David Harlow: Patents, drugs, and cans of worms, o my!

Hello, kids! It’s time to lawyer up! 

No, really, we’re gonna get all up in lawyering this week, specifically lawyering around patents and how that impacts drug development, drug pricing, and the chaos that is healthcare pricing full-stop in the good ol’ USA.

I talked to one of my favorite lawyers earlier this week, David Harlow, known as Healthblawg on the interwebs, about the recent headlines about the HIV prevention drug, Truvada, also called PrEP, being offered free of charge to 200,000 American patients who are at risk of contracting HIV. Sounds like a great deal … until you do the math. Which there is ACTUAL MATH in the show notes!

We talked about how a law passed in 1980 opened a whole can of worms around intellectual property and the transfer of same, which can of worms is still spilling out worms in the form of unforeseen consequences. We spitballed some ideas on how that can of worms could get corralled a bit.

Here, give a listen.


Mighty Casey: Let us dive in here! Now recently Gilead Pharmaceuticals who makes Truvada the HIV prevention drug known as PrEP, they announced that they were going to make that drug available, which is ferociously expensive ... we're going to make that drug available to 200,000 people in in the United States free of charge and the folks folks at HHS got really excited. What's your take on the real value of that deal? What do you see here?

David Harlow: So there's a question about value and there's a question about why are they doing this? And let's start with why are they doing this. They're doing this because the federal government holds the patent to Truvada and if push were to come to shove, it seems likely, based on some expert opinions, that Gilead Pharmaceuticals would would lose that court battle.

They would need to pay a license fee to the United. States government for that patent. Okay, so this offer of 200,000 patients' treatment over the course of years is in effect what they're offering as a license fee for the patents. So then the question is, is that a good deal? Is that a good deal for the United States government as the patent holder and as a rough benchmark.

Patent license fees for things like this are in the neighborhood of five percent, right? So, 200,000 patients. This is a drug that sells for $24,000 a year, five percent would yield about a hundred twenty million dollars per year. But what is Truvada, what is Gilead actually giving the government? They're giving the government 200,000 patients' worth of the drug, which they sell in the EU for a hundred dollars a year. The company is offering to serve 200,000 patients per year. And while that sounds like a good deal, it is in fact a low cost way of the company to provide services in a way that that sounds great, and the HHS can declare victory, but it is a very low cost way of achieving the permitted use of the patent.

It's nowhere near the 5% license fee that they might otherwise be expected...

Mighty Casey: I'm going to include the math to what you just laid out just so .. to make sure that everybody really can they can see it in black and white what the cost is per year. The five percent or you know, what the cost is to a patient per year in the United States and also in the EU so that it can look like it ... Because it does on the face of it to the uninitiated it would look like oh, well, that sounds like a really good deal.

But when you break down the numbers, not so much.

David Harlow: Yes. So the CDC has found that about 1.1 million patients per year would benefit from the use of this drug. And this is a prophylactic, pre-exposure prophylaxis drug. So before someone is exposed to HIV someone who is at high risk for HIV could be taking this drug in order to prevent an HIV exposure from resulting in an infection that, together with safer sex practices, is what makes sense for many in this population. So over 1.1 million people in this situation. Currently about 200,000 people are getting access to the drug according to Gilead. A few years ago, CDC said that number was about a hundred thousand, so okay, it increased over time and they would double that access through this offer that the government accepted that still leaves 600, 700, maybe 800,000 patients who don't have access to this drug in the US. So the the problem continues. It’s a partial solution. Is it a step in the right direction? Certainly, but it doesn't get us all the way there.

Mighty Casey: On the subject just of patents. The patent on on PrEP, Truvada, that is held by the United States government. Surprise! I mean, it's not a surprise to you or to me, but it's probably a surprise to the average human that the patent on PrEP is held by the US government. But now, and you know, the CDC as you mentioned filed a patent-infringement lawsuit against Gilead and that's one of the reasons that this has come to pass, this 200,000 people will get Truvada free of charge. Explain how this could even happen, and why the federal government seems to be kind of the dumbest patent holder in the universe at least from my point of view. In other words. They have a ... They have a patent on something that they're not taking advantage of and it's not the only one.

David Harlow: Right. So they didn't file suit, the government prefers not to do this through court cases, but through persuasion and arm-twisting.

And again as we've been discussing we think that the government maybe got the short end of the stick in this negotiation. So this is the approach that they take, this this patent was developed based on research carried out at the CDC, and the investigators assigned their rights to the government. And which often happens when people assign their rights to the institution, that's the way the system works.

And the government then holds the patent. So yeah, the United States government is a significant patent holder has a significant patent portfolio, as they say, and the question is how can that portfolio be managed more effectively, and better, for the benefit of you and me the taxpayers, right? If we were shareholders in a company that held patents, we would demand accountability in terms of patent management, patent portfolio management, and as taxpayers, we collectively should be demanding the same from the government. So, part of the issue is thinking about how did we get here? Right? Why are we living in a situation where people are licensing out patents that were funded by the United States government. And it's not just the United States doing this directly. The bigger play is in academia. Where a bajillion grantees of the National Institutes of Health are doing research, and to the extent that that research yields something that's patentable, the technology officers in their researchers' institutions step in, work on getting the work patented, and then the institution holds the patent, as opposed to the government, even though as in the case with Truvada and research funded at the CDC, so CDC is within the government, and therefore the government held the patent.

Now under a law that was passed in 1980, the academic institution holds the patent even though that was funded by the United States government.

So, question really has to revolve around the pros and cons of that 1980 legislation, which created this whole business within academia of technology transfer offices, right? So patents are granted to institutions based on the research done by their researchers, which is funded by let's say NIH and other federal agencies, and the patent rights then sit with the institution and not with the government.

So, there are of course many sides to the pros and cons about why this works ,why this is a good idea. Or not a good idea. Right?

Mighty Casey: Well given that given that, you know, sort of the value of patents and pharma. And yeah, I mean there have been all kinds of discussions, you know, that have made headline news, or not, around patenting, particularly in biopharma and pharma, the fact that so much of the science that reveals the discoveries that lead to these patents happen in research in academia that is funded by the US government, why is it that Americans seem to pay more than anybody else in the world for prescription medication under these patent laws?

David Harlow: The basic research that yields patents that's funded by the government doesn't necessarily yield drugs that are ready for market. There are later steps in the process.

Once you have a patented compound the question is what is it good for? What does it do? Can we prove its safety and efficacy, etcetera

Mighty Casey: Welcome to clinical trials!

David Harlow: There you go, which is not funded by the government that .. That gets funded by industry. And we all know that the the industry says well, we invest a lot in research and we're entitled to a return because not every compound, not every candidate, as they say, makes it all the way to market, which is true.

So there's some truth to that. There is cost in bringing a patented compound to market as an approved pharmaceutical. So there's definitely some expenses that need to be recouped for the company.

Mighty Casey: What about ... You know, what about trials that are run through the National Institutes of Health? Not as though they run ... They run all the clinical trials by any stretch, but what about clinical trials run through the NIH? Would ... Why wouldn't drugs that come out of there - granted, of course, they have to be packaged and formulated and whatever, and pharma is certainly good for that. It's not like they should give it away for free. But why on earth do they get all of the pricing control in the US, the pharmacos that take these, you know compounds and package them and market them, why is it that they aren't returning, you know some ROI to you and me, the taxpayer?

David Harlow: Again, that's the that's the nature of the bargain that was struck about 40 years ago with the Bayh-Dole Act in 1980. Federally funded research that yields IP rights, the IP rights go to the government contractors who do the research, meaning the universities, and then the universities will license those to industry for development, right? So some some would say that this whole approach has had a negative effect on the whole ethos of knowledge sharing in academia, right?

Mighty Casey: Yeah.

David Harlow: If there's a, if there's an impetus to file a patent application instead of publish an article, publish a scientific paper? That is a problem.

And you know, that's one of those tragedy of the commons kind of problems. There's sort of a reduction in the in the notion of the commons in academia as a result of this, and that injects the profit motive into academia, and that ultimately increases prices for drugs and other things derived from patents.

At the consumer level the other thing that's worth saying is that this is not a pricing issue in a vacuum, as you well know. Prescription drug pricing doesn't exist on its own without being connected to other healthcare pricing. Overall the whole healthcare economics equation in this country is difficult to understand.

Mighty Casey: Well, I'll just call it whacked.

David Harlow: Right. Or as we say it's a it's a riddle wrapped in a mystery inside of an enigma.

Mighty Casey: Yeah, and Uwe Reinhardt's chaos behind a veil of secrecy as far as you know, the pricing model goes which we have not been able to get rid of the chaos or penetrate the veil really, yet. But we're still trying, right?

David Harlow: So then we get to the question of pricing a drug. I mean, price is sort of a fleeting concept here because different people pay different prices, but the starting point is is muddied by the question of what is the value of the drug. So ... So the question is, okay, you're going to pay X dollars for this drug.

But what is the value? Part of the way we measure value of pharmaceuticals is what are the costs that are avoided or that can be avoided by the drug? So the same company Gilead a few years back  brought to market a drug for Hepatitis C, Sovaldi, right? And that was a Hep C cure, which cost $90,000 in the US. I'm told it cost $900 in Egypt. But but what are the costs that are avoided by that treatment in the US? So worst case scenario, you're talking about liver transplant and a lifetime of antiviral and anti-rejection drugs, other services, post-transplant, so that could be three quarters of a million dollars.

Mighty Casey: Or more.

David Harlow: One. Plus a quarter million dollars a year thereafter. So when you think of it in those terms 90 grand is a bargain.

Mighty Casey: It is and yeah, I mean all of the sort of the hockey stick and ever-escalating pricing issue, the price tag on things in the US, has just ... It's one of those nuts we ain't been able  to crack yet.

David Harlow: Point is that you can't look at prescription drug pricing in a vacuum. We have a whole .. Whole world of crazy pricing.

Mighty Casey: Yes. Oh, yeah. Oh, yeah. Attacking this a little bit on the ROI zone and tech transfer, which you mentioned, which was created by the Bayh-Dole law back in 1980. I recognize that keeping an academic enterprise going, like a university, takes money. I mean, everything takes money. I like to live indoors. I think you like to live indoors, you know, everybody likes to live indoors and, you know, and .. And have food and water and clothes and things, and you got to pay for it, and I get that but the tech transfer operation, are ... You know, those operations are a way for universities to get a revenue stream out of the work that they do that leads to something that could come under a tech transfer operation. But where's the ROI for the American taxpayer in this? Are we seeing much? And if we're not how can we start, like, getting at that?

David Harlow: Look, it's ... We're 40 years into this approach and maybe it's time for a tune-up, right? So there's a number of categories of ideas that have been put forth by academics over the years for .. For changing things up in this domain. So we think about it ... If these investments that NIH is making in research were made in the private sector, investors would expect some return on investment, the ROI. While recognizing that the work of the researchers should also be compensated. So how do we do that? I mean some people call what we have today is a form of double taxation, right? The federales fund the research, and then they have to pay for the output of the research.

Because again, the the federal government pays much of the bill through Medicare and Medicaid and and the rest of the government healthcare benefit programs, so NIH as a funder of the research that  yields patents, that yields approved therapies, should get a return on the investment. So that would be, you know, easy for me to say at a 30,000 foot level that it's simple, but conceptually it's simple. Obviously the devil is in the details, but we could see revisions to the Bayh-Dole Act that have an ROI for the federal government. That ould be pretty straightforward approach to changing things, right?

Mighty Casey: Yeah.

David Harlow: Couple of other ideas that people have put forth over time would be to, for example, give every federally funded researcher full access to the whole portfolio of inventions paid for with federal dollars, for their ... For research, for research purposes. So right now those sorts of things are walled off because everything is held by a different patent holder.

So why shouldn't everybody have access to all of that information as they're doing research for the .. For the greater good? They're also ... There's a ton of patents that whose time has not come, so to speak. There's underutilized patents in this portfolio and perhaps these underutilized patents - so they're held individually by academic institutions - they should be put back into the public domain and have a transfer office managing that portfolio. So when things may come up in the future, there's value there that could be captured and maybe captured more efficiently by a centralized system.

Mighty Casey: Yeah, that's the thing that drives me nuts, is there really doesn't seem to be any particular oversight or central repository for all of the American government funded patent portfolio. And it would be lovely to have a sort of a uniform oversight and a way to say, well, we've got this .. We got this, we got this, and we can use it, you know, here, let's have an auction. And it just it seems as though the the Grover Norquist effect -  we want a federal government small enough that we can drown it in the bathtub, which got started in, you know, sort of in that 1980-81 zone ... That that we now have its full implementation. And as a result, we're losing out big time. And you know, I think it would be a lot better if we could start taking .. Taking advantage of the intellectual property actually held by the American citizens, but maybe not [laughs]

David Harlow: Exactly,exactly. A need for some kind of change, at least some incremental changes to that legislation, that would maybe change the playing field a little bit. We've been talking about individual drugs, but there are also other kinds of patents funded by federal research dollars that are now held by individual institutions. For example, CRISPR. So CRISPR is a sort of gene editing technique and technology that's been patented, and the patents are held by a couple of academic institutions at home and abroad, and there were massive knock-down-drag-out litigations over the rights to CRISPR because of the value in the long run that inheres in this technology. And again, it's going to be across multiple diseases, multiple conditions, multiple states.

And again, the question is should not some of that return come into the federal Treasury?

Mighty Casey:  I think yes, but you know, I could be nuts. That could just be me.

David Harlow: That's  the big knock-down drag-out fight. Look, you know, MIT and the UC system were at loggerheads over this, and MIT won the last round, MIT and Harvard. So, that's ... That's a huge potential windfall to those institutions.

And you know, they would argue it's not a windfall., they spent years of research working on this stuff

Mighty Casey: That return on investment.

David Harlow: Yeah. There you go. So I'm not suggesting that academics and academic institutions be cut out of the picture.

Mighty Casey: Oh good lord no.

David Harlow: A piece of the action belongs to the investor. And the research that made it possible as well.

Mighty Casey: Well, is there anything about you know patents and other topics we have been covering here that you feel you want to say that you we haven't covered yet?

David Harlow: The economics of healthcare are so complicated that it's hard to say that well, if we sort of pinpoint to Solution on this one problem here, we're going to fix everything.

I know you're not suggesting that but it is also interesting to think about what are the potential unintended consequences of a change here. And since we're talking about unintended consequences, we don't really know so perhaps it makes sense. To make some of these shifts in an experiment in a trial on a small scale basis so we can see what happens before suddenly deciding to make a wholesale change to the landscape because that might result in other dislocations that we can't even …

Mighty Casey: Yeah, don't ...Don't shock the monkey. Just, you know, let's do it in an incremental fashion and see what works, tuning for maximum frequency.

David Harlow: There you go.


If you’re feeling activated and spunky, you could start advocating for changes in the Bayh-Dole Act. A good place to start would be your Congressional representatives, and if any of them are on the House Energy & Commerce committee or the Senate Commerce, Science, & Transportation committee, you get extra points! 

Links are provided to all that in the show notes, so get on that if you’re motivated to up the ROI on patents for the American taxpayers’ patent portfolio.


The Math That Was Promised!

Number of patients at risk of HIV infection in the US (extrapolated from statistics on HIV infection at HIV.gov) = 1.1 million, based on spitball 1 to 1 sexual partner ratio (IOW, number could be higher, and likely is)

Cost per year, per patient, of Truvada/PrEP in the US at “coupon” price on GoodRX: $1,750 per month, so $21,000 per year 

Cost per year, per patient, of Truvada/PrEP in the EU: €29 to €54 ($32 to $60) per month cost (via PrEPInEurope) - will use average of those two, $46 per month, so $552 per year

Number of patients Gilead is offering Truvada/PrEP to, free of charge, in the US: 200,000 

If Gilead paid the patent holder, the CDC (therefore us, American taxpayers), the 5% license fee that’s standard in pharma patent licensing for the 1.1 million at-risk folks who should get PrEP, that would look like this:

1,100,000 X $21,000 = $23,100,000,000 total price tag of drug (that’s billions, ICYMI)

5% of $23,100,000,000 = $115,500,000 (that’s millions) 

So the “200,000 peeps get free PrEP” price tag looks great:

$21,000 X 200,000 = $4,200,000,000 (again, that’s billions)


Since Gilead sells PrEP in other countries - like, say, the ones in the EU! - for an average of $552 per patient per year, here’s what that deal looks like using THOSE numbers:

$552 X 200,000 = $110,400,000 total (real, IMO) value of the “deal” that Gilead is so generously granting to CDC/the American taxpayer, AKA the patent holders. 

That’s CHUMP CHANGE, given their annual revenue figures and their market cap via shares of GILD on NASDAQ.


David Harlow on Twitter

David on LinkedIn

The Harlow Group (David’s law practice)

Healthblawg (David’s blog and podcast)

Links related to this week’s conversation:

Gilead to Donate Truvada to CDC to Help With HIV PrEP in US - Medscape

Gilead CEO insists federal government patent for HIV prevention pill Truvada is invalid - Washington Post

HIV Prevention Drug: Billions in Corporate Profits after Millions in Taxpayer Investments - US House of Representatives Committee on Oversight and Reform

An HIV treatment cost taxpayers millions. The government patented it. But a pharma giant is making billions. - Washington Post

Rising Cost Of PrEP To Prevent HIV Infection Pushes It Out Of Reach For Many - NPR: Shots

Bayh-Dole Act (what led to IP tech transfer regs currently in force) - Wikipedia

Bayh-Dole full text (pack a lunch!) 

The Tragedy of the Commons - Science, 13 December 1968

Can Patents Deter Innovation? The Anticommons in Biomedical Research - Science, 01 May 1998

Additional Actions Needed to Improve Licensing of Patented Laboratory Inventions - US Government Accounting Office (GAO)

NIST Streamlines Bayh-Dole Regulations for Federal Funding Recipients - National Institute of Standards and Technology | US Dept. of Commerce

The Pricing Of U.S. Hospital Services: Chaos Behind A Veil Of Secrecy - Health Affairs 

Drug Pricing & Challenges to Hepatitis C Treatment Access - PubMed 

Senate Finance Committee Releases Results of Investigation Into Gilead’s Pricing Strategy for Hepatitis-C Drugs - Policy & Medicine

UC Berkeley Team to Be Awarded CRISPR Patent - The Scientist



Danny van Leeuwen, also known as Health Hats - with his diverse and prolific health experience, Danny uses his multiple hats to empower people as they travel toward their best health. To join Danny on that best health journey visit his blog.


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