NIH: Reasonable return on investment (8.10.03)

Phyllis Gardner says "Here is an excerpt from a rather long but very factual article on the issue of "reasonable return on investment" of National Institutes of Health (NIH) tax dollars (about which I spoke at the congressional hearing) and the underlying issue of drug price controls.

The NIH "Reasonable Pricing" Clause Experience In the years following passage of Bayh-Dole, members of Congress continued to express concerns about an appropriate monetary return for taxpayers' investment in biomedical research. In response to those concerns, in 1989 the NIH adopted a policy stating that there should 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." It was applied in Cooperative Research and Development Agreement (CRADA) negotiations between NIH intramural laboratories and potential private collaborative partners interested in engaging in collaborative research. The "reasonable pricing" clause was required in exclusive licenses to inventions made under NIH CRADAs. Shortly after the policy of "reasonable pricing" was introduced, industry objected to it, considering it a form of price control. Many companies withdrew from any further interaction with NIH because of this stipulation.

Both NIH and its industry counterparts came to the realization that this policy had the effect of posing a barrier to expanded research relationships and, therefore, was contrary to the Bayh-Dole Act. To study the impasse caused by "reasonable pricing," the NIH convened panels that included scientists and administrators in Government, industry, academia, and patient advocacy groups to review the policy. In exploring the matter, the panels considered two key questions:

First, what kind of return on the public investment is appropriate? The panels agreed on the following hierarchy, from most-to-least important: fostering scientific discoveries; rapid transfer of discoveries to the bedside; accessibility of resulting products to patients; and royalties.

Second, how much return on investment is appropriate? The panels acknowledged the importance of monetary return in the form of licensing and license execution fees, royalties, and recovery of patent prosecution expenses, but concluded that the question of royalties and monitoring returns is less important than the issue of expeditious new product development and accessibility of the products to those who need them. The panels' evaluation of the issue supported the view that the intangible benefits of rapid development of technologies as effective therapeutics, and the assurance of access to those products for all who need them, are so significant that they override monetary return considerations.Ê

The panels concluded that the policy did not serve the best interests of technology development and recommended to the Director, NIH, that the language be rescinded. The Director, NIH, accepted the recommendation, and the policy was revoked in 1995. The consequences of NIH's "reasonable pricing clause" policy can be seen in the relatively flat growth rate of CRADAs that occurred between 1990 and 1994, and the subsequent rebound in CRADAs following revocation of the policy .