CAP Scheme Turns Uncle Sam into World's Worst Intellectual Property Thief
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By Peter J. Pitts
White House contenders want to address -- but don't understand -- prescription drugs prices. The Center for American Progress, the go-to policy shop for Democrats, has a plan. A bad one. The CAP plan would effectively turn the U.S. government into the world's biggest intellectual property thief, thus gutting pharmaceutical innovation and crippling New Jersey's economy.
New medications are expensive to develop. On average, it costs $2.6 billion and it takes a decade to bring a new medication successfully to market.
One of the reasons the process is so expensive is that most potentially promising compounds don't pan out. The vast majority of compounds never make it from the lab to the clinical trial stage, and the FDA approves only 12 percent of those that do.
Even among approved medications, only a small percentage ever recoup their development costs. Pharmaceutical companies have to set prices to cover the costs of both the occasional successes and the many, many, many failures that go along with them.
CAP's 45-page report ignores this reality and offers to lower drug prices by stripping pharmaceutical companies of their intellectual property. The federal government, CAP says, has the authority to license patents to knock-off generic manufacturers any time it deems brand-name drug prices are too high.
The authority for this heist is supposedly a 1980 federal law known as the Bayh-Dole Act, which ushered in a Golden Age of pharmaceutical innovation by shoring up intellectual property rights.
One provision of Bayh-Dole holds that the government retains so-called "march-in" rights to license a patent when its owner fails to take "effective steps to achieve practical application of the subject invention." In other words, if a patent is languishing unused, the feds can license it to encourage development.
CAP evidently believes that a high price tag constitutes a failure to take "effective steps to achieve practical application" -- and is therefore grounds for the feds to seize a patent and license it to others.
Who decides what price is too high? Why, an all-powerful new government panel housed in the Department of Health and Human Services, of course. It's supposed to set a range for drug prices, and any drug priced more than 20 percent above this range is subject to patent seizure.
This interpretation of Bayh-Dole is the antithesis of what the authors sought. The law empowered innovators by protecting the work of university researchers, small businesses, and non-profits who incorporated basic concepts that had previously been discovered via federally funded research.
The bulk of biopharmaceutical innovation comes from private industry, which spends more than $51 billion annually to develop new drugs. These investments will simply stop if government has the authority to seize the patents of innovators any time they don't meet a government-set price.
Similar price-capping schemes in Europe, once an industry leader, essentially capped innovation and jobs. In the mid-1980s, Europe spent 24 percent more on research and development than firms did in the United States. As price caps took effect, by 2004 European development dropped 15 percent. Between 2001 and 2009, more than 60 percent of drug patents went to U.S.-based companies. In 2012, the U.S. biotech industry employed 100,000 people -- twice as many as in all of Europe. Alas, as John Adams quipped, "Facts are pesky things."
As a major hub for the biopharmaceutical industry, New Jersey will bear the brunt of the CAP plan's job-killing regulations. Over 70,000 Garden Staters work for biopharmaceutical firms. Industry spending supports another 250,000 jobs in other sectors. All told, drug firms add $87 billion to New Jersey's economic output.
Government-sanctioned patent theft will lead to massive investment cuts and job losses in New Jersey. More worryingly, CAP's caps on drug prices would prevent the development of new medicines. Candidates embracing this approach pose a threat to our health.
Peter J. Pitts, a former FDA Associate Commissioner, is the president and co-founder of the Center for Medicine in the Public Interest.