WASHINGTON _ Legislators foraging for federal funds here areeyeing the government's technology transfer program as a potentialsource of revenue.At a Tuesday hearing of the Senate Judiciary Committee's Patent,Trademark and Copyright Subcom-mittee, Sen. Dennis DeConcini (D-Ariz.) floated the idea of requiring companies to pay Uncle Sam aroyalty on profits from products developed using federally-fundedresearch.The royalty could be imposed via revisions to the 1980 Bayh-Dole Act,legislation which granted universities the right to patent discoveriesfrom federally funded research and then license their inventions toprivate companies.As a result of Bayh-Dole, many universities today have full-fledgedtechnology transfer offices staffed with licensing officials who cutdeals with companies.Licensing agreements between companies and universities generallyinvolve upfront payments and downstream royalties. The federalgovernment does not share directly in the profits from these deals, evenif the university received funding from a government agency, such asthe National Institutes of Health (NIH).DeConcini proposed building a mandatory .5 percent or 1 percentroyalty payment into company-university technology licenseagreements and suggested the money go directly to the NIH. He wasunable to offer an estimate of revenues that such a royalty wouldgenerate.DeConcini did not clarify whether the additional percentage would betaken out of the university's royalties or added as an excise tax tocompanies on top of the royalty rates they negotiate with universities."Given our tremendous need for cash, do you think there's a way thefederal government could participate further in the revenue streamfrom products derived using taxpayer-supported research?" DeConciniasked panelists from industry and academia who testified at Tuesday'shearing. "I find it hard to believe that a 1 percent additional royalty fora company making millions of dollars would be a problem."But the authors of Bayh-Dole, former Sen. Birch Bayh (D-Idaho) andSen. Bob Dole (R-Kan.), warned against tinkering with legislation thatis working. Bayh argued that the government already gets sufficientbang for its basic research bucks."The direct economic impact of the [Bayh-Dole] act has resulted in thecreation of markets with between $9 to $13 billion in product sales,50,000 to 100,000 new jobs and tax revenues of over $2 billion tofederal, state and local governments," said Bayh. Dole advisedDeConcini to "leave it [the Bayh-Dole Act] alone on the theory of nonew taxes."Barbara Conta, director of technology transfer at Tarrytown, NewYork-based Regeneron Pharmaceuticals Inc. who testified on behalf ofthe Biotechnology Industry Organization (BIO) at Tuesday's hearing,told DeConcini that companies expect to pay upfront fees and royaltiesfor early-stage technologies. "The overall royalty rate and whether it'sfair is our concern, not how it's distributed between academia and thegovernment."Bayh also warned subcommittee members that technology transfer isthreatened by recent proposals to impose price controls on cooperativeresearch and development agreements (CRADAs). Congress enactedthe Technology Transfer Act of 1986 to spur federal laboratories tocooperate with private industry through CRADAs.In 1989, in response to pressure from Congress and consumeradvocates, former NIH Director James Wyngaarden added a "fair priceclause" to NIH CRADAs. The clause states that the Department ofHealth and Human Services "has a concern that there be a reasonablerelationship between the pricing of a licensed product, the publicinvestment in that product, and the health and safety needs of thepublic. Accordingly, exclusive commercialization licenses granted for[NIH-owned] intellectual property rights may require that thisrelationship be supported by reasonable evidence."The clause is included only in CRADAs involving the NIH'sintramural research (which takes place at the agency's Bethesdacampus) and not in those involving extramural research (which takesplace in universities and foundations that receive NIH funds).To date, the NIH has not enforced the "fair price clause" with anydirect actions or formal scrutiny of prices. Although the clause hasbeen routinely included in CRADAs for years now, its dampeningeffect on NIH-industry collaboration has apparently been felt onlyrecently. According to Bayh, the number of NIH CRADAs droppedfrom 126 in 1992 to 26 in 1993. He blamed the decrease on the threatof price controls."Reintroducing government intervention in price setting, negotiationsand licensing will destroy 13 years of improving technology transfers,"agreed Dole.Steve Sherwin, president and chief executive officer of Cell GenesysInc., in Foster City, Calif., said that he has no objections to thelanguage of the fair price clause. Cell Genesys has signed twoCRADAs with the NIH, one in 1990 for the company's lead celltherapy product, a genetically engineered anti-HIV T cell, and anotherin 1992 covering retinal epithelial cell transplantation to treat maculardegeneration."Everyone wants to believe that the price of their products will bereasonable and fair," said Sherwin. "The question is how you interpretwhat that means. And problems could arise when you arrange forimplementation, structure and oversight."Price Control Threats Deter CRADAsBIO and industry representatives have argued that the threat of pricecontrols inherent in the fair price clause has deterred companies fromsigning CRADAs and has squelched investor interest in companies thathave them in place.However, despite its two CRADAs, Cell Genesys was not shunned byinvestors last year: the company raised a total of $84 million in 1993,completing two offerings in the space of 11 months.BIO president Carl Feldbaum told BioWorld that draft legislation iscirculating which could institutionalize the language of the fair priceclause by establishing formal enforcement of "reasonable" pricing. Hesaid the law could slip in through the back door at the last minute as anamendment to a health care reform bill."There is no doubt that this idea is lurking out there and it's ready toemerge," said Feldbaum. The scenario goes something like this: vocalcritics of the drug industry such as Rep. Ron Wyden (D-Ore.) and Sen.David Pryor (D-Ark.) could sponsor an amendment to the final healthcare reform bill that would expand and enforce the NIH price clause,drum up support for the idea from the Clinton administration andothers, such as Sen. Edward Kennedy (D-Mass.), and then insist on itsinclusion before they lend support to the bill. "This just gives us onemore battle to fight," said Feldbaum.
-- Lisa Piercey Washington Editor
(c) 1997 American Health Consultants. All rights reserved.