Five Reasons State Attorneys General Are Misguided in Their Call to Apply March-In Rights on Remdesivir

Stephen Ezell August 13, 2020
August 13, 2020

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A group of 32 state attorneys general (AGs) sent a letter earlier this month to Health and Human Services Secretary Alex Azar, National Institutes of Health Director Francis Collins, and U.S. Food and Drug Commissioner Stephen Hahn, urging them to apply Bayh-Dole march-in rights on Gilead Sciences’ remdesivir, which is thus far the only widely available therapeutic that has been FDA-approved for emergency use in treating coronavirus. Unfortunately, the state AGs’ letter is flat wrong on both the facts and the law. As worryingly, their move threatens to undermine an effective environment for American life-sciences innovation, which is largely to thank for the existence of this drug in the first place.

There are five fundamental failings in the state AGs’ argument:

  1. They are wrong in asserting that Bayh-Dole march-in rights are even applicable to remdesivir at all.
  2. Even if march-in rights were applicable in this instance, then the state AGs would still be incorrect that the price of remdesivir—or the price of any resultant product whose intellectual property (IP) provenance can be traced to federal research and development (R&D) funding—is a legitime basis for applying march-in rights.
  3. Even if price were a legitimate basis for the application of Bayh-Dole rights, which again it is not, Gilead Sciences has not priced remdesivir unreasonably, as the state AGs claim.
  4. The state attorneys general assert that another reason march-in rights should be applied is because Gilead cannot adequately supply the drug. Here, the state AGs are misguided first because Bayh-Dole isn’t relevant anyway; second, because Gilead is taking steps to adequately supply the drug; and third, because even if a lack of supply were the fundamental issue here, there are other mechanisms the government could take to ensure adequate supply, such as invoking the Defense Production Act, without taking steps that would compromise Gilead’s IP.
  5. The state AGs’ letter presumes that remdesivir is going to be the only available therapeutic for COVID-19, failing to recognize that a tremendous amount of coronavirus innovation is coming that will introduce substantial competition.

How Remdesivir Came To Be

Gilead Sciences has been in the business of researching and developing antiviral drugs for over 30 years, and has invested billions of dollars over this period searching for solutions to infectious diseases such as Ebola, Severe Acute Respiratory Syndrome (SARS), Marburg, Middle East Respiratory Syndrome (MERS), and, most recently, SARS-CoV-2, the novel coronavirus COVID-19. In fact, research into the compound that would become remdesivir dates back to 2009, as Gilead searched for drugs capable of addressing hepatitis C (HCV) and the respiratory syncytial virus (SRV).

When an Ebola outbreak hit West Africa in 2014, Gilead worked with the U.S. Centers for Disease Control and the U.S. Army Medical Research Institute for Infection Disease (USAMRIID) to examine its library of antiviral compounds, finding that remdesivir activated against Ebola. Two human clinical trials of remdesivir against Ebola ensued, but the effort was discontinued by 2018, when other compounds emerged as more effective. At roughly the same time (in 2014), Gilead entered into a collaboration with the University of North Carolina and Vanderbilt University, as part of a larger research effort led by the University of Alabama Birmingham, to study whether remdesivir would be applicable against coronaviruses (which broadly refers to a large family of viruses characterized by distinctive crowns, and which tend to cause respiratory illnesses), such as SARS and MERS. While the NIH did provide these universities a grant to support the discovery of new compounds useful against coronaviruses, Gilead had already done the R&D work to bring remdesivir to the table. (Remdesivir showed positive preclinical trial results for SARS and MERS, but as those diseases quickly receded limited patient populations constricted opportunities for clinical trials and meant clinical development work was not further pursued.) Lastly, when the novel coronavirus emerged in China in late 2019, Gilead quickly began to investigate whether remdesivir could treat the disease, with clinical trial work beginning in February 2020 and the drug being approved by the FDA on May 1, 2020 for emergency use of hospitalized patients suffering from severe cases of COVID-19.

Why Remdesivir Is Not Subject to Bayh-Dole March-In Rights

Recounting the history of remdesivir’s development is important because it makes clear that Gilead itself developed the novel IP embodied in remdesivir, making the compound not subject to Bayh-Dole march-in rights. The 1980 Bayh-Dole Act gives universities and non-profit research institutions rights to the IP derived as a result of federally funded R&D, which can then be licensed to others for further product development and commercialization. The Bayh-Dole Act includes provisions for “march-in rights”—a limited, proscribed set of instances in which the government can step in and require patent holders to grant a “nonexclusive, partially exclusive, or exclusive license” to a “responsible applicant or applicants.” But Bayh-Dole march-in rights would only be applicable if remdesivir was largely derived from IP created by federally funded R&D, and that’s simply not the case here. In fact, this is why an HHS representative recently stated, “We can only exercise march-in rights where the intellectual property to make the product, as a whole, was funded by the federal government. In short, all of the patents underlying the product have to have been conceived or reduced to practice with federal funds for Bayh-Dole’s march-in provision to be of any practical significance. We do not believe this to be the case here.” It’s also why U.S. Army lawyers have explained that, though USAMRIID did work with Gilead to screen and test remdesivir (when studying it against Ebola), “the government’s contribution did not meet the threshold of co-invention of the drug.”

In summary, the state AGs and like-minded advocates contend that the USARMIID Ebola partnership and the $37.5 million the NIH invested in the 2014 university coronavirus research program, along with the $30 million NIH provided in 2020 for remdesivir clinical trials against COVID-19, should give the government the ability to control remdesivir pricing. This argument itself is misguided on two points. First, these sums pale compared to the billions Gilead has invested over a period of decades into anti-viral research broadly and the estimated $1 billion it will spend alone in the development and manufacture of remdesivir as a COVID-19 therapeutic. (These figures illustrating again the key broader insight that life-sciences companies invest over $100 in development for every $1 the government invests in research leading to a biomedical innovation.) Second, the contention fails to recognize that the public interest is being served by the federal intervention to facilitate remdesivir clinical trial research, whether for Ebola, MARS, SERS, or the coronavirus.

This was especially the case with remdesivir and Ebola, where Gilead had to collaborate with CDC and USARMIID to screen and test remdesivir in their high-security biocontainment lab because it’s these entities, not private-sector companies, that operate key biodefense labs and testing facilities for such extremely infectious diseases. So, far from “having to pay twice,” the public interest is served already when such federal interventions play a role in helping validate safety and efficacy in clinical trials that help bring a drug to market. None of this presents a compelling case for the government to exercise price controls over remdesivir, and, in any case, Bayh-Dole march-in rights are simply not applicable to remdesivir.

State AGs Are Wrong Across the Board

Even if Bayh-Dole march-in rights were applicable, the state AGs’ contention that they should be applied because Gilead has unreasonably priced remdesivir is wrong, because they were never intended to be used to control the price of resultant products. As the law’s principal architects, Senators Birch Bayh (D-IN) and Bob Dole (R-KS), explained in a Washington Post op-ed, the Bayh-Dole Act, “Did not intend that government set prices on resulting products. The law makes no reference to a reasonable price that should be dictated by the government. This omission was intentional; the primary purpose of the act was to entice the private sector to seek public-private research collaboration rather than focusing on its own proprietary research.” Emphasizing this point, the authors continue, “The ability of the government to revoke a license granted under the act is not contingent on the pricing of a resulting product or tied to the profitability of a company that has commercialized a product that results in part from government-funded research.” This is why the NIH has rejected all Bayh-Dole march-in requests based on price, and why the 2019 National Institute of Standards and Technology’s report “Return on Investment Initiative: Draft Green Paper” explained that “NIH determined that that use of march-in to control drug prices was not within the scope and intent of the authority.”

The NIH itself has written that it “agrees with the public testimony that suggested that the extraordinary remedy of march-in is not an appropriate means of controlling prices.” Thus, as John Rabitschek and Norman Latker conclude in the Santa Clara University High Technology Law Journal article “Reasonable Pricing—A New Twist for March-in Rights Under the Bayh-Dole Act,” “A review of the [Bayh-Dole] statute makes it clear that the price charged by a licensee for a patented product has no direct relevance to march-in rights. … There is no reasonable pricing requirement under 35 U.S.C. §203(l)(a)(1), considering the language of this section, the legislative history, and the prior history and practice of march-in rights.” There’s simply no basis to apply march-in rights due to the price of remdesivir.

Yet, perhaps where the state attorney generals are most irredeemably off base is when they contend that Gilead is charging an unreasonable price for remdesivir. Gilead is charging federal agencies such as the Department of Veterans Affairs $2,340 for a five-day treatment course while commercially insured patients are being charged $3,120. Yet a National Institute of Allergy and Infectious Diseases study found that COVID-19 patients who took remdesivir usually recovered about four days faster than those who didn’t take the drug, which suggests that hospitals would save about $12,000 per patient due to earlier hospital discharge. Moreover, the Institute for Clinical and Economic Review (ICER), even in a “cost-plus only” analysis of remdesivir pricing—which failed to incorporate, or calculate, either the critical costs of Gilead’s history of developing successful therapies or its many failed attempts—found that pricing in the range of $4,580 to $5,080 for remdesivir would be considered cost effective. As ICER President Steven D. Pearson stated himself, “Gilead made a responsible pricing decision based on the evidence we have today.” The state AGs are dead wrong to assert that “Gilead has not established a reasonable price” for remdesivir. Beyond this, the state AGs erroneously assert that remdesivir will increase patient out-of-pocket costs, when the reality is patients will not be billed separately for remdesivir when treated in an inpatient hospital setting.

Likely recognizing that their assertion that Gilead has unreasonably priced remdesivir has no merit, the state AGs make another gambit to invoke Bayh-Dole march-in rights, although again the point is moot because march-in rights aren’t applicable here in the first place, by contending that Gilead cannot adequately supply remdesivir, and thus march-in action is merited on the grounds where “action is necessary to alleviate health or safety needs not reasonably satisfied by the patent holder or its licensees.” The state AGs contend that there is a “dangerously low supply” of remdesivir and that Gilead’s actions have “failed to reasonably ‘alleviate health or safety needs’ of consumers.” Of course, never mind that it was Gilead that invented this life-saving drug in the first place, or that the company actually pledged to donate 1.5 million doses, enough to treat up to about 190,000 patients.

Here again, the state AGs are misguided on several levels. They write, “Hypothetically speaking, if Gilead supplies 85 percent of its remdesivir to the U.S. alone, only 1.7 million of the 4.6 million confirmed COVID-19 patients in the U.S. (as of August 3, 2020) would have access to a full treatment. Even at 90 percent, just 1.8 million patients will receive remdesivir.” But this is apples and oranges. The state AGs are invoking all coronavirus cases, failing to recognize that remdesivir is only permitted by the terms of its emergency use authorization for use with hospitalized patients with severe coronavirus complications, a far lower number of individuals (especially when 40 percent or more of coronavirus cases are asymptomatic).

In part for these reasons, Gilead Chief Commercial Officer Johanna Mercier explained on July 30 that by early October, “we should be in a place where global supply [of remdesivir] meets global demand.” Moreover, Gilead has worked assiduously “to significantly shorten the manufacturing timeline through process improvements. The typical timeline for manufacturing a drug like remdesivir at scale is nine to 12 months; we have reduced that period to six to eight months.” Thus, the state AGs fail to prove that Gilead is failing to adequately supply remdesivir. However, even if supply were the fundamental issue here, there are other ways the federal government could address supply without resorting to march-in rights that would compel the forced licensing of Gilead’s remdesivir IP. For instance, hypothetically, if an entirely new remdesivir manufacturing facility were needed, the government could invoke the Defense Production Act which for instance gives the president the ability “to bolster domestic production [such as by] offering loans or loan guarantees to companies.” If it’s a supply issue (which it’s not) there’s absolutely no reason why it would need to be addressed by compromising Gilead’s IP.

Lastly, by asserting a supposed remdesivir supply shortcoming, the state AGs’ letter implicitly asserts that remdesivir is going to be the only available therapeutic treatment for the coronavirus. But this fails to recognize that the FDA’s Coronavirus Treatment Acceleration Program is currently tracking over 570 possible coronavirus therapeutics in the development phase, including 270 that are currently undergoing clinical trial review. In other words, tremendous competition is coming for remdesivir. To be sure, remdesivir is an impressive drug; it has been linked with significantly improved clinical recovery and a 62 percent decrease in risk of death from the coronavirus. In the comparative data from one study, 74.4 percent of patients receiving remdesivir recovered by day 14 compared to 59 percent receiving standard of care. But, while certainly good, this means that remdesivir is not a panacea; a competing drug could well come along with performance benefits that outstrip remdesivir, and a substantially better drug could make the company’s investments to dramatically ramp up remdesivir production all for naught. The point is competition, in both performance and pricing terms, is coming in coronavirus therapeutics, something the state AGs’ letter completely fails to either acknowledge or contemplate.

U.S. Life-Sciences Leadership Is At Stake

Beyond all this, the state AGs’ letter’s assertion that, “It is unfortunate that Gilead has chosen to place its profit margins over the interests of Americans suffering in this pandemic” is quite galling. On the contrary, both the state AGs—not to mention the American people and broader global public—should count themselves incredibly fortunate that we do have remdesivir, and that we do have a company such as Gilead Sciences that has invested over 30 years in research in antiviral drugs that has put it in a position to have a potential solution when a completely new-to-the-world virus emerged at the start of 2020. Gilead is emblematic of a broader U.S. life-sciences industry—one-quarter of employees in which are scientists and engineers working in R&D activities to develop treatments for diseases many of which have never been solved in the course of human history—whose fundamental mission is to innovate for the betterment of human health, not to “place profit margins over the public interest.”

Thus, what’s so dangerously misguided about the state AGs’ letter is that, in its call for march-in rights and forced disclosure of IP a private company invested billions to invent, it advocates for policies that would undermine the conditions that have made America’s life-sciences industry the world leader. The state AGs’ flawed prescriptions would lead us to a world with less life-sciences innovation, not more, and leave the “interests of Americans” ill-served the next time society needs to turn to the industry to develop vaccines or therapeutics for life-threatening diseases.

HHS, NIH, and CDC should therefore reject the state AGs’ request out of hand. And if the state AGs want to truly focus on the “interest of Americans in this pandemic,” they’ll focus their efforts on working with their governors and the federal government to implement public health measures—such as ensuring adequate availability of coronavirus testing and seriously enforcing mask wearing and social distancing—to ensure that as few Americans as possible find their health at such a critical state they need remdesivir. That’s what everyone wants—including Gilead Sciences.