(UPDATE: As noted in the comments below, the NIH provided a response to the joint comments submitted on September 5, 2019, well in advance of the close of the comment period on September 15, 2019)
On September 19, 2019, Knowledge Ecology International (KEI), Union for Affordable Cancer Treatment (UACT), Social Security Works (SSW), Health GAP, and Brook Baker submitted comments regarding the “Prospective Grant of an Exclusive Patent License: Development and Commercialization of CD19/CD22 Chimeric Antigen Receptor (CAR) Therapies for the Treatment of B-Cell Malignancies,” described in the Federal Register at 84 FR 43148. The proposed licensee is Lyell Immunopharma.
The license would cover two NIH-owned CAR therapies that the inventors believe may offer better patient outcomes than existing CAR treatments.
The NIH is currently conducting one Phase 1 clinical trial associated with the technologies and funding another.
The joint comments outline four issues with the prospective license:
- The information provided by the NIH is not sufficient to demonstrate that it analyzed whether an exclusive license is “a reasonable and necessary incentive” under 35 U.S.C. § 209(a)(1), by considering, for example, the non-patent incentives that exist under the Orphan Drug Act, the Priority Review Voucher program, and test data protection;
- The NIH has not demonstrated that it analyzed whether the scope of the license is not broader than necessary to induce the investment needed to bring the technology to market under 35 U.S.C. § 209(a)(2), including the term of exclusivity;
- The NIH was not fully transparent about the license and reached a final determination before considering all timely-submitted public comment, in conflict with the statutory obligation under 35 U.S.C. § 209(e) to consider all timely comments. Among the facts not disclosed by the NIH was the costs associated with financing the invention, including the costs of funding two clinical trials, one of which is taking place on the NIH campus; and
- The NIH apparently has not sought the antitrust advice of the U.S. Attorney General regarding the license, as required by 40 U.S.C. § 559.
The text of the comments is copied and pasted below.
1621 Connecticut Avenue NW
Washington, DC 20009
September 19, 2019
Jim Knabb, Ph.D.
Senior Technology Transfer Manager
NCI Technology Transfer Center
9609 Medical Center Drive
Bethesda, MD 20892-9702
Via email to email@example.com
Re: “Development and Commercialization of CD19/CD22 Chimeric Antigen Receptor (CAR) Therapies for the Treatment of B-Cell Malignancies,” 84 FR 43148
Dear Dr. Knabb:
Knowledge Ecology International (KEI), Union for Affordable Cancer Treatment (UACT), Social Security Works (SSW), Health GAP, and Brook Baker offer the following comments on the National Institutes of Health (NIH)’s prospective grant of an exclusive, worldwide license in “CD19/CD22 Chimeric Antigen Receptor (CAR) Therapies for the Treatment of B-Cell Malignancies” to Lyell Immunopharma, Inc., as noticed at 84 FR 43148.
CAR therapies, which treat advanced-stage cancers for which other treatment options have failed, have been introduced on the market at extremely high prices, restricting reimbursements, creating fiscal toxicity for patients, and raising premiums and taxes.
Any license the NIH negotiates must comply with the criteria set forth at 35 U.S.C. § 209, which, among other restrictions, allows a federal agency to license a government-owned technology on an exclusive basis only when “granting the license is a reasonable and necessary incentive to . . . call forth the investment capital and expenditures needed to bring the invention to practical application[,]” and the “scope of exclusivity” is “not greater than reasonably necessary to provide the incentive for bringing the invention to practical application[.]” 35 U.S.C. § 209(a)(1)-(2).
The NIH is either conducting or sponsoring at least two Phase 1 clinical trials associated with the technology, making it a less-costly, more attractive investment for potential licensees and reducing the need for broad, exclusive rights in this cancer treatment.
We have several objections to the process, question the timeliness of the license, and object to licensing the patents without safeguards on pricing and access.
- The information provided by the NIH is not sufficient to demonstrate that it properly analyzed whether an exclusive license is “a reasonable and necessary incentive” under 35 U.S.C. § 209(a)(1), for example, by considering the non-patent incentives that exist regarding the Orphan Drug Act, the Priority Review Voucher and test data protection, in the context of a treatment already in two clinical trials;
- The NIH has not demonstrated that it properly analyzed whether the scope of the license is no broader than necessary to induce the investment needed to bring the technology to market under 35 U.S.C. § 209(a)(2), including, in particular, the number of years of exclusivity — the most important and manageable limitation on the scope of the monopoly rights;
- The NIH was not fully transparent about the license and reached a final determination before considering all timely-submitted public comment, in conflict with 35 U.S.C. § 209(e). Among the facts not disclosed was the NIH costs associated with financing the invention, including in particular the costs associated with financing two clinical trials, one of which is taking place on the NIH campus; and
- The NIH apparently has not sought the antitrust advice of the U.S. Attorney General regarding the license, as required by 40 U.S.C. § 559.
In the event that the NIH grants the license over our objections, we request that the license agreement incorporates a series of provisions designed to safeguard the public interest and ensure that the license implements the policy objectives of the Bayh-Dole Act and Public Health Service (PHS) Technology Transfer Policy Manual.
The Federal Register notice describing the license, located at 84 FR 43148, lists two NIH-owned inventions: “E-016-2015: Chimeric Antigen Receptor Targeting both CD19 and CD22” and “E-017-2017: CD19/CD22 Bicistronic CAR Targeting Human B-Cell Malignancies.”
The inventions have potential indications in “hematological cancers such as chronic lymphocytic leukemia (CLL), hairy cell leukemia (HCL) acute lymphoblastic leukemia (ALL) and lymphoma” and “pediatric, blood-derived cancers.”
The federal register notice lists the following intellectual property rights as being associated with the inventions:
- U.S. Provisional Patent Application 62/135,442, filed March 19, 2015 (E-106-2015-0-US-01);
- International Patent Application PCT/US2016/023055, filed March 18, 2016 (E-106-2015/0-PCT-02);
- U.S. Patent Application No.: 15/559,485, filed September 19, 2017 (E- E-106-2015/0-US-03);
- U.S. Provisional Patent Application 62/506,268, filed May 15, 2017 (E-017-2017-0-US-01); and
- International Patent Application PCT/US2018/032,809, filed May 15, 2018 (E-017-2017/0-PCT-02).
Of the above listed patent applications, only PCT/US2016/023055 and 15/559,485 were accessible on public databases.
The licensed technology may offer cancer patients better treatment outcomes than existing CAR therapies. According to U.S. Patent Application No.:15/559/485, “[t]he inventive dual specific CARs may provide many advantages [over existing CAR therapies, which target only the CD19 antigen]”, including “greater potency as compared to a CAR that has antigenic specificity for only one of CD19 and CD22 (but not both)” and the ability to “reduce or prevent cancer cell escape due to loss of expression of one of CD19 or CD22 by the cancer cell.”
The Prospective Licensee
The prospective licensee, Lyell Immunopharma, Inc. (“Lyell”), is a relatively new biotech company, incorporated in Delaware on June 29, 2018. It is registered to conduct business in California, where it is headquartered.
Lyell’s website, www.lyell.com, lists the company’s “Senior Team” and Board of Directors, but provides little other information about the company. Items such as “Press Releases,” “Publications,” and “News” link to webpages stating “[c]heck back later for updates.”
Lyell’s CEO, Rick Klausner, was the director of the NCI until 2001 and since has been involved in a larger number of venture capital and biomedical firms, including companies like Juno Therapeutics that have benefited enormously from licenses in NIH-funded inventions and two NIH CRADAs, to mention one example.
1. The NIH has not demonstrated that it properly evaluated the necessity of granting an exclusive license.
Section 209 of the Bayh-Dole Act authorizes a federal agency to grant an exclusive license in government-owned technology only if “granting the license is a reasonable and necessary incentive to . . . (A) call forth the investment capital and expenditures needed to bring the invention to practical application; or (B) otherwise promote the invention’s utilization by the public[.]” 35 U.S.C. § 209(a)(1).
It is our understanding that the NIH has not undertaken a serious evaluation of the adequacy of existing incentives and subsidies, relating to practical application of the inventions, in order to evaluate whether or not an exclusive license was a “reasonable and necessary incentive.”
On August 23, 2019, KEI emailed you a list of questions about the license, including the following question:
3. What is the NIH’s rationale for concluding that an exclusive, rather than a non-exclusive, or a partially-exclusive license is a necessary incentive under 35 U.S.C. § 209?
Did the NIH estimate the amount of investment required to bring the technology to practical application?
Did the NIH consider the incentives from the Orphan Drug Act regulatory exclusivity for rare diseases or FDA rules on exclusive rights to rely on regulatory test data as inadequate to protect the private investment in the technology?
Rather than answering this, or the majority of KEI’s questions, on September 5, 2019, you emailed KEI a letter that reads as a final determination regarding the proposed license (and, in fact, borrows language from many of the NIH’s previous decision letters). The letter states, in pertinent part:
Thank you for providing us with your comments regarding the aforementioned Federal Register notice.
. . .
[W]e determined that the criteria set forth in 37 C.F.R. 404.7(a)(1)(ii-iii) have been satisfied. Lyell demonstrated the scientific and financial capacity to develop CAR-T therapeutics to treat B cell malignancies. The scope of the license proposed is necessary for incentivizing the company to undertake the development risks to develop this type of therapy. The grant of exclusivity to the Government-owned intellectual property seeks to fulfill the government’s interest in promoting the public health and public access to therapeutics.
In addition to the procedural issues with the letter, this explanation misses the point. While it is appropriate for the NIH to consider a prospective licensee’s capacity to develop the technology, the statutory standard requires the NIH to determine if an exclusive license “a reasonable and necessary incentive” for achieving practical application of the invention.
To answer that question, the NIH must consider information beyond the financial capabilities of the prospective licensee. Merely stating that worldwide and life-of-patent exclusivity, with no strings attached on pricing, is a positive for the investors, is not enough.
There are at least six factors that should be considered when determining the necessary incentive under 35 U.S.C. § 209:
- The costs of financing research and development and bringing the invention to market, including clinical trial costs (and the extent to which those costs may be covered by the Orphan Drug Tax Credit, Research Credit, or reimbursement by health insurance or other subsidies, as well as any expected additional subsidies from governments or charities, including, for example, additional grants or continued or new collaborations with the NIH or other government agencies);
- The government’s investment in R&D and the development stage of the technology;
- The existence of non-patent incentives, including, for example, test data protection, Orphan Drug exclusivity and the award of one or more priority review vouchers;
- The existence of patent exclusivity from other, non-NIH owned patents, that may be used to block entry by competitors for some but not necessarily all uses of the patents (noting that Zolgensma required licensing from four separate patent estates);
- The anticipated cost to manufacture the resultant invention; and
- The expected post-market entry profitability of the invention, by year.
Consider, for example, a new CAR treatment that is expected to generate $400 million per year (Yescarta generated $99 million in the 2nd quarter of 2019), where the costs of trials are expected to be less than $30 million (200 patients at $150,000 per patient), before reductions for tax credits, insurance reimbursements or other subsidies.
Even if the risks associated with the investments in clinical trials are daunting, the risk-adjusted costs of the trials would be less than the revenue from a single year of operation. If the net margin for sales in a year were 50 percent, the project would be a good investment even if exclusivity was limited to five years, the same term that the Bayh-Dole Act permitted for federally-funded patents held by non-government patent holders when the Act was passed. And, this does not even consider the benefits of a possible priority review voucher.
NIH-Funded Research and Development
Given the research and development status of the licensed inventions, we estimate that the costs and risks associated with bringing this technology to market are relatively low compared to other licensing opportunities in earlier-stage inventions.
In an email dated September 6, 2019, you stated that the following trials appear to be associated with the licensed technology:
Title: “CD19/CD22 Chimeric Antigen Receptor (CAR) T Cells in Children and Young Adults With Recurrent or Refractory CD19/CD22-expressing B Cell Malignancies”
Actual Study Start Date: 3/26/2018
Estimated Primary Completion Date: 12/1/2021
Patient Enrollment: 89
NIH Grant: None listed
Principal Investigator: Nirali N Shah, NCI
Title: “Phase I CD19/CD22 Chimeric Antigen Receptor T Cells in Peds Recurrent/Refractory B Cell Malignancies”
Actual Study Start Date: 10/20/2017
Estimated Primary Completion Date: 8/1/2025
Patient Enrollment: 50
NIH Grant: P30CA124435
Principal Investigator: Crystal Mackall, Stanford University.
Both trials are Phase 1. The NIH will have paid for the riskiest stage of clinical trial testing in the FDA approval process.
The first trial listed, NCT03448393, is being conducted by the NCI at its laboratories in Bethesda, Maryland. The second is funded by NIH Grant No. P30CA124435.
The fact that the government is funding two clinical trials, including one conducted on the NIH campus by NCI employees, indicates that these inventions have a higher likelihood of success than other technologies licensed at earlier phases of development.
We also note that the first two CAR T approvals, for Yescarta and Kymriah, were granted orphan drug status under the Orphan Drug Act of 1983, 21 U.S.C. §§ 360aa–360ee. The subsidies associated with Orphan Drug designation, including a 25% tax credit on clinical trials, must be taken into account when analyzing any likely additional R&D costs a licensee would incur in commercializing the licensed technology.
The licensed inventions likely would qualify for additional, valuable government incentives.
Yescarta and Kymriah qualified for seven years of Orphan Drug exclusivity for certain indications, as well as 12 year of test data protection on all indications. In the European Union, those protections are 10 and 11 years, respectively. Similar protections exist in Japan, Canada, and in many other countries.
The FDA granted Novartis a priority review voucher for Kymriah. The subject technology has indications in pediatric populations and rare diseases and thus will likely receive a priority review voucher as well. In April 2018, Spark Therapeutics sold a priority review voucher for $110 million.
In determining whether exclusivity is a “reasonable and necessary incentive,” the NIH must take into consideration the likelihood that the new technologies will receive Orphan Drug market exclusivities and/or priority review vouchers, and evaluate the incentive that the 12 years of test data provides, even in the absence of an exclusive patent license.
2. The NIH has not demonstrated that it properly analyzed whether the scope of rights in this license will not be greater than reasonably necessary to induce the investment needed to commercialize the inventions.
Under Section 209 of the Bayh Dole Act, executing an exclusive license in government-owned inventions is not a binary decision: grant or do not grant a fully-exclusive, worldwide, life-of-patent license. Rather, under 35 U.S.C. § 209(a)(2), the scope of an exclusive license must “not [be] greater than reasonably necessary to provide the incentive for bringing the invention to practical application[.]”
A federal agency proposing to grant an exclusive license must determine the following terms related to the scope of the license:
The period of exclusivity – how long the licensee may claim a monopoly on the right to market and sell the invention (i.e., five years, ten years, life of patent, etc.);
Territorial reach (worldwide or limited to the U.S. or a particular geographic region); and
Field of use (i.e., targeted diseases).
The NIH has not demonstrated that it makes any effort to determine the number of years of exclusivity that are reasonably necessary to achieve regulatory approval and commercialization.
In KEI’s August 23, 2019 email, KEI asked you about the duration of exclusivity for the proposed license, and whether “the NIH [has] undertaken an economic analysis to determine if a shorter exclusivity period such as a five or 10 year term would be a sufficient incentive under 35 U.S.C. 209 for the licensed technologies[.]”
You did not answer. Rather, you stated: “Many of your questions relate to terms in the license which have not yet been negotiated and would be business confidential.”
There is an inherent contradiction between the idea that the terms of the license have yet to be determined and your statements, in the preceding paragraph, that “[NIH] ha[s] determined that the criteria set forth in 37 C.F.R. 404.7(a)(1)(ii)-(iii) have been satisfied[,]” and that “[t]he scope of the license proposed is necessary for incentivizing the company to undertake the developmental risks to develop this type of therapy.”
Setting aside the fact that the NIH apparently rendered a decision about the license before considering all timely-submitted public comments, it is impossible for the NIH to find that the scope of the license satisfies Section 209 and the associated federal regulations if the NIH has not yet considered what the scope will be.
Based on this, and prior interactions between KEI and the NIH, it appears that the NIH never negotiates an exclusive license for a period shorter than life-of-patent. Such a policy or practice would violate Section 209, which requires that federal agencies negotiate exclusive licenses on a case-by-case basis, and mandates that the scope of a license in federally-owned inventions is no greater than reasonably necessary.
3. The NIH was not fully transparent about the license and reached a final determination before considering all timely-submitted public comment, in conflict with 35 U.S.C. § 209(e).
A federal agency may not grant an exclusive license in government-owned technology without first notifying the public of the prospective license, allowing a minimum 15-day period for the public to comment, and considering all timely-submitted comments. 35 U.S.C. § 209(e).
As noted previously, on August 23, 2019, KEI emailed you a list of questions related to the criteria for granting an exclusive license, such as the stage of research and development of the invention, whether any clinical trials were associated with the technology, the duration of the license, and whether NIH sought the advice of the Attorney General.
On September 5, 2019, you emailed KEI a response letter that not only failed to answer many of KEI’s questions, but also stated that the NIH had determined that the relevant criteria are satisfied by the license. The deadline to submit comments was two weeks away.
Reaching a conclusion about a license before considering all timely-submitted comments conflicts with 35 U.S.C. § 209(e), which states that “[n]o exclusive or partially exclusive license may be granted . . . unless . . . the Federal agency has considered all comments received before the end of the comment period[.]” Because the comment period had not yet closed, and KEI had not, in fact, submitted its comments, it was premature for the NIH to conclude that the proposed exclusive license to Lyell satisfied the relevant criteria.
After KEI pointed out that the August 23, 2019 email was a set of questions, and not comments or suggestions, the NIH never followed up with answers to many of the questions asked (other than to provide the clinical trial numbers associated with the invention). For the public to meaningfully comment on a license, it must have basic information from the NIH.
One issue, in particular, about which the NIH was not transparent was trial costs. You stated in your letter that you “do not have additional information related to the costs, etc. of these clinical trials.” While it may be the case that you do not personally have such information, someone within NIH should be able to disclose such data.
In regard to extramural research specifically, as part of the NIH grant process, grant recipients are required to submit a variety of reports and forms, many of which involves disclosures of anticipated or actual expenditures. For example, according to the NIH website, “[r]ecipients of federal funds are required to report the status of funds for grants or assistance agreements to the sponsor of the grant[,]” which involves “submit[ting] a statement of expenditures associated with the grant to the sponsor” using an SF 425 form. The NIH’s recordkeeping procedures demonstrates that it keeps track of trial costs.
4. The NIH apparently has not sought the antitrust advice of the U.S. Attorney General regarding the license, as required by 40 U.S.C. 559.
We object to the license unless the NIH first obtains the antitrust advice of the United States Attorney General, who confirms that the license would not be anticompetitive.
Under the Federal Property and Administrative Services Act, 40 U.S.C. §§ 101 et seq., “[a]n executive agency shall not dispose of property to a private interest until the agency has received the advice of the Attorney General on whether the disposal to a private interest would tend to create or maintain a situation inconsistent with antitrust law.” 40 U.S.C. § 559(b)(1).
This includes when the NIH proposes to grant an exclusive license in federally-owned technology. “Property” is defined at 40 U.S.C. § 102 to mean “any interest in property.” The statue exempts personal property if the fair market value is less than $3,000,000, but specifically excludes “a patent, process, technique, or invention” from that exception.
The regulation 41 C.F.R. § 102-75.270 also makes clear the inclusion of patents “irrespective of cost.”
41 C.F.R. § 102-75.270 – Must antitrust laws be considered when disposing of property?
Yes, antitrust laws must be considered in any case in which there is contemplated a disposal to any private interest of –
(a) Real and related personal property that has an estimated fair market value of $3 million or more; or
(b) Patents, processes, techniques, or inventions, irrespective of cost.
KEI asked you whether the NIH requested the advice of the U.S. Attorney General concerning the licenses. You did not answer. In the past, the NIH has asserted its position with respect to 40 U.S.C. § 559 as follows:
“The statute you reference is directed to the disposal (assignment) of government property. It has little relevance to our patent licensing activities, which are principally government by the Bayh-Dole Act and its regulations.”
The Bayh-Dole Act expressly incorporates federal antitrust laws. 35 U.S.C. § 209(a)(4) allows a federal agency to grant an exclusive license only if the license “will not tend to substantially lessen competition or create or maintain a violation of the Federal antitrust laws.” 35 U.S.C. § 211 provides that “[n]othing in this chapter shall be deemed to convey to any person immunity from civil or criminal liability, or to create any defenses to actions, under any antitrust law[.]” The Bayh-Dole Act sets out the areas in which the statute “shall take precedence over any other Act which would require a disposition of rights in subject inventions[,]” 35 U.S.C. § 210, and mentions 21 separate statutes, but not the FPASA.
Second, the term “disposal” is not a defined term under 40 U.S.C. § 102 of the FPASA, and
is not limited to “assignment” or “sale.” In fact, there are many examples of regulations and laws that include licensing amongst dispositions, either explicitly or by implication.
If NIH grants an exclusive license in a federally-owned invention, it is disposing of a government property interest so as to trigger 40 U.S.C. § 559.
5. In the event that the NIH decides to grant the license over our objections, we recommend that the NIH includes a series of provisions designed to safeguard the public interest and ensure that the licenses implement the governing principles listed in the Public Health Service (PHS) technology transfer manual.
In the event that the NIH proceeds with the license, KEI requests that it includes the following provisions to protect the public’s interest in the NIH-funded technology:
- Price discrimination. Any medical technology using the patented invention should be available in the United States at a price that does not exceed the median price in the seven largest economies by GDP that have at least 50 percent of the GNI per capita as the United States, using the World Bank Atlas method. This is a modest safeguard.
- Low and middle income countries. The exclusive license should not extend to countries with a per capita income less than 30 percent of the United States, in order to ensure that the patents do not lead to restricted and unequal access in developing countries. If the NIH rejects this suggestion, it needs to provide something that will give effect to the policy objective in the “United States Public Health Service Technology Transfer Policy Manual, Chapter No. 300, PHS Licensing Policy,” which states the following: “PHS seeks to promote commercial development of inventions in a way that provides broad accessibility for developing countries.”
- Global registration and affordability. The license should require Lyell to disclose the steps it will take to enable the timely registration and availability of the medical technology at an affordable price in the United States and in every country with a demonstrated need, according to the Centers for Disease Control and Prevention (CDC) and/or the World Health Organization (WHO), either by supplying a country directly at an affordable, publicly disclosed price and with sufficient quantities, or by providing technology transfer and rights to all intellectual property necessary for third parties to do so.
- Medicines Patent Pool. The NIH should retain a right to grant the WHO, the Medicines Patent Pool or other governments the rights to use the patent rights to procure the medical technology from competitive suppliers, including technology transfer, in developing countries, upon a finding by HHS or the WHO that people in these markets do not have sufficient access to the medical technology.
- Years of exclusivity. We propose the license reduce the years of exclusivity when revenues are large. The NIH has many options, including by providing an option for non-exclusive licensing, such as was done in the ddI case. We propose that the exclusivity of the license be reduced when the global cumulative sales from products or services using the inventions exceed certain benchmarks. For example, the period of exclusivity in the license could be reduced by one year for every $500 million in global cumulative revenue after the first one billion in global sales. This request is consistent with the statutory requirements of 35 U.S.C. § 209, which requires that “the proposed scope of exclusivity is not greater than reasonably necessary to provide the incentive for bringing the invention to practical application.”
- Transparency of R&D outlays. The licensee should be required to file an annual report to the NIH, available to the public, on the research and development (R&D) costs associated with the development of any product or service that uses the inventions, including reporting separately and individually the outlays on each clinical trial. We will note that this is not a request to see a company business plan or license application. We are asking that going forward the company be required to report on actual R&D outlays to develop the subject inventions. Reporting on actual R&D outlays is important for determining if the NIH is meeting the requirements of 35 U.S.C. § 209, that “the proposed scope of exclusivity is not greater than reasonably necessary to provide the incentive for bringing the invention to practical application.” Specifically, having data on actual R&D outlays on each clinical trial used to obtain FDA approval provides evidence that is highly relevant to estimating the risk adjusted costs of bringing NIH licensed inventions to practical application.
We object to the prospective license for the reasons stated herein. If the NIH decides to execute the license over our objections, we request that, at the very least, it includes the safeguards we have proposed, which are designed to implement the Bayh-Dole Act’s stated policy objective that government-sponsored inventions are available to the public on reasonable terms, as well as the PHS Technology Transfer Manual’s policy of promoting access in developing countries.
Knowledge Ecology International
Union for Affordable Cancer Treatment
Social Security Works