NIH Royalty Plan Due March 31 Under Wyden Amendment To Funding Bill

The National Institutes of Health would be directed to develop a plan to ensure a "reasonable rate of return" on taxpayer funded research under an amendment to the Senate Labor/HHS appropriations bill.

The amendment directs NIH to develop "a proposal to require a reasonable rate of return on both intramural and extramural research by March 31, 2001." The amendment prohibits the expenditure of any funds made available under the act after Sept. 1, 2001 if the plan is not submitted.

The amendment, sponsored by Sen. Wyden (D-Ore.), was added to the bill during floor debate June 27. The Senate voted in favor of the bill June 30, 52-43.

The amendment marks a return by Wyden to an issue he devoted considerable attention to in 1991-93 during the late-stage development of Bristol-Myers Squibb's oncologic agent Taxol.

As chairman of the House Small Business/Regulations Subcommittee, Wyden oversaw pricing negotiations between Bristol and NIH under terms of the cooperative research & development agreement for paclitaxel.

Wyden signaled a renewed interest in the topic of the return on investment from federally funded research when he announced joint Medicare reform principles with Rep. Thomas (R-Calif.) in May. The Thomas/Wyden Medicare plan called for an "ROI fee" for products developed with federal funding (¹ (Also see "Thomas/Wyden Medicare Rx Plan Has Royalty On Federally Funded Research" - Pink Sheet, 29 May, 2000.)).

In a June 27 floor statement, Wyden cited comments by Thomas in support of the principle that, "when taxpayers' money is being spent, there ought to be a return on that investment."

Wyden continues to place the proposal in the context of Medicare reform. He extolled the virtues of private sector pharmaceutical development, and maintained that the expanded use of pharmaceuticals produces "massive savings that would otherwise be incurred by...Part A of the Medicare program."

However, Wyden continued, "we want to take special note of the fact that the taxpayers have contributed in a very significant way" to the "revolution" in pharmaceutical care.

"There are some technical questions" with the proposal, Wyden acknowledged. "In particular, the nature of the pharmaceutical discovery is one that has to be thought through very carefully. But at the same time, acceptance of this amendment would bring a sense of urgency to this issue."

Wyden's floor statement indicates an expectation that NIH will seek a return on basic research projects that are not directly tied to a specific molecule.

In addition to Taxol, he listed Lilly's Prozac, Merck's Mevacor, and Glaxo Wellcome's Imitrex and Zovirax as products that benefited from NIH research. The claim is apparently based on research into underlying disease mechanisms rather than actual pharmaceutical discoveries.

Wyden also wants to ensure a return on academic discoveries that subsequently have NIH involvement. He cited another Bristol oncologic agent, cisplatin, as an example. The product was discovered by Michigan State University and then developed by the National Cancer Institute. Bristol licensed the Michigan State patent on the drug.

Wyden originally floated an amendment to the Labor/HHS bill that gave more specific direction to NIH. The amendment would have required the agency to require repayment of grant awards when they lead to an FDA-approved product, and to collect a 1% royalty for products with annual sales above $500 mil.

Wyden noted that he consulted Labor/HHS Appropriations Subcommittee Chairman Specter (R-Pa.) and Ranking Democrat Harkin (Iowa) in drafting the amendment. Specter described the amendment as "a good amendment" that "puts the finger on a source of potential funding which would be fair and just."

In 1997, Specter held a hearing to consider legislation that would have granted patent extensions to Taxol and a number of other products in exchange for a 3% royalty to NIH. The hearing was held after the proposal was floated for inclusion in the conference version of the Labor/HHS bill. The conference committee did not adopt the proposal.

At that time, Wyden indicated that he would only support a patent extension for Taxol if it was tied to a decrease in price of the product. The National Cancer Institute told Wyden in 1993 that it negotiated the Taxol price with the assumption that it would decline as the market for the product expanded.

Approval of the first generic version of paclitaxel may be imminent, following expiration of the 30-month stay of approval under Waxman/Hatch procedures at the end of June. Ivax has prevailed in the first round of litigation against Bristol and expects to launch a generic this summer.

Wyden's June 27 floor statement recalled the tone of his House hearings. He noted that NIH spent $32 mil. on the development of Taxol by the end of fiscal 1992. "Frankly, at hearings I held in 1993, the company really could not specify what they had done at all, other than the preclinical work and research into alternatives," Wyden asserted. Paclitaxel was originally sourced from the bark of the Pacific yew tree, which greatly limited supply.

"So I come back to the fundamental proposition: Why is it that a pharmaceutical that was developed by NIH and resulted in $1.5 bil. in sales in 1999 for Bristol-Myers Squibb resulted in no return on investment to the American taxpayer?" Wyden asked.

Under its January 1991 CRADA with NIH, Bristol was expected to spend between $65 mil. and $114 mil. on Taxol. The company maintains that its investment in Taxol vastly exceeds that sum.

Through June, Bristol estimates its investment in Taxol development at "approximately $1 bil." The company does not break out specific costs, but notes that its research effort included "more than 1,000 clinical trials, an unusually large research program that remains active today."

The cost estimate also includes "laboratory research in such areas as toxicology, pathology, formulation and stability; upgrading two production facilities to meet Good Manufacturing Practices standards; data collection and analysis; process development; bulk drug purification and formulation for clinical trials; alternative sources research in areas such as semisynthesis, yew cultivation and plant cell culture techniques; and funding research in the ecology, cultivation and management of the Pacific yew tree."

The $1 bil. estimate "does not include expenditures for marketing, advertising or sales promotion," Bristol maintained.

The Taxol development effort represented "nothing short of [our] own Manhattan Project," Bristol declared. "The company made Taxol its number one R&D priority, diverting resources from other promising projects to develop this drug." The result was an NDA submission two years earlier than anticipated under the CRADA, Bristol noted.

Bristol also priced the product under terms of the "reasonable pricing" clause in the CRADA, and Taxol remains the only example of a pharmaceutical subjected to negotiations over price with NIH. The CRADA did not call for royalty payments "because the government did not possess intellectual property rights related to the compound," Bristol noted.

The House version of the Labor/HHS bill sent to the Senate June 15 includes an amendment sponsored by Rep. Sanders (I-Vt.) directing NIH to reinstate the "reasonable pricing" clause in CRADAs (² (Also see "CRADA "Reasonable Price" Clause Becomes Part Of HHS Approps Bill" - Pink Sheet, 19 Jun, 2000.)). Sens. Wellstone (D-Minn.) and Johnson (D-S.D.) sponsored a similar amendment for the Senate bill, which was tabled June 30.

The brand name pharmaceutical industry is likely to target both provisions for removal from the bill in conference.

The Wyden proposal is presumably the more palatable of the two from the brand name company point of view because it avoids the specter of explicit price negotiations. Bristol's willingness to offer royalties to NIH in exchange for a Taxol patent extension suggests that there is at least some willingness within the industry to consider that approach.

Brand name companies may be joined in opposing the Wyden measure by the Association of American Universities. AAU views the amendment that passed the Senate as preferable to Wyden's original proposal because it allows time for the university community to participate in the creation of the NIH repayment plan.

AAU does not have any objections to the Sanders "reasonable pricing" provision.

Neither amendment is likely to be welcomed by NIH. The "reasonable pricing" clause was deleted from NIH CRADAs in 1995 by former Director Harold Varmus, who cited a decline in industry participation following the Taxol experience. With Congressional appropriations for NIH increasing, the agency does not appear to have an incentive to push for an authority to collect royalties.