The federal government has failed to include intellectual property and pricing protections in at least four contracts for drugs to combat Covid-19. Legal safeguards meant to ensure that products developed with federal funds are affordable and widely available were missing from the contracts, which are worth more than $1 billion and were released along with other documents last week in response to freedom of information requests. The omissions make it more likely that potentially lifesaving treatments and vaccines may be priced out of reach, even as the spiraling financial and health crises increase the need for affordable drugs.
Standard federal contracts ensure that inventions developed with government funding are available to the public “on reasonable terms.” But the four agreements for Covid-19-related products — three of which were made by a division of the Department of Health and Human Services known as the Biomedical Advanced Research and Development Authority, or BARDA, and one of which was made with the Department of Defense — notably omitted the phrase “on reasonable terms.” The government contracts with pharmaceutical companies Janssen, Regeneron, Genentech, and Ology Bioservices also limit the government’s patent rights to the products being developed for Covid-19, even though they are using taxpayer dollars to do so.
The details of the contracts, which were released to the nonprofit advocacy group Knowledge Ecology International, come as another pharmaceutical company, Gilead Sciences, announced pricing for its Covid-19 therapy, remdesivir. That drug, which was developed with at least $79 million in federal funding, will cost private insurers $520 for a single vial, hundreds of times its production cost, which researchers at the University of Liverpool have estimated at 93 cents per dose.
In an open letter on pricing released Monday, Gilead chair and CEO Daniel O’Day said that “we approached this with the aim of helping as many patients as possible, as quickly as possible and in the most responsible way” and noted that in “normal circumstances,” the company would set the price according to the value a drug provides. Based on a study that shows that the hospital stays of patients who take remdesivir are four days shorter on average than those who didn’t take the drug, Gilead estimated that value to be $12,000.
But, given its low production cost, Gilead could profit from remdesivir even if it was priced at just $1 a day, according to an analysis by Public Citizen. Instead the drug, which was rolled out with the help of the Trump administration, will cost insurers between $3,120 for a five-day course of treatment and $5,720 for a 10-day course.
Public Citizen immediately declared the pricing “offensive.” “It’s outrageous,” said Zain Rizvi, a drug-pricing expert who works for the consumer advocacy group. “Even during a pandemic, the pharmaceutical industry can’t help but price gouge.” Rizvi said that the price may affect who gets the therapy — and hit the uninsured hardest. “Some patients may choose to skip their care,” he said. “Others may be on the hook for thousands of dollars.” Hospitals may also be hesitant to use the drug because of its price.
“Even during a pandemic, the pharmaceutical industry can’t help but price gouge.”
Watchdog groups pointed to Gilead’s announcement as an illustration of the need to reign in pharmaceutical companies’ control over the pricing of their products. “This is exactly why policymakers shouldn’t leave it up to the drug companies to unilaterally set prices on drugs that wouldn’t exist without taxpayer support,” said Eli Zupnick, a spokesperson for the advocacy group Patients Over Pharma.
Yet the newly released contracts show that that during the pandemic, some government agencies are allowing pharmaceutical companies even greater than usual leeway on the pricing of drugs. Of five contracts for Covid-19-related products that BARDA released, four didn’t include the pricing and patent protections. And there are likely other agreements that give away the public’s legal rights to limit drug costs. BARDA was given $3.5 billion to spend on medical countermeasures to Covid-19 under the CARES Act and has entered into at least 20 agreements with companies to work on products to fight the virus. (The Intercept submitted a FOIA request for many of BARDA’s other contracts in April but has not received any documents.)
BARDA did not respond to a request for comment.
Exorbitant drug prices were causing bankruptcies and deaths in the United States well before the pandemic hit. Now, even as the number of coronavirus infections has topped 2.5 million and tens of millions of people have lost their jobs, the pharmaceutical industry seems even less likely to release its stranglehold on pricing. Bipartisan legislation that would address the crisis has stalled in the Senate because Majority Leader Mitch McConnell, who has received more than $1.6 million in contributions from pharmaceutical and health products companies, has refused to bring the bill to vote. Trump, who declared in 2018 that reducing the cost of prescription drugs was one of his “biggest priorities,” has done nothing to advance the bill. Instead, his administration is now in the midst of its latest attempt to repeal Obamacare, which could cause millions of Americans to lose their access to drugs along with the other benefits of health insurance.
According to a 1980 law known as the Bayh-Dole Act, contracts for inventions that stem from federally funded research give the government the right to “march in” and take over the license for a product it helped invent if the company doesn’t make it available at a reasonable price or if taking over the license “is necessary to alleviate health or safety needs.” The law also gives the government a nonexclusive, irrevocable right to practice an invention it helps create without paying royalties.
But agencies can skirt these requirements by using an alternate contracting model known as Other Transactions Authority agreements, or OTAs. Originally used only in a narrow range of circumstances, OTAs, first introduced in the 1950s, were becoming increasingly common in some federal agencies, including HHS and the Department of Defense, even before the pandemic. After the virus hit, both agencies were given expanded ability to use the agreements. BARDA issued its first OTA in 2013 and has been expanding old OTAs and issuing new ones for Covid-19-related products.
Proponents of the agreements argue that they’re necessary to entice companies that might not want to comply with the significant requirements of traditional federal contracts to work with government. But they also strip the government of tools that could make Covid-19 drugs accessible to all.
An agreement that Genentech, a subsidiary of Roche Pharmaceuticals, struck with BARDA for the development of a potential Covid-19 treatment called tocilizumab doesn’t give the government the right to march in and take over the patent, and also specifies that the government does not have the royalty-free right to use the invention, which leaves it with little recourse if the company doesn’t set a fair price for the drug.
“There’s no limit on what Roche can charge Americans under this contract,” said James Love, director of Knowledge Ecology International. “But even if the government wasn’t happy with the Roche price and wanted to use the royalty free license to get a company to make a generic version of it, they couldn’t do it.”
BARDA’s agreement with Johnson & Johnson subsidiary Janssen for a coronavirus vaccine also leaves the government unable to use the product it funded without paying royalties, which could cut into the its ability to ensure an adequate supply of the vaccine. “What if Johnson & Johnson can’t make enough of its vaccine to go around?” asked Love. “Then the government won’t be able to use its right to allow someone else to make it so we have a greater supply and make it faster.”
The tipping of power away from the federal government and toward the pharmaceutical and biotech companies contracting with it is happening even as the dollar amounts of the contracts reach record highs. Genentech’s OTA with BARDA has an upper limit of $598 million. Janssen’s agreements for both its vaccine and treatments for Covid-19 are worth more than $900 million. And Regeneron will receive up to $305 million from the work on antibody treatments for Covid-19.
“These are staggering sums of money,” said Love. “You’d think as the amount of dollars go up, the terms for the government would get better, not worse.”