The Biden administration may soon destroy the foundation of America's high-tech economy.
The administration wants to functionally rewrite the Bayh-Dole Act of 1980. Most Americans have never heard of that law -- but over the past four decades, it has catalyzed the creation of thousands of new products across a variety of industries, leading to millions of new jobs and over $1 trillion in economic growth.
Prior to the Bayh-Dole Act, the federal government retained the patent rights stemming from all government-funded research at universities and nonprofit labs. Though in principle the government could license patents for commercial development, in practice, agencies seldom did so. Of the 28,000 patents the government held at the time of Bayh-Dole's passage, fewer than 5% had been licensed to the private sector for commercialization.
The Bayh-Dole Act decentralized technology licensing by letting universities and labs keep the patents on their discoveries -- even if they had received some federal grant funding. Newly established university "tech transfer" offices could then license those patents to the private sector.
Between 1996 and 2020, the innovation ecosystem Bayh-Dole inaugurated contributed as much as $1.9 trillion to U.S. gross industrial output and supported as many as 6.5 million jobs. More than 126,000 patents were issued to research institutions, and more than 17,000 startups formed to develop Bayh-Dole patents. Bayh-Dole has given rise to over 300 new medications and vaccines.
The law included an important safeguard. To prevent private companies from licensing a patent simply to deny it to rival firms -- rather than making a good-faith effort to develop it into a useful product -- Bayh-Dole permits the government to "march in" and relicense the patent to a different developer.
In recent years, a number of activists have argued that the government can invoke march-in rights simply due to the price of a successfully commercialized prescription drug. The late Sens. Birch Bayh (D-IN) and Bob Dole (R-KS) refuted this claim, writing in 2002 that their namesake law "did not intend that government set prices on resulting products." Administrations of both parties have rejected all such activist petitions -- including the Biden administration in March 2023.
However, the Biden administration has since reversed course. It recently issued a new "framework" that would allow march-in on pricing grounds, for drugs as well as many other products.
Proponents of price-based march-in have advanced a number of misleading claims.
One is that the government "paid for" the drugs' development. But a useful illustration of the government's real role in drug development is Xtandi, the prostate cancer drug that has been the subject of several march-in petitions. The molecule behind Xtandi was invented by two scientists at UCLA, which patented the compound. It was licensed initially by Medivation (now part of Pfizer) and later by Astellas Pharma.
UCLA received less than $500,000 in grant funding for the research that led to the discovery of the molecule. Astellas, by comparison, invested more than $2.2 billion to further research and develop it into an actual medicine and bring it to market. The federal government's financial contribution was just 0.02% of the total spent.
Yet another talking point is that drug makers are "taking advantage" of public funding. A recent study shows that "from 2011-2020, industry funding for novel patented therapies approved by the FDA was $44.3 billion. [By comparison,] the US government contributed $276 million to research that led to patented drugs subject to Bayh-Dole statutes." The financial return to the United States, both economically and in improved health, is far greater than the cost of the research grants.
Developing just one new drug costs $2.6 billion, on average, after accounting for the many failed research projects that never bear fruit. Because only about 12% of drug candidates entering clinical trials reach the market, every successful drug must help make up for dozens -- or even hundreds -- of failures.
Currently, the potential rewards of developing a blockbuster drug make those risks worthwhile. And the possibility of reward is inextricably linked to the security of intellectual property rights guaranteed by the Bayh-Dole Act.
If the proposed march-in framework takes effect, industry will avoid commercializing discoveries "tainted" by U.S. government funding -- and not just in the biotech industry. Any intellectual property resulting from government-funded research will be eligible for march-in. The proposal threatens the entire high-tech economy.
Mark L. Rohrbaugh Ph.D, JD is a 30 year veteran of NIH technology transfer policy and practice. Fred H. Reinhart, MBA has 39 years of academic technology transfer experience and is a Past President of AUTM.
