[Ip-health] Notes from the May 25, 2004 NIH Norvir hearing
James Love
james.love@cptech.org
Thu May 27 17:11:01 2004
My notes from the May 25, 2004 NIH Norvir hearing
James Love, Essential Inventions
voice 1.202.387.8030, james.love@cptech.org)
This hearing was about the December decision by Abbott to
increase the price of Norvir by 400 percent in one day,
increasing the average wholesale price of Norvir from $4.28
to $21.40 per day, for patients taking 200 milligrams per
day, and for higher doses associated with some new drugs in
development, from $8.56 to $42.80 per day.
The increase in the prices only apply in the US for people
who have private insurance. The price increase does not
apply if you buy lopinavir, the Abbott protease inhibitor.
The US price for Norvir is now 5 to 10 times the prices in
other high-income countries. Norvir was invented on a
government grant, and the US has rights in the patent that
allow it to =93march-in=94 on the patents and issue licenses to
generic firms. But first the government must determine if
the price hike meets the standards for exercise of a
government march-in under 35 USC 203(a), 35 USC 203(b) and
35 USC 201(f).
The May 25 NIH Norvir march-in hearing introduced the issue
to a much larger audience. The press coverage was
extensive. The NIH pretty much divided the time down the
middle. There were 5 speaking slots for partisans for and
against the march-in, and one who was more of less in the
middle -- John Erickson. The NIH allowed parties to cede
some time to others, which occurred twice. To the surprise
of many of us, the meeting was not recorded and was declared
to not be part of any formal record. Any comments for the
case had to be submitted later. Most importantly, anyone
from the public can now submit comments to the NIH.
The Pro-Abbott/Anti-march-in side led off and ended the
meeting. Of the five march-in opponents, four addressed the
legislative history and their views on the intent of the
act. Only Abbott defended the substance of the Norvir price
hike. Our side was told last Friday we could have a single
legal expert to testify (Reichman), but on Monday we were
told our patent landscape expert (Ravicher) could also
testify. The AIDS community was first given 3 slots, but
that was cut to 2 on Monday, when Lei Chou dropped of the
list, and the NIH gave his slot to Dan Ravicher.
The meeting began with former Senator Birch Bayh and Ted
Poehler, who represented the American Association of
Universities, and ended with Abbott.
By granting speaking slots to four persons who attacked the
petition on the grounds that it would undermine the purposes
of the Act, and challenging our legal interpretation on both
the legislative history and the plain language of the
statute, the press was given the =93message=94 that experts
thought the march-in right was limited to non-working cases
only. The key text that is in dispute is 35 USC 201(f),
which is the following definition:
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.
The key part being the obligation to make the benefits of
the invention =93available to the public on reasonable terms.=94
Bayh and others claimed =93reasonable terms=94 meant anything
but the price, and that no one thought the march-in would be
used to address pricing abuses.
Professor Jerome Reichman, whom I think demolished the
opposition on the legal issues, was most effective with
those who knew the most law, and probably over-the-head of
many others. No reporter quoted Reichman, the only legal
scholar who testified, but nearly every reporter quoted
Bayh, and or other march-in opponents on the policy legal
issues (all who work professionally in the technology
transfer business). The age and the
establishment/historical credentials of the opponents were
effective in raising doubts on the legal issues, as
reflected in the press coverage. But this may not turn out
to be as helpful to Abbott when the decision is made,
because it will be difficult for the NIH to establish that
=93available to the public on reasonable terms=94 does not
include price. Indeed, Abbott and other march-in critics
did not even attempt to explain what =93available to the
public on reasonable terms=94 might mean, if the price or
economic terms of the license was excluded. This was part
of Reichman=92s statement:
Apart from the legislative history, which is
consistent with international practice, it cannot
logically be doubted that the language in the Bayh-
Dole Act requiring patented products to be made
available to the public on reasonable terms
encompasses the patentee=92s pricing strategy. All
unreasonable terms and conditions that rise to the
level of actionable abuses have as their object
the power, directly or indirectly, to increase the
licensor=92s prices beyond the level that
competition would otherwise ensure and thus to
enhance profits. When patentees impose =93field of
use=94 or other licensing restrictions, when they
engage in illegal tying, or as in the case at
hand, they adopt a marketing strategy consistent
with the practice known as =93monopoly leveraging,=94
they are not conducting scientific or economic
experiments for the sake of increasing academic
knowledge. They pay their lawyers to devise
contractual conditions that will enable them to
raise prices and make more money.
In this connection, one should recall that
individual members of the public do not typically
negotiate with their pharmacies when they purchase
medicine. They buy the product and pay the price
that market conditions permit the pharmacist to
charge. These conditions, in turn, result from the
contracts stipulated between patent holders as
licensors and their various licensees. When the
Bayh-Dole Act affirms that the resulting products
must be made available to the public on reasonable
terms, it can only mean that the underlying
licensing agreements should not undersupply the
market, unduly distort competition, or otherwise
leverage the procurement of active ingredients in
ways that boost the price to unreasonable
=93windfall=94 levels that many users cannot afford.
While the Bayh-Dole march-in provisions thus
clearly contemplate practices that produce
excessive prices=97what Manbeck and others called
=93windfall profits=94=97and would make no sense if they
did not, I hasten to add that the Act in no way
implies a regime of price controls, like that
adopted in Canada and many EU countries. Indeed,
loose assertions about =93price controls=94 merely
create confusion and divert attention away from
the real issues bearing on the patentee=92s specific
marketing strategies.
Bayh may be embarrassed when it becomes clear that his over-
the-top assertions at the NIH hearing are examined in light
of what actually happened during the period right before the
Bayh-Dole Act was passed. This will include the debates
over the recoupment (excess profits) provision, that was
eliminated only in conference, in part because the march-in
provision, using terms that were introduced as early as 1963
by Kennedy, were thought to be a sufficient safeguard. Not
to mention the actual arguments that Bayh himself made to
Donna Shalala in 1997, when he had a client (Cellpro) that
wanted HSS to use the march-in to help his client get lower
royalties on a patent. (See URL below)
The NIH, looking down the road, should consider how the public
interest will be served if a restrictive interpretation on
=93reasonable terms=94 is embraced. The NIH will have to address
grantee licensing of research tools (such as it did in the
WARF/stem cell patents case, or in the pre-Bayh-Dole
Columbia co-transformation patent case). Given the NIH
culture and track record on these issues, many are predicting
the NIH will choose the most restrictive interpretation,
but one can imagine a different outcome.
On our side, Bob Huff and Ben Young were polished,
substantive and persuasive, each quoted extensively in the
press, and they laid out very clearly the policy case for
the march-in. Bob Huff focused on the impact of the
discriminatory price hike on the R&D pipeline for new
protease inhibitors, explaining how Abbott=92s =93re-pricing=94
strategy was designed to make Abbott=92s lopinavir the least
expensive boosted protease inhibitor, and how this had the
effect of relegating new protease inhibitors to the salvage
market, undermining incentives for non-Abbott firms to
invest in new boosted treatments. Ben Young covered many
topics, including for example the problem of an abrupt 400
percent increase in the price of a drug that had been on the
market for eight years, creating uncertainly not only about
future pricing of ritonavir, but of also of other treatments
that might follow the Abbott lead and the practical problems
of switching from medicine to medicine. Huff said that the
entire AIDS community was supportive of strong economic
incentives to innovate, and that the march-in authority did
not have to be used frequently, noting that the Norvir case
was an unusual set of facts.
As noted, Jerry Reichman, the only legal scholar to testify,
was effective in framing the legal issues. Dan Ravicher was
concise, and covered every important point on the patent
landscape, effectively. David Halperin was permitted to
offer very brief comments (in my time slot) on the
legislative history issue. There were many hearings, over
time, on the issue of rights in federally funded patents.
Bayh and others had told the public the march-in was the
=93safeguard=94 of the public interest, and the act was sold in
the basis that it had this safeguard. The recoupment
provision of the Act, that would have gone much further, was
the in both the House and Senate version of the bill, and
was only taken out in Conference. And the march-in language
itself had been around for a long time, at going back to the
Kennedy Administration.
One of the most distressing moments of the hearing concern
Lynda Dee=92s presentation. Lynda Dee was representing the
Drug Development Committee of the AIDS Treatment Activist
Coalition. She said that earlier the NIH had been assured
that she could talk in part of Lei Chou=92s time. When Lei
Chou had not been able to attend, she had been ceded some
time by others. First by Dan Ravicher, who used only about
half of his time. But Ravicher only notified the NIH of
this during a break after he spoke, and was told it was too
late. Then Ben Young ceded her some time. Despite the
fact that the hearing was running ahead of schedule the NIH
refused to give her 5 minutes to speak, at one point
shouting at her to stop, while she was trying to speak, and
calling security. Abbott=92s Leiden dramatically stepped in
and overruled the NIH so she could finish (asserting his
authority pretty comfortably). It was not a great moment in
the meeting. Lynda=92s closing comment was the march-in
proceeding would be decided on the basis of politics, and
that the NIH had legal authority to side with the patients
or with Abbott, and she asked that they protect the
patients, and eliminate the anticompetitive price hike.
Jeff Leiden, the Abbott COO, did about as good a job as one
could have in defending Abbott. He was composed,
articulate, and addressed his critics on selective issues.
According to Abbot, It wasn=92t a price hike, it was =93re-
pricing.=94 Competitors have not been harmed, he claimed.
Every patient gets every drug they need, since the price
hike only applies when you have insurance, and insurance
companies are actually paying for ritonavir because patients
need it. Norvir is cheap, he claimed. Abbott spent $300
million to develop Norvir (no details on this). His basic
pitch is, that there is no evidence that the public health
is harmed. Abbott is simply extracting more money from
private insurers and employers, which is how the market
works. The logic of the Abbott presentation is that they
could increase ritonavir by another 400 percent tomorrow,
and it would not rise to the level of an abuse under the
Bayh-Dole march-in provision.
What Abbott did not address were the following:
If the product was re-priced for Abbott=92s competitors, why
was it not re-priced in Kaletra?
If the product was re-priced for US consumers, why not for
consumers in other high-income countries? Is it
=93reasonable=94 for US consumers to pay 5 to 10 times more for
the government funded invention Norvir than Abbott charges
consumers in other high income countries?
How does Abbott justify $300 million development cost on
Norvir, when the product was approved with trials 30 percent
smaller than the average in the Tufts study (which used $125
million as the fully loaded out-of-pocket costs for trials),
and with particularly short trials and quick approval times?
If Abbott costs take into account the costs of failed R&D
efforts, why is the $3.5 million NIH grant not adjusted for
the cost of the unsuccessful NIH grants?
If Abbott takes into account the post-product approval R&D
costs, what about the huge investments by the NIH and Abbott
competitors who did countless studies of ritonavir in
combination with other products?
How much money has Abbott made on Norvir and Kaletra
combined?
In the end, Secretary Thompson is the decision maker. He
will have to decide the following:
1. Legal issues:
a. Does the US government have the legal authority to
march-in on the Abbott patents on the basis of abusive
pricing of any kind? (yes)
b. Can the US decide to use a march-in in only exceptional
cases, but not engage in widespread price regulation? (yes)
2. Factual issues:
a. Will the price hike lead to hardships on patients and
employers who pay for medicines? (yes)
b. Does the discriminatory nature of the price hike harm
the R&D pipeline for non-Abbott drugs? (yes)
c. Will the tech transfer business be able to cope if
there are *any* efforts to protect consumers from pricing
abuses? (yes, of course it can)
d. Can the government logically fix some pricing abuses
such as charging US consumers more than consumers in other
high income countries, without engaging in routine price
controls? (yes, of course it can)
3. Policy issues:
a. Does anyone care what private insurers pay for drugs? (yes)
b. Does a decision to increase the price of a government-
funded invention by 400 percent, eight years after it is on
the market, unreasonable? (yes)
c. Is a decision to charge (far) higher prices in the US
on a government-funded drug unreasonable? (yes)
d. Does a decision to charge (far) higher prices when
Norvir is used with a competitor=92s product=92s an
anticompetitive abuse of the patent? (yes)
If Thompson finds:
1. the plain language of the Bayh-Dole Act allows a march
in for abusive pricing,
2. the price hike creates hardships, harm to non-Abbott
R&D, or anticompetitive effects,
3. the technology transfer process can survive the
elimination of an =93anything goes=94 policy, and
4. there is evidence of a pricing abuse,
He could fix the pricing abuse problem. Of course, he can
also, not fix the problem. It is up to Thompson. And the
President. Oppose the Abbott 400 percent price hike, or
approve it. Yes. Or no.
For more info, statutes, press clips, pleadings, etc, here:
http://www.essentialinventions.org/drug/ritonavir.html
Bayh during Cellpro case:
http://lists.essential.org/pipermail/ip-health/2004-May/006475.html
http://www.nih.gov/icd/od/foia/cellpro/pdfs/foia_cellpro1.pdf
--
James Love, Director, Consumer Project on Technology
http://www.cptech.org, mailto:james.love@cptech.org
tel. +1.202.387.8030, mobile +1.202.361.3040