The Center for American Progress’ newly unveiled proposal for immediate action on drug pricing for a Joe Biden Administration shows how dramatically the pricing debate has changed over the past four years.
CAP is seeking to reprise the role it played for the Hillary Clinton Presidential campaign in 2015-2016, outlining strategies for a Democratic candidate to embrace and prepare to implement immediately assuming an Election Day victory.
But CAP’s 2020 proposals are markedly more extreme than its ideas four years ago – a sign that what seemed doable when it comes to drug pricing has shifted sharply against industry. Specifically, CAP is urging use of “march-in” rights on government patents as a tool to force down prices (or create new competition).
That is an old idea – and one that the Obama Administration repeatedly declined to embrace. (Also see "NIH Reluctant To “March In”: Collins Suggests Authority Not Intended To Address Pricing Concerns" - Pink Sheet, 20 Apr, 2016.)
At the same time, it is also true that CAP’s 2020 proposals are far less extreme than the declared Democratic party platform on drug pricing. And it is quite possible that the biopharmaceutical industry might be better off if a future Biden Administration takes CAP’s advice.
A battle over “march-in” rights isn’t exactly a good thing for the industry. But it is a fight on much safer ground than the potential alternatives.
CAP uses the “march-in” campaign as the centerpiece of a set of policy proposals unveiled on 17 September. (See sidebar for story on other proposals.)
CAP highlights the Bayh-Dole Act and U.S. Code Title 28, Section 1498 as “safeguards” that “can be used to ensure widespread, affordable access to essential medicines.” It is by far the most draconian proposal among a list of options ranging from resurfacing the Obama era Medicare Part B Drug Payment model to hiring more scientists under the 21st Century Cures authorities.
Four years ago, CAP focused on ideas to put teeth in the idea of price negotiation in Medicare, with proposals that focused on using third-party cost-effectiveness research (like ICER analyses) to set benchmarks for a binding arbitration process. (Also see "Clinton Transition Co-Chair Tanden Offers Themes For A Drug Pricing Bill In 2017" - Pink Sheet, 13 Oct, 2016.)
That proposal now seems almost quaint in the face of the House leadership’s HR3 – which is also now formally endorsed in the Democratic national campaign platform for 2020. Under HR3, HHS can demand a price tied to international benchmarks, and the manufacturer faces a 95% tax for noncompliance. In other words, HHS will get the price the government wants to pay. (Also see "Biden-Sanders ‘Unity Platform’: Moderate On Coverage, Extreme On Drug Pricing" - Pink Sheet, 16 Jul, 2020.)
Given that backdrop, anything that distracts from an all-out effort to enact HR3 might be welcomed by industry – even a proposal to attack patent rights that would have been unthinkable in the Obama Administration. To be clear, CAP is framing its proposal as an immediate action for the White House that does not have to wait for legislation – which is itself an acknowledgement that the it is far from a certainty that HR3 would be enacted even if the Democrats take the House, Senate and White House in the upcoming elections.
Anything that clouds the focus on HR3 likely translates to weakening a Democratic Administration’s position for enacting it given the immense political capital and energy such a task would require.
Moreover, the legal foundation for “march-in” authorities is dubious at best, assuring that the worst case scenario for industry from the policy will be some form of case-by-case litigation strategy or a negotiated compromise that can be declared a win by the new Administration with something far less than a sweeping change in pricing and patent rights.
Under the strategy of overriding patents, each product would have to be litigated separately, with substantial variability in the amount of putative government support involved and the “value” of underlying government licensed patents. In a small handful of cases, it might well be that the government deserves the lion’s share of the credit for the invention, but in most cases the value of the government patent is small or even inconsequential.
Nevertheless, “march-in” could serve as a potent political threat: companies have an incentive to avoid the media headlines and cost of litigation, and there is at least the risk of a dramatic impact on profitability for select products where government patents are critical. That could open up to a broader compromise where industry agrees to pay royalties back to NIH or to give rebates to Medicare in exchange for ending the attack.
CAP specifically targets Gilead Sciences, Inc.’s remdesivir as a case, in their view, that meets the “march-in” trigger – tying the drug pricing argument tightly into the COVID-19 response, but also pointing to the potential weaknesses of adopting the policy.
“Remdesivir was developed through federally funded research for use against Ebola: The CDC and Department of Defense contributed more than $70 million in funding for the development of the drug, and Gilead is now charging more than $3,100 for the drug for a typical COVID-19 patient with private health insurance,” the CAP paper states.
“Gilead has been unable to keep up with the domestic and global demand for the drug, leading to shortages throughout the United States medical system. The health risk posed by this drug being unaffordable or insufficiently produced meets the requirements for the government to exercise its march-in rights,” CAP asserts.
That example illustrates the likely framing of all march in efforts – but also underscores the challenges the government would face in court. Gilead has said publicly that its investment in remdesivir exceeds $1 billion (versus the $70 million CAP attributes to federal spending), and while there have been supply constraints they appear to have eased – with Gilead also offering global licenses to other suppliers for overseas markets.
Moreover, the $3,100 price point is not especially high; even if it were possible to supply the drug at 10% of that cost, the savings would be relatively small. (Also see "Gilead’s Second Chance To Re-Set The Drug Price Debate" - Pink Sheet, 6 May, 2020.)
Last but not least, by the time a “march in” action was successfully litigated and new supplies are secured, the COVID-19 pandemic is likely to be over – or the Biden Administration will have a much more important priority than pursuing price cuts.