In a misguided attempt to control drug costs, some Congressional leaders are urging the Biden administration to misapply a 40-year-old law that supports 6 million jobs, helped launch 15,000 start-up companies, and contributed $1.7 trillion to U.S economic output. The lawmakers — Senators Elizabeth Warren (D-Mass.) and Amy Klobuchar (D-Minn.) and Representative Lloyd Doggett (D-Tex.) — want the Department of Health and Human Services, as well as the Department of Defense, to misuse the march-in provision of the Bayh-Dole Act to set the price of federally-funded medicines — something the provision does not authorize. Such an action would undermine the intention of Bayh-Dole, while inflicting devastating damage on the U.S.
Here’s why.
Congress passed the Bayh-Dole Act in 1980. It allows academic institutions and small businesses to patent and license inventions they have made that were supported, at least in part, by federal funding. Before that bipartisan reform — which I helped draft as a senior staffer for Senator Birch Bayh (D-Ind.) — the government took ownership of such discoveries, destroying incentives for their commercialization. As a result, nearly 28,000 government-funded inventions gathered dust. Not a single new drug discovered with federal support was developed. The fruits of billions of dollars of taxpayer-supported R&D were simply being squandered.
The Bayh-Dole Act ended that waste by putting academic institutions and small businesses in charge of licensing their discoveries so they can be turned into useful products. Since its enactment, the U.S. has become the world’s leader in innovation creating, on average, three new start-up companies and two new products every day of the year under Bayh-Dole. The law has also supported the discovery of nearly 300 new therapies.
Under Bayh-Dole, the federal government has the right to “march in” and force universities and small businesses to license their inventions to additional companies, primarily if the original licensee isn’t making good-faith efforts to develop the technology into a usable, real-world product. Patent-holders actively monitor their licensees to ensure they work hard to turn inventions into useful products. If they don’t, tech transfer offices terminate the license and find a better partner. In four decades, the government has never marched in because federally funded inventions are being effectively managed and developed.
The requests by Warren, Klobuchar, and Doggett that the Biden administration invoke march-in rights to control drug prices throws this delicate balance into chaos. While making health care more affordable is a laudable goal, it can’t be done on the back of Bayh-Dole. That’s not how the law works — and pretending it does would have disastrous consequences.
Commercializing federally funded inventions in the private sector is a high-risk endeavor, much more likely to fail than to succeed, especially when it comes to developing new drugs. It can easily take more than a decade and hundreds of millions — or even billions — of dollars for a company to turn an invention into a new therapy. The system of public-private collaboration established by the Bayh-Dole Act is the most successful in the world. Making the commercialization process even riskier will create fewer critically needed drugs without doing anything to control costs.
The commercialization system supported by Bayh-Dole is driven by small companies. They receive about 70% of university patent licenses and create more than half of new drugs developed in the U.S. These businesses “bet the farm” when trying to commercialize federally funded research. Allowing the government to march in because someone believes the price a company charges for its therapy isn’t “reasonable” — a completely undefined term — would be a devastating blow to the U.S. economy and the health of Americans.
The federal government tried the march-in advocates’ theory before, and it was a disaster. In 1989, nine years after the passage of Bayh-Dole, the National Institutes of Health imposed a reasonable pricing clause for its patent licenses and its cooperative research and development agreements (CRADAs) — R&D pacts between the public sector and a private company — based on progressives’ theory of misusing march-in rights.
But rather than lowering drug prices, CRADAs between the NIH and the private sector companies collapsed. Harold Varmus, who directed the NIH at the time, repealed the policy in 1995, concluding that “the pricing clause has driven industry away from potentially beneficial scientific collaborations with [government] scientists without providing an offsetting benefit to the public.” The number of cooperative research and development agreements immediately shot up.
As a senator, Joe Biden had a laudable record of supporting the Bayh-Dole Act. He voted in favor of it in 1980. When then-Representative Bernie Sanders (I-Vt.) introduced a bill in 2000 to reinstate the reasonable pricing clause the NIH had previously revoked, Biden voted to table the motion, and the bill failed to pass. The Obama-Biden administration rejected every attempt to misuse march-in rights to control drug prices as unauthorized under the law.
As president, Biden needs to continue protecting the Bayh-Dole Act. It was a cornerstone of the historic development of Covid-19 vaccines and keeps the U.S. ahead of economic competitors like China. Failing to stand by Bayh-Dole will undermine the critical alliances between academic research institutions, federal laboratories, and private sector entrepreneurs that help keep the country prosperous and secure. That’s a blunder we can’t afford.
Joseph P. Allen is executive director of the Bayh-Dole Coalition and previously served as a staff member of the U.S. Senate Judiciary Committee.
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