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TECHNOLOGY TRANSFER AGREEMENTS WITH MILESTONE PRICING DISCUSSIONS MAY BE MOST "WORKABLE" WAY FOR GOVERNMENT TO ENSURE REASONABLE PRICING -- NIH’s ADLER

Executive Summary

Technology transfer agreements that set up milestone pricing discussions may be the most "workable" way for the federal government to negotiate the pricing of pharmaceuticals developed through collaboration between drug companies and the National Institutes of Health or federally funded universities, NIH Office of Technology Transfer head Reid Adler said Oct. 8 at a Senate Aging Committee staff seminar on the federal government's role in new drug R&D. "Getting an up-front agreement that certain pricing discussions will happen at an appropriate clinical time," Adler conceded, is probably more practical than "putting a price tag on something" either up front, at the time an agreement is signed, or when FDA "is about to approve the product." Up-front negotiation of price "at the time a university negotiates a sponsored research agreement or NIH negotiates a [Cooperative Research & Development Agreement]...is not realistic," Adler contended. "You don't know what the market looks like, you don't know what competition in the market looks like." Last-minute price discussions are also impractical, Adler acknowledged, noting that "the specter of having public debate when a company says, 'we're ready to release an AIDS therapeutic but the drug pricing agency says no, it's a dollar too expensive,' may not make [late pricing] viable." Nevertheless, Adler admitted, "my personal opinion would be to say that the price should be set the day that FDA approves it." Milestone pricing discussions were suggested by congressional Office of Technology Assessment analyst Michael Gluck as one possible answer to the question of how the federal government can realistically ensure reasonable pricing of drugs developed with NIH funding. "It may be possible to investigate the structure of the pricing agreement [at the time of negotiation], if not the pricing itself, and to look at ways of developing contingencies depending on what happens down the line," Gluck explained. "You may also be able to investigate the use of milestones, where the government agency charged with [negotiating pricing] would be able to revisit the structure of the license and pricing when it comes down the road." OTA has not yet analyzed this option, Gluck noted. Addressing the difficulty of striking a balance between ensuring reasonable pricing and encouraging the development of the results of federally funded research, Adler and Gluck both questioned whether NIH should be the agency responsible for pricing discussions. "If you were to decide that the research agencies are the ones who should be involved with setting prices," Gluck said, "you may also want to keep in mind that there may be an inherent conflict there, because, as the recipients of royalties, NIH or other research agencies in some sense have an interest in drugs generating revenues." In addition, he noted, "the practical question is whether or not NIH has the expertise to do that." "Personally I think there's room for balance, but I would say that what is done about pharmaceutical prices has to be done very delicately and very carefully so that you don't choke the golden goose -- the research product," Adler warned. "I would say that making research agencies the vehicles for setting prices may have a more negative impact on the existence of collaboration and licensing and [technology] transfer than having some other entity looking at health care costs." The question of "where you want to put a particular responsibility depends to a large extent on what exactly it is that you want done," Adler pointed out. "If the issue here is expeditious and maximal technology transfer out of NIH, then it's pretty clear what you want NIH to do," Adler contended. However, "if the thing that you want is not really the best tech transfer money can buy, but the best reasonable tech transfer balanced against the need to get a product developed, then you have to tell whoever is doing the deed how much delay Congress will be willing to accept in getting AIDS therapeutics developed or any other product developed, because you end up having to select from a pool of second-class or little biotech companies rather than major pharmaceutical companies." Perhaps, Adler suggested, "setting the criteria of what's reasonable has more to do with price than it has to do with when the drug's available." A similar note was hit by Gluck, who pointed out that there are many different types of mechanisms that can be used to assess pricing, but the effect "on research, either at NIH or at companies, is going to be very different depending on what mechanism is adopted." In light of this, Gluck suggested, "all that we probably can do is to point out that there is a potential tradeoff between controlling health care costs and the notion of more R&D or technology transfer in and of itself as an absolute good." The simmering issue of pricing pharmaceutical products developed with federal funding will be revisited by Rep. Wyden (D- Ore.) Oct. 29. The hearing, before Wyden's House Small Business/Regulation Subcommittee, will focus on the pricing of Wyeth-Ayerst's contraceptive implant Norplant. At an Oct. 21 hearing, the subcommittee will address the cost and efficiency of new drugs and devices, focusing on the sufficiency of public disclosure of the pricing of new medical technologies. Wyden introduced legislation (HR 1334) in March that would require NIH and federally supported research institutions to negotiate a pricing formula prior to entering into a commercial agreement with industry ("The Pink Sheet" March 22, T&G-3). In hearings earlier this year, Wyden examined a sponsored research agreement between Sandoz and the Scripps Research Institute as well as other industry collaborations with federally funded institutions that grant companies exclusive rights to products developed from the research ("The Pink Sheet" June 21, p. 8). Responding to objections raised by NIH and Wyden, Sandoz and Scripps agreed in June to renegotiate their contract. The new contract is expected to be completed soon. Even when a company provides information about its development costs and basis for pricing, determining whether a given price is reasonable is not easy, Gluck noted. Citing OTA's experience with Genzyme's Ceredase, Gluck pointed out that despite having access to Genzyme's data on the Gaucher's disease treatment, "that was a hairy piece of analysis." Genzyme asked Sen. Pryor (D-Ark.) Oct. 4 to correct a statement he made about the cost of Ceredase in a health care options paper he distributed to House and Senate colleagues Oct. 1 ("The Pink Sheet" Oct. 4, p. 4). Pryor's paper had indicated that patients in the health care system proposed by the Clinton Administration will remain concerned about high drug costs because of a 20% co-insurance payment for drugs, which in the case of Ceredase with its annual cost of $140,000, would amount to $28,000. Genzyme VP-Government Relations Lisa Raines pointed out that the stop-loss provision of the Clinton health care reform proposal would ensure that Ceredase patients would not spend more than $1,000-$I,500 out of pocket, depending on the plan selected, "for all health care expenses, including their drug therapy." Raines noted that "Genzyme has provided literally millions of dollars of free Ceredase to patients who could not otherwise afford treatment."

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