ALPMF / ^BTK: Astellas, Xtandi, and the Siren Song of March-in Rights

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Richard Evans / Scott Hinds / Ryan Baum / Hardy Evans


203.901.1631 /.1632 / .1627

richard@ / hinds@ / baum@ /


April 5, 2016

ALPMF / ^BTK: Astellas, Xtandi, and the Siren Song of March-in Rights

  • Since the 1980 Bayh-Dole Act, institutions (e.g. universities) granted patents for federally-funded work own the resulting patents, and are allowed to license these patents on an exclusive basis to companies wanting to develop the underlying discoveries. Before Bayh-Dole these patents were federally controlled, and licensed only on a non-exclusive basis
  • Bayh-Dole reserves so-called federal ‘march-in’ rights; if the institution or licensee fails to make the underlying inventions available on reasonable terms, the federal agency that funded the research can force the institution and/or licensee to grant licenses to competitors
  • Because of Xtandi’s high price, in January NIH and the Department of Defense were petitioned to exercise their march-in rights, and the petition received a letter of support signed by more than 50 members of Congress. In a second letter made public on March 29, members of Congress urged the Secretary of HHS to hold public hearings
  • Since the passage of the Act, NIH has been petitioned to march-in on 5 other occasions, and has in all cases declined. In 3 of these instances the specific basis of the petition was perceived excessive pricing of a prescription drug
  • The statutory interpretation relied upon in the current petition (that high prices violate the Bayh-Dole condition that inventions be made available ‘on reasonable terms’) was also used in the 3 prior pricing-based petitions. We view the Xtandi pricing arguments as undifferentiated vis-à-vis the earlier petitions’ arguments, and for this reason alone believe the Xtandi petition is unlikely to succeed
  • More broadly, we see march-in petitions as facing two practically insurmountable hurdles. First, Bayh-Dole gives march-in rights to the agency that funded the research – in this case NIH, and the (DOD) – rather than to agencies that would be more clearly suited (e.g. CMS). This is something that the agencies involved, and the Congress, will actively seek to avoid. Second, use of march-in rights to regulate pricing arguably would make patents resulting from federally-funded research much less attractive as commercial investments, thus obviating the primary objective of the original Act – also something Congress is likely to avoid
  • We believe the Xtandi petition will be denied, and we see little risk of Bayh-Dole becoming a statutory basis for expanding federal pricing influence

Where we’re BULLISH: Biopharma companies with undervalued pipelines (e.g. AMGN, BMY, GILD, SHPG, VRTX); Biopharma companies with pending major product approvals (e.g. ABBV, ACAD, ADMA, ALIOF, BIIB, CHMA, CLVS, CPRX, CTIC, GILD, ICPT, JAZZ, LLY, LPCN, MRK, NVO, OCUL, PTCT, SRPT, TEVA, ZSPH); SNY on sales potential for Praluent (alirocumab); CNC, MOH and WCG on bullish prospects for Medicaid HMOs; and, DVA and FMS for the likely gross margin effects of generic forms of Epogen

Where we’re BEARISH: PBMs facing loss of generic dispensing margin as the AWP pricing benchmark is replaced (e.g. ESRX); Drug Retail as dispensing margins are pressured by narrowing retail networks and replacement of AWP (e.g. WBA, CVS); Research Tools & Services companies as growth expectations and valuations are too high in an environment of falling biopharma R&D spend (e.g. CRL, Q, ICLR); and, suppliers of capital equipment to hospitals on the likelihood hospitals over-invested in capital equipment before the roll-out of the Affordable Care Act (e.g. ISRG, EKTAY, HAE)

The Xtandi ‘march-in’ request

On January 14, 2016 Knowledge Ecology International (KEI) and the Union for Affordable Cancer Treatment (UACT) petitioned[1] the Department of Defense and the National Institutes of Health (NIH) to use their so-called march-in rights on ALPMF’s Xtandi, claiming that Xtandi’s US cost of $129,000 per course violates provisions[2] of the Bayh-Dole Act. The groups’ petition is supported by a letter[3] to HHS Secretary Burwell authored by Congressman Lloyd Doggett, and co-signed by 51 members[4]. On March 28th Doggett and 11 members[5] sent a second letter[6] to HHS Secretary Burwell, urging her to hold public hearings on Xtandi

ALPMF licensed certain Xtandi patents from UCLA, whose underlying work was funded by the US Army and NIH. The march-in rights referred to by the petitioners are based on provisions of the Bayh-Dole Act


Bayh-Dole was passed by Congress in 1980. Prior to the Act, patents on inventions funded with federal dollars (which today account for ≥70 percent of US universities’ research spending) were claimed by the federal government, and licenses to these federally-claimed patents were available only on a non-exclusive basis. For obvious reasons the lack of exclusive licenses made the federally-controlled patents unattractive for investment, as reflected by the fact that by 1978 only 4 percent of the 28,000 federally-controlled patents had been licensed[7]

The Act gave research institutions (e.g. universities) the right to claim title to inventions made with federal funding, and enabled these institutions to out-license the resulting patents on an exclusive basis. The availability of exclusive licenses made patents based on federally-funded discoveries far more attractive, thus enabling a surge of investment in the underlying discoveries

Crucially, the Act preserved the federal government’s right to step in and force the patent holder (e.g. a university), assignee or licensee (e.g. a biotech company) to grant further licenses to ‘a reasonable applicant or applicants’, under certain conditions. In essence, if the holder of exclusive patent rights to a federally-funded discovery is not making the fruits of the invention widely available, the holder risks losing their exclusive license. These federal rights are termed ‘march-in rights’

Specifically, the federal government can step in and exercise its march-in right if the funding agency (in the current case NIH or DOD) determines that any of the following four conditions are met:

  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 subject invention in such field of use;
  2. action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees;
  3. action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees; or
  4. action is necessary because the agreement required by section 204[8] has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of its agreement obtained pursuant to section 204

The Xtandi petition as it relates to Bayh-Dole, and to previous NIH determinations

The petitioners claim that the first three conditions are not being met, thus enabling the agencies’ march-in rights. The fourth condition calls for US manufacturing of products sold in the US, and in the case of Xtandi can be disregarded

Moreover, the petitioners point out that the ‘definitions’ section of the Act (§201) gives specific meaning to the term ‘practical application’, as used in the first condition. Specifically, §201 (f) reads (italics added):

The term ‘‘practical application’’ means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms

If not for the Act’s specific definition of ‘practical application’, it could be readily argued that ALPMF has met the first three conditions of the Act, by bringing the product to market (condition 1); by obtaining coverage for the product (81% of privately insured patients pay $25 or less per month, and 79% of Medicare patients pay nothing out of pocket) and by providing free product to qualifying un- and under-insured persons (condition 2); and, by meeting FDA requirements for approval and marketing (condition 3)

However, when the specified definition of ‘practical application’ is used in the reading of condition 1, it becomes apparent that a federal agency might reasonably choose to recognize that its march-in rights apply, if it believes the price is not reasonable

Since the passage of the Act, and ignoring the current petition, NIH has been petitioned to exercise its march-in rights on five separate occasions (Appendix I) and has in each case declined. In three of these instances (Norvir 2004, Norvir 2013, and Xalatan 2004) petitioners specifically argued that NIH had march-in rights because of excessively high prices. In making their arguments, the petitioners relied on the ‘reasonable terms’ language as a basis for asserting that NIH had the authority to march-in

In its determinations, NIH has rejected the ‘reasonable terms’ language as an authorization to influence prices. Going even further, NIH has made clear that it recognizes use of its march-in rights on the basis of pricing could threaten development of other NIH-funded inventions[9], and that because the effects of an NIH election to intervene on the basis of price would go far beyond the product in question, that such an election would inappropriately place NIH in the position of making decisions that are more appropriate for Congress[10]

Importantly, NIH has made similar arguments in its determinations under both Republican (Norvir 2004, Xalatan 2004) and Democratic (Norvir 2013) administrations

Why the Xtandi petition is unlikely to be granted

The Xtandi petition’s pricing arguments strike us as undifferentiated vis-à-vis the arguments made in either of the Norvir petitions, or in the Xalatan petition. Because prices are much higher, and politics more progressive, than was the case during the first Norvir and Xalatan petitions it can be argued that these precedents carry less weight; however, NIH’s rejection of the far more recent 2013 Norvir petition implies that neither price inflation nor the political backdrop have changed sufficiently to result in an NIH election to use its march-in rights

In choosing Bayh-Dole as a statutory basis for pressuring drug prices, petitioners have recognized that the Bayh-Dole statute plainly authorizes federal agencies to act when federally-funded inventions are not made available ‘on reasonable terms’, and that because agencies arguably have the discretion to view high prices as unreasonable, that Bayh-Dole is perhaps the only existing statute offering untapped potential for federal authority over drug prices

What petitioners lose in relying on Bayh-Dole is also important. Their interpretation of Bayh-Dole requires pricing authority to be exercised by agencies that were never intended to exercise such authority (e.g. in the current petition pricing authority would rest with DOD or NIH, rather than with CMS), and this is something that the agencies in question, and the Congress, are likely to resist. Most important of all, exercising march-in under Bayh-Dole presumably would diminish the commercial attractiveness of any invention discovered with the help of federal funding, thus potentially resurrecting the exact problem Bayh-Dole was intended to bury

For these reasons, we believe the Xtandi petition is unlikely to be granted, and we further believe that Bayh-Dole march-in petitions face practical hurdles that are all but insurmountable

Appendix I: Prior Petitions

The CellPro petition (March 3, 1997)

CellPro petitioned the NIH to exercise its march-in rights under the first two conditions listed above, claiming that Baxter and Johns Hopkins had failed to make inventions subject to Bayh-Dole provisions available (condition 1), and that because of this failure health needs were not being met (condition 2)

The NIH found that the existence of FDA approved Baxter products based on the technology in question satisfied condition 1 (The CellPro products were approved before the Baxter products, but were found to infringe the Baxter patents). As to CellPro’s claim that the Baxter products failed to fulfill health or safety needs addressed by the CellPro products (condition 2), the NIH argued that ‘to date, neither party has presented to the Biological Response Modifiers Advisory Committee any studies documenting that cell separation devices improve stem cell engraftment, disease-free survival, or overall survival.’

The Norvir petitions (2004 & 2013)

In the 2004 petition, Essential Inventions, Inc. requests that the Secretary of HHS exercise march-in rights to Abbott’s ritonavir patents, based largely on the pricing of ritonavir. Importantly, the petitioner argued that ‘under section 203, ‘reasonable terms’ includes a reasonable price’

NIH denied the 2004 petition, stating that Abbott had made ritonavir sufficiently available to patients. NIH specifically disagreed with the petitioner’s argument that ‘reasonable terms’ language gave NIH the authority to regulate price. Specifically, in its determination the NIH said that: ‘NIH agrees with the public testimony that suggested that the extraordinary remedy of march-in is not an appropriate means of controlling prices. The issue of drug pricing has global implications and, thus, is appropriately left for Congress to address legislatively.’

In the 2013 petition, Knowledge Ecology International, the American Medical Students Association, the US Public Interest Research Group, and the Universities for Allied Essential Medicines again petitioned NIH to exercise its Bayh-Dole march-in rights on the ritonavir patents

NIH found that ritonavir was generally available without any evidence of short-supply (satisfying condition 1); and, that its price had not changed since 2003 and that where necessary ABBV provided patient assistance (satisfying condition 2). The petitioners argued that condition 3 was not met because ritonavir’s price precluded others from meeting their Affordable Care Act (PPACA) and Americans with Disabilities Act (ADA) requirements; NIH rejected this argument on the grounds that ‘these statutes do not apply as a basis for consideration of march-in because the ADA and PPACA do not specifically require the use of ritonavir’

The Xalatan petition (January 29, 2004)

Essential Inventions, Inc. petitioned the Secretary of HHS to exercise Bayh-Dole march-in rights to Pfizer’s latanoprost patents. As argued in the 2004 Norvir petition, Essential Inventions claimed that ‘under section 203, ‘reasonable terms’ includes a reasonable price’

In its determination, NIH offered an even more concrete and categorical rejection of pricing as a basis for march-in, stating: ‘…because the market dynamics for all products developed pursuant to licensing rights under the Bayh-Dole Act could be altered if prices on such products were directed in any way by the NIH, the NIH believes that the extraordinary remedy of march-in is not an appropriate means of controlling prices.’

The Fabrazyme petition (August 2, 2010)

In 2009 Genzyme’s was forced to ration Fabrazyme because of manufacturing issues, leading to this petition (filed on behalf of patients) requesting NIH exercise its march-in rights to the relevant Fabrazyme patents. The petition implies that all of the first 3 conditions for exercising march-in requirements were met by the Fabrazyme shortage. NIH denied the request, based largely on the argument that newly licensed forms of Fabrazyme were unlikely to clear development hurdles before Genzyme corrected the supply problems underlying Fabrazyme


  2. 35 U.S.C. §202(c)(4), 35 U.S.C. §203(a) (1-3), and 35 U.S.C. §201(f)
  4. Representatives Bass, Becerra, Blumenauer, Cartwright, Chu, Cicilline, Clarke, Cleaver, Cohen, Conyers, Cummings, DeFazio, DeLauro, DeSaulnier, Doggett, Ellison, Farr, Fattah, Garamendi, Al Green, Grijalva, Gutierrez, Hahn, Hastings, Huffman, Kaptur, Lawrence, Lee, Lewis, Lujan Grisham, McDermott, Moore, Napolitano, Nadler, Nolan, Norton, O’Rourke, Pingree, Pocan, Rangel, Roybal-Allard, Ruiz, Schakowsky, Serrano, Bobby Scott, Slaughter, Takano, Bennie Thompson, Waters, Welch, and Yarmuth
  5. Bernie Sanders, Peter Welch, Al Franken, Elijah Cummings, Patrick Leahy, Jan Schakowsky, Sheldon Whitehouse, Rosa DeLauro, Elizabeth Warren, Mark Pocan, Amy Klobuchar
  7. “The Bayh-Dole Act Turns 30”, Vicki Loise and Ashley Stevens, les Nouvelles, December 2010
  8. Section 204 requires products based on the exclusive license and sold in the US to be made in the US if at all feasible
  9. From the NIH’s Xalatan determination: ‘…because the market dynamics for all products developed pursuant to licensing rights under the Bayh-Dole Act could be altered if prices on such products were directed in any way by the NIH, the NIH believes that the extraordinary remedy of march-in is not an appropriate means of controlling prices.’
  10. From the NIH’s 2004 Norvir determination: ‘The issue of drug pricing has global implications and, thus, is appropriately left for Congress to address legislatively


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