Biden Administration proposal open for comment: Drug pricing may warrant exercising march-in rights

Last week, the Biden Administration announced actions intended to control the price of prescription drugs in the US and released draft interagency guidance outlining a framework for the use of march-in rights under the Bayh-Dole Act.

This alert includes a summary of the provisions that govern march-in rights, a brief summary of the drug pricing mentions in the federal government request for information (RFI), and the timeline for responding to the RFI for parties wishing to comment. 

The Bayh-Dole Act governs inventions made with federal funding and outlines the rights of the government as well as the rights of the persons, nonprofit organizations, and small business firms (contractors) with respect to such inventions. It was enacted to encourage private investment into high-risk, potentially high-reward research. “March-in” rights are included to ensure the invented product is available if supply is not reliably available from the contractor.

Specifically, march-in rights under Bayh-Dole give the government the authority to require the patent owner to grant additional licenses to others to produce the invention if a government agency can demonstrate at least one of the following to be true:

1. Action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the invention
2. Action is necessary to alleviate health or safety needs which are not currently being met by the inventor
3. Action is necessary to meet requirements for public use as specified by federal regulations, or
4. Action is necessary if the developer fails to manufacture the product on the US if they agreed to do so.[1]

This is the first time that an administration has asserted that the price of a drug can be a factor in determining whether the government can exercise its march-in rights under the Bayh-Dole Act. The newly released draft interagency guidance framework, published in the form of a RFI, explicitly states that the price of a product can be used to determine whether or not statutory criterion have been met. This could apply to drugs or other inventions.

Additionally, the RFI details certain factors agencies should consider prior to exercising march-in rights, such as the terms of sale and whether health or safety needs of the public are being exploited “in order to set a product price that is extreme and unjustified given the totality of circumstances.”

Notably, march-in rights have never been exercised. The National Institutes of Health (NIH) most recently denied a request to exercise march-in rights on a patent held by University of California Los Angeles in March 2023, and also turned down petitions in 2016, 2013, 2004, and 1997. In these denials, the NIH noted that pricing concerns alone are not sufficient and cited the number of treated patients with the medications and the ongoing operations to make the product to demonstrate that the inventions were available to be used by the public.[2]

At a US House Energy and Commerce Committee hearing in 2017, the Director of NIH, Dr. Francis Collins, noted that the Bayh-Dole Act “intends to cover a circumstance where a drug is simply not available to the public under any circumstances and then NIH is entitled to step in” and that exercising march-in rights based on the price of a drug “is a little different, when it’s available but at a high cost, [NIH] legal experts don’t feel that the law actually puts [NIH] in a position to step in.”

The Biden Administration’s position that the Bayh-Dole Act may provide the basis for government intervention in patent rights and in drug pricing is likely to be intensely debated. Not only is it unclear to what extent exercising march-in rights would lower drug prices, there are considerations related to the potential harm to patent holders and public-private partnerships producing innovations. The overwhelming majority of approved drugs do not receive federal funding or have additional patents that are not Bayh-Dole. In a five-year analysis of the top selling drugs approved by a US New Drug Application (NDA), 2.6 percent of them were associated with a government interest patent disclosure.[3]

The Bayh-Dole Act has supported the growth of aerospace and the biopharmaceutical industry and its partners including academic institutions. Among the top 15 Bayh-Dole patent holders, eight are academic institutions, including three state-funded universities, and 88 percent of top biopharma Bayh-Dole patent holders are universities – none are private companies.[4] Any change in policy that would limit the expected market potential for an approved drug may provide disincentives to partnerships with public and private institutions and the income derived from drug patents for academic institutions.

In January 2021, the National Institute of Standards and Technology (NIST), which is delegated with the responsibility to promulgate regulations surrounding federally funded inventions, published a notice of proposed rulemaking on several proposed changes to Bayh-Dole. NIST was explicitly directed under an Executive Order in July 2021 to “consider not finalizing any provisions on march-in rights and product pricing in the proposed rule…” NIST ultimately did not finalize this provision when the Final Rule was published in March.

Former US Senators Birch Bayh and Bob Dole, the authors of the Bayh-Dole Act, provided insight into the law’s intent, writing in 2002 that “Bayh-Dole did not intend that government set prices on resulting products…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.”

The 60-day public comment period will be open until February 6, 2024. For more information about this RFI or to discuss submission of comments, please contact your DLA Piper relationship partner or the authors of this alert.