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Pocketing the profits
Should the federal government receive `interest' on
drug discoveries made at research institutions?
By BARBARA BERG
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The amendment seeks a `reasonable
rate of return' on federal research grants. What is deemed `reasonable'
and who will pay are unclear ... but research institutions, which
receive royalties for discoveries licensed to companies, suspect
they will be hit hardest.
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If you've just shelled out big bucks for a prescription
refill, consider this: you may
have paid twice
At least, some in Congress think you have.
As pharmaceutical companies reap profits from sales of so-called
blockbuster drugs, lawmakers are increasingly frustrated over
the high price of prescription drugs, many of which owe their
origins to discoveries made with research grants financed by
taxpayers.
Now the government wants to recover a portion of the "interest"
on its investment, a move that could jolt research institutions
that share profits from sales of drugs and other technologies.
Sen. Ron Wyden (D-Ore.), has attached an amendment to the
fiscal year 2001 funding bill for the National Institutes of
Health the largest federal grantor of biomedical research that
directs NIH to draft a plan by March 31 to recover a "reasonable
rate of return" on its grants. The amendment passed the
Senate unanimously in June; the NIH funding bill is pending in
the House.
What is "reasonable" and who will pay are unclear,
but research institutions, which receive royalty payments for
discoveries licensed to companies, suspect they will be hit the
hardest.
"A company has only so much that it is willing to pay
from its profits," says Linda Clarke, director of the Hutch
Technology Transfer office. "It's much more likely the money
would come from royalties paid by companies to the universities
and research institutes from which they license technologies."
In addition to the potential impact on research institutions'
finances, at issue is the fundamental question of whether the
government has the right to expect a return at all.
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`It would certainly hamper
our ability to pursue inventions aggressively.'
-Linda Clarke, Director,
Hutch Technology Transfer Office
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One Hutch scientist who declines to be identified argues
that no government agency has that right, citing as an example
that the government supports graduate and postdoctoral education
of young scientists that enables them to obtain jobs. Does the
government also expect payback on the salaries the trainees eventually
earn?
Ultimately, policy changes could mean technology transfer
offices might have to negotiate higher royalty fees, something
companies may not be willing to do.
Much of the money academic institutions earn from licensing
fees is pumped back into research funds for investigators, and
a potential loss of institutional revenue is worrisome at a time
when research grants are highly competitive. Royalty payments
are also a source of additional personal income for researchers,
although some choose to funnel their earnings into their own
labs.
The Xalatan example
A dramatic example of how government-financed biomedical research
discoveries can lead to huge profits was detailed in a New York
Times article in April about the discovery of a glaucoma treatment
by a Columbia University scientist.
Funded with $4 million from NIH, the discovery, which led
to development of the drug Xalatan, earned more than $500 million
in sales for the Pharmacia Corporation last year, putting the
drug into the blockbuster category. Columbia earned some $20
million in royalties last year from the drug, a sizable portion
of which was paid to the discoverer. Patients using Xalatan pay
$1 a day for the drug, which costs only a few cents to make.
At the Hutch, research has contributed to the development
of the leukemia drug Mylotarg, anticipated to be a successful
product. However, Clinical Research Division scientist Dr. Irv
Bernstein, in whose lab the research was done, points out that
Mylotarg has a limited target audience since leukemia is not
a common cancer.
THE RANGE OF LICENSING DOLLARS
Over the last six years, the Hutch earned an average
of $1.3 million in gross license income per year, although
there has been little or no net profit.
By contrast, Columbia University, which ranks first
among universities in licensing fees and royalties and has a
significantly higher research base than the Hutch, earned almost
$100 million last year.
Statistics from the Association of University Technology Managers
from 1997 show total gross licensing income reported by 175 institutions
as $698 million, for an average of $3.9 million per institution.
The average is skewed by a handful of institutions, such as Columbia,
Stanford and University of California, that bring in a disproportionately
high level of income.
Highly profitable drugs developed elsewhere with roots in
government-backed research include the antidepressant Prozac,
the migraine medication Imitrex and the cancer drug cisplatin.
Although the government invests heavily in biomedical research,
the pharmaceutical industry estimates that it may spend up to
$500 million to develop a drug, a figure disputed by some government
and industry consultants.
If the Wyden bill passes Congress, how will NIH respond? Historically,
NIH has opposed actions that hinder academic-industry collaborations.
The possibility of cuts in royalty payments worries tech-transfer
staff and some faculty, who postulate that removing a financial
incentive for the development of commercially viable products
will hinder invention.
"I think it would certainly hamper our ability to pursue
inventions aggressively," Clarke says. "Obtaining patents
is expensive. A decrease in the Center's royalty income could
lead to a decrease in the number of inventions we are able to
pursue."
Break-even operation
Dr. Lee Hartwell, Center president and director, echoes that
concern. "We are willing to run a break-even operation to
maximize the possibility that a useful product will get to the
market," he says. "If the government takes part of
the income, there is less ability to offset the costs of patenting,
and fewer inventions will get patented."
Another Hutch scientist who declines to be identified suggests
that researchers would be unwilling to put up with burdensome
details and requirements imposed by their industry partnerships
if monetary incentives were removed.
Dr. Jefferson Foote, an investigator in the Human Biology
Division, counters by saying that scientists most interested
in personal financial rewards will start companies of their own.
Others argue it's reasonable for the government to reap some
financial benefits of its investments.
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`The idea (of government
intervention in drug development) is to get the widest possible
use and to benefit the public.'
-Dr. Jefferson Foote, Human
Biology Division
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"While it doesn't seem fair that academic institutions
be stuck with the loss, it does seem rational for the government
to want some return," says Dr. Phil Greenberg, an investigator
in the Clinical Research Division. "But I'd hope the money
would go back into research support. If it's done prospectively,
I don't see it as a huge hindrance to translational research
or biotechnology."
Clarke says the 1981 Bayh-Dole Act, which lets federal grant
recipients retain title to inventions and license them to industry,
already provides the government with a payback in the form of
a free license to make and use any government-funded invention
for its own purposes.
The British example
Offering another example of how a government might intervene
is Foote, who worked as a postdoctoral fellow in a British government
lab that developed what became a highly profitable technology
for drug development. The British government patented the invention
and made it available for license by any company, which would
pay 1 or 2 percent of gross sales. Scientists who discovered
the technology would get a tiny fraction of the industry profits.
"The idea is to get the widest possible use and to benefit
the public," Foote says.
Hartwell says Americans ultimately could benefit from overseas
limits on drug prices.
"Drugs are expensive in the U.S. because pharmaceutical
companies try to recover all of their development costs in the
U.S.," he says. "Other countries control the price
they can sell at. The best idea I have heard so far is to allow
imports of drugs from other countries, effectively preventing
the pharmaceuticals from setting unusually high prices in the
local market."
Many would say that the public already reaps the benefit of
new drugs that may save or prolong lives, drugs that would not
be developed without government-financed research.
"Benefits to human health," Foote says, "are
not quantifiable."
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