A Reasonable Approach To ‘Reasonable Pricing’?

Biopharma companies are understandably upset by a Biden administration proposal to allow the National Institutes of Health to consider pricing as a factor that might prompt the agency to “March In” on patents licensed to commercial companies.

After all, they were so close to having a regulation finalized that would have explicitly prohibited pricing from any consideration in suspending exclusive rights under the Bayh-Dole Act that governs technology transfer agreements in the US. A multi-year effort to rewrite those rules included a bright line making pricing off limits in 2020 – but that provision was blocked after the new administration took over in 2021. (Also see "End Of The 'March-In' Pricing Petitions? " - Pink Sheet, 24 Apr, 2019.)

Now, the National Institutes of Standards & Technology is offering a new proposed framework that would allow agencies to consider pricing as a factor in considering whether to “March In” on agreements. (Also see "Patent ‘March-In’ Policy Shift Will Likely Drive Uncertainty More Than Price Drops" - Pink Sheet, 7 Dec, 2023.)

Agencies would be able to do so in two cases:

1. When the price “is not reasonable” that could be a factor in determining that the licensee is not following through on the “practical application” of the patent by making it commercially available; and

2. If the licenses is “exploiting a health or safety need in order to set a product price that is extreme and unjustified given the totality of circumstances.”

So instead of price not being a factor, the new “framework” would very much allow price to be considered – and in language that is scarily subjective. No wonder innovator companies are ready to push back.

And yet: a strong argument can be made that the proposed framework is in fact better than the status quo – and maybe even better than the Trump Administration proposal to rule pricing out of bounds for “March In” proceedings altogether.

That argument begins with accepting the premise that commercial products developed with taxpayer funding will inevitably face extra scrutiny over pricing. After all, there is intense political pressure applied over prices of drugs that were not developed with taxpayer support – so it is safe to assume that demands for actions when there was substantial federal R&D investment will not just go away.

And so the proposed framework could help innovators by serving as a pressure relief valve of sorts: future flare-ups of outrage over perceived exploitation of taxpayer funded research would be funneled into the NIST process rather than left to fester in less predictable political venues.

A High Bar For Any ‘March In’

And that framework does provide some important guardrails. For starters, it sets a very high bar for agencies to invoke “March In” rights in general.

The framework outlines a lengthy series of analyses for agencies to consider before invoking “March In” rights. That begins with determining whether the patents in question qualify as “subject inventions” under the Bayh-Dole Act, which “can be a complex and fact intensive process,” NIST says.

It also includes consideration of whether it would in fact be possible to enable a competitive entry, whether there are alternative mechanisms to achieve the goals – and whether there would be downstream effects on innovation.

“The foundation of Bayh-Dole’s policies and objectives reflect two themes,” NIST says, “promoting the development of new products in the U.S. and their availability to end-users or consumers in the U.S. Accordingly, agencies evaluating march-in should prioritize both policy goals – incentivizing U.S. innovation and promoting access to the fruits of that innovation in the U.S. Determining whether an individual march-in decision would advance or impede these goals may be a complex and fact-specific assessment. Agencies should also weigh how an individual march-in decision could impact the broader policy objectives for U.S. competitiveness and innovation.”

As a starting point, agencies should carefully consider “the practical value of exercising march-in,” including “whether there is intellectual property (beyond the subject invention(s)) that could possibly prevent other licensees from making the product or offering the service in question,” NIST says. “A complicated intellectual property landscape could reduce the likelihood of successful licensing and weigh against march-in.”

That likely takes most pharmaceutical launch prices off the table for “March In” since it is only in rare cases that government-funded patents cover all the relevant inventions necessary to allow a market entry.

Agencies Must Consider Alternatives, And Impact On Innovation

Agencies are then asked to weigh whether there are “viable alternatives” to a “March In” proceeding that would address the concerns more quickly – a factor that may mean that older products are left for the newly created Medicare price negotiation process rather than subject to any new “March In” paradigm. 

Agencies are directed to consider whether there are other federal agencies “taking action that would resolve underlying issues.” The framework notes specifically that there might be anti-trust enforcement or patent litigation that could resolve the concerns.

However, given that the Medicare price negotiation authority specifically includes a provision directing the Centers for Medicare & Medicaid Services to consider the role of taxpayer funding in deciding on how deep of a price cut to pursue, that would suggest that the National Institutes of Health is unlikely to pursue any product that is subject to that pathway.

The most prominent recent call for NIH to act – in the case of Xtandi – illustrates the point. Xtandi just missed the sales threshold for the initial price negotiation class announced this year, but will almost certainly be included in the second round. Those candidates will be announced by CMS in September – and it seems unlikely that NIH would simultaneously open a “March In” proceeding if the framework were finalized in that time frame. (Also see "Medicare Negotiation List Surprises Highlight The Importance Of Current Spending Data" - Pink Sheet, 30 Aug, 2023.)

Finally, agencies will be explicitly directed to consider whether exercising “March In” rights would impact R&D investment in the future – meaning that the arguments industry will marshal against finalizing the policy will be carried forward into any future attempts to apply it. 

“At its core, the Bayh-Dole Act focuses on U.S. innovation and the commercialization of inventions that arise from federally funded R&D – all with an eye towards advancing the interests of the American public,” NIST says. “Prior to exercising march-in, funding agencies should consider both the practical impact and the potential impact on the broader R&D ecosystem” – including implications for future collaborations.

NIH Is Not Likely To Be A Tough Negotiator

Then there is the fundamental reality of how a “March In” proceeding would play out if the policy is implemented as written. As a practical matter, NIH is unlikely to have the interest or resources in negotiating prices as a matter of routine – nor is it likely to be a particularly aggressive price cutter when it does engage in the process.

The lone historical precedent should be reassuring on that score. Under pressure from then-Representative Ron Wyden (D-Ore.), NIH engaged in pricing discussion with Bristol Myers Squibb Company ahead of the launch of Taxol(paclitaxel) in 1992.

While not a process that the sponsor enjoyed or would want to repeat, the end result was a price that still allowed Taxolto become the most commercially successful oncology product up to that point in time. (Also see "TAXOL PRIVATE SECTOR COSTS WILL RANGE BETWEEN $3,000-$6,000 PER PATIENT; BRISTOL NOTES GOVT. DISCOUNTS WILL BRING AVERAGE COSTS DOWN TO $2,000-$4,000" - Pink Sheet, 4 Jan, 1993.)

So, while biopharma companies are certainly going to spend the next few months trying to block or at least further soften the proposal, they may also need to bear in mind that there is no regulatory action that will eliminate the risk of a political response when a private company sets a high price for a product that relies on taxpayer research. And the NIST framework may actually end up being a reasonable one to use to address those concerns – at least compared to the alternatives.