New March-In Guidelines Threaten U.S. Innovation

One might think that we had enough crises already without creating a new one, but apparently that’s not the case. To much fanfare, the Biden Administration unveiled its long awaited “guidelines” for agency use of the march in rights provision of the Bayh-Dole Act. Ironically, it started this exercise just as it had joined every other administration in dismissing attempts to misuse the statute as a pretext for the government to micro-manage the price of a successfully commercialized government funded invention.

A Big Miss

With the unveiling of the Federal Register Notice, the White House bragged that it was unleashing a potent weapon to bring down drug costs. If that was the target, this is a  swing and a  miss. In reality, the threat of the government forcing a university to license competitors because someone doesn’t like a product’s price affects so few drugs that its impact is minimal. But what the White House apparently  doesn’t realize  is that this is a dagger over the heads of the innovative small companies which drive our economy by bringing high risk inventions to market.

It’s appropriate that the guidelines issued on December 7, which was previously known as “Pearl Harbor Day.” But unlike the attack in 1941, this time we’ve bombed ourselves by undermining confidence in the reliability of universities and federal laboratories as R&D partners. We’ve also put a cloud over small businesses which make inventions with federal funding.

As we’ve discussed many times before, the purpose of march-in rights is pretty straightforward—Congress wanted to make sure that federally funded inventions were being developed into useful products and that they could be made available to meet national emergencies, while being manufactured in the U.S. whenever possible. For 43 years, that system worked because the rules were well known and reliable, regardless of which party was in power. That changed last Thursday.

The Poison Pill

The guidelines introduced a poison pill that every administration has rejected (including the Biden Administration) until now. The guidelines say that if a company “has commercialized the product, but the price or other terms at which the product is currently offered to the public are not reasonable, agencies may need to further assess whether march-in is warranted.”

As my boss, former Senator Birch Bayh, told the National Institutes of Health (NIH) at its only public meeting to consider march in rights,   there is no statutory definition of “reasonable pricing” in the law, so that term is completely arbitrary.

He added:

“If Congress does decide to amend Bayh-Dole someone must clearly define what is a ‘reasonable price.’  Congress must keep in mind that the vast majority of technologies developed under the law are commercialized by small companies that ‘bet the farm’ on one or two patents. Copycat companies are always waiting until an entrepreneur has shown the path ahead. They can always make things cheaper since they have no significant development costs to recover.”

Congress never made that amendment, so incorporating that concept in the guidelines turns the law on its head.

The premise of Bayh-Dole is the decentralization of technology management out of Washington, DC, and into the hands of those who know the invention the best—the institutions that created it. The federal bureaucracy is to get out of the way. That system has worked and leads the world in bringing government funded inventions to the market so they can be used.

But now the bureaucracy is very much back in the saddle. And despite the rhetoric, the victims won’t be big pharma. Those taking the hit are startup companies and entrepreneurs—just as Senator Bayh predicted.

The Bayh-Dole Act covers all agencies—not just NIH, so march in standards apply across the board. Now anyone coming up with a revolutionary breakthrough in energy, environmental protection, agriculture, or working under the SBIR program has a new sword dangling over their heads. Any competitor, disgruntled relative or gadfly can petition the agency funding the research alleging that a price isn’t “reasonable.” And some bureaucrat—or political appointee—sits in the judgment seat to determine whether the government should license a copier that can make it cheaper. What will the unscrupulous—or our foreign competitors—do with the new weapon we just handed them?

Be Careful What You Wish For

Here’s the ultimate irony—the place where march in rights are least likely to make an impact is with drug prices. That’s because march in rights only apply to federally funded inventions. A brand new study looked at the Food and Drug Administration (FDA)-approved drugs introduced between 2011- 2020. It found:

“92% of the therapies in our cohort have no mechanism of action or composition of matter patents with a government interest statement or federally funded co-development program in connection to them.

“99% of the therapies in our cohort cannot be marched-in upon, as the key patents studied do not cover the entire asset’s intellectual property. There are only 5 out of 361 pharmaceutical products in which all available MoA (mechanism of action) and CoM (composition of matter) patents include a government interest statement and could be subject to march-in rights.”

So, who are those most likely to have their key inventions funded by the government? Startup companies. Small companies receive about 70% of academic patent licenses. They depend on attracting high risk investment to survive. That’s hard enough in the best of times. But what responsible venture capitalist will want to back them now that the government has signaled that it welcomes march in petitions? And as the guidelines make clear, petitions can be filed because someone thinks that you’re taking too long to commercialize the product.

Since 1980, not a single march in petition has been successful. Critics claim that proves the Bayh-Dole Act is flawed. Actually, it proves just the opposite.

From Predictable to Capricious

Universities closely monitor their licenses. If the licensee is missing milestones toward development without good reason, the license is terminated, and another company partner is sought. But now, if the licensee plays by the long established rules, they can no longer be confident because the game just changed.

Uncertainty is a serious threat to innovation. Until last week, the Bayh-Dole Act was predictable and dependable. Now it’s capricious.

Have Your Say

But this isn’t a done deal quite yet. The guidelines are open for a 60-day comment period which ends on February 6, 2024. That gives those who appreciate the Bayh-Dole system an opportunity to make their voices heard. The directions on submitting comments are contained in the Federal Register notice that appeared last week. And here’s something that’s not in the notice—send a copy of your comments to your Senators and Representatives. This stinker should have bi-partisan opposition.

While some Administration staffers  preen about tweaking big pharma, they have stirred up a hornet’s nest they never imagined existed. It won’t be long until they feel the stings.

Image Source: Deposit Photos
Author: pasoderholm
Image ID: 3063887