What’s odd then is that the NIH article appears to also approve this reasoning. A company claims it spend more to develop a drug than the government spent on grants directly leading to the invention, and therefore–and this is the non-sequitur–the company should be free to charge whatever it wants for the drug for two decades. It’s not that claim so much as that NIH authors appear to approve of the claim.

The same can be said for the second article the NIH study cites for its $1 to $100 comparison: “The cost of drug development: A systematic review.” The article reviews a number of articles that report drug development costs, starting with 1800 and paring that down to 29 and then to 13. Those studies, in turn, relied primarily on confidential surveys and databases to estimate development costs. Here’s the first paragraph of the study’s conclusions:

Despite three decades of research in this area, no published estimate of the cost of developing a new drug can be considered a gold standard. Existing studies vary in their methods, data sources, samples, and therefore estimates. While some methods are methodologically strong and some findings have been widely cited, the fact that the data and even the subjects of investigation are kept secret make it impossible to assess validity and reliability

Yup. There’s no way to assess the validity and reliability of the $1 to $100 comparison. What the study shows is that the estimates are all over the place and can’t be validated. But the study gets cited by the NIH authors as if it establishes as authoritative fact what it concludes cannot be validated.

Even that gets beside the point at hand. We are not talking about what it costs some abstract company to develop just any drug–that’s a function of how the company operates, what risks it takes (with risk being a function of its expertise, among other things), and what drugs it targets for development. A wealthy, inefficient, less expert company attempting to do difficult things because it is attracted to the prospect of big payouts may well spend much more than a thrifty, efficient, more expert company doing things it knows how to do, attracted to moving new medicines into use and making a modest profit on sales. Averaging expensive, slow, risk-taking companies with efficient, fast, focused companies effaces the existence of those efficient companies. Huge drug development budgets, averaged, will swamp out the existence of any number of small but effective budgets. Averages efface the structure of the data. That’s especially true if the data are distributed following a power law. Extremestan, to use Taleb’s term for it. We are trying to find efficient channels for drug development, not trying to hide those channels in averages.

But even that is isn’t it. We are looking at costs of development when the federal government points out the area to look for compounds, funds the work, and funds 500 other projects around that work, with (in the case of Norvir) only about $15 million of private expenditure on clinical trials–money that the NIH itself easily could have put up. Repeat that procedure multiple times with drug candidate compounds chosen from federally supported research or published in the open literature. In this circumstance, the testing cost of  development would appear to be well within the budget of any federal agency and most any nonprofit foundation. Why would the NIH or any university then feel the need to license exclusively to some established pharmaceutical company to control not only the invention in all its forms but also with the freedom to set monopoly prices rather than reasonable ones–the prices that organizations would set if they did not have to recover their development costs (such as the government or foundations) or even if they did but required no profit (public-interest organizations) or even if they required some profit, they had no need for a speculator’s heaven (generic companies) and accepted competition, even found in competition network externalities such as shared tools and data that lower the costs of development and production for everyone involved–while preserving modest profits.

If it costs but $1 to discover something of medical value and somewhat more than $1 to develop that discovery to the point of becoming a medical treatment, then it would appear that universities and federal agencies have committed themselves to an approach to development that approves of, and insists on, outrageous expenses.

If universities and federal agencies are committed to dealing in exclusive licenses for health-directed inventions, and insist that any limitation on a speculator’s pricing would prevent this approach from “being successful,” then the problem is in their approach, not something “inherent” in medical discoveries. There is no justifying their chosen approach with the argument, well, that speculators spend a huge amount of money because they expect they will get all of it back and more if they have a patent monopoly that prevents anyone from competing to develop that same discovery and doing so more quickly, or at less expense, or with better quality or effect.

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