The million-dollar question hanging over US research funding law

As drug prices climb, is it time to ask whether the landmark technology transfer law is a fair deal for US taxpayers?

When a US university sees a drug invented in its laboratories successfully commercialised, quite a few people within the institution should be happy, from researchers to university officials expecting to see an economic benefit. But the biggest winner is the drug company that licensed the technology, which can now charge sky-high prices, particularly in the cases of an advanced treatment like a cell or gene therapy.

Many have assumed that universities also reap windfalls from such arrangements, but, with a few notable exceptions, this is not the case (see tables below). Pharma companies have made the most of this unequal arrangement. But the advent of drugs that cost $1m per patient-year might give Congress good reason to rewrite the laws governing these licensing deals.

Despite the disparity in earnings, universities might not be too worried about changing the status quo. “Universities are about impact, not income,” says Stephen Susalka, chief executive of the Association of University Technology Managers (AUTM), the advocacy group for academic offices in charge of patent licensing. “That impact can be in lives saved, lives improved.”

And should universities seek a bigger share of the profit, or try to keep the eventual prices of any commercialised drugs modest – thereby improving patients' access to them – through licensing terms, these efforts might backfire. “Those type of restrictions would likely kill any interest in licensing that invention from the beginning. That invention will wither on the vine,” Mr Susalka says.

200 new drugs

The landmark Patent and Trademark Law Amendments of 1980 set the background for how federally funded research moves from laboratory to industry by granting inventors and their research institution the intellectual property rights. Before that law was passed, the funding agency retained the patent rights. Advocates for the law argued that useful inventions never reached industry, harming US competitiveness at a time when industrial decline was a big political issue.

The law requires that, when a researcher discovers a potentially clinically useful molecule, they actively seek a deal with a pharma company. The researcher must also disclose the discovery to the federal agency that supported the research, and this funder retains the licensing rights despite the scientist themselves owning the patent. If the researcher or industry partner fail to seek to commercialise, the funder's license gives it the authority to “march in” and take possession of the invention.

In the biopharma sphere, AUTM says 200 new drugs have been launched thanks to the patent ownership transfer authorised under the law, commonly called Bayh-Dole after its chief sponsors.

When biopharma companies license researchers’ discoveries and launch them commercially, investors commonly believe that it is a lucrative arrangement for the university. And it is true that some institutions, like Northwestern University, have done quite well.

Big university tech transfer payouts
Drug University Amount ($m)
Lyrica Northwestern 1,400
Alimta Princeton 524
Xtandi UCLA 520
Sources: News reports, press releases

But on average, universities and biomedical research institutions recoup only a small fraction of their research expenditures. Moreover, when it comes to licensing revenue, two thirds went to the top 10 universities with a medical school or biomedical research facilities in 2016, according to an analysis of AUTM data.

Universities spend a lot, and only get a little back
Institution* Research expenditures, 2012 ($m) Licensing income, 2012 ($m) % recouped
City of Hope National Medical Ctr. & Beckman Research Inst. 333 342 103%
Northwestern Univ. 535 246 46%
University of Texas System 2,710 216 8%
New York Univ. 591 161 27%
Memorial Sloan Kettering Cancer Center 622 161 26%
Univ. of California System 4,408 156 4%
Columbia Univ. 737 139 19%
Princeton Univ. 201 131 65%
Stanford Univ. 991 94 10%
Johns Hopkins Univ. 1,620 58 4%
Average top 10 1,275 170 13%
Average all institutions 447 22 5%
Total, all institutions 51,802 2,545 5%
*Analysis includes universities with medical schools, biomedical institutes or hospitals and which disclose licensing income. Source: AUTM

The analysis below does include revenue from discoveries made outside the life sciences – however, biomedical licensing revenue will figure prominently in these numbers.

Of the 115 universities with medical schools or freestanding biomedical research institutions taking part in the survey, 45 made less than $2m in licensing fees.

Operating at a loss

Often, these licensing fees are not even sufficient to pay for the technology transfer offices themselves, according to Walter Valdivia, a scholar at the George Mason University Mercatus Center. In a 2013 paper he wrote while at the Brookings Institution, he estimated that 84% of tech transfer offices did not generate enough income to cover salaries and the legal costs related to patents in 2012.

Mr Valdivia does not necessarily see that as an issue since universities and research institutions are part of the innovation ecosystem. “There are certain investments that are expensive, and universities need to provide them,” he says. “I don’t think the universities should be in business. They’re nonprofit organisations.”

But it does raise the question of how much of the public investment in R&D the pharma sector pays back (Vantage view – Sarepta and biopharma want to take, but how much will they give back?, June 25, 2018). In addition, there is the issue of fairness in an innovation ecosystem that permits a publicly-supported discovery to be sold to patients for hundreds of thousands of dollars – even around $1m in the case of gene therapies emerging from the University of Pennsylvania/Children’s Hospital of Philadelphia and Ohio State University/Nationwide Children’s Hospital.

On the first point, “Companies will say the government grant was small,” says James Love, director of the watchdog group Knowledge Ecology International (KEI). But they do not acknowledge the cost of R&D failures in NIH-funded university research, he adds, while in contrast “industry always counts the trials that fail in their cost of drug development”.

Indeed, the difference between what universities spend on R&D and what they make back in licensing income demonstrates the cost of research failure in their labs.

Marching in?

A drug that costs hundreds of thousands of dollars a year will stretch the budgets of even those patients with good health insurance coverage, challenging the fundamental assumption behind Bayh-Dole: that taxpayers broadly benefit from this patent commercialisation framework.

This has been part of KEI’s campaign on drugs such as Xtandi. The organisation has asked the federal government to invoke the march-in rights described above because Xtandi’s high price means it is not “available to the public on reasonable terms”, as required by Bayh-Dole.

Such calls might only grow given that some gene therapies’ price tags are expected to push or even exceed the $1m mark. Examples include AVXS-101 from Novartis and Sarepta’s microdystrophin programme for Duchenne muscular dystrophy, which emerged from Prof Jerry Mendell’s laboratories at OSU and Nationwide.

AUTM’s Mr Susalka, however, argues that Bayh-Dole was never intended to impose price controls on drugs, and indeed, the authors of the law, Sens. Birch Bayh and Bob Dole, wrote a letter to the Washington Post making this point.

“Ideally you would like that drug available freely to everybody in the entire world,” Mr Susalka says. “In reality you’ve got some hurdles.”

In 1980, the idea of a drug that cured patients with chronic diseases by altering their genes would have been close to science fiction, and a drug that cost $1m would have been viewed as a near impossibility. These are both realities in 2018, and the law seems ill-equipped to put any restraints on the pharma sector. If America’s publicly subsidised research is delivering drugs that are too costly for many patients, taxpayers are right to question whether Bayh-Dole should be rewritten.

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