From the Director: March-in authority to control drug prices ultimately hurts Americans

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Todd Sherer, PhD

Todd Sherer, PhD is the Associate VP for Research and Executive Director of the Emory University Office of Technology Transfer. In this article, Todd reflects on the Bayh-Dole Act and provides a lesson on march-in authority as outlined in the law.

Before the bipartisan Bayh-Dole Act was passed in 1980, no federally funded drugs, vaccines, or products were commercialized and brought to market. This was because the government, not the inventing organizations, took ownership of the patent. At a time when American industrialism was threatened, the Bayh-Dole Act strengthened U.S. competitiveness.

In the past, activists have tried to challenge Bayh-Dole in hopes of persuading the government to use its executive powers to drive down drug prices. This is outlined as “march-in authority” in Bayh-Dole.

The most recent case involved a prostate cancer drug called Xtandi, which sells for up to $180,000. The National Institutes for Health denied the request that the government march in under the law because critics called the drug unreasonably priced.

Let’s get one thing straight: Drug prices can be too high, and that hurts consumers. But march-in rights were not meant to be used to drive down drug prices – rather, to license inventions if they’re not being made available for public use.

An analogy I like to use to describe march-in authority is going to a dealership and buying a car. Allow me to set the scene:

CONSUMER: “Hi, I’m in the market for a Toyota Camry. I’ve been shopping around and negotiating with 10 different dealers to make sure I’m getting the best offer. The cars I’m looking at may be different colors and have different features, but they’re all Toyota Camrys and that’s what I want.”

DEALER: “Sure, we’ve got a Toyota Camry for you. In fact, there are some perks to buying your car from us. We’ll put special tires on your Camry, paid for by the dealership!”

This is like the opportunity to license a new drug. In this situation, the consumer is a pharmaceutical company or licensee; the dealer is an inventor or inventing organization; and the special tires are federally funded technologies.

CONSUMER: “Great. How much money will that save me?”

DEALER: “Well, not much. The price of the tires doesn’t impact the total cost of the car.”

Think of the tires as the drug license. The cost of licensing a drug doesn’t drive the price of the drug higher. Royalties are only a tiny fraction of the cost it takes to bring an invention to market; a 2020 study put the median cost of a single new drug development at $1.1 billion.

CONSUMER: “Well, OK, I guess special tires are good to have anyway.”

DEALER: “Then let’s start processing your paperwork. But there’s an agreement you need to sign when you buy the car: It says that if you put too many miles on your tires, the dealer can put a limit on how much you drive.”

This is where march-in rights come in. Historically, concerns about cost have not been used as a justifiable cause to exercise march-in. If a technology isn’t being made available so the public can benefit, then that would be sufficient cause to exercise march in rights. But expanding the definition of “march-in rights” could allow the government to include price control in the terms and conditions of its funding.

In this scenario, if a pharmaceutical company wants to license and develop a drug, the government could limit how much they can sell it for and thus limit the company’s profits. This would be detrimental to the company’s finances: About 90% of drugs fail before getting to market, so companies use profits from successful drugs to offset the costs of failed drugs.

CONSUMER: “That doesn’t make any sense. What am I supposed to do if I go too many miles? Stop driving my car every time the dealer thinks I’ve exceeded the mileage?”

DEALER: “Look, it’s not likely to happen, but it could. The tires on your one car might not cost us that much, but the dealership is putting special tires on thousands of other cars. So, funding and maintaining all those tires is a significant cost.”

The federal government funds lots of research. Because taxpayers are ultimately the ones footing the bill, the government wants to ensure the public has access to the drugs. But in this singular case, the pharma company is only concerned with how much the federal government funded relative to the individual project they’re trying to license or re-license. Remember, the company can expect to invest in a drug $1.1 billion on average.

CONSUMER: “Hang on a second. These special tires you’re paying for won’t even save me money or offer any other benefits, and now you’re telling me I might have to stop driving my car because the dealer doesn’t like the way I’m using the tires? No, thank you. I am going to buy my car elsewhere.”

Government-funded drugs aren’t the only drugs available for licensing, and companies can choose from multiple options. With pricing restrictions on federally funded projects, some early-stage research assets may never reach the market. In other words, now that our car is tainted relative to the other options, no one will pick our car.

Using march-in authority to dictate drug prices will encourage the pharma industry not to choose government-funded drugs. The government may believe they’re saving people money, but in doing so, they’re making it easy for companies to look elsewhere for drugs to license. Not only will this discourage innovation for future life-saving technologies, but it will also prevent taxpayers from reaping the benefits of their taxes. When companies don’t develop federally funded research, the government can’t fulfill their promise to improve the lives of its citizens.

Drug prices can be too high, and it’s terrible that pharmaceutical companies can take advantage of that and make the public pay the price. But if the government uses march-in rights to control prices, the public will ultimately lose.