AUTM weighs in on march-in for remdesivir

AUTM has issued a statement on march-in with respect to remdesivir. To date, AUTM has never supported march-in. This new statement is no exception. Howard Bremer, an AUTM founder back when AUTM was SUPA, worked on the implementing regulations for march-in and later bragged that he had to design them not to operate. So there’s no surprise that AUTM would not consider march-in during a public health crisis.

Let’s work through the AUTM statement. It’s political spin, so no shocked faces anywhere,

In 1980, Congress passed the Bayh-Dole Act —

So true!

the signature legislation that launched the technology transfer system

Not true at all! A university technology transfer “system” was already in place. The Bayh-Dole argument was that the law would place more inventions into that system rather than have those inventions move through federal agency open access or have university patent officials have to make a case that patent monopolies for specific inventions, especially in public health, would better serve the public interest.

Nothing in Bayh-Dole mandated, required, or promoted a change in that university system. Bayh-Dole practice did have an effect–rather destructive–on the system, however. By misrepresenting the law, university officials changed mostly voluntary participation under patent policies into compulsory, comprehensive participation. It took a Supreme Court decision to show that AUTM was wrong about the law. Unfortunately, we don’t have a similar mechanism for AUTM misrepresenting history.

that has yielded thousands of new companies, millions of jobs, and more than $1 trillion in economic impact to the United States.

There indeed have been thousands of startups, by the count of the institutions that report to AUTM. Many of those are shell companies, or fake, or repackaged research, or started without federally funded research, or which have siphoned off inventions from broader circulation, denying the research community of its access to tools and professionals access to use of inventions without the need for a mass produced commercial version. And even with all this, thousands of startups over 40 years is a tiny blip of U.S. startups in that time, even tech startups. And for all that, nothing in Bayh-Dole policy suggests that startups are a goal. One might even think that Bayh-Dole is about free competition, and maximum participation of small companies–not just cushy exclusive deals between universities and their own startups.

Other than that, AUTM cites output from an economic model as fact. The model itself is bogus, and AUTM picks the upper range of its output. AUTM misstates the model’s “economic contribution” as “economic impact.” In true Spinal Tap fashion, AUTM does not see a difference. As for jobs, AUTM does not track jobs. It is just making up a number. Call. it political spin. Or bluffing. Or intent to deceive. Nothing shocking here.

During the current coronavirus pandemic, researchers and drug developers are looking at new approaches to treating the disease, including the use of previously patented compounds. One of those pharmaceuticals is remdesivir, a drug created by Gilead.

There are also “old” approaches being evaluated–ones designed to treat SARS, to which CV-19 is related, and coronaviruses generally. Gilead created the drug but the discovery for treating CV-19 with it came from government scientists. Those scientists were not the discoverers of the compound but they identified the potential for use with CV-19. They also demonstrated the efficacy with testing–and essential part of first actual reduction to practice.

The Bayh-Dole Act contains a fail-safe mechanism known as “march-in” rights to allow the federal government to step in and grant additional licenses under certain specific scenarios.

March-in is not a “fail-safe mechanism.” March-in (35 USC 203) is a federal contractual right that operates between antitrust law (which it is not) and the federal license to make, use, and sell (and have made, used, and sold) for government purposes (35 USC 202(c)(5)). The situations march-in identifies are broad categories, not certain specific scenarios. 203(a)(1) march-in is triggered when a patentee or assignee fails to make the benefits of using an invention made in federally supported work available to the public on reasonable terms (“practical application”–defined at 35 USC 201(f)). 203(a)(2) march-in is triggered when a patentee or assignee or licensees have not “reasonably satisfied” “health or safety needs.” Broad categories, not certain specific scenarios.

203(a)(1) has to do with nonuse of inventions and unreasonable use–including unreasonable pricing. Gilead prices remdesivir for CV-19 treatment at 50x its cost to manufacture. The public has some say in determining whether the terms on offer are “reasonable.” It sure does not look like Gilead’s terms are “reasonable”–other than to Gilead, and, apparently, AUTM. If the government marches in and requires licensing, Gilead would get paid a reasonable royalty–no one is pinching the patent, but rather the federal government insists that Gilead work the invention on reasonable terms. If Gilead refuses to offer reasonable terms to the public, then adding more manufacturers (and sellers) of the drug creates the prospect of price competition, as if the drug were a generic–and if there is no price competition, then we have a potential anti-trust situation.

203(a)(2) has to do with scarcity. If Gilead cannot ramp manufacture and distribution of remdesivir to meet the need, then march-in permits the government to require additional manufacturers on reasonable licensing terms. Again, if Gilead agrees, then Gilead gets royalties from those additional licenses–in effect, Gilead gets paid a reasonable royalty. If Gilead does not agree, then the government may offer the licenses itself and Gilead doesn’t get paid a reasonable royalty–because Gilead has refused the royalty, not because the government has taken the patents away.

Some have mistakenly suggested that these march-in rights should be used to gain control of remdesivir’s patents in light of reports that the manufacturer cannot make enough of the drug for current needs.

The Some here are not mistaken in their call for march-in. And the Some are not concerned only with scarcity–they are also concerned about price–those 203(a)(1) “reasonable terms” on offer to the public.

However, march-in rights can only be used for drugs where the patents were derived from federally funded research. Remdesivir was not.

This is. a question of fact to be determined, not merely asserted. If AUTM had any wits about them, they would start with this point, demonstrate it from the law and fact set, and insist that people not waste their time fussing over march-in, even if it could be used to deal with pricing. But no.

AUTM here is wrong about the law–again, this should not come as a shock. AUTM has always, repeatedly, been wrong about Bayh-Dole. Bayh-Dole’s claims apply for any invention conceived or first actually reduced to practice in research or development work receiving at least in part federal funding. “First actual reduction to practice” includes testing–not merely inventing–and for drug-directed claims, testing is almost always required. The federal government did much of that testing. The application of remdesivir to CV-19 clearly involves “in part” federal support. Bayh-Dole applies even though no federal employee is named as a co-inventor on any patent and no federal funding was provided to “invent” the compound in the first place. We can get into the difference between subject invention and “patent derived from federally funded research”–but AUTM will be proven wrong, there, too, but it is just more work and bother to do it, and won’t shock us any further or better than we are already not-so-shocked.

Those same critics also believe the price being charged by Gilead is far above the cost of production.

It is.

However, as NIH and the Department of Health and Human Services have repeatedly stated, pricing is not part of the formula for determining the use of “march-in” rights.

Apparently AUTM concedes the point that the pricing is far above the cost of production, and is not “reasonable terms.” The NIH and HHS are not the authorities for determining whether pricing is excluded from Bayh-Dole’s definition of “practical application”–those “reasonable terms” on offer to the public. AUTM would have it that the NIH can acquiesce in any pricing that Gilead chooses and thus leave the “reasonable terms” bit in the statute with no meaning or effect. If so, there would be no point in the definition of practical application.

The point, however, is entirely different. While the NIH has refused to march-in every time march-in has been raised, the issue is not price control but rather price competition. Bayh-Dole expressly states as a policy objective the promotion of “free competition and enterprise.”  A patent holder promotes free competition by granting licenses to others, so they may compete, including competing on price. Refusal to compete on price means antitrust. March-in enables competition where there has been a failure to use or to offer the benefits of use to the public on reasonable terms. March-in does not control price or set price; rather, march-in is triggered by *unreasonable* price and addresses price through competition. I know, this is too hard for AUTM folks–but then they don’t want march-in because AUTM members are hooked into deals in which they benefit from unreasonable pricing. Again, no shock here–AUTM members are institutionally, if not personally, conflicted.

Indeed, Senators Bayh and Dole made that clear in a 2002 Washington Post op-ed:

Their op-ed is irrelevant to the legislative history of the law and the interpretation of the law. We don’t have private law to be announced and controlled after passage by former legislators, even co-sponsors of the legislation. The Supreme Court in 2011 ignored Sen. Bayh’s amicus brief, which argued a silly case for putting inventions last in line for ownership rights, after universities and federal agencies had picked over their inventions. We are fortunate indeed if innovation law is not controlled by op-eds, though AUTM would have it otherwise.

“Bayh-Dole did not intend that government set prices on resulting products.

Bayh-Dole states its policy and objectives. That policy statement includes providing the government with rights to “protect the public against nonuse or unreasonable use of inventions.” March-in is one such instance of those government rights. It’s a matter of political bluffing to say that Bayh-Dole didn’t “intend that government set prices”–of course not. Nothing in Bayh-Dole stipulates that the government set prices. We are not discussing setting prices. We are discussing what the government should do when a company sets an unreasonable price and cannot meet demand during a public health crisis. For that, Bayh-Dole’s policy statement is express and clear–the government has rights to address unreasonable use–and 203(a)(1) and (2) march-in are equally clear that unreasonable pricing and lack of availability are triggers for march-in. There is no other “intending” for Bayh-Dole to be pulled out of the air, even by former senators. What they failed to anticipate, or let go as poorly drafted to their intent, is simply not relevant.

The law makes no reference to a reasonable price that should be dictated by the government.

And they are right, but it’s a meaningless position. The law’s reference is to “reasonable terms”–more general than “reasonable price” and including reasonable price as an essential element. There is no way to consider a product offered for sale to the public that does not include price as an essential term of the transaction. Bayh-Dole does not reference price. It references terms on offer to the public. Price is one. Non-discrimination is another. Tying with other products is a third. We could go on. You, unlike AUTM, get the point.

This omission was intentional; the primary purpose of the act was to entice the private sector to seek public-private research collaboration rather than focusing on its own proprietary research.”

It’s good that this argument by the senators is irrelevant. Here the senators argue that they (not the law) intended monopoly pricing of health products even in a public health crisis as the necessary inducement for pharmaceutical companies to bother with commercial development of new drugs arising in federally funded work. But then why does Bayh-Dole include a requirement for “reasonable terms”? You see, the senators bungled their intention and their intention does not matter.

Nothing in Bayh-Dole states that the “primary purpose” is to “entice the private sector to seek public-private collaboration.” Bayh-Dole does state as one policy objective “to promote collaboration between commercial concerns and nonprofit organizations, including universities”–but there’s nothing in Bayh-Dole about promoting federal government collaboration with commercial concerns. And that’s the situation with remdesivir–the federal government, multiple agencies, subsidize the research and development of remdesivir for CV-19.

It may well be that Bayh-Dole does not apply directly to the situation because Bayh-Dole specifies only funding agreements with nonprofits and small businesses, and Gilead is not a small business. But Reagan changed executive branch patent policy to follow, where law allowed, Bayh-Dole. Bayh-Dole itself was amended to insist that in any federal funding agreement (not just with nonprofits and small businesses), the government license to practice and have practiced, and march-in apply. See 35 USC 210(c). So Bayh-Dole applies, but only via executive branch Executive Order. But Bayh-Dole march-in applies because Bayh-Dole was amended to require march-in, even for large companies.

This is important, because investors in early-stage drug discovery — who spend an average of $2.87 billion per drug as of 2016 (Tufts Center for the Study of Drug Development) — will only invest if they believe there is a chance to recoup their investment.

What drug companies bill to the income of a given drug, or an average of that figure, is not relevant. If we are going to go into costs and returns–not something that matters to Bayh-Dole–then we need to focus on remdesivir itself. What has Gilead put into developing remdesivir for CV-19 use? That’s the question. The answer is not an industry average as determined by an academic study. What has Gilead legitimately billed against remdesivir for use in CV-19?

While you are waiting for Gilead to come clean on remdesivir accounting, consider two further points that make this whole effort silly. First, if Gilead’s need is to recoup its investment, why that’s easy. We can take their audited accounting of remdesivir development spend and spread that over the anticipated number of doses needed and work out an investment recoupment for them. What folks are bothered by, however, is that Gilead is setting up to make many times its “investment” and to do it during a public health crisis (as if any health situation is not a crisis for those involved, Hepatitis C, for which remdesivir was initially targeted, and didn’t work).

Second, as we consider how we go about creating treatments for public health matters, to what extent do we even need companies involved that insist on patent monopoly pricing? We have governments, universities, foundations, and contract laboratories all standing ready to provide services to develop and deploy medical treatments and none of these insist on patent monopolies or even a recovery of the money they spend to develop new treatments. Dean Baker, an economist, has argued that the federal government could fund all medical research and development and still come out like $100 billion dollars ahead every year. We can then ask–in a needling, incisive way–why it is that gaining the participation of medical monopolists is so much more important than getting to new medical treatments at reasonable costs by other means? It’s like federal law is being used to cut in the speculators–and AUTM then rallies in defense of patent speculation on public health. It’s like price gouging and manipulated scarcity are, in AUTM’s view, public virtues we should aspire to. It’s nonsense, of course, and just political shilling. Still, there’s something morbidly horrifying about AUTM’s position.

If the government sets a precedent by incorrectly allowing march-in rights to be used for remdesivir to control pricing, it risks investor confidence in the development of future therapies.

AUTM’s argument here is that if prices are reasonable, then patent speculators might lose “confidence” in putting their hopes for outsized financial returns playing on public health and go off and speculate on something else or just dejectedly give up speculating. We can skip the “incorrectly”–AUTM doesn’t really mean that. What AUTM means is that any use of march-in rights that created price competition would turn speculators into sullen blogs. It’s not that speculators would be happy as larks if the march-in was “correct” and only upset that something was done “incorrectly.” We aren’t that stupid.

Public policy ought to be that we don’t want speculators putting money into public health “therapies” expecting to make a huge, uh, killing from the few that make it big. Bayh-Dole says as much. It’s just that AUTM works hard to shout down the law. We might go further–public policy ought to be that we don’t want AUTM dictating how we go about finding new treatments for public health conditions. They can have their irrelevant rant–but then serious folks have to get down to work, no patent speculators needed wherever public funding is allocated. Public funding should enable development, not subsidize speculator hopes for return many times over on their “investments.” If they want to speculate on public health–then do it entirely on their ownsomes. We don’t need that sort of “public-private collaboration”–meaning that the public pays so speculators are motivated to try to price gouge the public. This is not even the public pays twice argument. It’s the public are suckers, federal agencies are suckers–pay way, way, way more than the investment or the cost to manufacture. Why should such practice be federal policy? And who believes for a moment that without these speculators, cut in on federal public health research in 1981, medical treatments would cease to be developed? It is not credible. AUTM is not credible. But it is politics, and much of politics is not credible.

Such activity would lead to fewer investments that would lead to fewer, not more, discoveries for cures of other diseases

Only if one believes the premise that speculators will lose confidence if something gets sold at only a little above cost during a public health crisis. The investments we are talking about here are in development not discovery. The speculators are not funding the research that identifies compounds for possible therapeutic use. They are funding downstream testing, and for much of that, there is no reason for them to be providing the funding. There are others who would fund. Others that would do the work. But federal patent policy allows universities to cut in the speculators and align university interest with speculator price-gouging and AUTM goes all-in for this being not only a good thing but essential to the volume of cures for diseases.

And while we are at it, remdesivir is not a cure for CV-19. So AUTM goes over the top. No, don’t be shocked that AUTM would do that. Here’s a NIAID study conclusion on remedisiver:

the difference in mortality was not statistically significant.

Remdesivir might shorten the length of symptoms but it is no cure. In a way, the fuss over remdesivir is a distraction. The compound is not a prevention (though maybe there’s a PrEP approach that would work). The compound does not save lives. It is a comfort drug, to shorten duration of symptoms. Still, the government should march-in and send the speculators running, lost confidences spilled all over the place.

Universities are working hard every day to research potential treatments or vaccines for the coronavirus and a huge number of other diseases.

A nice thought. It’s university-hosted investigators. Universities don’t do research. That’s a shorthand that administrators and speculators use to abstract research as an institutional and financial activity. And this nice thought is irrelevant to the issue–Gilead, benefiting from federal discovery and testing, aims to price gouge on CV-19 and AUTM rushes to defend them by mischaracterizing the Bayh-Dole Act. We are not talking here of university research. We are talking here of a company taking federal funding and then not wanting–willingly–to dedicate its compound to public benefit on reasonable terms–cover its costs, with a reasonable return on what it has actually spent to develop the compound for CV-19.

I don’t know anyone who would begrudge Gilead its costs. Bayh-Dole provides that the way to recover those costs is with reasonable terms–including competitive pricing, not monopoly pricing.

AUTM believes that inappropriately using the Bayh-Dole Act to restrict pricing risks deterring necessary investments in a broad range of drug and scientific research to benefit society now and into the future.

We can cue up some drop of rain theme music here. No one proposes an inappropriate use of Bayh-Dole. What’s proposed is an entirely appropriate use of the law. The purpose is not to set pricing or, as AUTM puts it, to “restrict” pricing. The purpose is to introduce competition that returns pricing to reasonable terms of public availability. AUTM apparently does not support such a thing. AUTM’s position is that speculators and institutional parasites that enable and then feed on that speculation depend on the prospect of monopoly pricing in matters of public health and Bayh-Dole should not be used to set things right. And that’s why AUTM is irrelevant to this public discussion.

Consider this “timeline” of remdesivir.

On 12 May 2020, Gilead announced that it had granted non-exclusive voluntary licenses to five generic drug companies in India and Pakistan to manufacture remdesivir for distribution to 127 countries. The agreements were structured so that the licensees can set their own prices and will not have to pay royalties to Gilead until the WHO declares an end to the COVID‑19 emergency or another medicine or vaccine is approved for COVID‑19, whichever comes first.

That is–non-exclusive licensing, royalty-free for 127 countries. A wonderful gesture. Exactly what should happen in the US, too. Under the Trump administrations “most favored nations” pricing requirement, it would appear that Gilead would offer remdesivir to the US government under a similar deal. It’s just that the US government–if Bayh-Dole applies–already has a license to practice and have practiced the invention for CV-19.

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