Prostate Drug Price Controls Come at Too High a Cost
By Craig Garthwaite
Health and Human Services Secretary Xavier Becerra is facing mounting pressure to unilaterally lower the price of high-cost medications. A group of nonprofits just petitioned him to cut the cost of six medications, including Xtandi, a popular prostate cancer medicine manufactured by Astellas, a Japanese drug company.
The petitioners argue that because the federal government helped fund the basic research that ultimately led to Xtandi, the government can seize the intellectual property rights utilized by Astellas.
Even if the government could legally do that, which would rest on a dubious reading of existing law, the costs would far outweigh any benefits. It would chill all investments in drug development and dramatically slow medical innovation.
Petitioners' case for government intervention is based on an unprecedented and hotly contested reading of a 1980 law known as the Bayh-Dole Act, which Congress passed to facilitate the commercialization of technologies invented with the help of federal funding.
Bayh-Dole allows the government to "march-in" and relicense the patents to third parties -- but this was only supposed to be in an exceptionally narrow set of circumstances when the products are truly unavailable to the public.
The government has never once found a reason to assert its march-in rights. In fact, administrations of both parties have rejected all previous petitions to march-in based on the price of publicly available products.
Yet, in the case of Xtandi, activists and lawmakers want the federal government to do just that. They are asking the Biden administration to cancel Astellas' exclusive license to the technology behind Xtandi so that generic drug makers can copy it and sell it for less.
Federal officials should reject this call. Without reliable IP protections, the entire enterprise of drug development simply doesn't work.
After all, when a company licenses a new technology, it's taking an enormous risk. Turning a laboratory breakthrough into a practical medical treatment takes years -- and costs can easily run into the billions. More often than not, those efforts fail.
Companies and investors accept these high risks for only one reason: the assurance that, if a drug succeeds, they will have the right to sell the product exclusively until their IP protections expire. Changing the rules in the middle of the game, as the petition seeks, is indistinguishable from patent theft and will have wide ranging consequences.
Should the government choose to assert its march-in rights in the case of Xtandi, it would send a message to the entire biopharmaceutical industry that IP protections can no longer be trusted -- even for medicines that are already on the market.
For this reason, the decision to use march-in rights in this way is about far more than the drugs being discussed. Once venture capital funders and start-ups lose confidence in the security of the IP rights they think they are acquiring, the incentive to invest in drug development would greatly diminish.
The Biden administration must join its predecessors in resisting this kind of push.
Craig Garthwaite is the Herman R. Smith Research Professor in Hospital and Health Services, a Professor of Strategy, and the Director of the Program on Healthcare at Northwestern University's Kellogg School of Management.
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