Column: Here’s how a President Clinton could force down drug prices by executive action

Presidential candidate Hillary Clinton brought down the hammer on drug makers last week, promising to “take on” drug companies that charge Americans the highest prices in the world for drugs developed in part with government funds.

“Your tax dollars helped support the research that is used to create those drugs in the first place,” she told an audience in Cleveland on Aug. 17. “Your tax dollars support the Food and Drug Administration that tests those drugs to determine whether or not they are safe and effective to be able to go to market. And then we end up in America paying the highest price for those drugs that we have helped to create. We have got to take this on.”

That just raises the question: What could she do as president? And could she do it by herself, without congressional approval?

The answer may well be yes.

Clinton specifically mentioned Gilead Sciences and its hepatitis C drug, which is marketed under the names Sovaldi and Harvoni at list prices of $80,000 to nearly $100,000 for a 12-week cure. So that’s a good place to start. The bedrock question is whether taxpayer funds were used to develop the drugs. Although the money trail is a bit murky, the answer is almost certainly yes.

The scientists who developed the drugs “got millions of dollars in grants for research exactly along the lines of the approach that was the source of Sovaldi,” says Peter Arno, director of health policy research at the University of Massachusetts-Amherst.

And does that give the government some say in pricing and consumer access to the drugs? The answer to that is also almost certainly yes. Let’s look at the record.

Sovaldi and Harvoni are the nearest thing we have to wonder cures. They’re more than 90% effective in clearing the hepatitis C virus from the body, with minimal side effects. That makes them a vast improvement over the prior treatment based on interferon, which caused horrific side effects and wasn’t nearly as effective.

But the Gilead drugs are so expensive that they’ve become a burden on patients, insurers and public programs alike. The most recent data released by the government show that Medicare spent more on Sovaldi in 2014 than any other drug--$3.1 billion, or 2.6% of all drug spending—despite its accounting for only 7,300 prescriptions, or .009% of the total.

The price of Sovaldi and Harvoni has nothing to do with the cost of research and development or manufacture, but rather the calculation by Gilead’s executives of what the market would bear. According to a report last year from the Senate Finance Committee, the Foster City company calculated how much it could charge for the drug before the loss of patients who couldn’t afford it outweighed the higher profits they would pocket per pill.

Gilead didn’t put any of its own money into the R&D for the drugs. That was done by a Georgia company named Pharmasset, which Gilead bought in 2011 for $11 billion, largely to secure rights to the hepatitis C drugs.

Pharmasset was founded by two Emory University scientists, Raymond F. Schinazi and Dennis C. Liotta, in 1998, to work on drugs for HIV and hepatitis, among other projects. Between 1998 and 2006, Schinazi, Liotta, and Pharmasset received roughly $6.7 million in research funding from the National Institutes of Health.

How much of that sum went into the research that eventually yielded Sovaldi? Here’s where the trail becomes murky.

Schinazi and Liotta both denied by email that federal grants contributed to the development of Sovaldi. Schinazi said that he applied for NIH grants for hepatitis C research, but “all the grants I submitted were rejected by the peer review system at NIH” and in any case they “had nothing to do with Sovaldi or its precursors.” Liotta emailed that “none of the research done in my lab was related to the research that was carried out at Pharmasset in the 2001-2005 timeframe.” Schinazi, whose stake in Pharmasset became worth more than $400 million when it was acquired by Gilead, said he used his own personal funds to start the company. (Liotta was a smaller shareholder.)

“We took a huge risk and it paid off,” Schinazi wrote. “Pharmasset found a cure for HCV [Hepatitis C virus].”

Yet NIH records show that of more than $2.1 million in grants to Pharmasset from 2000 through 2006, at least some was devoted to research on hepatitis C. (NIH records of four such grants can be found here.) It may be impossible to say that any of those research projects ended up directly creating Sovaldi, but it also may be hard to show that they didn’t. Money is fungible: A federal dollar that went into even a failed research project freed up money from another source that may have gone into a successful experiment. And even a failed project on hepatitis C treatment could have yielded data that helped guide ultimately successful research.

That brings us to the government’s rights to manage the cost of Sovaldi/Harvoni. The instrument at hand is the Bayh-Dole Act of 1980, which governs patent and licensing rights stemming from federally funded research and development. Bayh-Dole, named after its sponsors, the late Sen. Birch Bayh (D-Ind.) and former Sen. Bob Dole (R-Kan.), aimed to give private companies and their investors clarity about their duties to government patrons. The idea was to clear the way for more private investment.

As Arno observes, the law mandates that any drug invented wholly or in part with federal funds must be made available to the public on “reasonable terms.” If not, the government gets “march-in” rights allowing it to require that the drug be licensed to other manufacturers, or to offer a license itself to alternative drug-makers to ensure that the drug is widely accessible.

There long has been confusion about how to define “reasonable terms.” Bayh and Dole maintained (in a 2002 letter responding to a Washington Post op-ed co-authored by Arno) that it had nothing to do with “the pricing...or the profitability of a company” that commercialized a product developed with government support. Rather, the march-in right was aimed at cases where a company hadn’t commercialized the product at all.

But Arno replies that the law Bayh and Dole wrote went further than they acknowledged. The real problem, he maintains, is the government’s aversion to using its own authority. “The government hasn’t wanted to march in,” he told me, observing that to date there hasn’t been a single such case. That long time-out may soon come to an end, he suggested: “Times are changing and public pressure is rising.”

The Bayh-Dole rights obviously would give a Clinton administration the path to force Gilead into marketing Sovaldi and Harvoni at more “reasonable terms”—as they would in any other case involving government-supported drug research. Considering how much drug R&D is supported by public funds, that’s potentially a broadly effective policy course.

Clinton hasn’t said she would follow this specific course as president. (Donald Trump, her Republican opponent, hasn’t made an issue of drug prices thus far—at least there’s no mention of the issue on his campaign website.) The options she mentions in her policy brief for exploiting the government’s role in drug R&D are more general: Requiring companies that receive government funding “to invest a sufficient amount of their revenue in R&D,” or be required to pay rebates to support basic research. She doesn’t cite Bayh-Dole, and those policy steps wouldn’t be effective in forcing down prices on any specific drug.

Plainly, a Bayh-Dole march-in case wouldn’t be cut and dried. A target company would surely fight, claiming that its government funding didn’t apply to the drug in question—as Schinazi asserts— or by arguing that its price was reasonable enough. But this is a tool the government hasn’t yet tried, and it’s time it did.

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