WASHINGTON, DC. President Joe Biden and Vice President Kamala Harris greet audience members during … [+]
The Biden Administration says it seeks to use march-in-rights for certain prescription drugs to lower prices. Today it unveiled a roadmap that would allow the federal government to grant licenses to third parties for products developed using federal funds if the original patent holder does not make them available to the public on “reasonable terms.” It’s unclear, however, which drugs would meet the standard of “reasonable terms.”
On X (formerly known as Twitter) President Biden posted that his Administration is “proposing that if a drug made using taxpayer funds is not reasonably available to Americans, the government reserves the right to “march in” and license that drug to another manufacturer who could sell it for less.”
The Administration issued a draft proposal today that would allow for the National Institutes of Health to more broadly apply so-called march-in rights, which grant third parties license to produce certain pharmaceuticals. This is sometimes called compulsory licensing.
The framework spells out the factors government agencies, including the Departments of Health and Human Services and Commerce, will weigh in determining whether and when to use march-in-rights.
Importantly, the federal government will explicitly consider pricing in deciding whether to use its march-in authority: Specifically, instances in which the price isn’t considered “reasonable.” The draft did not precisely define what would constitute unreasonable prices. However, it did allude to a dearth in competition as one cause of what could be viewed as unreasonably high prices. The proposal cites, for example, alleged misuse of patent laws to delay generic and biosimilar entry.
And, in Biden’s post, he writes that “25 of the largest pharmaceutical companies in America control 70% of the market. This lack of competition drives up prices.” What’s left unsaid is that there is another side to the drug pricing equation, namely payers and pharmacy benefit managers who negotiate prices with manufacturers. March-in-rights will have no impact on these entities. Yet the PBM sector exhibits a high degree of market concentration, with three large players controlling roughly 80% of the market. PBMs impact patient out-of-pocket costs for prescription drugs by often favoring high list-priced drugs, not passing through rebates to patients and using so-called co-pay maximizers to negate patient financial assistance offered by drug companies.
The framework will be open to public comment for 60 days before a final memorandum will be issued.
Origins Of March-In Clause
March-in-rights were first mentioned in the Bayh-Dole Act–Patent and Trademark Law Amendments Act of 1980–which allows universities and businesses to capitalize on federally funded research to bring novel inventions to the market.
The idea is that if money from the federal government is used for the R&D that leads to development by a public-private partnership of a pharmaceutical or other medical product, there is usually a contract that gives the funder certain rights in any patents that result from the funded work. One of those rights is termed a march-in-right.
In a march-in cases, the non-federal entity retains ownership of patents, but the funding agency can grant licenses to third parties to market the products.
The Bayh-Dole Act envisioned application of the march-in clause when “products are not put to market for public use,” or in other words bona fide efforts aren’t being made to commercialize the research.
Notably, Bayh-Dole makes no reference to reasonable prices being enforced by the federal government. Senators Bayh and Dole later claimed that “reasonable terms” did not include “price controls.” Rather, they expressed the importance of price competition.
In 43 years since enactment of the Bayh-Dole Act, march-in rights have never been exercised, though there have been several failed attempts.
In 2004 and 2013, petitioners requested that the NIH put in place march-in rights for the HIV/AIDS treatment, Norvir. Likewise, a petition was submitted in 2004 with respect to the glaucoma treatment, Xalatan. The agency rejected all three requests because it determined that each drug was available to the public on a sufficient basis.
Petitioners also appealed for the application of march-in-rights for the prostate cancer drug Xtandi in 2016. They based their request on the fact that the drug had a higher price in the U.S. than other high-income countries. However, the NIH determined that Xtandi was widely available on the market. Likewise, a 2021 petition failed to persuade NIH. In March of this year it concluded that Xtandi had been prescribed to 200,000 patients from 2012 to 2021. Therefore, the University of California, which carried out the original research with federal grant monies which resulted in the drug’s development and approval, met an inventor’s Bayh-Dole duty to ensure the product is “reasonably available.” Conspicuously, NIH noted that it believed that “use of march-in authority would not be an effective means of lowering the price of the drug.”
Despite this, the Departments of Health and Human Services and Commerce launched an investigation in March, soon after the latest decision on Xtandi, into ways in which march-in-rights could be deployed. This culminated in today’s draft proposal.
It seems that the Biden Administration’s push for possibly exercising march-in-rights may not be particularly impactful. According to an article published by Endpoint News, Joe Allen, who helped draft the Bayh-Dole Act, said that the majority of the actual patents on most drugs are unrelated to government-funded research.
But there could be a negative effect on investment and innovation where patents are directly attributable to federal funding. Here’s where march-in-rights may impede investment needed to translate federally funded research into viable products. Under these circumstances, investors may ask if march-in rights could be applicable down the road and if so discount the projected value.
Government policy must strike a delicate balance between maintaining strong intellectual property protections so as to stimulate the “innovation ecosystem” by way of spurring R&D funding to develop new pharmaceuticals, and improving the affordability of specific products in the short run.
In the end, the Biden Administration’s initiative’s impact will hinge on exactly how federal agencies interpret whether an original patent holder has made certain products available to the public on “reasonable terms.” And it will depend on how pricing fits into the newly devised system for establishing march-in authority and whether this is consistent with the intent of the Bayh-Dole Act.
