PhRMA Foundation: 2015 in review

In 1980, Congress passed the Small Business Patent Procedures Act, better known as the Bayh-Dole Act, which created a uniform framework for transferring government-funded research into useful commercial products. The law allows and encourages universities that receive government funding for basic research to patent their discoveries and then license them to others to help fuel the development of innovative products. The law’s impact has been far reaching — bolstering the economy and positioning the U.S. as a leader in technology transfer, that other countries now seek to emulate. Between 1996 and 2015 alone, the licensing activity spurred by Bayh-Dole contributed close to $591 billion to U.S. gross domestic product and supported an estimated 4.2 million jobs in the U.S. In 2016 alone, more than 1,000 start-up companies were formed and nearly 800 commercial products stemming from university research were introduced.

Despite Bayh-Dole’s tremendous success, petitioners have demanded that the U.S. government exercise march-in authority to drive down drug prices. March-in authority is specific to Bayh-Dole and was included to deter a company from failing to develop a product— these rights were never intended as a blunt tool to regulate prices. Fortunately, Bayh-Dole has been so successful in spurring innovation that march-in rights have never been exercised.  

A recent report from the Information Technology and Innovation Foundation (ITIF), finds that not only could the use of march-in authority disincentivize continued collaboration between the public and private sectors, but it could also have a chilling effect on U.S. innovation. Specifically, the report finds that “Using ‘march-in’ rights to control prices could undermine the U.S. life-sciences innovation ecosystem and reduce the pace of American biopharmaceutical innovation, resulting in fewer new drugs.”

Bayh-Dole has given American entrepreneurs and investors the confidence to invest the vast sums that transform early-stage inventions into treatments and cures that patients need. Using march-in authority would erase that certainty and along with it, the report notes, a significant chunk of the “$100 [that biotechnology companies invest] in development for every $1 the government invests in research that leads to an innovation.” Further, the report outlines how march-in authority “would seriously undermine the mechanics of America’s life-sciences innovation system, giving enterprises considerable pause about investing the additional hundreds of millions, even billions, required to bring innovative drugs to the marketplace.”

Bayh-Dole also energizes the American research ecosystem, encouraging industry-academic partnerships and licensing agreements that return tens of billions of dollars to universities. According to the report, aggressive use of march-in rights would dramatically reduce those partnerships and “universities would therefore lose license fees and ultimately receive less money to support research, develop research labs, train students, etc.” 

Before Bayh-Dole, “no drugs were created from federally funded inventions…In Contrast, over 200 new drugs and vaccines have been developed through public-private partnerships facilitated in part by the Bayh-Dole Act since its enactment in 1980.” This continuing flurry of innovation and development is put at risk when march-in authority can just take exclusive rights in inventions from their inventors.

The march-in authority specific to Bayh-Dole was never intended to serve as a mechanism for regulating the pricing of any particular product, including prescription medicines. Doing so effectively defeats the purpose of Bayh-Dole, which was to incentivize the private sector to take on the substantial risk and investment needed to translate discoveries from government-funded research into potentially useful commercial products that help patients. As this new report shows, the Bayh-Dole Act has played a vital role in fostering research and development and spurring competition in the marketplace. Circumventing patent rights on medical innovation could threaten our country’s ability to remain competitive and jeopardize U.S. innovation.