March 20, 2023

Dear Senators:  

On behalf of over 300,000 supporters and activists across the nation, the Center for Individual Freedom (CFIF) writes in advance of the Senate Committee on Health, Education, Labor and Pensions (HELP) hearing on March 22, 2023, to express our strongest opposition to any proposal to introduce drug price controls, drug importation to the United States from foreign countries, so-called “march-in” actions or other actions to erode drug patent protections.  

Drug Price Controls

Simple laws of economics dictate the futility and danger of price controls.  Regardless of the good or service targeted, regardless of era and regardless of where they’re attempted, price controls simply do not work.  With regard to drug price controls specifically, the unavoidable consequence of price controls in nations that impose them is dramatically reduced access to new lifesaving and life-improving treatments.  For example, out of 270 new medicines introduced in the U.S. since 2011, Canadians can only access 52% of them, Germans just 67%, the British 64%, the French 53%, the Japanese 48% and Australians just 41%.  Price controls would immediately threaten that superior U.S. pharmaceutical access.  

It’s also important to highlight that pharmaceutical price control efforts contradict the preferences of U.S. consumers and voters regarding the general role of government in health care.  A national survey conducted by Public Opinion Strategies in partnership with CFIF measured the health care priorities of voters nationally and in 12 key swing states.  It found that “voters, across party, overwhelmingly prefer the role of the federal government to be that of providing oversight and incentives to health care providers, prescription drug companies and health insurers to encourage competition to lower prices in the health care system (70%) rather than having the federal government set prices and determine what services and medicines are covered by private health plans (30%).”  

That reflects an understanding of the realities of the pharmaceutical marketplace.  Namely, very few potential new drugs ever enter the consumer market, due to astronomical research and development costs, lengthy government safety reviews, laboratory tests of effectiveness, potential product liability lawsuits by plaintiffs’ attorneys, patent protection limitations and other bureaucratic demands.  Artificial price controls would make it even more difficult to recover the costs of new medicines and R & D, so fewer potential new drugs would be pursued due to cost ineffectiveness.  

Even the United Nations World Health Organization has recognized how price controls prevent new drugs from coming to market, in turn harming consumers:  

Every time one country demands a lower price, it leads to a lower price reference used by other countries.  Such price controls, combined with the threat of market lockout or intellectual property infringement, prevent drug companies from charging market rates for their products, while delaying the availability of new cures to patients living in countries implementing those policies.  

Astonishingly, America accounts for nearly two-thirds of all new pharmaceuticals introduced worldwide, precisely because of our more market-oriented pharmaceutical industry.  Imposing price control mechanisms would jeopardize that leadership position and discourage nearly $1 trillion in U.S. pharmaceutical investment and ultimately punish consumers.  That’s far too high a price to pay, and we urge your steadfast and strongest opposition to them.  

Drug Importation

Any proposal to introduce drug importation to the United States from foreign nations threatens equally perilous consequences.  

Americans currently enjoy the world’s safest market for medicines under the reliable system overseen by the U.S. Food and Drug Administration (FDA).  In contrast, according to FDA estimates, over 99% of drugs entering the U.S. via international mail failed to comply with its standards.  Additionally, the United Nations World Health Organization (WHO) estimates that fully 10% of all medicines worldwide (which could find their way into the U.S. via importation) are counterfeit.  That poses an unacceptable threat to American consumers.  

In an era too often characterized by hyper-partisanship, it’s also important to emphasize how a bipartisan array of experts and officials have long panned the drug importation idea.  

For instance, a bipartisan coalition of FDA Commissioners spanning the years 2002 through 2016 felt so strongly on the matter that they collectively wrote an open letter to Congress in 2017, explaining how drug importation, “could lead to a host of unintended consequences and undesirable effects, including serious harm stemming from the use of adulterated, substandard or counterfeit drugs.”  Additionally, former FDA Commissioner Scott Gottlieb lambasted drug importation proposals and detailed the numerous threats that importation entails.  

Safety concerns, however, aren’t the only problem with drug importation proposals.  

The Congressional Budget Office (CBO), for instance, studied the issue and concluded that drug importation would have little to no impact on actually lowering prices.  On that issue, former FDA Commissioner Gottlieb concurred that the plan “would have added so much cost to the imported drugs; they wouldn’t be much cheaper than drugs sold inside our closed American system.”  Part of the problem, according to a Canadian Pharmacists Association (CPhA) statement, is that Canada’s market couldn’t handle the sudden onslaught of American demand, and importation would crash their market on which the U.S. drug importation plan would rely.  

Accordingly, drug importation would undermine America’s world-leading pharmaceutical innovation and violate free market principles, in addition to the fact that imported drugs meet neither safety nor dependability standards.  

Patent Right Infringement

Finally, the danger of any proposal to weaken drug patent protections through such laws as the Small Business Patent Procedures Act of 1980, 35 U.S.C. §§200, et seq. (commonly known as the Bayh-Dole Act of 1980) or 28 U.S.C. §1498 cannot be understated.  

Strong patent protections provide the foundation for American pharmaceutical innovation, which continues to account for a remarkable two-thirds of all new drugs introduced to the world, as noted above.  In the famous words of former patent attorney Abraham Lincoln, strong U.S. patent rights “added the fuel of interest to the fire of genius.”  

In addition to patent protections deliberately inserted into the text of Article I of our Constitution by the Founding Fathers, that legacy rests significantly upon the Bayh-Dole Act, which The Economist labeled perhaps the most vital legislation passed over the past four decades:  

Possibly the most inspired piece of legislation to be enacted in America over the past half-century was the Bayh-Dole Act of 1980.  Together with amendments in 1984 and augmentation in 1986, this unlocked all the inventions and discoveries that had been made in laboratories throughout the United States with taxpayers’ money.  

Prior to Bayh-Dole, ownership rights remained with the federal government itself, which brought less than 5% of its tens of thousands of patents to consumer markets.  The Bayh-Dole Act quickly remedied that shortcoming, as celebrated by The Economist.  The Bayh-Dole Act – which counted then-Senator Joe Biden among its sponsors – succeeded so remarkably because it incentivized innovation by expanding patent rights and unleashing free market cooperation.  

Alarmingly, however, some political leaders and commentators seek to undermine patent rights by exploiting a “march-in” provision within Bayh-Dole to empower the federal government to commandeer new drugs and license the patents on inventions partially funded by federal dollars to third parties.   According to their flawed logic, the market prices of some drugs render them insufficiently available to the general public, and on that basis they encourage federal bureaucracies to forcibly license those drugs’ patent rights to other third parties for manufacture and sale.  

That would constitute a frontal assault against private pharmaceutical innovators, disregarding their patent rights and the enormous investments they’ve made over years and decades to conceive, perfect, produce and distribute those drugs.  It would also contravene the statutory terms of Bayh-Dole itself, which allows four bases for “march-in” authority, none of which include pricing:  

1. Action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use; 

2. Action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees; 

3. Action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees; or

4. Action is necessary because the agreement required by section 204 has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of its agreement obtained pursuant to section 204.  

Indeed, Senators Birch Bayh and Bob Dole jointly and unequivocally confirmed that the law bearing their names did not intend or allow cost to become a mechanism for imposition of de facto drug price controls:  

Bayh-Dole did not intend that government set prices on resulting products.  The law makes no reference to a reasonable price that should be dictated by the government.  This omission was intentional;  the primary purpose of the act was to entice the private sector to seek public-private research collaboration rather than focusing on its own proprietary research.  

That straightforward truth explains why the National Institutes of Health (NIH) has rejected every one of the twelve march-in petitions that it has received during the Bayh-Dole Act’s 41-year existence.  It has consistently and correctly ruled that attempts to leverage price allegations to justify march-in would undermine the very goal of the act and ultimately harm American consumers.  

Critics nevertheless allege that federal funding toward pharmaceutical research justify government march-in intrusion, falsely claiming that pharmaceutical innovators somehow enjoy a free ride at taxpayer expense.   The truth is very different.  Private funding for research and development actually dwarfs public funding.  According to the NIH itself, private sector R&D amounted to five times NIH funding in 2015 alone, $150 billion to $30 billion.  In 2018, as another example, the NIH spent $3 billion on clinical trials involving new or existing drugs, compared to $102 billion in R&D by the U.S. biopharmaceutical industry.  Indeed, the pharmaceutical industry stands as the single largest source of business R&D funding in the U.S., accounting for 17.6% of all U.S. business R&D.  The next-closest counterpart is the software sector at 9.1%, with the automobile industry at 5.9% and the aerospace industry at 4.1%.  

Accordingly, the real-world R&D data reveal that Bayh-Dole has fueled pharmaceutical R&D investment, not provided it some sort of free ride. There is simply no textual or logical basis for advocating march-in actions under Bayh-Dole on the basis of market prices.  Pharmaceutical innovation demands billions of dollars in sunk costs of investment, not to mention potential product liability lawsuits for any errors.  Strong patent protections, which Bayh-Dole codifies, help ensure that those costs and risks will be fairly and sufficiently rewarded.  They provide innovators and investors the incentives to create pharmaceuticals that save millions and even billions of lives worldwide.  

That can propel investment and innovation in future decades, in the same way that it has since passage in 1980.  As The Economist highlighted, Bayh-Dole stands among the most beneficial statutes in recent American history, and the Proposed Rule must be crafted in a manner that extends that legacy, rather than undermines it.  

The Bayh-Dole Act’s provisions and intent prohibit cost as a basis for march-in actions, and offer the invaluable legal certainty upon which universities and private companies rely to invest more robustly in research and development of publicly funded concepts, which in turn results in lifesaving pharmaceutical innovations for the United States and the world.  

In similar fashion, 28 U.S.C. §1498 was passed to finally provide patent holders “reasonable compensation” when government infringes upon their patents.  Prior to that law, such patent holders possessed no avenue of recourse.  Accordingly, that statute also exists to protect patent holders, not infringe upon their patents.  

Simply stated, strong patent protections and free-market orientation provide the foundation for American pharmaceutical innovation, which continues to lead the world.  We must safeguard that legacy, not weaken it.  Thank you very much for your attention to this important matter, and please contact me at your convenience with any questions or comments.  

Sincerely,

/s/

Timothy Lee
Senior Vice President of Legal and Public Affairs