Technology Transfer
NIH-Private Sector Partnership in the Development of Taxol Gao ID: GAO-03-829 June 4, 2003The transfer of technology from government-funded medical research laboratories to the private sector aims to have new pharmaceuticals brought to market more efficiently than would be possible for a federal agency acting alone. Much of the pharmaceutical-related technology transfer originates with research funded by the National Institutes of Health (NIH). GAO was asked to examine the legal and financial issues involved in technology transfers as illustrated by the research, development, and commercialization of Taxol. Taxol was developed through a cooperative research and development agreement (CRADA) between NIH and the Bristol-Meyers Squibb Company (BMS) and by 2001 had become the best-selling cancer drug in history. Specifically, GAO examined (1) how the technology transfer partnership affected the research and development of Taxol, (2) what NIH's financial investment was in Taxol-related research, and what the financial outcomes were of the technology transfer process related to Taxol, and (3) what factors influenced how NIH exercised its authority in Taxol-related technology transfer activities. GAO reviewed relevant materials and statutes governing technology transfer, reviewed the patent history of Taxol, interviewed NIH and BMS officials, and reviewed data on NIH's financial investment and drug pricing policies.
The 1991 HIH-BMS CRADA was one of the first CRADAs to result in a major breakthrough drug. NIH's partnership with BMS provided the company with the research results that enabled Taxol to be commercialized quickly and made available as a treatment for cancer patients. Prior to the CRADA and during the first 2 years of the agreement, NIH conducted most of the clinical trials associated with the drug. The results of these trials were critical for BMS to secure FDA's approval in 1992 to market Taxol for the treatment of advanced ovarian cancer. As agreed in the CRADA, BMS supplied the drug to NIH researchers to overcome previous shortages. The additional supplies from BMS allowed NIH to increase the number of patients enrolled in NIH clinical trials for this drug from 500 patients by 1989 to nearly 29,000 patients over the course of the CRADA. NIH made substantial investments in the research related to Taxol, but its financial benefits from the collaboration with BMS have not been great in comparison to BMS's revenue from the drug. NIH estimates that it spent $183 million on all Taxol-related research from 1977 through the end of the CRADA's term in 1997. For one portion of its spending, NIH estimates that it spent $96 million to conduct clinical trials supporting the CRADA; this was offset by a $16 million payment from BMS. In addition, BMS supplied Taxol to NIH, the value of which GAO estimates to be $92 million. NIH spent an additional $301 million on Taxol-related research from 1998 through 2002, some of which was for cancer research, making NIH's total Taxol-related spending $484 million through 2002. BMS's sales of Taxol totaled over $9 billion from 1993 through 2002. BMS agreed to pay NIH royalties at a rate equal to 0.5 percent of worldwide sales of Taxol as part of a 1996 agreement to license three NIH Taxol-related inventions developed during the CRADA. Royalty payments to NIH have totaled $35 million. The federal government has been a major payer for Taxol, primarily through Medicare. For example, Medicare payments for Taxol totaled $687 million from 1994 through 1999. Several factors affected NIH's exercise of its broad authority in negotiating its Taxol-related technology transfer activities. First, NIH did not have a patent on Taxol and thus could not grant an exclusive patent license to a CRADA partner. Second, in NIH's evaluation, it was limited by a shortage of available, qualified alternative partners. Finally, the negotiation of royalties for NIH's Taxol-related inventions was affected by multiple considerations, including the priorities that both NIH and BMS assigned to different factors in the setting of royalties. These factors include the stage of development, the potential market value of the license, and the contribution to public health of making the product available. In commenting on a draft of this report, NIH provided additional information about its expenditures and the contributions of BMS, which GAO incorporated, and also discussed its evaluation of whether BMS's pricing of Taxol was reasonable.
GAO-03-829, Technology Transfer: NIH-Private Sector Partnership in the Development of Taxol
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Report to the Honorable Ron Wyden, U.S. Senate:
United States General Accounting Office:
GAO:
June 2003:
TECHNOLOGY TRANSFER:
NIH-Private Sector Partnership in the Development of Taxol:
GAO-03-829:
GAO Highlights:
Highlights of GAO-03-829, a report to the Honorable Ron Wyden, U.S.
Senate
Why GAO Did This Study:
The transfer of technology from government-funded medical research
laboratories to the private sector aims to have new pharmaceuticals
brought to market more efficiently than would be possible for a
federal agency acting alone. Much of the pharmaceutical-related
technology transfer originates with research funded by the National
Institutes of Health (NIH). GAO was asked to examine the legal and
financial issues involved in technology transfer as illustrated by the
research, development, and commercialization of Taxol. Taxol was
developed through a cooperative research and development agreement
(CRADA) between NIH and the Bristol-Myers Squibb Company (BMS) and by
2001 had become the best-selling cancer drug in history.
Specifically, GAO examined (1) how the technology transfer partnership
affected the research and development of Taxol, (2) what NIH‘s
financial investment was in Taxol-related research, and what the
financial outcomes were of the technology transfer process related to
Taxol, and (3) what factors influenced how NIH exercised its authority
in Taxol-related technology transfer activities. GAO reviewed relevant
materials and statutes governing technology transfer, reviewed the
patent history of Taxol, interviewed NIH and BMS officials, and
reviewed data on NIH‘s financial investment and drug pricing
policies.
What GAO Found:
The 1991 NIH-BMS CRADA was one of the first CRADAs to result in a
major breakthrough drug. NIH‘s partnership with BMS provided the
company with the research results that enabled Taxol to be
commercialized quickly and made available as a treatment for cancer
patients. Prior to the CRADA and during the first 2 years of the
agreement, NIH conducted most of the clinical trials associated with
the drug. The results of these trials were critical for BMS to secure
FDA‘s approval in 1992 to market Taxol for the treatment of advanced
ovarian cancer. As agreed in the CRADA, BMS supplied the drug to NIH
researchers to overcome previous shortages. The additional supplies
from BMS allowed NIH to increase the number of patients enrolled in
NIH clinical trials for this drug from 500 patients by 1989 to nearly
29,000 patients over the course of the CRADA.
NIH made substantial investments in research related to Taxol, but its
financial benefits from the collaboration with BMS have not been great
in comparison to BMS‘s revenue from the drug. NIH estimates that it
spent $183 million on all Taxol-related research from 1977 through the
end of the CRADA‘s term in 1997. For one portion of its spending, NIH
estimates that it spent $96 million to conduct clinical trials
supporting the CRADA; this was offset by a $16 million payment from
BMS. In addition, BMS supplied Taxol to NIH, the value of which GAO
estimates to be $92 million. NIH spent an additional $301 million on
Taxol-related research from 1998 through 2002, some of which was for
cancer research, making NIH‘s total Taxol-related spending $484
million through 2002. BMS‘s sales of Taxol totaled over $9 billion
from 1993 through 2002. BMS agreed to pay NIH royalties at a rate
equal to 0.5 percent of worldwide sales of Taxol as part of a 1996
agreement to license three NIH Taxol-related inventions developed
during the CRADA. Royalty payments to NIH have totaled $35 million.
The federal government has been a major payer for Taxol, primarily
through Medicare. For example, Medicare payments for Taxol totaled
$687 million from 1994 through 1999.
Several factors affected NIH‘s exercise of its broad authority in
negotiating its Taxol-related technology transfer activities. First,
NIH did not have a patent on Taxol and thus could not grant an
exclusive patent license to a CRADA partner. Second, in NIH‘s
evaluation, it was limited by a shortage of available, qualified
alternative CRADA partners. Finally, the negotiation of royalties for
NIH‘s Taxol-related inventions was affected by multiple
considerations, including the priorities that both NIH and BMS
assigned to different factors in the setting of royalties. These
factors include the stage of development, the potential market value
of the license, and the contribution to public health of making the
product available.
In commenting on a draft of this report, NIH provided additional
information about its expenditures and the contributions of BMS, which
GAO incorporated, and also discussed its evaluation of whether BMS‘s
pricing of Taxol was reasonable.
www.gao.gov/cgi-bin/getrpt?GAO-03-829.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Marcia Crosse at
(202) 512-7119.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
NIH-BMS Partnership Provided Research Results Critical to Developing
Taxol's Commercial Uses:
NIH Invested Heavily in Taxol-Related Research, but Federal Financial
Benefits Have Been Limited:
Several Factors Affected NIH's Exercise of Its Broad Authority in
Technology Transfer Activities Related to the Development of Taxol:
Concluding Observations:
Agency and Bristol-Myers Squibb Company Comments and Our Evaluation:
Appendix I: Selection of "Clinical Development of Taxol"
CRADA Partner:
Appendix II: Catalog of CRADAs and License Agreements
Related to Taxol:
Appendix III: Chronology of the Research and Development of
Taxol (Paclitaxel):
Appendix IV: Comments from the National Institutes of Health:
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Acknowledgments:
Tables:
Table 1: BMS's Worldwide Taxol Sales, 1993-2002:
Table 2: CRADAs Related to Taxol:
Table 3: Patents Related to Taxol:
Figure:
Figure 1: NIH's Funding for Paclitaxel-Related Research:
Abbreviations:
AWP: average wholesale price
BMS: Bristol-Myers Squibb Company
CRADA: cooperative research and development agreement
FDA: Food and Drug Administration
FSU: Florida State University
FSS: Federal Supply Schedule
IND: investigational new drug application
NCI: National Cancer Institute
NDA: new drug application
NIH: National Institutes of Health
OFM: Office of Financial Management
OTT: Office of Technology Transfer
PHS: Public Health Service:
United States General Accounting Office:
Washington, DC 20548:
June 4, 2003:
The Honorable Ron Wyden
United States Senate:
Dear Senator Wyden:
The transfer of technology resulting from federally funded research to
the private sector is intended to bring pharmaceuticals to the
marketplace much sooner and more efficiently than would have been
possible for a federal agency acting alone. Much of the pharmaceutical-
related technology transfer between the public and the private sectors
originates with research conducted or funded by the National Institutes
of Health (NIH). NIH uses mechanisms such as cooperative research and
development agreements (CRADA) with industry partners and the licensing
of patented inventions arising from research it funds to provide
incentives for businesses to develop pharmaceuticals. However, the
financial success of certain drugs that have benefited from government-
funded research has raised concerns about whether the federal
government is getting a fair return on its investment in the research
leading to these products.
An example of pharmaceutical technology transfer is Taxol (paclitaxel),
which by 2001 had become the best-selling cancer drug in
history.[Footnote 1] Taxol was commercialized by the Bristol-Myers
Squibb Company (BMS). Through a collaboration with NIH, BMS benefited
from substantial investments in research conducted or funded by NIH. In
this instance, the NIH research examined the safety and effectiveness
of this naturally occurring compound for the treatment of cancer and
resulted in techniques for administering the drug. NIH transferred its
research results and discoveries to BMS for its use in seeking approval
from the Food and Drug Administration (FDA) to market the drug.
You asked us to examine the legal and financial issues involved in
technology transfer as illustrated by the case of the research,
development, and commercialization of Taxol. Specifically, you asked us
to examine the following questions: (1) How did the NIH-BMS technology
transfer collaboration affect the research and development of Taxol?
(2) What was NIH's financial investment in Taxol-related research, and
what were the financial outcomes of the technology transfer process
related to Taxol? (3) What factors influenced how NIH exercised its
authority in Taxol-related technology transfer activities?
To address these questions, we reviewed published and unpublished
documents describing NIH and BMS's partnership and their efforts to
research and develop Taxol. Using the U.S. Patent and Trademark
Office's database, we reviewed the patent history of Taxol. We reviewed
the primary Taxol-related CRADA between NIH and BMS, which was signed
in 1991. We also reviewed an additional Taxol-related CRADA and the
license agreement between NIH and BMS.[Footnote 2] We interviewed the
principal investigators associated with those CRADAs to understand the
research involved. To assess NIH's investments and financial outcomes
resulting from Taxol-related research, we obtained and reviewed data
from NIH's National Cancer Institute (NCI), Office of Financial
Management (OFM), and BMS's Annual Reports.[Footnote 3] We also
reviewed Medicare drug purchase data from the Medicare part-B Extract
Summary System and pricing data from the Federal Supply Schedule (FSS).
We interviewed officials from BMS and from NIH's OFM, Office of
Technology Transfer (OTT), and NCI about spending estimates and the use
of royalty payments. To assess the factors that influence how NIH
exercises its legal authority, we reviewed the relevant statutes and
regulations pertaining to the technology transfer process and
interviewed pertinent officials involved in the process at NIH and BMS.
We also interviewed officials from one of NIH's key partners in
paclitaxel-related research, Florida State University (FSU), where much
of the early research on a semisynthetic method of producing paclitaxel
was performed. The scope of our report was restricted to NIH's
investment in paclitaxel, and we did not evaluate the effectiveness of
commercializing Taxol in comparison to other drugs. For this reason, we
consider the implications of the development of Taxol as a case study,
not necessarily as representative of the way NIH performs technology
transfer activities. We conducted our work from October 2002 to June
2003 in accordance with generally accepted government auditing
standards.
Results in Brief:
NIH's collaboration with BMS provided the company with research results
that enabled paclitaxel to be quickly commercialized as the brand-name
drug Taxol and made available as a treatment--initially for ovarian
cancer patients, and later for other cancer patients. Prior to the
signing of the 1991 CRADA between NIH and BMS, and during the first 2
years of the CRADA, NIH conducted most of the clinical trials
associated with paclitaxel. The results of NIH's clinical trials were
critical for BMS to secure FDA's initial approval in 1992 to market
Taxol for the treatment of advanced ovarian cancer. Five of the six
studies submitted to FDA by BMS in support of its marketing application
were either conducted or funded by NIH. As agreed in the CRADA, BMS
supplied paclitaxel to NIH researchers to overcome previous shortages
that had limited NIH's research. The additional paclitaxel supplied by
BMS allowed NIH researchers to increase the number of patients enrolled
in NIH clinical trials for paclitaxel from less than 500 patients in
1989 to 28,882 through the end of the CRADA term. Three inventions--
which were methods for administering paclitaxel and treating side
effects--resulted from the 1991 CRADA and were later patented by NIH.
In 1996 NIH signed an agreement to license these inventions to BMS, but
BMS officials told us that they were not used in any of BMS's
applications to FDA to expand the approved uses of Taxol. In addition,
an NIH grant to FSU led to the important discovery of a method for
producing paclitaxel, which was licensed to BMS by FSU in 1990 and
later used to produce Taxol.
NIH made substantial investments in research related to Taxol, but its
financial benefits from the collaboration with BMS have not been great
in comparison to BMS's revenue from the drug. NIH estimates that it
invested $183 million in research related to paclitaxel from 1977
through 1997, the end of the CRADA's term, although not all of this was
for research supporting the 1991 CRADA. For one portion of its
investment in Taxol, NIH estimates that its net cost for conducting
clinical trials that supported the development of Taxol through the
1991 CRADA was $80 million--NIH estimates that it spent $96 million on
the studies, and this expense was offset by $16 million in financial
support from BMS. We estimate that the paclitaxel BMS supplied NIH
through the CRADA had a value of $92 million. NIH spent an additional
$301 million on paclitaxel-related research from 1998 through 2002,
some of which supported cancer research, bringing NIH's total
investment in paclitaxel-related research from 1977 to 2002 to $484
million. Overall, BMS officials told us that the company spent $1
billion to develop Taxol. BMS's worldwide sales of Taxol totaled over
$9 billion from 1993 through 2002. In its 1996 license agreement with
NIH, BMS agreed to pay NIH royalties at a rate of 0.5 percent of
worldwide sales of Taxol, and NIH received royalty payments totaling
$35 million through 2002. The CRADA noted NIH's concern that Taxol be
fairly priced given the public investment in Taxol research and the
health needs of the public, but it did not require that reasonable
evidence be presented to show that this would occur. The federal
government has been a major payer for Taxol, primarily through
Medicare. Medicare payments for Taxol totaled $687 million from 1994
through 1999, the last full year before a generic version of Taxol was
approved for marketing.
Several factors affected NIH's exercise of its authority in technology
transfer activities related to the development of paclitaxel. First, in
negotiations regarding a CRADA for paclitaxel, NIH's ability to
exercise its authority was limited because, even though its research
findings could be valuable in securing FDA approval for marketing the
drug, NIH did not have a patent on paclitaxel, and thus could not grant
a possible CRADA partner an exclusive patent license to market the drug
upon FDA approval. Second, NIH's evaluation suggests that there was a
shortage of available, qualified alternative CRADA partners. According
to NIH's records, BMS's CRADA application scored significantly higher
than others. Finally, the negotiation of royalties for NIH's later
Taxol-related inventions was affected by multiple considerations,
including the priorities that both NIH and BMS assigned to different
factors in the setting of royalties. While nothing in applicable law
restricts the amount of royalties NIH can negotiate, a number of
considerations bear on the negotiations. These include the stage of
product development, the potential market value of the invention, and
the contribution to public health of making the product available. In
this case, BMS officials told us that NIH's inventions did not
contribute to BMS's successful marketing of Taxol.
In commenting on a draft of this report, NIH provided additional
information about its expenditures and the contributions of BMS, which
we incorporated, and also discussed its efforts to evaluate the pricing
of Taxol. In its comments on a draft of this report, BMS expressed
concern about our estimates of NIH's expenditures; we have revised our
presentation based on information contained in NIH's comments. BMS also
expressed concerns that our analysis overstated the cost of Taxol to
Medicare. Our analysis did not overstate the cost, and we have
clarified our discussion.
Background:
Taxol is currently used to treat several types of cancer, including
advanced ovarian and breast cancer, certain lung cancers (non-small
cell) in patients who cannot have surgery or radiation therapy, and
AIDS-related Kaposi's sarcoma. The bioactive compound in Taxol was
first extracted from the bark of the slow-growing Pacific yew tree
Taxus brevifolia in the 1960s. Following this discovery, the drug was
developed primarily through research funded by NIH, and then
transferred to the private sector and successfully commercialized by
BMS.
Public-Private Technology Transfer:
The 1991 NIH-BMS CRADA was one of the first CRADAs to result in a
breakthrough drug. The groundwork for the public-private partnership
that fostered the success of Taxol was laid in 1980. Prior to that
time, the government generally retained title to any inventions created
under federal research grants and contracts. This situation became a
source of dissatisfaction because of a general belief that the results
of government-owned research were not being made widely available for
the public's benefit. For example, there were concerns that biomedical
and other technological advances resulting from federally funded
research at universities were not leading to new products because the
universities had little incentive to seek uses for inventions to which
the government held title. In 1980, the Congress passed two landmark
pieces of legislation--the Stevenson-Wydler Technology Innovation Act
of 1980[Footnote 4] and the Bayh-Dole Act[Footnote 5]--with the intent
of promoting economic development, enhancing U.S. competitiveness, and
benefiting the public by encouraging the commercialization of
technologies developed with federal funding.
Although the acts have common objectives, the Stevenson-Wydler Act
focuses on inventions owned by the federal government, while the Bayh-
Dole Act focuses on inventions created under federal contracts, grants,
and cooperative research and development agreements. Under the
Stevenson-Wydler Act, inventions owned by the government remain the
property of the agencies that produce them. However, the act as amended
sets out guidelines and priorities that encourage commercialization of
these inventions through the licensing of technology to U.S. business.
In 1986 the Federal Technology Transfer Act[Footnote 6] amended the
Stevenson-Wydler Act and enhanced the authority of federal agencies in
this area, authorizing them to enter into CRADAs with nonfederal
partners to conduct research.
The Bayh-Dole Act authorizes federal agencies to execute license
agreements with commercial entities to promote the development of
federally owned inventions, and to collect royalties for such licenses.
The act also gives small businesses, universities, and other nonprofit
organizations the right to retain title to and profit from the
inventions arising from their federally funded research, provided they
adhere to certain requirements. In 1983, a presidential memorandum
extended this patent policy to large businesses. The act also contains
several provisions to protect the public's interest in commercializing
federally funded inventions, such as a requirement that a contractor or
grantee that retains title to a federally funded invention file for
patent protection and attempt commercialization. In return, the
government retains the right to use the inventions without paying
royalties. In general, most biomedical inventions are not a final end
product; therefore the government rights would not extend to a final
product.
NIH's Role in Technology Transfer:
NIH, with a budget of over $23 billion in fiscal year 2002, is the
principal federal agency that conducts and funds biomedical research,
including research on drugs. Within NIH, OTT is responsible for
licensing the inventions of NIH employees to the private sector for
development to benefit the public health. OTT oversees patent
prosecution, negotiates and monitors licensing agreements, and provides
oversight and central policy review of CRADAs.[Footnote 7] NIH's stated
goals with regard to the technology transfer process are, in order of
priority, to foster scientific discoveries, to facilitate the rapid
transfer of discoveries to the bedside, to make resulting products
accessible to patients, and to earn income. NIH has broad authority
under the statutes described above to negotiate agreements with outside
partners in pursuit of its technology transfer goals.
NIH scientists and laboratories, scientists and laboratories in
academia or other research institutions that receive public funding,
and industry researchers are often all involved in the development of
pharmaceuticals. Usually, government and academic scientists conduct
basic research on the biology of a disease and identify compounds,
methods, and chemical reactions and pathways that may be of value in
treating disease. They also conduct preclinical and clinical testing of
drugs (phase 1 and 2 trials). Industry conducts more extensive clinical
trials (phase 3 trials) and markets the drugs, although there is some
overlap in these roles.[Footnote 8] NIH's overall mission and
authority, as well as the requirements of the Federal Food Drug and
Cosmetic Act, suggest that NIH cannot sponsor a drug through FDA's new
drug application (NDA) process. This act requires those who submit NDAs
to FDA to provide "a full description of the methods used in, and the
facilities and controls used for, the manufacture, processing, and
packing, of such drug."[Footnote 9] While NIH conducts its own research
and funds biomedical research at other institutions, it does not have a
manufacturing, processing, or packing facility.
NIH can, however, license inventions directly to pharmaceutical firms
without the necessity of working through a CRADA. For example, NIH
officials told us that of the 16 drugs and vaccines currently approved
by FDA that contain an NIH technology, only 3 involved a CRADA. To
attract private-sector partners, NIH publicizes the availability of
technologies that it seeks to license directly. NIH officials told us
that it has entered into CRADAs with private-sector partners in at
least two other cases that were similar to paclitaxel--naturally
occurring substances for which shortages had limited NIH's ability to
conduct research.
The Public Health Service (PHS) created a model CRADA because the
Federal Technology Transfer Act of 1986 provided few specifics about
the CRADA process. In general, the model CRADA sets forth the policies
of NIH and other PHS agencies on various aspects of cooperative
research and intellectual property licensing that derive from the
Federal Technology Transfer Act. The model CRADA has been updated
several times over the years. The 1991 CRADA between NIH and BMS
referred to a March 27, 1989, version of the model CRADA. The 1989
model CRADA stated that NIH would be willing to grant exclusive
licenses to its CRADA collaborators. The 1989 model CRADA also
contained a provision known as the "reasonable price clause." It stated
that PHS has "a concern 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] intellectual
property rights may require that this relationship be supported by
reasonable evidence." NIH dropped the reasonable pricing clause in
1995, and the current version of the model CRADA no longer has any
stipulation regarding the pricing of products that are developed under
the CRADA.
Under federal law and NIH policy, royalty income from license
agreements is shared between the inventors and the institute or center
within NIH in which the technology was developed. NIH uses the
royalties for multiple purposes that contribute to the technology
transfer program and the research of its laboratories. Specifically,
the royalty payments can be used to (1) reward employees of the
laboratory, (2) further scientific exchange among the laboratories of
the agency, (3) educate and train employees of the agency or
laboratory, (4) support other activities that increase the potential
for transfer of the technology of the laboratories of the agency, (5)
pay expenses incidental to the administration and licensing of
intellectual property by the agency or laboratory, and (6) support
scientific research and development consistent with the research and
development missions and objectives of the laboratory.
Federal laws also generally prohibit agencies from disclosing
information that concerns or relates to trade secrets, processes,
operations, statistical information, and related information.[Footnote
10] Therefore the federal technology transfer process that NIH engages
in with the private sector is not entirely transparent to the general
public, nor are the details of the negotiations and agreements that NIH
makes with industry partners publicly known. However, information may
be disclosed to those who have oversight authority over the agencies
that generate such information, such as the Congress and its oversight
bodies. In this way, information about the details of the federal
investment and return on investment in the commercialization of a drug
like Taxol can be examined for policymaking purposes.
The Development of Taxol:
NIH played a role in both basic and clinical research leading to the
development and use of Taxol. In 1958, NCI, a component of NIH,
initiated the Natural Products Program, which screened 35,000 plant
species for anticancer activity. Researchers at the Research Triangle
Institute found that an extract from the bark of the Pacific yew tree
had antitumor activity in 1963 and isolated the compound paclitaxel in
the bark of the Pacific yew in 1971. In 1979, scientists at Albert
Einstein College of Medicine discovered how paclitaxel works to prevent
cell division.
In 1983, NCI filed an investigational new drug application (IND) with
FDA to initiate clinical trials of paclitaxel. The IND was approved,
and phase 1 trials began. In 1985, NCI began funding phase 2 clinical
trials. By 1989, two studies of paclitaxel's effect on ovarian cancer
had demonstrated positive results.
In August 1989, NIH announced in a Federal Register notice that it was
seeking a pharmaceutical company that could develop paclitaxel to a
marketable status.[Footnote 11] The notice stated that paclitaxel could
not be patented. Instead, NIH offered a potential CRADA partner the
exclusive rights to the source data from its clinical trials. Although
20 commercial firms replied to the announcement, only 4 companies, BMS
among them, decided to apply for the CRADA opportunity.
NIH chose BMS as its CRADA partner, and the CRADA, "Clinical
Development of Taxol," took effect on January 23, 1991. (For details on
the CRADA partner selection process, see app. I.) Under the 1991 CRADA,
NCI and BMS agreed to collaborate on ongoing and future clinical
studies to obtain FDA approval for the marketing of paclitaxel, and NCI
would make available exclusively to BMS the data and the results of all
paclitaxel studies. As part of the CRADA, BMS was to supply NCI with
sufficient amounts of paclitaxel for research and clinical trials. NCI
could terminate the agreement if BMS "failed to exercise best efforts
in the commercialization of taxol [paclitaxel]." Following this first
Taxol-related CRADA, NIH entered into another CRADA with BMS in 1998
and has had other paclitaxel-related CRADAs with two other companies
(see app. II).
In 1991, a phase 2 trial of paclitaxel demonstrated its effectiveness
in treating breast cancer. In 1992, BMS filed and received approval for
trademark protection for the name Taxol. Also in 1992, BMS filed an NDA
for Taxol with FDA. On December 29, 1992, FDA approved Taxol for the
treatment of ovarian cancer, an indication for which it had been shown
to be effective in earlier studies. In January 1993, Taxol was
introduced into the marketplace by BMS for the treatment of ovarian
cancer.
FDA's approval of BMS's NDA to market Taxol for the treatment of
ovarian cancer triggered a provision in federal law granting BMS 5
years of marketing exclusivity for Taxol as a new chemical entity under
the Drug Price Competition and Patent Term Restoration Act of
1984.[Footnote 12] The statute provides marketing protection for
unpatentable pharmaceuticals, stating that during this 5-year period
"no application—may be submitted" to FDA that "refers" to the approved
drug, a provision that generally prohibits the introduction of a
generic drug during the exclusivity period.[Footnote 13] Prior to the
expiration of this period, in June 1997, BMS received two patents
regarding the administration of Taxol. In July 1997, a number of
generic drug manufacturers filed applications with FDA to market a
generic version of paclitaxel, and notified BMS of their intent. BMS
then filed suit in a federal district court alleging violations of its
most recent patents. Under federal law, this granted BMS an additional
30 months of marketing exclusivity while the issues were being resolved
in court.[Footnote 14] (See the chronology in app. III for more
information on the research and development of Taxol.):
NIH-BMS Partnership Provided Research Results Critical to Developing
Taxol's Commercial Uses:
The NIH-BMS collaboration provided BMS access to NIH research results
that were critical for BMS's quick commercialization of Taxol. It
provided other benefits for both parties and for the health of the
public as well. BMS supplied paclitaxel to NIH, enabling NCI to
dramatically expand its paclitaxel research. BMS later licensed three
NIH inventions that resulted from the CRADA; however, BMS ultimately
decided not to use any of the inventions in its applications to FDA for
approval to market Taxol for additional indications. An NIH grant led
to the important discovery of a method for the semisynthesis of
paclitaxel by FSU researchers.
NIH-BMS Collaboration Gave BMS Access to Critical Research Results:
The NIH-BMS collaboration gave BMS unlimited access to NIH research
results that were critical to BMS's ability to quickly receive FDA
approval to market Taxol. BMS submitted an NDA for paclitaxel to FDA on
July 21, 1992, 18 months after the 1991 CRADA took effect, and FDA
approved the drug for initial marketing on December 29, 1992.
Paclitaxel was one of the first oncological compounds tested by NCI,
and the public health community was highly interested in exploring its
potential. The collaboration between NIH and BMS was beneficial to BMS
because it gained access to the results of NIH's basic, preclinical,
and clinical research studies related to paclitaxel, including NIH
studies conducted both prior to and during the term of the CRADA. Prior
to the signing of the 1991 CRADA, and during the first 2 years of the
CRADA, NCI conducted most of the clinical trials associated with
paclitaxel. These studies were important for securing FDA's initial
approval to market Taxol for the treatment of advanced ovarian cancer.
Five of the six studies submitted to FDA by BMS in support of its
marketing application were either conducted or funded by NIH; one was
conducted by BMS.[Footnote 15] BMS subsequently applied to FDA to
market Taxol for other indications, including metastatic breast cancer
and AIDS-related Kaposi's sarcoma. BMS has received FDA approval to
market Taxol for eight indications as of May 12, 2003.
NIH-BMS Collaboration Allowed NIH to Expand Its Paclitaxel Research:
Under the terms of the 1991 CRADA, BMS supplied paclitaxel for NCI's
own studies as well as for NCI-funded trials at other institutions that
were initiated pursuant to the CRADA. Three months after the CRADA was
signed, BMS began shipments of paclitaxel to NIH. BMS reported that by
the end of 1991, 1.35 kilograms of bulk drug, or 45,000 vials, had been
delivered. In January 1992, shipments were increased from 5,000 vials
per month to 25,000 vials per month, and by April 50,000 vials per
month were being provided at no charge to NIH.
BMS's shipments of paclitaxel overcame shortages that had limited NCI
research. In 1989, before the CRADA, a cumulative total of fewer than
500 patients had been treated with paclitaxel. Because of BMS's efforts
to expand the collection and production of paclitaxel, NCI was able to
establish more than 40 treatment referral centers for therapy of
patients with refractory ovarian cancer (previously treated,
unresponsive ovarian cancer) and breast cancer. According to NCI,
28,882 patients were treated in its clinical trials over the course of
the CRADA, and the paclitaxel was supplied free of charge by BMS to NCI
for use in both the clinical trials and the treatment centers.
NIH Licensed Inventions from CRADA to BMS:
In 1996, NIH signed an agreement to license to BMS three patented
paclitaxel-related inventions that resulted from the 1991 CRADA. While
the compound itself was not patented, NIH patented three methods for
using paclitaxel in cancer treatment. These inventions were (1) use of
G-CSF (granulocyte colony-stimulating factor) to avoid the side effects
of using Taxol in higher doses, (2) a 96-hour infusion method to
overcome multidrug resistance, and (3) a method for using Taxol in
combination with another drug (cisplatin). BMS licensed these three
inventions because it thought they had potential to provide important
contributions to treatment. BMS considered adding these methods as new
indications to the Taxol product label, but ultimately decided not to
use any of the inventions in its applications to FDA for approval to
market the drug.
NIH Funding Supported Development of Semisynthesis Process for
Producing Paclitaxel:
The supply of natural paclitaxel was a continuing problem, since the
bark of the Pacific yew was scarce and it took about 10,000 to 30,000
pounds of dried bark to produce about 1 kilogram of the
compound.[Footnote 16] Under the terms of the 1991 CRADA, BMS agreed to
initiate an aggressive search for alternative sources of paclitaxel to
lessen or eliminate dependence on the Pacific yew. Prior to the signing
of the CRADA, however, NCI had funded research at FSU that led to the
development of a semisynthetic process for producing paclitaxel that
started the manufacturing process with materials from another type of
yew tree that was plentiful. NIH provided about
$2 million in funding to FSU for this research. Researchers at FSU
patented the semisynthesis process in 1989 and subsequently licensed
the patent to BMS in 1990. Under the terms of the license agreement,
BMS paid FSU substantial royalties for this patent in order to increase
the supply of Taxol.[Footnote 17] BMS officials told us that BMS did
not start using the FSU invention to manufacture Taxol until 1996.
NIH Invested Heavily in Taxol-Related Research, but Federal Financial
Benefits Have Been Limited:
Although NIH estimates that it has invested heavily in research related
to paclitaxel, its financial benefits from the collaboration with BMS
have not been great in comparison to BMS's revenue from the drug. NIH
estimates that it has invested $183 million in research related to
paclitaxel from 1977 through 1997, the end of the CRADA's term,
although not all of this was for research supporting the 1991 CRADA.
For one portion of its investment in Taxol, NIH estimates that its net
cost for conducting clinical trials that supported the development of
Taxol through the 1991 CRADA was
$80 million--NIH estimates that it spent $96 million on the studies,
and this expense was offset by $16 million in financial support from
BMS. We estimate that the paclitaxel BMS supplied NIH through the CRADA
had a value of $92 million. In addition, NIH spent an additional $301
million on paclitaxel-related research from 1998 through 2002, some of
which supported cancer research, bringing NIH's total investment in
paclitaxel-related research from 1977 to 2002 to $484 million. Overall,
BMS officials told us that the company spent $1 billion to develop
Taxol. Worldwide sales of Taxol have totaled over $9 billion through
2002. As a result of its license agreement with BMS, NIH has received
$35 million in royalty payments. The 1991 CRADA noted NIH's concern
that Taxol be fairly priced given the public investment in Taxol
research and the health needs of the public, but it did not require
that reasonable evidence be presented to show that this had occurred.
The federal government has been a major payer for Taxol, primarily
through Medicare. For example, Medicare payments for Taxol totaled $687
million from 1994 through 1999.
NIH's Financial Investment in Paclitaxel Increased Significantly in the
1990s:
Based on figures provided by NIH of its yearly expenditures for all
research involving paclitaxel, we estimate that NIH spent $183 million
on paclitaxel-related research from 1977 through 1997, the end of the
CRADA's term.[Footnote 18] NIH officials told us that these figures
reflect all NIH research using paclitaxel--even when it is given to
patients as the standard of care in studies of other remedies--not just
research investigating paclitaxel and Taxol. This figure includes
spending for research on the effectiveness of paclitaxel for conditions
other than cancer as well as research to develop analogues or
alternative compounds to paclitaxel to increase the number of available
drugs. We estimate NIH spent an additional $301 million on paclitaxel-
related research from 1998 through 2002, some of which supported cancer
research, bringing NIH's total investment in paclitaxel-related
research from 1977 to 2002 to $484 million. (See fig. 1.):
Figure 1: NIH's Funding for Paclitaxel-Related Research:
[See PDF for image]
Note: GAO analysis based on data provided by NIH.
[End of figure]
NIH estimates that its net expenditures to conduct clinical trials that
supported the 1991 CRADA were $80 million. NIH estimates that it spent
$96 million to conduct the clinical trials and BMS provided a
reimbursement of $16 million to offset the costs of the studies. NIH's
estimate includes costs incurred during the CRADA and costs associated
with clinical trials conducted prior to the CRADA, the results of which
helped BMS obtain FDA approval to market Taxol. Almost all ($15.6
million) of BMS's financial support was paid to offset clinical trial
costs during the last several years of the CRADA. In addition, we
estimate the paclitaxel BMS supplied to NIH under the CRADA had a value
of
$92 million (based on FSS prices).[Footnote 19]
NIH Has Received about $35 Million in Royalties on Taxol Sales:
NIH's financial benefits from the collaboration with BMS have not been
great in comparison with BMS's revenue from the drug. In 1996, when BMS
licensed from NIH three patents on methods for using Taxol in cancer
treatment, it negotiated its first and only license agreement with NIH
for Taxol, requiring BMS to pay royalties to NIH at a rate of 0.5
percent of its worldwide sales of Taxol. The NIH-BMS license agreement
resulted in about $35 million in royalties for NIH through
2002.[Footnote 20] NIH reports that 10 individual inventors received 22
percent of the total $35.3 million in royalty payments, or an
aggregated amount of $7.7 million, while NIH kept the remainder, $27.5
million.[Footnote 21]
Worldwide Taxol sales totaled over $9 billion from 1993 through 2002.
Sales exceeded $1 billion annually from 1998 through 2001 (see table
1). BMS officials told us that the company invested over $1 billion
toward the development of Taxol since signing the CRADA in January
1991.[Footnote 22] Costs included supporting clinical trials (including
its payments to NIH), preparing the NDA, and finding alternative
sources of the compound through yew cultivation and research on the
semisynthesis process and plant cell culture techniques. For example,
BMS officials told us that the company's clinical trials had enrolled
over 21,000 patients by 1997.
Table 1: BMS's Worldwide Taxol Sales, 1993-2002:
Year: 1993; Total sales in dollars: 162,000,000.
Year: 1994; Total sales in dollars: 344,000,000.
Year: 1995; Total sales in dollars: 580,000,000.
Year: 1996; Total sales in dollars: 813,000,000.
Year: 1997; Total sales in dollars: 941,000,000.
Year: 1998; Total sales in dollars: 1,204,000,000.
Year: 1999; Total sales in dollars: 1,453,000,000.
Year: 2000; Total sales in dollars: 1,561,000,000.
Year: 2001; Total sales in dollars: 1,112,000,000[A].
Year: 2002; Total sales in dollars: 857,000,000.
Year: Total; Total sales in dollars: 9,027,000,000.
Source: BMS.
[A] Taxol sales decreased after 2000, in part, because the first
generic version of paclitaxel was released to the marketplace in late
2000.
[End of table]
1991 CRADA Did Not Require Evidence That Taxol Would Be Reasonably
Priced:
At the time the 1991 CRADA was negotiated, NIH had a reasonable pricing
policy 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."[Footnote 23] NIH's
standard reasonable pricing clause was modified in the 1991 CRADA. The
CRADA noted NIH's concern that "there be a reasonable relationship
between the pricing of Taxol, the public investment in Taxol research
and development, and the health and safety needs of the public." BMS
agreed in the 1991 CRADA that these factors would be taken into account
in establishing a fair market price. However, the 1991 CRADA did not
require that reasonable evidence be presented to show that this would
occur.[Footnote 24] In its comments on a draft of this report, NIH
stated it gathered other evidence to reach its conclusion that the
price of Taxol was reasonable. NIH also entered into a CRADA with
another company to develop a product that could provide competition for
Taxol (see CRADA 148 in app. II). This alternative product, Taxotere
(docetaxel), received its first marketing approval from FDA in 1996.
Federal Government Is a Major Payer for Taxol:
The federal government, primarily through Medicare, has been a major
payer for Taxol. Medicare payments for Taxol totaled $687 million from
1994 through 1999, the last full year of marketing exclusivity for
Taxol. Medicare payments for Taxol were $202 million in 1999,
accounting for more than one-fifth of Taxol's total domestic sales.
Medicare's payments reflect, in part, the price it pays for Taxol.
Compared to other federal programs, Medicare pays relatively more for
Taxol than it does for other widely used cancer drugs. To assess the
pricing of Taxol, we reviewed the price Medicare pays for Taxol and
other cancer drugs compared to the prices paid by federal programs that
directly procure these drugs.[Footnote 25] We found that in the fourth
quarter of 2002, Medicare paid 6.6 times the price these other federal
programs paid for Taxol, while it paid an average of 3.0 times the
price these other federal programs paid for other widely used cancer
drugs.[Footnote 26]
Several Factors Affected NIH's Exercise of Its Broad Authority in
Technology Transfer Activities Related to the Development of Taxol:
Although NIH has broad authority under applicable statutes to negotiate
CRADAs and license agreements with outside partners, several factors
affected its exercise of that authority in the technology transfer
activities related to the development of Taxol. Such negotiations
involve a weighing of NIH's goals and priorities with those of a
potential partner, recognizing that tradeoffs may be necessary to reach
an agreement. In the case of Taxol, NIH's ability to exercise its
authority was limited because it did not have a patent on paclitaxel
and because its evaluation found that there was a shortage of
available, qualified alternative CRADA partners. With regard to the
license negotiations on the inventions resulting from the CRADA, the
setting of royalties was affected by the criteria that both NIH and BMS
used to help guide royalty negotiations. BMS officials told us that
NIH's inventions did not contribute to BMS's successful marketing of
Taxol.
NIH's Negotiating Position for the CRADA Was Potentially Affected by
Its Lack of a Patent on Paclitaxel and by the Shortage of Qualified
Alternative Partners:
One factor affecting NIH's CRADA negotiating position is its ability to
offer a potential partner exclusive marketing rights to an invention.
In its paclitaxel negotiations, NIH's position was affected by the fact
that it did not have a patent on paclitaxel.[Footnote 27] As NIH
acknowledged in the 1991 CRADA, because of this NIH was unable to grant
any potential partner an exclusive patent license to market paclitaxel.
NIH was able to offer potential partners access to the findings of the
research it conducted prior to the CRADA and to its research during the
term of the CRADA.
Another factor affecting the leverage that NIH has in negotiating a
CRADA is the availability of other qualified applicants. If NIH were to
be dissatisfied with the CRADA negotiations with an applicant, it
theoretically could turn to another applicant and begin new
negotiations, accepting the inherent delays. It also could seek
multiple CRADA partners, recognizing that multiple partners may grant
less favorable terms than one receiving an exclusive agreement. In the
case of paclitaxel, it was advantageous for NIH to enter into a CRADA
with an industry partner qualified to bring paclitaxel to the
marketplace and to provide an adequate supply of paclitaxel for its
work. NIH received four applications from potential CRADA partners.
Using nine criteria to rank applications, including that an applicant
have experience with both natural products and other drug development
and be able to supply adequate amounts of the drug as needed for future
clinical trials (see app. I), NIH reviewers scored the BMS application
substantially higher than all of the others. While some concerns were
raised about the BMS application, greater concerns were raised about
other applications. For example, the applicant that received the
second-highest score was cited as having no experience in the United
States involving natural products and no experience in developing
pharmaceutical agents in the United States and as providing incomplete
responses, especially on how it would make Taxol available and how much
it could supply annually.
License Negotiations under the CRADA Resulted in Royalty Payments to
NIH:
Applicable law does not restrict the royalty rate NIH can negotiate in
a license agreement, although NIH's model CRADA at the time of the
Taxol negotiations suggested that a ceiling be set at 5 to 8 percent.
This specification has since been removed, and the current model CRADA
sets no ceiling. By law, NIH is required to offer its CRADA partners
the option to choose an exclusive license for any inventions that arise
from the CRADA work.[Footnote 28] NIH is not prohibited from specifying
in the CRADA what the royalty rate will be, rather than waiting until a
subsequent license agreement is negotiated.
When NIH and BMS entered into the license agreement 5 years after the
1991 CRADA took effect, how the parties viewed the benefits of an
agreement likely affected the royalty rate negotiations. NIH officials
indicated that they generally take eight factors into account in
negotiating royalty rates. These include the stage of product
development, the type of product, the market value of the product, the
uniqueness of the materials, the scope of the patent coverage, the
market timing, NIH's contribution to the product, and the public health
benefit. An NIH OTT official reported that the ultimate determination
of a royalty rate is not the result of a neat formula but is based on a
balancing of these factors, with the public health benefit receiving
the highest consideration. In contrast, BMS officials told us that the
company considers three factors when negotiating royalty rates:
scientific risk, coverage, and exclusivity. In the case of Taxol, a BMS
official reported that the company determined it had high scientific
risk (i.e., it did not know if the inventions would be successful),
narrow coverage (i.e., the license was for very specific ways of
treating a tumor), and a lack of exclusivity (i.e., the treatment
regimens BMS licensed would not prevent other firms from marketing
generic paclitaxel after BMS's period of marketing exclusivity
expired), all making the inventions less valuable.
In general, NIH's leverage in negotiating royalty rates is affected by
the amount of competition for a license. In 2000, NIH's director of OTT
testified that the vast majority of NIH inventions require active
marketing and more often than not only one firm is generally interested
in licensing any particular type of technology.[Footnote 29] In fiscal
year 2000, there were 45 requests for exclusive licenses, and only 2
technologies had two applications for licenses each. For nonexclusive
license requests, there were 253 requests, and only 31 had more than
one application. NIH's director of OTT reported that, at that time, OTT
had approximately 2,000 technologies available for licensing, 30
percent of which had been available for more than 5 years. In the case
of Taxol, it is not clear whether other companies would have been
interested in the inventions developed out of the CRADA, as BMS had
exclusive rights to market paclitaxel at that time.
Concluding Observations:
From the perspectives of NIH and BMS, the 1991 CRADA is an example of a
successful collaboration between the public and private sectors in
pharmaceutical technology transfer. Early studies supported by NIH on
the clinical effectiveness of Taxol and made available to BMS under the
CRADA were critical to BMS's success in rapidly commercializing its
brand-name drug Taxol for the treatment of cancer. The additional
supplies of the scarce paclitaxel provided by BMS to NIH under the
CRADA were critical for the expansion of NIH's research.
NIH's goals in the technology transfer process emphasize public health
benefits over financial considerations. In the case of Taxol, the
benefit to public health was clearly demonstrated, as there were few
treatments for women with ovarian or breast cancer when Taxol came on
the market. However the financial return to NIH was more limited. NIH
made a substantial investment in the development of Taxol. In return,
NIH received royalty payments of about $35 million from its license
agreement with BMS, and received paclitaxel and financial support from
BMS for the CRADA research. We noted that the federal government has
spent over half a billion dollars in payments to health care providers
for Taxol under the Medicare program. In light of the significant
federal investment, questions remain regarding the extent to which NIH
used its broad authority in its negotiations with BMS on the royalty
payments and the price of the drug to obtain the best value for the
government.
Agency and Bristol-Myers Squibb Company Comments and Our Evaluation:
We provided a draft of this report to NIH and BMS for their review. In
its comments, NIH provided us with additional information about its
expenditures related to the 1991 NIH-BMS CRADA and BMS's contributions
to NIH research under the CRADA, and also presented the reasons that it
did not patent paclitaxel. NIH acknowledged that the 1991 CRADA did not
require that evidence be presented to assure that Taxol was reasonably
priced; however, NIH states that its analysis of other information led
it to conclude that Taxol was fairly priced. In response, we have
incorporated the new information from NIH into the report as
appropriate. However, we were not able to evaluate the basis for NIH's
judgment that Taxol was fairly priced. NIH's comments are included as
appendix IV. NIH also provided technical comments, which we have
incorporated as appropriate.
In its comments, BMS expressed concern that our estimates of NIH's
expenditures for the development of Taxol gave an exaggerated view of
NIH's spending. We have revised our presentation of NIH's spending
based on additional information contained in NIH's comments. BMS also
expressed two concerns about our analysis of the price of Taxol to
Medicare relative to other cancer drugs. First, BMS suggested that our
analysis may include payments to physicians for administering the drugs
in addition to the procurement price of the drugs. However, our
analysis considered only the prices for drug procurement and did not
include payments for physician services. Second, BMS suggested that our
findings may change if our analysis excluded generic drugs and was
restricted to brand name drugs. However, only 2 of the 12 comparison
drugs in our analysis are generic drugs and our findings do not change
if they are excluded. We found that, while Medicare generally pays more
for cancer drugs than other federal programs that can directly procure
pharmaceuticals, this price premium for Taxol is greater than average.
BMS also made technical comments, which we incorporated as appropriate.
As we agreed with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report until
30 days from the date of the report. At that time, we will send it to
the Secretary of Health and Human Services, the Director of NIH, and
others who are interested. We will make copies available to others upon
request. In addition, the report will be available at no charge on
GAO's Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please call
me at (202) 512-7119. Another contact and key contributors are listed
in appendix V.
Sincerely yours,
Marcia Crosse
Acting Director, Health Care--Public Health and Science Issues:
Signed by Marcia Crosse:
[End of section]
Appendix I: Selection of "Clinical Development of Taxol" CRADA Partner:
On August 1, 1989, NIH published a notice in the Federal Register
seeking a pharmaceutical company that could effectively pursue the
clinical development of paclitaxel for the treatment of cancer.
Included in the Federal Register announcement were nine criteria for
the selection of the CRADA partner:
* Experience in the development of natural products for clinical use.
* Experience in preclinical and clinical drug development.
* Experience in and ability to produce, package, market, and distribute
pharmaceutical products in the United States and to provide the product
at a reasonable price, and experience in doing so.
* Experience in the monitoring, evaluation, and interpretation of the
data from investigational agent clinical studies under an
investigational new drug application.
* Willingness to cooperate with the Public Health Service in the
collection, evaluation, publication, and maintaining of data from
clinical trials of investigational agents.
* A willingness to cost-share in the development of paclitaxel,
including the acquisition of raw material and isolation or synthesis of
paclitaxel in adequate amounts as needed for future clinical trials and
marketing.
* Establishment of an aggressive development plan, including
appropriate milestones and deadlines for preclinical and clinical
development.
* An agreement to be bound by the HHS rules involving human and animal
subjects.
* Provision for equitable distribution of patent rights to any
inventions.
NIH's Taxol CRADA Review Committee met on October 10, 1989, to review
the applications of the four potential CRADA partners. The committee
scored BMS's application substantially higher than all of the others,
with none of the other applications receiving a higher score than BMS
on any of the individual criteria. Some of the strengths of the BMS
application that were discussed were BMS's extensive experience with
natural products, its impressive record in the area of production of
anticancer agents and substantial experience in preclinical drug
development, and its bearing of financial responsibility for collection
of the compound and preclinical toxicology studies. Weaknesses
discussed were pricing and the estimates of available paclitaxel. The
applicant receiving the second-highest score was cited as having no
experience in the United States for natural products and no experience
in developing drugs in the United States.
[End of section]
Appendix II: Catalog of CRADAs and License Agreements Related to Taxol:
NIH has had four CRADAs and one CRADA amendment related to paclitaxel
(see table 2). Two of the CRADAs and the CRADA amendment were with BMS
and concerned development of the drug Taxol. One CRADA was with Rhône-
Poulenc Rorer (now Aventis) and involved research on Taxotere, a part
of the taxane class of chemotherapy drugs, whose original source is the
yew tree. It is also a treatment that can help destroy cancer cells in
the body after previous chemotherapy. An additional CRADA, which is
ongoing, is with Angiotech and the Johns Hopkins University and
involves the use of paclitaxel to coat stents used in angioplasty.
Table 2: CRADAs Related to Taxol:
CRADA number: 64; Title: Clinical Development of Taxol; Partners: NCI
and BMS; Active dates: 1/23/91 to 12/31/97.
CRADA number: 97 (amendment
to 64); Title: Clinical Development of Taxol: Studies on Mechanisms of
Action and Resistance, Identification of Analogs Active in Resistant
Cell Lines; Partners: NCI and BMS; Active dates: 7/17/95 to 12/31/97.
CRADA number: 686; Title: Taxol: Studies on the Mechanisms of Action
and Resistance; Partners: NCI and BMS; Active dates: 6/9/98 to 6/9/01.
CRADA number: 148; Title: CRADA for the Clinical Development of
Taxotere; Partners: NCI and Rhône-Poulenc Rorer; Active dates: 5/14/92
to 3/1/00.
CRADA number: 363; Title: Use of Paclitaxel and Microtubule-Stabilizing
Agents for the Prevention of Restenosis; Partners: NIH, Angiotech, and
the Johns Hopkins University; Active dates: Currently active.
Source: NIH.
[End of table]
Although paclitaxel itself has not been patented, methods of
administration of the drug have been patented. There are a few patents
pertaining to paclitaxel (see table 3). The government has an interest
in three of these patents: 5496804, 5496846, and 6150398. Patent
5496804 is for a method for treating paclitaxel side effects with G-CSF
(granulocyte colony-stimulating factor); patent 5496846 is a method for
using paclitaxel in a 96-hour infusion for breast cancer; and patent
6150398 is for a method of treating cancer by administration of
paclitaxel and a DNA cross-linking antineoplastic agent (cisplatin).
Patents 5641803 and 5670537 are held by BMS solely. One is a method for
administering Taxol over 3 hours, and the other is for a method of
effecting tumor regression with a low-dose, short-infusion Taxol
regimen.
Table 3: Patents Related to Taxol:
Patent number: 5496804; Title: Method for Treating Taxol Side Effects
with G-CSF; Assignee: Department of Health and Human Services; Date
approved: 3/5/1996.
Patent number: 5496846; Title: Taxol Treatment of Breast Cancer;
Assignee: Department of Health and Human Services; Date approved: 3/5/
1996.
Patent number: 5641803; Title: Methods for Administration of Taxol;
Assignee: Bristol-Myers Squibb Co.; Date approved: 6/24/1997.
Patent number: 5670537; Title: Method for Effecting Tumor Regression
with a Low-Dose, Short-Infusion Taxol Regimen; Assignee: Bristol-Myers
Squibb Co.; Date approved: 9/23/1997.
Patent number: 6150398; Title: Methods for the Treatment of Cancer;
Assignee: Department of Health and Human Services; Date approved: 11/
21/2000.
Source: U.S. Patent and Trademark Office.
[End of table]
NIH has one exclusive patent license agreement with BMS that resulted
from CRADA 64, "Clinical Development of Taxol." This license agreement
covers three patents: 5496804, 5496846, and 6150398.
In addition, BMS and FSU established a major license agreement
concerning the semisynthetic production of Taxol. Other NIH CRADAs
involving the other industry partners (i.e., Rhône-Poulenc Rorer,
Angiotech, and the Johns Hopkins University) did not result in any
patented inventions or license agreements.
[End of section]
Appendix III: Chronology of the Research and Development of Taxol
(Paclitaxel):
1958:
* The National Cancer Institute (NCI) initiates the Natural Products
Program to screen 35,000 plant species for anticancer activity.
1963:
* Researchers at Research Triangle Institute in North Carolina find
that an extract from the bark of the Pacific yew tree has antitumor
activity.
1971:
* Researchers at Research Triangle Institute identify compound 17--
paclitaxel--the active ingredient in the Pacific yew tree.
1979:
* Researchers at Albert Einstein College of Medicine discover how
paclitaxel works to prevent cell division, by means of a mechanism
called tubulin stabilization.
1980:
* Stevenson-Wydler Technology Innovation Act and Bayh-Dole Act enacted.
1983:
* NCI files an investigational new drug application (IND) to initiate
clinical trials of paclitaxel. IND is approved, and phase 1 clinical
trials begin.
1985:
* NCI begins phase 2 clinical trials.
1986:
* Federal Technology Transfer Act enacted.
1987:
* Hauser Chemical becomes contractor to NIH, collecting yew tree bark
and manufacturing paclitaxel.
1989:
* Researchers at Florida State University (FSU), funded by NIH, patent
a process for the semisynthesis of Taxol.
* NCI publishes a Federal Register announcement petitioning
pharmaceutical companies to compete for the right to develop
paclitaxel. Four companies, including Bristol-Myers Squibb (BMS),
apply.
1990:
* FSU and BMS sign a license agreement for BMS's use of the
semisynthesis process.
1991:
* NCI signs CRADA with BMS for the clinical development of paclitaxel.
1992:
* U.S. Patent and Trademark Office approves BMS's application to
trademark the name Taxol.
* BMS files a new drug application (NDA) with FDA for use of Taxol to
treat ovarian cancer.
* BMS obtains FDA approval in December for treatment of patients with
metastatic carcinoma of the ovary after failure of first-line or
subsequent therapy.
* Pacific Yew Act enacted (Pub. L. No. 102-335, 106 Stat. 859).
1993:
* BMS introduces Taxol into the marketplace for treatment of ovarian
cancer.
* BMS files supplemental NDAs with the FDA, one for further defining
the optimal dose and schedule of the administration of Taxol, another
for use of paclitaxel as a secondary therapy for breast cancer.
1994:
* BMS obtains FDA approval in April for treatment of breast cancer
after failure of combination chemotherapy for metastatic disease or
relapse within 6 months of adjuvant chemotherapy. Prior therapy should
have included an anthracycline unless clinically contraindicated.
* BMS obtains FDA approval in June for new dosing regimen for patients
who have failed initial or subsequent chemotherapy for metastatic
carcinoma of the ovary.
* FDA approves supplemental NDA for semisynthetic production of Taxol
by using the process developed by FSU.
1996:
* NCI and BMS CRADA extended through December 1997.
* NIH is awarded patents for Taxol Treatment of Breast Cancer and
Method for Treating Taxol Side Effects with G-CSF.
* NIH and BMS sign license agreement, whereby NIH provides BMS with
exclusive rights to three NCI inventions involving Taxol. BMS is
required to provide NIH with royalty payments and research support, and
meet benchmarks for the clinical development of Taxol.
* NIH begins to receive royalty payments from BMS.
1997:
* BMS obtains FDA approval in August for second-line therapy for AIDS-
related Kaposi's sarcoma.
* Other drug companies begin developing generic versions of paclitaxel
and file NDAs and abbreviated new drug applications with FDA.
1998:
* BMS obtains FDA approval in April for first-line therapy for the
treatment of advanced carcinoma of the ovary in combination with
cisplatin.
* BMS obtains FDA approval in June for use of Taxol injection, in
combination with cisplatin, for the first-line treatment of non-small-
cell lung cancer in patients who are not candidates for potentially
curative surgery and/or radiation therapy.
1999:
* BMS obtains FDA approval in October for adjuvant treatment of node-
positive breast cancer administered sequentially to standard
doxorubicin-containing combination chemotherapy.
2000:
* First generic version of paclitaxel approved in September.
* Generic versions of paclitaxel enter the marketplace.
2002:
* BMS obtains FDA approval in June for new dosing regimen for the
first-line treatment of advanced ovarian cancer: every 3 weeks at a
dose of 175 milligrams per square meter of body surface followed by
cisplatin at a dose of 75 mg/m2.
[End of section]
Appendix IV: Comments from the National Institutes of Health:
DEPARTMENT OF HEALTH & HUMAN SERVICES
Public Health service:
National Institutes of Health
Bethesda, Maryland 20892:
www.nih.gov:
MAY 30 2003:
Ms. Marcia Crosse:
Acting Director, Health Care - Public Health and Science Issues:
U.S. General Accounting Office 441 G St., N.W.
Washington, D.C. 20548:
Dear Ms. Crosse:
We are pleased to have the opportunity to review and comment on the
draft General Accounting Office (GAO) report entitled Technology
Transfer. NIH-Private Sector Partnership in the Development of Taxol,
GAO-03-839. Enclosed is the National Institute of Health response. It
includes both general and technical comments. We believe that
incorporation of these comments into the final GAO report will clarify
various issues and enhance the overall accuracy of the report.
Sincerely,
Elias A. Zerhouni, M.D.
Director
Signed for Elias A. Zerhouni, M.D.:
Enclosure:
Comments of the National Institutes of Health (NIH) on the U.S. General
Accounting Office (GAO) Draft Report "Technology Transfer: NIH-Private
Sector Partnership In the Development of Taxol," GAO-03-839, May 2003:
The NIH is pleased to provide comments on this draft GAO report. The
development of the cancer-fighting drug Taxol is an example of how the
determined efforts of scientists from not-for-profit, academic,
government, and for-profit organizations came together through a
variety of public-private partnerships spanning over 30 years to
develop a life-saving therapy that has become a standard of care for
ovarian, breast, lung, and other cancers.
In 1989, NCI was faced with a dilemma of having evidence of clinical
activity with a promising new drug, but was severely hampered by the
limited supply. Because it was extremely difficult to manufacture, the
NCI could only obtain enough of the drug to treat a few hundred cancer
patients in clinical trials. In order to expand the phase 2 studies, to
develop drug combinations, to initiate phase 3 trials, to make the drug
available on a compassionate basis, and to receive FDA approval, NCI
advertised in the Federal Register for a pharmaceutical partner to help
meet these goals.
As NCI's partner under a subsequent CRADA, Bristol Meyers Squibb (BMS)
rapidly and substantially increased the amount of Taxol available for
research and commercialization, cooperated in executing a broad
research agenda exploring Taxol's usefulness in many patient
populations, and provided expertise necessary to rapidly achieve FDA
approval. Taxol, and more recently the generic paclitaxel, are now
widely used. According to information from BMS, more than one million
patients have been treated with Taxol.
Background:
Examining the financial aspects of the development of Taxol in
isolation from the NC's mission tells only part of the story. To
understand fully the development of Taxol, one must understand the role
of NIH in leading biomedical research. In July 2001, NIH submitted to
Congress a document entitled °A Plan to Ensure Taxpayers' Interests Are
Protected" that described the nature of research and the arduous road
that many biomedical technologies (inventions) follow to reach the
public. A copy of that document is attached, but it can also be found
at http://www.nih.gov/news/070101wyden.htm. The report explains how
NIH stewardship of federal resources that support biomedical research
has protected the taxpayers' interests.
The NIH mission is to sponsor and conduct medical research and advance
public health. In furtherance of that mission, the NIH employs
mechanisms and authorities provided under the Bayh-Dole Act, the
Stevenson-Wydler Act, and subsequent legislation to assist in combining
the scientific expertise of the NIH and its funding recipients with the
scientific and business expertise of private-:
sector companies. These laws were enacted to encourage government-owned
and government-funded research laboratories to pursue
commercialization of the results of their research.
The Stevenson-Wydler Technology Innovation Act of 1980 calls for the
NIH and other federal agencies to execute license agreements with
commercial entities to promote the development of technologies
discovered by government scientists. The Act also provides a financial
return to the public in the form of royalty payments and related fees
paid to the U.S. Treasury. In 1986, the Act was amended by the Federal
Technology Transfer Act of 1986 (FTTA), which authorizes federal
agencies to enter into cooperative research and development agreements
(CRADA) with non-federal partners to conduct research and to receive
royalty payments directly.
The Patent and Trademark Amendments of 1980 (P.L. 96-517), known as the
Bayh-Dole Act, aimed to address barriers to development and promote the
synergy necessary to commercialize federally funded inventions. The Act
was enacted to allow federal agencies to secure patent rights and
convey the rights to commercial entities through licensing, thereby
promoting the transfer of federally-funded technologies to the public
and enhancing economic development. A key provision of the Act provides
grantees and contractors, both for-profit and not-for-profit, the
authority to retain title to government-funded inventions and makes
them responsible for using the patent system to promote the use,
commercialization, and public availability of inventions.
General Comments:
A. Reasonable Pricing:
The draft report makes several references to the wording of the
reasonable pricing clause in the original BMS CRADA (#64), noting that
it did not require that reasonable evidence be presented. We believe
that without further elaboration, this provides the false impression
that evidence was not presented or considered. The following paragraphs
clarify this issue and enhance the accuracy of the report. We suggest
that GAO incorporate them in the report:
As a part of the CRADA, BMS acknowledged the National Cancer
Institute's (NCI) concern that there be a reasonable relationship
between the pricing of Taxol, the public investment in Taxol research
and development, and the health and safety needs of the public. NCI
acknowledged BMS' concern that because Taxol was not patentable, market
exclusivity for a period necessary to recover its investment in Taxol
research and development might not be available. In addition, NCI
acknowledged that due to the limited supply of natural resources for
production of Taxol and the complexity of the manufacturing process,
Taxol would be expensive to develop and manufacture. Both parties
agreed to take these factors into consideration in establishing a fair
market price for Taxol. Although the CRADA did not
require that reasonable evidence be presented, NCI collected this
evidence and believed that the pricing strategy of BMS for Taxol met
the requirements of the CRADA.
NCI considered the possibility of conducting a detailed cost-base
analysis of the proposed price, but rejected this alternative. Instead,
NCI measured the fairness and reasonableness of the proposed price by
comparison with similar products and concluded that the proposed price
met the reasonable pricing requirements under the CRADA because: (a)
the price of Taxol fell below the median for recently approved oncology
drugs, even though Taxol was substantially more expensive to produce
due to its complex structure; (b) BMS established an indigent access
program to make it available free of charge to patients who could not
afford it; (c) medical and government institutions received the drugs
at a significant discount; (d) patients receiving the drug under a
compassionate-release program would continue to receive the drug free
of charge following FDA approval; and (e) BMS would continue to provide
Taxol free of charge to NCI-sponsored trials initiated under the CRADA.
An additional factor in NCI's accepting the proposed price of Taxol as
being reasonable was that the price of Taxol marketed in the United
States was lower than that in Canada. This was considered significant
because attention had been drawn to prices of drugs in the United
States versus overseas. (See testimony of Bruce Chabner, Director,
Division of Cancer Treatment, National Cancer Institute, at the Hearing
"Pricing of Drugs Co-developed by Federal Laboratories and Private
Companies," January 25, 1993, Serial No. 103-2.):
B. Intellectual Property Rights:
On the opening page and throughout the report, GAO states that °NIH did
not have any intellectual property rights to offer because the drug is
a naturally occurring compound that cannot be patented." That statement
is incorrect.
In general, naturally occurring compounds that are isolated and have
utility would be patentable subject matter. However, in the case of
paclitaxel, the previous isolation of paclitaxel, publication of the
structure, and publication of antitumor activity created a bar to
obtaining patent rights. Paclitaxel was in the public domain.
For a background document on the discovery, we suggest that GAO view an
article entitled "Anticancer Research Honored at RTI" in the May 19,
2003, issue of Chemical & Engineering News (see http://www.cen-
online.org). The article describes an event last month at the Research
Triangle Institute's (RTI) Natural Products Laboratory in Research
Triangle Park, NC. The event was the designation by the American
Chemical Society of the laboratory as a National Historic Chemical
Landmark due to the discovery there of the "revolutionary anticancer
drugs camptothecin and Taxol (paclitaxel) by Mansukh C. Wani and the
late Monroe E. Wall." It also chronicles the development of Taxol, a
name given by Wall, and later trademarked by BMS.
We recommend that GAO revise its statements on the opening page and:
throughout the report to reflect the actual situation --that the NIH
had no intellectual property rights to offer because the chemical was
known, its activity had been published, and it could not meet the
criteria for a patent.
C. Valuation of NIH's and BMS' Respective Contributions to Paclitaxel
Research:
On the summary page and throughout the draft report there are various
statements of the estimated NIH investment in research related to Taxol
since 1977. While there are some clarifying statements located in the
middle of the report, we believe the $484 million figure cited as the
NIH investment needs to be clarified, both in the summary and
throughout the report because it cites all funding for any research
related to Taxol, paclitaxel, taxotere etc., whether conducted by NIH
scientists or recipients of NIH funds. We request that GAO recalculate
the value and expense figures by incorporating information from the
following two paragraphs, and limit the comparison to the CRADA
activity.
The amount of funds used to support NIH activities associated with the
BMS CRADA has been estimated at $96 million. This was the estimate
provided by NCI in response to an inquiry from the Congressional
Research Service in February 1999. The figure actually represents costs
incurred during the CRADA and costs associated with clinical trials
conducted prior to the CRADA but whose information was provided to BMS
as a part of the CRADA and used to support the BMS application to the
FDA. We believe that this figure appropriately reflects the NIH's
involvement with BMS in the development of the FDA-approved drug Taxol.
Additionally, the GAO report does not address the financial
contributions of BMS to the CRADA. During the CRADA period, BMS
provided $16 million to the NIH to support the costs of the clinical
trials conducted under the CRADA. Under the terms of the agreement, BMS
also provided quantities of Taxol (paclitaxel) at no cost to the NIH.
The ability of BMS to provide large quantities of material:
provided the needed boost to accelerate research and move toward the
actual approval of a new cancer treatment drug. The NCI estimates that
the value of the material provided by BMS, based on average wholesale
prices at the time, had a value of $151 million. Adding this to the
amount NIH received through royalties, the total value to the NIH would
exceed $200 million.
D. Disclosure of Commercial Information:
Finally, as GAO is aware, federal CRADAs often contain trade secrets,
commercial confidential information, or other privileged information
that the Trade Secrets Act (18 U.S.C. 1905), the Federal Technology
Transfer Act (15 U.S.C. 3710a(c)(7)(a)), and the Freedom of Information
Act (5 U.S.C. 552(b)(4)) protect from public disclosure. Payments made
to the NIH pursuant to CRADAs and licenses, as well as revenues from
royalties arising from NIH inventions for intramural research
(including CRADAs), cannot be disclosed without certain:
consents (e.g., from the CRADA or the license partner). For the
purposes of this report, however, the CRADA partner, BMS, voluntarily
agreed to permit disclosure of its commercial information so that the
study could be completed and its results made publicly available. The
NIH is grateful for BMS' willingness to release its commercial
information.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Martin T. Gahart, (202) 512-3596:
Acknowledgments:
Other key contributors to this report are Helen Desaulniers, Anne
Dievler, Julian Klazkin, Carolyn Feis Korman, Carolina Morgan, and
Roseanne Price.
FOOTNOTES
[1] Paclitaxel is the name of the generic equivalent of Taxol. The drug
was known as taxol from its discovery in the 1960s until 1992, when BMS
trademarked the name Taxol. At that time, BMS objected to researchers
using taxol as the generic name, and so it was changed to paclitaxel.
In this report, we use the name Taxol to refer to the brand-name drug
sold by BMS, and we use paclitaxel to refer to the drug in other
contexts.
[2] BMS voluntarily agreed to the disclosure of its commercial
information in the CRADAs and the license agreement so that our study
could be completed and the results of our review could be made publicly
available.
[3] Throughout the report, dollars are reported as actual dollars, not
adjusted for inflation.
[4] Pub. L. No. 96-480, 94 Stat 2311.
[5] Pub. L. No. 96-517, § 6(a), 94 Stat. 3019.
[6] Pub. L. No. 99-502, 100 Stat. 1785.
[7] OTT also manages the patent and licensing activities for FDA and is
responsible for the central development and implementation of
technology transfer policies for NIH, FDA, the Centers for Disease
Control and Prevention, and the Agency for Healthcare Research and
Quality.
[8] Phase 1 studies of an investigational new drug for cancer are
generally conducted in a small group of cancer patients to test for
safety; phase 2 studies are generally conducted to test for safety and
effectiveness in several hundred patients who have the condition under
investigation; and phase 3 studies, which are performed after
preliminary evidence suggesting effectiveness has been obtained in
phase 2 trials, may include several hundred to several thousand people.
[9] 21 U.S.C. § 355(b)(1)(D) (2000).
[10] See 15 U.S.C. § 3710a(c)(7); 18 U.S.C. § 1905 (2000). See Public
Citizen v. NIH, 209 F. Supp. 2d 37 (D.D.C. 2002), see also, 5 U.S.C. §
552(b)(4) (2000), which exempts trade secrets, and commercial and
financial information that is privileged or confidential, from public
disclosure.
[11] 54 Fed. Reg. 31733 (1989).
[12] Pub. L. No. 98-417, 98 Stat. 1585.
[13] 21 U.S.C. § 355(c)(3)(D)(ii) (2000). See H.R.Rep. No. 98-857, pt.
1, at 29 (1984), reprinted in 1984 U.S.C.C.A.N. 2647, 2647-48, 2662.
[14] 21 U.S.C. § 355(j)(5)(B)(iii) (2000). In theory, a company could
choose to waive its right to marketing exclusivity. In the case of
Taxol, NIH and BMS could have agreed to such a waiver during CRADA or
licensing negotiations, but we are not aware of such discussions.
[15] BMS officials told us that the number of patients in the five NCI
trials and the one BMS trial were very similar (186 and 159 patients,
respectively).
[16] In response to the demand for Pacific yew bark, the Pacific Yew
Act was enacted in 1992. The purposes of the Pacific Yew Act are to (1)
provide for the efficient collection and utilization of those parts of
the Pacific yew that can be used in the manufacture of paclitaxel for
the treatment of cancer, (2) provide for the sale of Pacific yew for
the commercial production and sale of paclitaxel at a reasonable cost
to cancer patients,
(3) ensure the long-term conservation of the Pacific yew, and (4)
prevent the wasting of Pacific yew resources while successful and
affordable alternative methods of manufacturing paclitaxel are being
developed. Pub. L. No. 102-335 § 2(b), 106 Stat. 859-860.
[17] BMS officials declined to disclose the amount of the Taxol-related
royalties BMS paid to FSU. However, we estimate that FSU received a
royalty rate of approximately 4.2 percent of BMS's total worldwide
sales of Taxol. For example, FSU's Office of Technology Transfer
website reported that FSU received $67 million in royalties in 2000 and
an FSU official told us that 98 percent of those royalties were from
the license with BMS (www.techtransfer.fsu.edu/tts.html, downloaded
June 3, 2003). This represents about 4.2 percent of Taxol's total
worldwide sales in calendar year 2000.
[18] NIH officials told us that NIH could not estimate its paclitaxel-
related expenditures for years earlier than 1977.
[19] FSS prices represent the prices at which some federal programs can
purchase Taxol. NIH estimated that the paclitaxel supplied by BMS had a
value of $151 million based on average wholesale prices, which are
generally higher than FSS prices.
[20] From 1996 through 2002, NIH's total royalty income from all its
licensed inventions was $296 million.
[21] NIH distributes royalty income in accordance with federal law and
NIH policy. The inventors' share of royalties varied from year to year,
based on BMS's sales per year. The income remaining after the
inventors' share went to NCI.
[22] A recent analysis estimated that the average out-of-pocket cost of
developing a new drug was $543 million (in 2000 dollars). See J.A.
DiMasi, R.W. Hansen, and H.G. Grabowski, "The Price of Innovation: New
Estimates of Drug Development Costs," Journal of Health Economics, vol.
22 (2003).
[23] Shortly after introducing the policy of "reasonable pricing,"
industry objected, considering it a form of price control, and many
companies withdrew from further interaction with NIH. According to NIH,
this ultimately created a barrier to expanded research relationships.
The policy was revoked by NIH in 1995.
[24] HHS-OIG, Technology Transfer and the Public Interest: Cooperative
Research and Development Agreements at NIH, OEI-01-92-01100
(Washington, D.C.: November 1993).
[25] Federal agencies that directly procure pharmaceuticals have access
to the FSS. Medicare does not purchase cancer drugs directly, but
instead pays providers for cancer drugs that they have purchased. FSS
prices are negotiated and are based on the actual best prices
manufacturers charge some of their customers. Manufacturers must also
sell brand-name drugs listed on the FSS to four federal drug
purchasers--the Department of Veterans Affairs, the Department of
Defense, the Public Health Service, and the Coast Guard--at a price at
least 24 percent lower than the nonfederal average manufacturer price,
a ceiling price that is lower than the FSS price for many drugs.
Medicare payments are determined by the average wholesale price (AWP),
a number reported by manufacturers. AWP often considerably exceeds the
price a manufacturer actually receives for a drug. See U.S. General
Accounting Office, Medicare: Payments for Covered Outpatient Drugs
Exceed Providers' Costs, GAO-01-1118 (Washington, D.C.: Sept. 21,
2001).
[26] For this analysis, we examined the FSS and Medicare prices for
Taxol and 12 other drugs for the treatment of cancer that were
identified as among the top 35 drugs for Medicare Part B spending in
2001 and 2002 by the Centers for Medicare and Medicaid Services. These
prices reflect solely drug procurement prices; they do not include any
payments for administering the drugs.
[27] In its comments on a draft of this report, NIH stated that it
could not patent paclitaxel because the relevant information about the
compound was already in the public domain.
[28] 15 U.S.C. § 3710a(b)(1) (2000).
[29] Public Citizen v. NIH, at 54.
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