From Antiviral Agents Bulletin, April 1995, p. 106-7.

PHS/NIH Abandons "Reasonable Pricing" Licensing/CRADA Policy

The National Institutes of Health (NIH; Bethesda, MD), which sets the technology transfer policies for the other components of the Public Health Service (PHS; including CDC, FDA), has abandoned use of the "reasonable pricing" clause in exclusive licenses and Collaborative Research and Development Agreements (CRADAs). This clause has been inserted in essentially all PHS exclusive licenses and CRADAs since 1989 and requires "that there be a reasonable relationship between the pricing of a licensed product, the public investment in that product, and the health and safety needs of the public. Accordingly, exclusive commercialization licenses granted for NIH/ADAMHA intellectual property may require that this relationship be supported by reasonable evidence." Although this clause and the term "reasonable" have never been defined or enforced, the "reasonable pricing" policy has been a significant deterrent and disincentive for industry to license or collaborate, even informally, with NIH. Many companies, particularly larger pharmaceutical and biotechnology companies, have rightfully feared that this clause could be used to require them to justify their pricing strategies to NIH and perhaps even to Congress and the public. "Reasonable pricing" has also been interpreted as allowing government to set price controls on licensed products and technologies.

Although most public discussion of "reasonable pricing" has centered on CRADAs, it primarily applies to exclusive licenses. CRADAs allow collaborating companies the option (almost always exercised) to exclusively license jointly developed inventions. "Reasonable pricing" has caused many companies to avoid both collaboration and licensing with NIH. The chilling effect of "reasonable pricing" is particularly evident in the relatively low number of NIH-industry CRADAs. For example, over 200 (85%) recently initiated federal CRADAs in biomedical areas have been outside of PHS/NIH. While NIH concluded fewer than 35 biomedical-related CRADAs in fiscal year 1994, the Department of Energy initiated over 60 and the Army initiated about 65. PHS/NIH granted only three exclusive licenses in FY1994, but many more are expected to be concluded now that policies have changed.

The "reasonable pricing" policy was instituted in 1989, primarily as a political response to the introductory pricing of AZT by Burroughs Wellcome Co. in the $8,000-$10,000/year range. The federal government is actually the largest purchaser of drugs (e.g., for Medicare, military and veterans' hospitals) and approval of AZT initially required a special act of Congress to authorize about one-quarter billion dollars for its purchase. With the prevailing attitude that AZT was overpriced and that NIH deserved co-inventorship status or at least significantly subsidized development and clinical trials with AZT, the "reasonable pricing" policy was instituted as a means to protect the government's and public interest in assuring reasonable prices and access to NIH inventions, particularly breakthrough therapeutics. However, the Republican administration at the time apparently did a good job of making this clause hard to interpret. In fact, this policy has never been enforced and no major products or technologies covered by the clause have yet come to market. The undefined and ambiguous nature of the clause has had a chilling effect on industry and has resulted in the mainstream biotechnology and pharmaceutical industries largely avoiding or passing over NIH licensing and collaborative opportunities. Many of the licenses and CRADAs executed in recent years have involved small biotechnology companies for whom undefined product pricing restrictions are of little immediate concern.

The recent issuance of a broad patent covering all ex vivo gene therapy (discussed in the story below) underscores the significance of NIH as the single most important source for new, particularly broadly enabling, technologies for the biotechnology and pharmaceutical industries. This is particularly true for technologies relevant to the treatment of viral diseases. As discussed in the March 1994 Bulletin (p. 75), NIH (and the federal government as a whole) has the largest portfolio of inventions available for licensing in the biotechnology, pharmaceutical and antiviral areas, many of these being broadly enabling technologies. For example, in the antiviral/virus-related area alone, NIH holds key patents covering first generation antisense oligonucleotide technologies including phosphorothioate oligonucleotides and triple-helix forming oligonucleotides; holds basic patents concerning immunotoxins and methods for conjugation of therapeutic proteins with antibodies; invented and exclusively licensed Havrix, the first hepatitis A virus vaccine (discussed in last month's Bulletin, p. 67), and the first parvovirus vaccine to enter trials (discussed in the lead story); is the sole or co-assignee of basic patents covering many new viruses including HIV, human herpesvirus-6, HTLV-I strains, and hepatitis E and G (formerly X) viruses; holds key patents on many retroviral, adeno-associated virus and other viral gene therapy vectors; holds key patents covering vaccinia virus promoters universally used for mammalian cell recombinant protein expression; discovered and exclusively licensed DDI and DDC and played an important role in the discovery of AZT; developed intranasal influenza vaccines (discussed in an article below); invented reconstituted parvovirus capsids for vaccines and as gene therapy vectors; and developed respiratory syncytial virus immune globulin (RespiGam) expected to be approved this year. Essentially all of these technologies have been licensed, usually nonexclusively, but many of these are exclusively licensed for specific therapeutic indications. A number of specific antiviral drugs, vaccine and immune modulators, most of which have been exclusively licensed, are currently in or approaching clinical trials for HIV and other viral indications including fludarabine (F-araA), Peptide T, liposomal nystatin, N-(phosphonoacetyl)-L-aspartic acid (PALA), prostratin, magainin peptides, napthoquinones (conocurvone), dimeric dideoxynucleosides, HIV TAR-based gene therapies and IL-2 receptor-targeted immunotoxins.

The abandonment of "reasonable pricing" licensing policies by NIH apparently signals a new openness to industry collaboration and licensing. NIH can finally transfer technologies like most every other public and private sector organization worldwide--negotiating a fair return (for itself and the public) through royalties with no intrusive pricing-related restrictions or oversight. With industry having largely avoided NIH technologies in recent years, this opens up considerable opportunities worthy of investigation.

The Biotechnology Information Institute (Bulletin publisher) also publishes the Federal Bio-Technology Transfer Directory, the only information resource providing access to NIH and other federal technology transfer opportunities and activities. The Directory database currently contains over 3,400 entries--over 1,400 patents and 900 applications, over 1,200 licenses (300 exclusive) and 830 CRADAs. Over 75% of entries are recent (since 1990). In the antiviral/virus-related areas alone (over 600 total entries), there are 170 patents, 136 assigned to PHS/NIH; 250 patent applications, 231 assigned to PHS/NIH; 149 CRADAs, 93 involving PHS/NIH; 173 licensed inventions, 163 licensed by PHS/NIH; and 409 licenses granted, 397 from PHS/NIH including 72 exclusive licenses. Nearly 550 antiviral/virus-related federal inventions, including over 425 from PHS/NIH, remain available for licensing (i.e., are not exclusively licensed, although many exclusively licensed inventions are still available for other fields of use). Even if organizations are not interested in licensing opportunities, the Directory is the only source for competitive intelligence concerning federal and NIH licensing and CRADAs.

The Federal Bio-Technology Transfer Directory will soon be available in database formats, including an Internet WWW subscription-access database and for uploading on purchasers' own computers. Those interested can contact the publisher for further information. Summary information about NIH and federal technology transfer can also be examined at our WWW site (under construction;