KEI comments on the HHS Blueprint to Lower Drug Prices

The following are comments by the KEI on the HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, in response to notice in the Federal Register, 83 FR 22692.

Overall, the Blueprint is very weak, and won’t do much to address the problems of excessive pricing of drugs.

KEI endorses the comments that UACT has filed separately, including the UACT discussion of the issue of price disparities among developed countries.

The following are a few additional thoughts on the blueprint.

Excessive pricing standards

The federal government needs to endorse workable and actionable standards for excessive pricing. The standards for excessive pricing should involve at least three tests.

1. Do prices discriminate against U.S. residents, as compared to other countries that have similar incomes? If so, is there a legitimate justification for doing so?

2. Is the price excessive relative to the value of benefit received? This could be subject to an independent health technology assessment.

3. Are the cumulative global revenues from the sale of the product excessive? If the revenues exceed certain benchmarks, prices should come down, or exclusivity periods should be shortened. The benchmarks for this test should be sufficiently high to induce investments in products, and could be higher for products with particularly attractive benefits or novel approaches.

A price should be deemed excessive if it fails any three of the tests.

Compulsory licensing

The US government needs to deal with excessive pricing of medicines. If the government restricts reimbursements for drugs that have an excessive price, patients suffer. If the government can grant a compulsory license to remedy an excessive price, it is possible to protect patients. This is the central reason why governments need the option of ending the privileges associated with a legal monopoly to sell a drug, vaccine or treatment.

The current US statutes on compulsory licensing are flawed. 28 U.S.C. 1498 was not designed to address excessive pricing of pharmaceutical drugs or vaccines, and its utility is limited by ambiguity over the required compensation to patent holders for non-voluntary use, and uncertainty over the limits of use “by or for” the government.

35 USC 203 provides an appealing mechanism for cases where the government has rights in a patented invention, but in most cases, the federal government has no rights in relevant patents, and even when the federal government does have such rights, there may be multiple patents on a drug, including some without federal rights. Moreover, the procedures under 35 USC 203(b) are problematic, giving the patent holder a stay until “pending the exhaustion of appeals or petitions” in federal court.

The Administration should experiment with both 28 USC 1498 and 35 USC 203. 35 USC 203 should certainly be used in cases where prices in the United States are higher than the median price in the seven largest economies with at least 50 percent of the per capita income of the United States, an offensive form of price discrimination against the United States on an invention funded by US taxpayers. 28 US 1498 can be used initially in cases that involve modest risks, such as when the federal government owns a royalty free right in some patents.

Going forward, the United States needs a better compulsory licensing statute, one with clear grounds, guidance on royalties that are reasonable and consistent with the objective of controlling costs and expanding access, and useable procedures that avoid endless delays.

Progressive Delinkage

Ultimately, using legal monopolies and high prices on products as the reward for investments in R&D is inefficient and harmful to patients. See for details of better alternatives.

Transparency of research and development costs

The primary reason companies can charge high prices is because they have legal monopolies to make and sell products. The rationale for exclusive rights under patents and various regulatory monopolies is to protect and induce investments in research and development. There is virtually no other rationale for creating legal monopolies for new drugs, vaccines and other medical technologies, like gene and cell therapies or diagnostic tests, other than to induce investments in R&D. That said, there is an appalling and deliberate lack of transparency of R&D investments.

There is no legitimate reason for businesses to conceal information about the actual investments in R&D for specific products. Indeed, companies are required by the U.S. Securities and Exchange Commission to report details of R&D outlays when there are significant enough to impact of the value of the company to investors, and KEI has compiled many examples where such disclosures have been made to investors. Companies also frequent claims about the investments have to spent on specific treatments, when it suits their interest, but typically with a lack of detail or context, and in some cases, clearly exaggerating claims about R&D investments. For example, Novartis claimed, without supporting details, that it had spend more than $1 billion in R&D for Kymriah, a novel CAR T treatment, despite the fact that the NIH funded the development of the treatment at the University of Pennsylvania for years, and the treatment was approved by the US FDA on the basis of evidence from just 63 patients.

The most important data regarding drug development cases are the outlays on each clinical trial used to support the registration of drugs, vaccines and the new gene and cell therapies with the FDA. These trials are expensive. Knowing how expensive is important.

The FDA could and should have the authority to require companies to provide information regarding the outlays on clinical trials, including most importantly each trial used to obtain FDA approval, including all trials for the approval of a drug for the lead and any follow-on indication, and all phase IV drugs sponsored or funded by a manufacturer. Such disclosure should also include details on any subsidies from third parties, including grants, research contracts and tax credits. Having such data reported by trial, and even better, the annual outlays for each trial, allow one to better understand and model the costs of drug development, including when relevant the risk and capital cost adjusted costs of drug development, which can be estimated when costs are reported by year, for each trial.

Even without requiring every manufacture to disclose outlays on clinical trials, there are opportunities to have better evidence on trial outlays. The NIH, BARDA, the Department of Defense and other Departments and agencies should publish the cost of every trial that they fund or co-fund. The National Cancer Institute used to publish annually statistically data on the costs of trails it funded, including the costs per patient enrolled by trial phase.

KEI has also asked the NIH to require companies that license NIH owned patents to publish data on costs of trials conducted involving the patented inventions. Such reports could also be required of any federally funded invention by any Department or agency, when a biomedical invention is involved, including cases when the research is performed by non-federal researchers, such as a university or a business receiving a federal grant.

The NIH has refused to attach conditions on NIH owned patent licenses, claiming that would violate both 35 USC 209(f) and 37 CFR 404.14 – Confidentiality of information.

35 USC 202, which sets out the disposition of rights for federally funded patents owned by non-federal entities, such as a University or a business, has similar provisions. 35 USC 202(c)(5) requires that information on the utilization of inventions “shall be treated by the Federal agency as commercial and financial information obtained from a person and privileged and confidential and not subject to disclosure under section 552 of title 5.”

The secrecy associated with licensing of federally funded inventions has become more intense over the years, as a consequence of lobbying by drug companies and universities, and the Congress probably has to fix this.

We can appreciate that there may be a rationale for making certain elements of a development plan used to obtain a license confidential, particularly if the plans were submitted to an agency to obtain a license, and the request was not successful. But going forward, there is a strong public interest in having reports about R&D investments related to the publicly financed and owned patented invention made public, as well as other information about the utilization of the inventions, such as the units sold, price and revenue generated, royalties paid, at least for some regulated biomedical products.