Prostate Drug Price Controls Come at Too High a Cost

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 move follows a similar petition, amplified by roughly a dozen members of the House and Senate, that's focused solely on Xtandi.  

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. It achieved this goal by creating a framework in which federally funded researchers could patent their discoveries and license them to private firms, which could then use their own capital to further develop the ideas into real-world products.  

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. Even when Genzyme, a biotech company, had manufacturing problems and was unable to supply sufficient product to the market, the NIH declined to march in and seize IP. Congress certainly didn't intend march-in rights to be used to control drug costs. 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.

It's for this reason that the government and nonprofit labs outsource the work of commercializing new medical technologies to risk-tolerant start-ups and their venture investors — entities with the capital and skill to navigate this risky process.

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. Indeed, when considering potential investments, early-stage investors typically care more about IP rights than almost anything else. 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.

Indeed, Astellas claims to have spent $1.4 billion turning the science behind Xtandi into an actual medicine. Whatever the exact nature of this firm's investment, it certainly put up funds with an understanding that it would be free to market the resulting product however it saw fit. Government action to change the terms of the deal after the fact would be an earth-shaking precedent. It is not credible to assume that Astellas would have made an investment of the same size if it suspected the U.S. government would change the rules after the firm had sunk its capital.

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. At the very least, companies would be reluctant to license any technologies supported by NIH grants or other federal funds — as there would be no guarantee that the government wouldn't march in one day and help itself to a decade's worth of R&D.

Even if marching in to lower prices in this particular case could survive a legal challenge, it would be a strategic blunder of epic proportions. No firm would believe that after crossing this particular Rubicon, the Biden administration would retreat back to respecting IP rights and promoting drug development.

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.