What Could a DHHS Secretary Becerra Mean for the Pharmaceutical Industry?

Jay P. Lessler, John M. Clerici, and Merle M. DeLancey Jr.

President-elect Biden plans to nominate California Attorney General Xavier Becerra to serve as Secretary of the U.S. Department of Health and Human Services (“DHHS”). The current Administration has frustrated the pharmaceutical industry with numerous Executive Orders and proposed rules and regulations trying to impact drug pricing. DHHS’s interim final rule implementing a Most Favored Nations Model (i.e., an international pricing index) for reimbursement of certain Medicare Part B drugs is the most recent example.

Numerous pundits suggested that pharmaceutical companies manufacturing vaccines and other drugs to respond to the COVID-19 pandemic waited until after the November election to announce their progress. The rationale was that the companies would prefer working with a Biden Administration rather than suffer through four more years of acrimony with the Trump Administration. The Becerra announcement, however, could indicate the pharmaceutical industry is not yet out of the woods.

As California’s Attorney General, Becerra has a track record of taking on drug companies. For example, if Becerra becomes DHHS Secretary, big pharma could see the federal government for the first time ignoring patents to lower the cost of COVID-19 drugs and vaccines (and potentially other non-COVID-19 products that are deemed excessively priced by DHHS). In August 2020, Becerra led a coalition of 34 states requesting that DHHS use march-in rights to lower remdesivir’s price. The Trump Administration refused but, under a DHHS led by Becerra, we may see a different result.

Becerra has repeatedly been a proponent of using march-in rights under the Bayh-Dole Act to override patents made with federal funding. The Bayh-Dole Act permits patents on inventions developed with federal funds to be owned by the inventors or their employers and exclusively licensed.[1] In return, the federal government retains the right to grant a license in any field of use to a responsible applicant where the patent owner or its exclusive licensee refuses to produce the product or to provide a license under reasonable terms under certain circumstances to ensure the product is available. The most relevant circumstance is where the march-in rights are necessary to “alleviate health or safety needs which are not reasonably satisfied by” the patent owner or its exclusive licensee.[2] To date, no federal agency has ever exercised the march-in rights under the Bayh-Dole Act.[3]

The march-in rights under the Bayh-Dole Act, however, are not applicable to patents made without federal funding. For instance, remdesivir (marketed as VEKLURY®), which is approved for treatment of COVID-19 requiring hospitalization, has been consistently identified as a potential target for aggressive use of march-in rights. While some of the clinical studies that advanced VEKLURY for COVID-19 and Ebola were in fact funded by the National Institute of Allergies and Infectious Disease (“NIAID”), VEKLURY is protected by eight patents listed in the Orange Book (Approved Drug Products with Therapeutic Equivalence Evaluations). A review of the patents suggests none of the subject inventions were made with federal funding. Accordingly, the march-in rights provided by the Bayh-Dole Act are inapplicable with respect to them.

The federal government has another option if march-in rights under the Bayh-Dole Act are not applicable. The federal government, or one of its contractors with the authorization or consent of the federal government, can directly infringe the patents. Unlike private entities, the patent owner cannot obtain an injunction against the federal government or its authorized contractors. The only remedy for the patent owner is to sue the government in the U.S. Court of Federal Claims for the recovery of “reasonable and entire compensation” for such use. 28 U.S.C. §1498(a). This essentially uses the taking powers available to the federal government. This extraordinary act has not been used by the federal government for pharmaceuticals since the early 1970s.[4]

Becerra, along with Congressional Democrats, have long pushed for expanded application of Bayh-Dole’s march-in provision not only in the context of public health emergencies, such as the COVID-19 pandemic, but also for the sole purpose of lowering drug prices. These efforts have universally been blocked by DHHS, historically, under both Republican and Democratic administrations. However, with a Biden Administration coming in during a global pandemic, and assuming confirmation of a new DHHS Secretary predisposed to using these authorities more expansively than historically used, a renewed call for these extraordinary actions could receive strong consideration. Companies that hold patents for products that have received government funding during development would be wise to be proactive in determining whether a potential expansive use of march-in rights may result in increased scrutiny of the product’s pricing.

[1] 35 U.S.C. §202.

[2] 35 U.S.C. §203(a)(2).

[3] J.R. Thomas, “March-In Rights under the Bayh-Dole Act,” August 22, 2016, fas.org/sgp/crs/misc/R44597.pdf (accessed Dec. 7, 2020).

[4] Brennan et al., A Prescription for Excessive Drug Pricing: Leveraging Government Patent Use for Health, 18 Yale J.L. & Tech (2017).

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