Trump could help lower drug prices

Los Angeles Times - - BUSINESS - DAVID LAZARUS

Af­ter last year’s elec­tion, Don­ald Trump de­clared his de­ter­mi­na­tion “to bring down drug prices.” As pres­i­dent, he’s now re­port­edly cook­ing up an ex­ec­u­tive or­der aimed at cut­ting reg­u­la­tions for drug com­pa­nies, which prob­a­bly won’t do much to lower prices but should please in­dus­try execs.

It’s worth ask­ing, though: If Trump re­ally wanted to bring down drug prices, could he?

The an­swer, sur­pris­ingly, is yes.

Or per­haps. It de­pends in part on how you in­ter­pret a 1980 patent law.

“Yes, I would say that the gov­ern­ment has cards to play,” said Peter Lee, a UC Davis law pro­fes­sor who spe­cial­izes in patent is­sues. “But you can be sure the bio­phar­ma­ceu­ti­cal in­dus­try would be op­posed to any such in­ter­ven­tion in the mar­ket­place.”

I wrote last week that it’s time to ex­pand fed­eral fund­ing to uni­ver­si­ties for re­search into promis­ing new drugs, rather than rely pri­mar­ily on profit-hun­gry phar­ma­ceu­ti­cal com­pa­nies that price their pills at what­ever the mar­ket will bear.

I cited the ex­am­ple of Fred­er­ick Bant­ing, a Cana­dian sci­en­tist who dis­cov­ered in­sulin in the early 20th cen­tury and sub­se­quently

sold the patent to the Univer­sity of Toronto for just $3. The univer­sity, in turn, made the patent avail­able to drug com­pa­nies roy­al­tyfree to fa­cil­i­tate its wide­spread avail­abil­ity.

I also pointed to the the hep­ati­tis C drug So­valdi, which North­ern Cal­i­for­nia’s Gilead Sciences in­tro­duced in 2013 at a price of $1,000 a pill. Gilead didn’t even do the bulk of re­search to de­velop the drug. That was done by an out­fit called Phar­mas­set, which Gilead pur­chased in 2012.

And Phar­mas­set, like most drug­mak­ers, was stand­ing on the shoul­ders of univer­sity sci­en­tists who do much of the ba­sic re­search that goes into phar­ma­ceu­ti­cal prod­ucts.

That brings us back to where we started. How much clout does the fed­eral gov­ern­ment have to bring down drug prices — par­tic­u­larly in light of the bil­lions of tax­payer dol­lars spent an­nu­ally on ba­sic re­search that serves as the foun­da­tion of the phar­ma­ceu­ti­cal in­dus­try’s riches?

Leg­is­la­tion known as the Bayh-Dole Act was adopted in 1980 to ad­dress just this is­sue. The idea be­hind the act was to make it eas­ier for pub­lic-sec­tor re­search to trans­late into pri­vate-sec­tor prod­ucts by sim­pli­fy­ing the li­cens­ing of patents. Tax­pay­ers thus would get more bang for their re­search bucks.

But here’s where things get in­ter­est­ing. Lurk­ing within Bayh-Dole is lan­guage that em­pow­ers the gov­ern­ment to “march in” and award patents to com­pet­ing firms if “rea­son­able terms are not be­ing met” by the com­pany li­cens­ing the patent.

The gen­eral idea is that if a pri­vate-sec­tor patent holder isn’t mak­ing good use of pub­licly funded re­search, per­haps by not bring­ing a prod­uct to mar­ket quickly enough, the gov­ern­ment can kick-start com­pe­ti­tion by hand­ing the patent to some­body else.

Some have ar­gued that the “rea­son­able terms” pro­vi­sion, be­cause of its vague­ness, also could be used by fed­eral of­fi­cials to de­mand lower prices for in­sanely ex­pen­sive pre­scrip­tion meds — which is ba­si­cally what Trump promised to do be­fore and af­ter the elec­tion.

The au­thors of the act, for­mer Sens. Birch Bayh and Robert Dole, said when that idea was first floated decades ago that this was never their in­tent. But the am­bi­gu­ity of the law re­mains.

Craig Garth­waite, a phar­ma­ceu­ti­cal econ­o­mist at North­west­ern Univer­sity, told me that even if fed­eral author­i­ties didn’t seek price caps, they could use Bay­hDole to pres­sure drug com­pa­nies to lower prices. The im­plicit threat would be shar­ing ex­clu­sive patents with oth­ers if the drug­maker didn’t play ball.

“That seems like a vi­able enough the­ory,” Garth­waite said, al­though he added that any such crack­down would send a chill through the in­dus­try and could ham­per in­vest­ment in new treat­ments.

Mo­han Rao, manag­ing di­rec­tor of the con­sult­ing firm Ep­silon Eco­nom­ics and chief fi­nan­cial of­fi­cer of the Ge­or­gia biotech com­pany Ex­pres­sion Ther­a­peu­tics, said the gov­ern­ment prob­a­bly could in­flu­ence drug pric­ing by merely sug­gest­ing use of its Bayh-Dole march-in power.

“The fed­eral gov­ern­ment has never ac­tu­ally marched in be­fore,” he said. “Peo­ple would pay at­ten­tion.”

Rao knows this ter­rain well. His com­pany, which is de­vel­op­ing a gene ther­apy for he­mo­philia, re­lied on Bayh-Dole to ob­tain ba­sic re­search patents from Emory Univer­sity. “The ba­sic sci­ence,” he read­ily con­cedes, “was gov­ern­ment­funded.”

As such, Ex­pres­sion Ther­a­peu­tics could be tar­geted un­der Bayh-Dole if its mar­ket ac­tiv­i­ties were deemed by of­fi­cials to not be “rea­son­able.”

Rao said he’s not wor­ried. His com­pany’s goal, he said, is to of­fer its still-inthe-works he­mo­philia ther­apy at a lower price than other treat­ments.

But there’s another fed­eral patent law he might need to keep an eye on. Known as U.S. Code Sec­tion 1498 un­der Ti­tle 28, this lit­tle-known law gives the gov­ern­ment power to in­fringe a com­pany’s patents in the name of pro­mot­ing pub­lic good.

Thus, fed­eral of­fi­cials could seize the patent of an ab­surdly high-priced medicine and make their own generic ver­sion, or li­cense the patent to a man­u­fac­turer of generic meds. The gov­ern­ment’s only obli­ga­tion to the orig­i­nal patent holder would be “rea­son­able com­pen­sa­tion” for the in­fringe­ment.

This isn’t the­o­ret­i­cal. There have been prior patent grabs by the feds, but no patent for a pre­scrip­tion drug has been seized since the early 1970s. That’s when the Pen­tagon used the law to ac­quire low-cost meds for troops serv­ing in Viet­nam.

Since that time, the phar­ma­ceu­ti­cal in­dus­try has lob­bied ag­gres­sively to keep that from ever hap­pen­ing again.

One other pos­si­bil­ity Trump could con­sider: buy­outs.

“My pre­ferred so­lu­tion is that the fed­eral gov­ern­ment se­lec­tively buy out drug patents at time of FDA drug ap­proval,” said Joel Hay, a pro­fes­sor of phar­ma­ceu­ti­cal eco­nom­ics at USC. The gov­ern­ment then would li­cense the patent to man­u­fac­tur­ers and have a say over pric­ing.

Hay said this prob­a­bly would re­duce how much the gov­ern­ment spends on pre­scrip­tion meds — a cost that now runs Medi­care and Med­i­caid com­bined over $100 bil­lion an­nu­ally.

“And un­like drug price con­trols, this will pre­serve in­no­va­tion, not wreck it,” Hay said.

As UC Davis’ Lee put it, the gov­ern­ment has cards to play. It just de­pends on whether the pres­i­dent has the po­lit­i­cal will to do it.

Ex­perts I spoke with said this would be highly un­likely un­der the Trump ad­min­is­tra­tion.

A San­ders ad­min­is­tra­tion, on the other hand.…

Lurk­ing within Bayh-Dole is lan­guage that em­pow­ers the gov­ern­ment to ‘march in’ if ‘rea­son­able terms are not be­ing met’ by the com­pany li­cens­ing the patent.

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