By James Love
On March 21, 2023, the NIH, acting on behalf of HHS Secretary Xavier Becerra, rejected a petition from four cancer patients asking HHS to use the government’s rights in the prostate cancer drug enzalutamide, in order to remedy pricing abuses by the patent holder. The abuse is charging U.S. cancer patients two to six times as much as other high income countries for Astellas’ and Pfizer’s Xtandi, a drug invented on federal grants.
The cancer patients could seek a remedy to the abusive and discriminatory pricing because the U.S. government had funded the R&D for each of the three patented inventions that are currently blocking generic competition.
As a consequence of this funding, the U.S. government has a “paid-up license to practice or have practiced for or on behalf of the United States” the invention “throughout the world” (35 U.S.C. §202(c)(4)), and separately, the right to force the licensing of the invention to one or more third parties, for any use, if the funding agency finds the action necessary. There are four grounds for a march in set out in 35 USC §203. March-in rights. In the Xtandi case, the petition focused on the pricing discrimination against U.S. residents and said this was contrary to the obligation to make the product “available to the public on reasonable terms,” which is how “practical application” of an invention is defined in the statute (35 USC § 202.f).
In rejecting the request, the NIH ignored an HHS September 9, 2021 report, “Comprehensive Plan for Addressing High Drug Prices,” which promised, among other things, that HHS would give “due consideration” to petitions asking the government to enforce the remedies for pricing abuses in the Bayh Dole Act “when the benefits of the patented product are not ‘available to the public on reasonable terms’” [page 22].
The March 21 NIH decision merely restated the agency’s earlier position that it would ignore the “on reasonable terms” part of the Bayh-Dole Statute (35 USC 201.f). But the NIH decision also relied on a second rationale for leaving in place the Astellas monopoly on enzalutamide. The NIH, having rejected three petitions to use its march-in rights on Xtandi over seven years, stated:
In addition, given the remaining patent life and the lengthy administrative process involved for a march-in proceeding, NIH does not believe that use of the march-in authority would be an effective means of lowering the price of the drug.
The NIH March 21, 2023 letter echoed a claim made earlier, by Joe Allen, the head lobbyist for the industry- and University-funded Bayh-Dole Coalition, in an interview with Medscape Medical News, published February 24, 2023.
Joe Allen, executive director of the Bayh-Dole Coalition, argues against Warren’s interpretation of march-in rights. He also says march-in on enzalutamide patent rights would have little practical consequence. Generic competition for the drug could begin in a few years without the time-consuming, complex procedures that a march-in effort would involve. These would start with a hearing and would almost certainly involve appeals and court battles, he told Medscape Medical News in an interview.
There is some substance to the notion that the NIH had delayed a possible march in so long, it had become an ineffective remedy, as claimed by the NIH in its March 21, 2023 letter. The Bayh Dole march-in regulations provide for a process that can take several months [37 CFR § 401.6 – Exercise of march-in rights]. The statute, 35 U.S.C. §203. March-in rights, provides for an administrative appeal and a stay of an order while a decision is appealed to the United States Court of Federal Claims.
(b) A determination pursuant to this section or section 202(b)(4) 1 shall not be subject to chapter 71 of title 41. An administrative appeals procedure shall be established by regulations promulgated in accordance with section 206. Additionally, any contractor, inventor, assignee, or exclusive licensee adversely affected by a determination under this section may, at any time within sixty days after the determination is issued, file a petition in the United States Court of Federal Claims, which shall have jurisdiction to determine the appeal on the record and to affirm, reverse, remand or modify, as appropriate, the determination of the Federal agency. In cases described in paragraphs (1) and (3) of subsection (a), the agency’s determination shall be held in abeyance pending the exhaustion of appeals or petitions filed under the preceding sentence.
As bad as this seems, it is worth noting that the patents run through 2027, and the FDA has already given tentative approval to two generic versions of enzalutamide. The money involved is significant. In 2021, the Medicare program spent nearly $7 million per day on Xtandi, or $2.4 billion in one year, and this does not include the non-Medicare sales in the U.S., all of which would be impacted by a successful march in.
Astellas and Pfizer would have an incentive to negotiate a lower price now, to hedge against losing the monopoly before the patents expire, even if the threat of a march in is the government’s only option. But the government actually has much more leverage, because it has two other tools, which both work together.
In addition to the federal government’s march-in rights, as noted above, the U.S. government has a “paid-up license to practice or have practiced for or on behalf of the United States” the patented inventions. The U.S. government does not have to establish an abuse to use this license, and the patent holders do not have any right to an administrative appeal, nor do they have an automatic stay during a judicial appeal.
Also, aside from its “paid-up license,” the U.S. government has an absolute right to use any invention patented in the United States, under 28 U.S.C. §1498 Patent and copyright cases. This act eliminates the possibility of an injunction, and has been used repeated times by the federal government in a wide variety of cases, including for drugs, vaccines, weapons, satellites, telecommunications services, etc. (See, for example: KEI Briefing Note 2022:2: U.S. federal government FAR 52.227-1 authorizations (for non voluntary use of patents) disclosed in 166 SEC exhibits.)
In the Xtandi case, the cancer patients had highlighted the two additional legal measures the Biden Administration could take to ensure the timely entrance of a generic drug to market, a topic also explored by others, such as Alfred B Engelberg and Aaron Kesselheim in a 2016 article in Nature, and Amy Kapczynski and Aaron Kesselheim in an article in Health Affairs.
The Biden administration could, if inclined, address the egregious pricing abuses by giving Astellas and its partner Pfizer a notification that if the Xtandi price is not reduced to match the price in other high income countries, the U.S. government will proceed with three simultaneous actions:
- The use of march-in rights to enable any FDA approved generic supplier to sell in any segment of the U.S. market.
- Entering into contracts with the two FDA approved generic suppliers, Sandoz and Eugia Pharma, as well as any other manufacturers that are already selling generic versions of enzalutamide in countries where there are currently no patents (such as CIPLA, Glenmark, Dr. Reddy’s, Intas Pharmaceuticals, or BDR Pharmaceuticals), to supply patients purchasers through the Federal Supply Schedule, as well as the Medicare and Medicaid programs.
- Granting the generic manufacturers a FAR 52.227-1 authorization to provide the drug to U.S. federal government programs (using 28 U.S.C. 1498(a)), thereby eliminating the possibility of an injunction.
Here the march-in remedy would be the broadest authorization, allowing the sale in any U.S. market segment, subject to payment of a reasonable royalty to the patent holders. But the patent holders could also delay the remedy, through the time it takes to finish the march-in proceeding and the administrative and judicial appeals.
The 202(c)(4) license, on the other hand, could go into effect tomorrow, as could the 1498/FAR 52.227-1 authorization. In the past, the government has been reluctant to use the 1498 authorization over concerns about the compensation required to patent holders. But here, with the U.S. government having its own royalty-free license in each of the three Orange Book patents, the compensation to the patent holders would be zero. The only drawback of using the two government use authorizations, the § 202(c.)(4) license and the § 1498(a) authority, is the somewhat narrower scope. At issue are the legal issues of what is “for or on behalf of the United States” in the case of the 202(c)(4) license, or “by or for the United States” in the case of a 1498/FAR 52.227-1 authorization.
Astellas and Pfizer would face a high probability of losing their monopoly for Medicare and other federal programs almost immediately, with no compensation, and eventually the entire market when the march-in case concluded its appeals.
Would Astellas or Pfizer see such a communication from the Biden Administration as an incentive to lower the price, at least to federal programs? There is a precedent. Faced with opposition to a huge price hike for Norvir, including threats of a march-in case, Abbott Pharmaceuticals agreed to rollback a 400 percent price hike for HIV patients receiving the drug through U.S. government programs. The only reason that Abbott was willing to do this was because the Federal government had the capacity to use all three of these legal instruments.
In the Xtandi case, three Presidents, Obama, Trump and Biden, have all demonstrated their comfort with an American-last policy on pricing for Xtandi. All three could have taken actions that matched their frequent campaign rhetoric about protecting U.S. residents from the highest drug prices. So far, the actions have not matched the rhetoric, when it comes to federally funded medical inventions.
The power to use the exceptions to patent rights is discretionary, and President Biden, like Presidents Trump and Obama before him, is not required to enforce the Bayh-Dole obligation that products be made “available to the public on reasonable terms” But here, we can reflect on the comment by Westley in the movie “The Princess Bride”: “We are men of action. Lies do not become us.” If the Biden administration wants to decline enforcing the Bayh-Dole safeguards on reasonable terms, don’t pretend it is because the government is powerless and lacks the legal means to do so. Just acknowledge that price gouging U.S. residents on a cancer drug invented on U.S. Army and NIH grants is consistent with the actual U.S. policy, and the Administration tolerates the taxpayer costs and inequality associated.