Dr. Elias Zerhouni defends Sanofi/Army proposed license on Zika patents, and KEI responds

On March 21, 2017, the New York Times published a letter signed by Dr. Elias Zerhouni, defending the proposed Sanofi monopoly on the US Army patents to the Zika virus. The letter is available from the NYT from the following link, and also reprinted here, followed by commentary.

https://www.nytimes.com/2017/03/21/opinion/developing-a-zika-vaccine.html

To the Editor:

Re “Trump Should Avoid a Bad Zika Deal” (Op-Ed, March 11):

Bernie Sanders, in our view, doesn’t seem to recognize the importance of government-industry partnerships in protecting the public from potentially devastating infectious diseases. Vaccine development entails tremendous costs and risks, especially for an emerging and poorly understood epidemic like Zika.

To tackle the problem, the United States government is working with a number of different manufacturers who are competing to develop a potential Zika vaccine.

As part of this process, the Walter Reed Army Institute of Research has publicly offered its own vaccine candidate for licensing. Under the license agreement — and assuming the vaccine succeeds — my company, Sanofi, would make significant milestone and royalty payments to Walter Reed, allowing the United States government to recoup its investment.

Our work on the Zika vaccine will be led by Sanofi scientists based in the United States, where we employ some 15,000 people.

Sanofi has decades of experience in vaccine development and manufacturing. We have partnered with governments and N.G.O.s around the world, ensuring access to lifesaving vaccines at reasonable prices, and we are proud of our continued efforts to do so.

ELIAS ZERHOUNI, PARIS

The writer, president of global research and development for Sanofi, a drug company, is a former director of the National Institutes of Health.

As the letter indicates, Dr. Zerhouni is the former head of the U.S. National Institutes of Health (NIH), and he is now working for Sanofi, a Paris-based pharmaceutical company with a current market value of $115 billion. There are several things one can say about the Zerhouni letter.

First, Zerhouni asserts that Sanofi would make "significant milestone and royalty payments to Walter Reed, allowing the United States government to recoup its investment." Of course, the Army has refused to say what the royalty and milestone obligations would be, and perhaps Sanofi can put that in the record, since the Army won't. But, we can look at the NIH to see how this might play out. In 2015, the NIH budget was $30.4 billion. The combined revenue from all licensing activities was $147 million, or less than 0.5-percent of the NIH budget. The milestone portion of the $147 million was tiny, by the way. If the Army wanted to get back the risk-adjusted costs of its investments, it is doubtful that would happen. Most NIH and Army licenses are royalty bearing, in the single digits. Typical licensing terms would probably be royalties in the 3 to 7 percent range, but who knows about this case, since it's a state secret, so far, being negotiated with a former U.S. government employee, now representing a foreign drug company.

Also relevant is the fact that the government can and does get royalties and milestone payments from non-exclusive licenses as well. No one objects to Sanofi getting a non-exclusive license for the Zika patents. Zerhouni and Sanofi want an exclusive, a monopoly. Note that in 2015, the NIH issued 275 licenses, and only 13 were exclusive, so it's certainly not only possible to use non-exclusive licenses, but it happens an average of 5 times every week at the NIH, as compared to once every 4 weeks for an exclusive license.

One of the reasons for using a non-exclusive license, and indeed a reason directly addressed by 35 U.S.C. § 209(a), is that Sanofi does not need an exclusive license to induce investment in the vaccine. In this case, the U.S. government is paying Sanofi directly for the development of the vaccine, and the U.S. government is itself conducting the clinical trials for the vaccine. Zerhouni does not mention that Sanofi is paid for its work on Zika, so they aren't spending their money, they are spending our money to develop the vaccine.

Zerhouni mentions that Sanofi has 15,000 U.S. employees. He does not mention that Sanofi has 95,000 employees working outside the United States, or that most of the U.S. employees are involved in selling the drugs, not conducting R&D.

Zerhouni claims that Sanofi has "partnered with governments and N.G.O.s around the world, ensuring access to lifesaving vaccines at reasonable prices." I'm sure they can come up with a few examples, but that ignores plenty of examples, indeed the more common examples, where Sanofi has been aggressive on pricing, and discriminated against U.S. citizens on pricing and access.

In 2012, Sanofi put the colon cancer drug Zaltrap on the US market at a price of $11,000 per month. Doctors at Sloan Kettering refused to give the drug to patients because it was too expensive, forcing Sanofi to cut the price. In 2014, NICE rejected Zaltrap as being too expensive.

In 2014, Sanofi put Cerdelgat, a new drug for Gaucher disease, on the market at a price of $310,250 per year. The key patent for this drug was 6,916,802, and was licensed from the University of Michigan. According to the patent:

The present invention was supported by grant nos. R01 DK41487, R01 DK69255 and RO139255 from the National Institutes of Health, contract R43 CA 58159 from the National Cancer Institute, grant GM 35712 from the National Institute of General Medical Sciences, and by the University of Michigan Comprehensive Cancer Center grant 2P30 CA 46592 from the National Cancer Institute, U.S. Public Health Service, DHHS. Grant number for Merit Award from Veteran's Administration.

Note that Cerdelgat would have competed against Ceredase, another very expensive government funded drug for Gaucher disease, except that Sanofi sells both products.

When Sanofi faced a critical manufacturing problem for Fabrazyme, a drug that can cost one million dollars in four years, the company rationed Americans, but not Europeans, in order to protect its market share in Europe, where Sanofi faced competition from Shire. And, Sanofi also benefited from a very suspicious patent licensing agreement with Shire that was immediately preceded by an agreement with Shire to withdraw an application to sell its competing product in the Untied States, protecting the Sanofi monopoly in the United States. Fabrazyme was also a government funded invention. See: FTC Urged to Probe Shire, Sanofi & Icahn Med School Over A ‘Conspiracy’, WSJ, Jul 15, 2014, and "KEI asks FTC to investigate Shire decision to abandon efforts to compete in US market for Fabry’s disease treatments," July 15, 2014.

Praluent, Sanofi's cholesterol drug, sells for an average retail price of around $1,262.08 per two pens of 75 mg each in the United States, around half that price in Denmark ($695.45), and one-third of that price in Sweden ($430.03).


More on the NIH licensing metrics here: https://www.ott.nih.gov/tt-metrics.

Dr. Zerhouni spoke with Bloomberg on drug pricing in January, 2017.