Technology Transfer: NIH-Private Sector Partnership in the Development of Taxol
Published: 2003-06-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The transfer of technology from government-funded medical research laboratories to the private sector aims to have new pharmaceuticals brought to market more efficiently than would be possible for a federal agency acting alone. Much of the pharmaceutical-related technology transfer originates with research funded by the National Institutes of Health (NIH). GAO was asked to examine the legal and financial issues involved in technology transfers as illustrated by the research, development, and commercialization of Taxol. Taxol was developed through a cooperative research and development agreement (CRADA) between NIH and the Bristol-Meyers Squibb Company (BMS) and by 2001 had become the best-selling cancer drug in history. Specifically, GAO examined (1) how the technology transfer partnership affected the research and development of Taxol, (2) what NIH's financial investment was in Taxol-related research, and what the financial outcomes were of the technology transfer process related to Taxol, and (3) what factors influenced how NIH exercised its authority in Taxol-related technology transfer activities. GAO reviewed relevant materials and statutes governing technology transfer, reviewed the patent history of Taxol, interviewed NIH and BMS officials, and reviewed data on NIH's financial investment and drug pricing policies.
section_title: What GAO Found
paragraphs: The 1991 HIH-BMS CRADA was one of the first CRADAs to result in a major breakthrough drug. NIH's partnership with BMS provided the company with the research results that enabled Taxol to be commercialized quickly and made available as a treatment for cancer patients. Prior to the CRADA and during the first 2 years of the agreement, NIH conducted most of the clinical trials associated with the drug. The results of these trials were critical for BMS to secure FDA's approval in 1992 to market Taxol for the treatment of advanced ovarian cancer. As agreed in the CRADA, BMS supplied the drug to NIH researchers to overcome previous shortages. The additional supplies from BMS allowed NIH to increase the number of patients enrolled in NIH clinical trials for this drug from 500 patients by 1989 to nearly 29,000 patients over the course of the CRADA. NIH made substantial investments in the research related to Taxol, but its financial benefits from the collaboration with BMS have not been great in comparison to BMS's revenue from the drug. NIH estimates that it spent $183 million on all Taxol-related research from 1977 through the end of the CRADA's term in 1997. For one portion of its spending, NIH estimates that it spent $96 million to conduct clinical trials supporting the CRADA; this was offset by a $16 million payment from BMS. In addition, BMS supplied Taxol to NIH, the value of which GAO estimates to be $92 million. NIH spent an additional $301 million on Taxol-related research from 1998 through 2002, some of which was for cancer research, making NIH's total Taxol-related spending $484 million through 2002. BMS's sales of Taxol totaled over $9 billion from 1993 through 2002. BMS agreed to pay NIH royalties at a rate equal to 0.5 percent of worldwide sales of Taxol as part of a 1996 agreement to license three NIH Taxol-related inventions developed during the CRADA. Royalty payments to NIH have totaled $35 million. The federal government has been a major payer for Taxol, primarily through Medicare. For example, Medicare payments for Taxol totaled $687 million from 1994 through 1999. Several factors affected NIH's exercise of its broad authority in negotiating its Taxol-related technology transfer activities. First, NIH did not have a patent on Taxol and thus could not grant an exclusive patent license to a CRADA partner. Second, in NIH's evaluation, it was limited by a shortage of available, qualified alternative partners. Finally, the negotiation of royalties for NIH's Taxol-related inventions was affected by multiple considerations, including the priorities that both NIH and BMS assigned to different factors in the setting of royalties. These factors include the stage of development, the potential market value of the license, and the contribution to public health of making the product available. In commenting on a draft of this report, NIH provided additional information about its expenditures and the contributions of BMS, which GAO incorporated, and also discussed its evaluation of whether BMS's pricing of Taxol was reasonable.

section_title: Letter
paragraphs: The transfer of technology resulting from federally funded research to the  private sector is intended to bring pharmaceuticals to the marketplace  much sooner and more efficiently than would have been possible for a  federal agency acting alone. Much of the pharmaceutical-related  technology transfer between the public and the private sectors originates  with research conducted or funded by the National Institutes of Health  (NIH). NIH uses mechanisms such as cooperative research and  development agreements (CRADA) with industry partners and the  licensing of patented inventions arising from research it funds to provide  incentives for businesses to develop pharmaceuticals. However, the  financial success of certain drugs that have benefited from government- funded research has raised concerns about whether the federal  government is getting a fair return on its investment in the research  leading to these products.
An example of pharmaceutical technology transfer is Taxol (paclitaxel),  which by 2001 had become the best-selling cancer drug in history. Taxol  was commercialized by the Bristol-Myers Squibb Company (BMS).  Through a collaboration with NIH, BMS benefited from substantial  investments in research conducted or funded by NIH. In this instance, the  NIH research examined the safety and effectiveness of this naturally  occurring compound for the treatment of cancer and resulted in  techniques for administering the drug. NIH transferred its research results  and discoveries to BMS for its use in seeking approval from the Food and  Drug Administration (FDA) to market the drug.
You asked us to examine the legal and financial issues involved in  technology transfer as illustrated by the case of the research,  development, and commercialization of Taxol. Specifically, you asked us  to examine the following questions: (1) How did the NIH-BMS technology  transfer collaboration affect the research and development of Taxol?   (2) What was NIH’s financial investment in Taxol-related research, and  what were the financial outcomes of the technology transfer process  related to Taxol? (3) What factors influenced how NIH exercised its  authority in Taxol-related technology transfer activities?
To address these questions, we reviewed published and unpublished  documents describing NIH and BMS’s partnership and their efforts to  research and develop Taxol. Using the U.S. Patent and Trademark Office’s  database, we reviewed the patent history of Taxol. We reviewed the  primary Taxol-related CRADA between NIH and BMS, which was signed in  1991. We also reviewed an additional Taxol-related CRADA and the license  agreement between NIH and BMS. We interviewed the principal  investigators associated with those CRADAs to understand the research  involved. To assess NIH’s investments and financial outcomes resulting  from Taxol-related research, we obtained and reviewed data from NIH’s  National Cancer Institute (NCI), Office of Financial Management (OFM),  and BMS’s Annual Reports. We also reviewed Medicare drug purchase  data from the Medicare part-B Extract Summary System and pricing data  from the Federal Supply Schedule (FSS). We interviewed officials from  BMS and from NIH’s OFM, Office of Technology Transfer (OTT), and NCI  about spending estimates and the use of royalty payments. To assess the  factors that influence how NIH exercises its legal authority, we reviewed  the relevant statutes and regulations pertaining to the technology transfer  process and interviewed pertinent officials involved in the process at NIH  and BMS. We also interviewed officials from one of NIH’s key partners in  paclitaxel-related research, Florida State University (FSU), where much of  the early research on a semisynthetic method of producing paclitaxel was  performed. The scope of our report was restricted to NIH’s investment in  paclitaxel, and we did not evaluate the effectiveness of commercializing  Taxol in comparison to other drugs. For this reason, we consider the  implications of the development of Taxol as a case study, not necessarily  as representative of the way NIH performs technology transfer activities.  We conducted our work from October 2002 to June 2003 in accordance  with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: Taxol is currently used to treat several types of cancer, including  advanced ovarian and breast cancer, certain lung cancers (non-small cell)  in patients who cannot have surgery or radiation therapy, and AIDS- related Kaposi’s sarcoma. The bioactive compound in Taxol was first  extracted from the bark of the slow-growing Pacific yew tree Taxus  brevifolia in the 1960s. Following this discovery, the drug was developed  primarily through research funded by NIH, and then transferred to the  private sector and successfully commercialized by BMS.
subsections: section_title: Public-Private Technology Transfer
paragraphs: The 1991 NIH-BMS CRADA was one of the first CRADAs to result in a  breakthrough drug. The groundwork for the public-private partnership  that fostered the success of Taxol was laid in 1980. Prior to that time, the  government generally retained title to any inventions created under federal  research grants and contracts. This situation became a source of  dissatisfaction because of a general belief that the results of government- owned research were not being made widely available for the public’s  benefit. For example, there were concerns that biomedical and other  technological advances resulting from federally funded research at  universities were not leading to new products because the universities had  little incentive to seek uses for inventions to which the government held  title. In 1980, the Congress passed two landmark pieces of legislation—the  Stevenson-Wydler Technology Innovation Act of 1980 and the Bayh-Dole  Act—with the intent of promoting economic development, enhancing U.S.  competitiveness, and benefiting the public by encouraging the  commercialization of technologies developed with federal funding.
Although the acts have common objectives, the Stevenson-Wydler Act  focuses on inventions owned by the federal government, while the Bayh- Dole Act focuses on inventions created under federal contracts, grants,  and cooperative research and development agreements. Under the  Stevenson-Wydler Act, inventions owned by the government remain the  property of the agencies that produce them. However, the act as amended  sets out guidelines and priorities that encourage commercialization of  these inventions through the licensing of technology to U.S. business. In  1986 the Federal Technology Transfer Act amended the Stevenson-Wydler  Act and enhanced the authority of federal agencies in this area,  authorizing them to enter into CRADAs with nonfederal partners to  conduct research.
The Bayh-Dole Act authorizes federal agencies to execute license  agreements with commercial entities to promote the development of  federally owned inventions, and to collect royalties for such licenses. The  act also gives small businesses, universities, and other nonprofit  organizations the right to retain title to and profit from the inventions  arising from their federally funded research, provided they adhere to  certain requirements. In 1983, a presidential memorandum extended this  patent policy to large businesses. The act also contains several provisions  to protect the public’s interest in commercializing federally funded  inventions, such as a requirement that a contractor or grantee that retains  title to a federally funded invention file for patent protection and attempt  commercialization. In return, the government retains the right to use the  inventions without paying royalties. In general, most biomedical  inventions are not a final end product; therefore the government rights  would not extend to a final product.
section_title: NIH’s Role in Technology Transfer
paragraphs: NIH, with a budget of over $23 billion in fiscal year 2002, is the principal  federal agency that conducts and funds biomedical research, including  research on drugs. Within NIH, OTT is responsible for licensing the  inventions of NIH employees to the private sector for development to  benefit the public health. OTT oversees patent prosecution, negotiates and  monitors licensing agreements, and provides oversight and central policy  review of CRADAs. NIH’s stated goals with regard to the technology  transfer process are, in order of priority, to foster scientific discoveries, to  facilitate the rapid transfer of discoveries to the bedside, to make resulting  products accessible to patients, and to earn income. NIH has broad  authority under the statutes described above to negotiate agreements with  outside partners in pursuit of its technology transfer goals.
NIH scientists and laboratories, scientists and laboratories in academia or  other research institutions that receive public funding, and industry  researchers are often all involved in the development of pharmaceuticals.
Usually, government and academic scientists conduct basic research on  the biology of a disease and identify compounds, methods, and chemical  reactions and pathways that may be of value in treating disease. They also  conduct preclinical and clinical testing of drugs (phase 1 and 2 trials).  Industry conducts more extensive clinical trials (phase 3 trials) and  markets the drugs, although there is some overlap in these roles. NIH’s  overall mission and authority, as well as the requirements of the Federal  Food Drug and Cosmetic Act, suggest that NIH cannot sponsor a drug  through FDA’s new drug application (NDA) process. This act requires  those who submit NDAs to FDA to provide “a full description of the  methods used in, and the facilities and controls used for, the manufacture,  processing, and packing, of such drug.” While NIH conducts its own  research and funds biomedical research at other institutions, it does not  have a manufacturing, processing, or packing facility.
NIH can, however, license inventions directly to pharmaceutical firms  without the necessity of working through a CRADA. For example, NIH  officials told us that of the 16 drugs and vaccines currently approved by  FDA that contain an NIH technology, only 3 involved a CRADA. To attract  private-sector partners, NIH publicizes the availability of technologies that  it seeks to license directly. NIH officials told us that it has entered into  CRADAs with private-sector partners in at least two other cases that were  similar to paclitaxel—naturally occurring substances for which shortages  had limited NIH’s ability to conduct research.
The Public Health Service (PHS) created a model CRADA because the  Federal Technology Transfer Act of 1986 provided few specifics about the  CRADA process. In general, the model CRADA sets forth the policies of  NIH and other PHS agencies on various aspects of cooperative research  and intellectual property licensing that derive from the Federal  Technology Transfer Act. The model CRADA has been updated several  times over the years. The 1991 CRADA between NIH and BMS referred to a  March 27, 1989, version of the model CRADA. The 1989 model CRADA  stated that NIH would be willing to grant exclusive licenses to its CRADA  collaborators. The 1989 model CRADA also contained a provision known  as the “reasonable price clause.” It stated that PHS has “a concern that  there be a reasonable relationship between the pricing of a licensed  product, the public investment in that product, and the health and safety  needs of the public. Accordingly, exclusive commercialization licenses  granted for  intellectual property rights may require that this  relationship be supported by reasonable evidence.” NIH dropped the  reasonable pricing clause in 1995, and the current version of the model  CRADA no longer has any stipulation regarding the pricing of products  that are developed under the CRADA.
Under federal law and NIH policy, royalty income from license agreements  is shared between the inventors and the institute or center within NIH in  which the technology was developed. NIH uses the royalties for multiple  purposes that contribute to the technology transfer program and the  research of its laboratories. Specifically, the royalty payments can be used  to (1) reward employees of the laboratory, (2) further scientific exchange  among the laboratories of the agency, (3) educate and train employees of  the agency or laboratory, (4) support other activities that increase the  potential for transfer of the technology of the laboratories of the agency,  (5) pay expenses incidental to the administration and licensing of  intellectual property by the agency or laboratory, and (6) support scientific  research and development consistent with the research and development  missions and objectives of the laboratory.
Federal laws also generally prohibit agencies from disclosing information  that concerns or relates to trade secrets, processes, operations, statistical  information, and related information. Therefore the federal technology  transfer process that NIH engages in with the private sector is not entirely  transparent to the general public, nor are the details of the negotiations  and agreements that NIH makes with industry partners publicly known.  However, information may be disclosed to those who have oversight  authority over the agencies that generate such information, such as the  Congress and its oversight bodies. In this way, information about the  details of the federal investment and return on investment in the  commercialization of a drug like Taxol can be examined for policymaking  purposes.
section_title: The Development of Taxol
paragraphs: NIH played a role in both basic and clinical research leading to the  development and use of Taxol. In 1958, NCI, a component of NIH, initiated  the Natural Products Program, which screened 35,000 plant species for  anticancer activity. Researchers at the Research Triangle Institute found  that an extract from the bark of the Pacific yew tree had antitumor activity  in 1963 and isolated the compound paclitaxel in the bark of the Pacific  yew in 1971. In 1979, scientists at Albert Einstein College of Medicine  discovered how paclitaxel works to prevent cell division.
In 1983, NCI filed an investigational new drug application (IND) with FDA  to initiate clinical trials of paclitaxel. The IND was approved, and phase 1  trials began. In 1985, NCI began funding phase 2 clinical trials. By 1989,  two studies of paclitaxel’s effect on ovarian cancer had demonstrated  positive results.
In August 1989, NIH announced in a Federal Register notice that it was  seeking a pharmaceutical company that could develop paclitaxel to a  marketable status. The notice stated that paclitaxel could not be  patented. Instead, NIH offered a potential CRADA partner the exclusive  rights to the source data from its clinical trials. Although 20 commercial  firms replied to the announcement, only 4 companies, BMS among them,  decided to apply for the CRADA opportunity.
NIH chose BMS as its CRADA partner, and the CRADA, “Clinical  Development of Taxol,” took effect on January 23, 1991. (For details on  the CRADA partner selection process, see app. I.) Under the 1991 CRADA,  NCI and BMS agreed to collaborate on ongoing and future clinical studies  to obtain FDA approval for the marketing of paclitaxel, and NCI would  make available exclusively to BMS the data and the results of all paclitaxel  studies. As part of the CRADA, BMS was to supply NCI with sufficient  amounts of paclitaxel for research and clinical trials. NCI could terminate  the agreement if BMS “failed to exercise best efforts in the  commercialization of taxol .” Following this first Taxol-related  CRADA, NIH entered into another CRADA with BMS in 1998 and has had  other paclitaxel-related CRADAs with two other companies (see app. II).
In 1991, a phase 2 trial of paclitaxel demonstrated its effectiveness in  treating breast cancer. In 1992, BMS filed and received approval for  trademark protection for the name Taxol. Also in 1992, BMS filed an NDA  for Taxol with FDA. On December 29, 1992, FDA approved Taxol for the  treatment of ovarian cancer, an indication for which it had been shown to  be effective in earlier studies. In January 1993, Taxol was introduced into  the marketplace by BMS for the treatment of ovarian cancer.
FDA’s approval of BMS’s NDA to market Taxol for the treatment of  ovarian cancer triggered a provision in federal law granting BMS 5 years of  marketing exclusivity for Taxol as a new chemical entity under the Drug  Price Competition and Patent Term Restoration Act of 1984. The statute  provides marketing protection for unpatentable pharmaceuticals, stating  that during this 5-year period “no application…may be submitted” to FDA  that “refers” to the approved drug, a provision that generally prohibits the  introduction of a generic drug during the exclusivity period. Prior to the  expiration of this period, in June 1997, BMS received two patents  regarding the administration of Taxol. In July 1997, a number of generic  drug manufacturers filed applications with FDA to market a generic  version of paclitaxel, and notified BMS of their intent. BMS then filed suit  in a federal district court alleging violations of its most recent patents.  Under federal law, this granted BMS an additional 30 months of marketing  exclusivity while the issues were being resolved in court. (See the  chronology in app. III for more information on the research and  development of Taxol.)
section_title: NIH-BMS Partnership Provided Research Results Critical to Developing Taxol’s Commercial Uses
paragraphs: The NIH-BMS collaboration provided BMS access to NIH research results  that were critical for BMS’s quick commercialization of Taxol. It provided  other benefits for both parties and for the health of the public as well. BMS  supplied paclitaxel to NIH, enabling NCI to dramatically expand its  paclitaxel research. BMS later licensed three NIH inventions that resulted  from the CRADA; however, BMS ultimately decided not to use any of the  inventions in its applications to FDA for approval to market Taxol for  additional indications. An NIH grant led to the important discovery of a  method for the semisynthesis of paclitaxel by FSU researchers.
subsections: section_title: NIH-BMS Collaboration Gave BMS Access to Critical Research Results
paragraphs: The NIH-BMS collaboration gave BMS unlimited access to NIH research  results that were critical to BMS’s ability to quickly receive FDA approval  to market Taxol. BMS submitted an NDA for paclitaxel to FDA on July 21,  1992, 18 months after the 1991 CRADA took effect, and FDA approved the  drug for initial marketing on December 29, 1992. Paclitaxel was one of the  first oncological compounds tested by NCI, and the public health  community was highly interested in exploring its potential. The  collaboration between NIH and BMS was beneficial to BMS because it  gained access to the results of NIH’s basic, preclinical, and clinical  research studies related to paclitaxel, including NIH studies conducted  both prior to and during the term of the CRADA. Prior to the signing of the  1991 CRADA, and during the first 2 years of the CRADA, NCI conducted  most of the clinical trials associated with paclitaxel. These studies were  important for securing FDA’s initial approval to market Taxol for the  treatment of advanced ovarian cancer. Five of the six studies submitted to  FDA by BMS in support of its marketing application were either conducted  or funded by NIH; one was conducted by BMS. BMS subsequently applied  to FDA to market Taxol for other indications, including metastatic breast  cancer and AIDS-related Kaposi’s sarcoma. BMS has received FDA  approval to market Taxol for eight indications as of May 12, 2003.
section_title: NIH-BMS Collaboration Allowed NIH to Expand Its Paclitaxel Research
paragraphs: Under the terms of the 1991 CRADA, BMS supplied paclitaxel for NCI’s  own studies as well as for NCI-funded trials at other institutions that were  initiated pursuant to the CRADA. Three months after the CRADA was  signed, BMS began shipments of paclitaxel to NIH. BMS reported that by  the end of 1991, 1.35 kilograms of bulk drug, or 45,000 vials, had been  delivered. In January 1992, shipments were increased from 5,000 vials per  month to 25,000 vials per month, and by April 50,000 vials per month were  being provided at no charge to NIH.
BMS’s shipments of paclitaxel overcame shortages that had limited NCI  research. In 1989, before the CRADA, a cumulative total of fewer than 500  patients had been treated with paclitaxel. Because of BMS’s efforts to  expand the collection and production of paclitaxel, NCI was able to  establish more than 40 treatment referral centers for therapy of patients  with refractory ovarian cancer (previously treated, unresponsive ovarian  cancer) and breast cancer. According to NCI, 28,882 patients were treated  in its clinical trials over the course of the CRADA, and the paclitaxel was  supplied free of charge by BMS to NCI for use in both the clinical trials  and the treatment centers.
section_title: NIH Licensed Inventions from CRADA to BMS
paragraphs: In 1996, NIH signed an agreement to license to BMS three patented  paclitaxel-related inventions that resulted from the 1991 CRADA. While  the compound itself was not patented, NIH patented three methods for  using paclitaxel in cancer treatment. These inventions were (1) use of G- CSF (granulocyte colony-stimulating factor) to avoid the side effects of  using Taxol in higher doses, (2) a 96-hour infusion method to overcome  multidrug resistance, and (3) a method for using Taxol in combination  with another drug (cisplatin). BMS licensed these three inventions  because it thought they had potential to provide important contributions  to treatment. BMS considered adding these methods as new indications to  the Taxol product label, but ultimately decided not to use any of the  inventions in its applications to FDA for approval to market the drug.
section_title: NIH Funding Supported Development of Semisynthesis Process for Producing Paclitaxel
paragraphs: The supply of natural paclitaxel was a continuing problem, since the bark  of the Pacific yew was scarce and it took about 10,000 to 30,000 pounds of  dried bark to produce about 1 kilogram of the compound. Under the  terms of the 1991 CRADA, BMS agreed to initiate an aggressive search for  alternative sources of paclitaxel to lessen or eliminate dependence on the  Pacific yew. Prior to the signing of the CRADA, however, NCI had funded  research at FSU that led to the development of a semisynthetic process for  producing paclitaxel that started the manufacturing process with materials  from another type of yew tree that was plentiful. NIH provided about   $2 million in funding to FSU for this research. Researchers at FSU  patented the semisynthesis process in 1989 and subsequently licensed the  patent to BMS in 1990. Under the terms of the license agreement, BMS  paid FSU substantial royalties for this patent in order to increase the  supply of Taxol. BMS officials told us that BMS did not start using the  FSU invention to manufacture Taxol until 1996.
section_title: NIH Invested Heavily in Taxol-Related Research, but Federal Financial Benefits Have Been Limited
paragraphs: Although NIH estimates that it has invested heavily in research related to  paclitaxel, its financial benefits from the collaboration with BMS have not  been great in comparison to BMS’s revenue from the drug. NIH estimates  that it has invested $183 million in research related to paclitaxel from 1977  through 1997, the end of the CRADA’s term, although not all of this was for  research supporting the 1991 CRADA. For one portion of its investment in  Taxol, NIH estimates that its net cost for conducting clinical trials that  supported the development of Taxol through the 1991 CRADA was   $80 million—NIH estimates that it spent $96 million on the studies, and  this expense was offset by $16 million in financial support from BMS. We  estimate that the paclitaxel BMS supplied NIH through the CRADA had a  value of $92 million. In addition, NIH spent an additional $301 million on  paclitaxel-related research from 1998 through 2002, some of which  supported cancer research, bringing NIH’s total investment in paclitaxel- related research from 1977 to 2002 to $484 million. Overall, BMS officials  told us that the company spent $1 billion to develop Taxol. Worldwide  sales of Taxol have totaled over $9 billion through 2002. As a result of its  license agreement with BMS, NIH has received $35 million in royalty  payments. The 1991 CRADA noted NIH’s concern that Taxol be fairly  priced given the public investment in Taxol research and the health needs  of the public, but it did not require that reasonable evidence be presented  to show that this had occurred. The federal government has been a major  payer for Taxol, primarily through Medicare. For example, Medicare  payments for Taxol totaled $687 million from 1994 through 1999.
subsections: section_title: NIH’s Financial Investment in Paclitaxel Increased Significantly in the 1990s
paragraphs: Based on figures provided by NIH of its yearly expenditures for all  research involving paclitaxel, we estimate that NIH spent $183 million on  paclitaxel-related research from 1977 through 1997, the end of the  CRADA’s term. NIH officials told us that these figures reflect all NIH  research using paclitaxel—even when it is given to patients as the  standard of care in studies of other remedies—not just research  investigating paclitaxel and Taxol. This figure includes spending for  research on the effectiveness of paclitaxel for conditions other than  cancer as well as research to develop analogues or alternative compounds  to paclitaxel to increase the number of available drugs. We estimate NIH  spent an additional $301 million on paclitaxel-related research from 1998  through 2002, some of which supported cancer research, bringing NIH’s  total investment in paclitaxel-related research from 1977 to 2002 to $484  million. (See fig. 1.)
NIH estimates that its net expenditures to conduct clinical trials that  supported the 1991 CRADA were $80 million. NIH estimates that it spent  $96 million to conduct the clinical trials and BMS provided a  reimbursement of $16 million to offset the costs of the studies. NIH’s  estimate includes costs incurred during the CRADA and costs associated  with clinical trials conducted prior to the CRADA, the results of which  helped BMS obtain FDA approval to market Taxol. Almost all ($15.6  million) of BMS’s financial support was paid to offset clinical trial costs  during the last several years of the CRADA. In addition, we estimate the  paclitaxel BMS supplied to NIH under the CRADA had a value of   $92 million (based on FSS prices).
section_title: NIH Has Received about $35 Million in Royalties on Taxol Sales
paragraphs: NIH’s financial benefits from the collaboration with BMS have not been  great in comparison with BMS’s revenue from the drug. In 1996, when  BMS licensed from NIH three patents on methods for using Taxol in  cancer treatment, it negotiated its first and only license agreement with  NIH for Taxol, requiring BMS to pay royalties to NIH at a rate of 0.5  percent of its worldwide sales of Taxol. The NIH-BMS license agreement  resulted in about $35 million in royalties for NIH through 2002. NIH  reports that 10 individual inventors received 22 percent of the total $35.3  million in royalty payments, or an aggregated amount of $7.7 million, while  NIH kept the remainder, $27.5 million.
Worldwide Taxol sales totaled over $9 billion from 1993 through 2002.  Sales exceeded $1 billion annually from 1998 through 2001 (see table 1).  BMS officials told us that the company invested over $1 billion toward the  development of Taxol since signing the CRADA in January 1991. Costs  included supporting clinical trials (including its payments to NIH),  preparing the NDA, and finding alternative sources of the compound  through yew cultivation and research on the semisynthesis process and  plant cell culture techniques. For example, BMS officials told us that the  company’s clinical trials had enrolled over 21,000 patients by 1997.
section_title: 1991 CRADA Did Not Require Evidence That Taxol Would Be Reasonably Priced
paragraphs: At the time the 1991 CRADA was negotiated, NIH had a reasonable pricing  policy that there should be “a reasonable relationship between the pricing  of a licensed product, the public investment in that product, and the health  and safety needs of the public.” NIH’s standard reasonable pricing clause  was modified in the 1991 CRADA. The CRADA noted NIH’s concern that  “there be a reasonable relationship between the pricing of Taxol, the  public investment in Taxol research and development, and the health and  safety needs of the public.” BMS agreed in the 1991 CRADA that these  factors would be taken into account in establishing a fair market price.  However, the 1991 CRADA did not require that reasonable evidence be  presented to show that this would occur. In its comments on a draft of  this report, NIH stated it gathered other evidence to reach its conclusion  that the price of Taxol was reasonable. NIH also entered into a CRADA  with another company to develop a product that could provide  competition for Taxol (see CRADA 148 in app. II). This alternative  product, Taxotere (docetaxel), received its first marketing approval from  FDA in 1996.
section_title: Federal Government Is a Major Payer for Taxol
paragraphs: The federal government, primarily through Medicare, has been a major  payer for Taxol. Medicare payments for Taxol totaled $687 million from  1994 through 1999, the last full year of marketing exclusivity for Taxol.  Medicare payments for Taxol were $202 million in 1999, accounting for  more than one-fifth of Taxol’s total domestic sales. Medicare’s payments  reflect, in part, the price it pays for Taxol. Compared to other federal  programs, Medicare pays relatively more for Taxol than it does for other  widely used cancer drugs. To assess the pricing of Taxol, we reviewed the  price Medicare pays for Taxol and other cancer drugs compared to the  prices paid by federal programs that directly procure these drugs. We  found that in the fourth quarter of 2002, Medicare paid 6.6 times the price  these other federal programs paid for Taxol, while it paid an average of 3.0  times the price these other federal programs paid for other widely used  cancer drugs.
section_title: Several Factors Affected NIH’s Exercise of Its Broad Authority in Technology Transfer Activities Related to the Development of Taxol
paragraphs: Although NIH has broad authority under applicable statutes to negotiate  CRADAs and license agreements with outside partners, several factors  affected its exercise of that authority in the technology transfer activities  related to the development of Taxol. Such negotiations involve a weighing  of NIH’s goals and priorities with those of a potential partner, recognizing  that tradeoffs may be necessary to reach an agreement. In the case of  Taxol, NIH’s ability to exercise its authority was limited because it did not  have a patent on paclitaxel and because its evaluation found that there  was a shortage of available, qualified alternative CRADA partners. With  regard to the license negotiations on the inventions resulting from the  CRADA, the setting of royalties was affected by the criteria that both NIH  and BMS used to help guide royalty negotiations. BMS officials told us that  NIH’s inventions did not contribute to BMS’s successful marketing of  Taxol.
subsections: section_title: NIH’s Negotiating Position for the CRADA Was Potentially Affected by Its Lack of a Patent on Paclitaxel and by the Shortage of Qualified Alternative Partners
paragraphs: One factor affecting NIH’s CRADA negotiating position is its ability to  offer a potential partner exclusive marketing rights to an invention. In its  paclitaxel negotiations, NIH’s position was affected by the fact that it did  not have a patent on paclitaxel. As NIH acknowledged in the 1991  CRADA, because of this NIH was unable to grant any potential partner an  exclusive patent license to market paclitaxel. NIH was able to offer  potential partners access to the findings of the research it conducted prior  to the CRADA and to its research during the term of the CRADA.
Another factor affecting the leverage that NIH has in negotiating a CRADA  is the availability of other qualified applicants. If NIH were to be  dissatisfied with the CRADA negotiations with an applicant, it  theoretically could turn to another applicant and begin new negotiations,  accepting the inherent delays. It also could seek multiple CRADA partners,  recognizing that multiple partners may grant less favorable terms than one  receiving an exclusive agreement. In the case of paclitaxel, it was  advantageous for NIH to enter into a CRADA with an industry partner  qualified to bring paclitaxel to the marketplace and to provide an adequate  supply of paclitaxel for its work. NIH received four applications from  potential CRADA partners. Using nine criteria to rank applications,  including that an applicant have experience with both natural products  and other drug development and be able to supply adequate amounts of  the drug as needed for future clinical trials (see app. I), NIH reviewers  scored the BMS application substantially higher than all of the others.  While some concerns were raised about the BMS application, greater  concerns were raised about other applications. For example, the applicant  that received the second-highest score was cited as having no experience  in the United States involving natural products and no experience in  developing pharmaceutical agents in the United States and as providing  incomplete responses, especially on how it would make Taxol available  and how much it could supply annually.
section_title: License Negotiations under the CRADA Resulted in Royalty Payments to NIH
paragraphs: Applicable law does not restrict the royalty rate NIH can negotiate in a  license agreement, although NIH’s model CRADA at the time of the Taxol  negotiations suggested that a ceiling be set at 5 to 8 percent. This  specification has since been removed, and the current model CRADA sets  no ceiling. By law, NIH is required to offer its CRADA partners the option  to choose an exclusive license for any inventions that arise from the  CRADA work. NIH is not prohibited from specifying in the CRADA what  the royalty rate will be, rather than waiting until a subsequent license  agreement is negotiated.
When NIH and BMS entered into the license agreement 5 years after the  1991 CRADA took effect, how the parties viewed the benefits of an  agreement likely affected the royalty rate negotiations. NIH officials  indicated that they generally take eight factors into account in negotiating  royalty rates. These include the stage of product development, the type of  product, the market value of the product, the uniqueness of the materials,  the scope of the patent coverage, the market timing, NIH’s contribution to  the product, and the public health benefit. An NIH OTT official reported  that the ultimate determination of a royalty rate is not the result of a neat  formula but is based on a balancing of these factors, with the public health  benefit receiving the highest consideration. In contrast, BMS officials told  us that the company considers three factors when negotiating royalty  rates: scientific risk, coverage, and exclusivity. In the case of Taxol, a BMS  official reported that the company determined it had high scientific risk  (i.e., it did not know if the inventions would be successful), narrow  coverage (i.e., the license was for very specific ways of treating a tumor),  and a lack of exclusivity (i.e., the treatment regimens BMS licensed would  not prevent other firms from marketing generic paclitaxel after BMS’s  period of marketing exclusivity expired), all making the inventions less  valuable.
In general, NIH’s leverage in negotiating royalty rates is affected by the  amount of competition for a license. In 2000, NIH’s director of OTT  testified that the vast majority of NIH inventions require active marketing  and more often than not only one firm is generally interested in licensing  any particular type of technology. In fiscal year 2000, there were 45  requests for exclusive licenses, and only 2 technologies had two  applications for licenses each. For nonexclusive license requests, there  were 253 requests, and only 31 had more than one application. NIH’s  director of OTT reported that, at that time, OTT had approximately 2,000  technologies available for licensing, 30 percent of which had been  available for more than 5 years. In the case of Taxol, it is not clear whether  other companies would have been interested in the inventions developed  out of the CRADA, as BMS had exclusive rights to market paclitaxel at that  time.
section_title: Concluding Observations
paragraphs: From the perspectives of NIH and BMS, the 1991 CRADA is an example of  a successful collaboration between the public and private sectors in  pharmaceutical technology transfer. Early studies supported by NIH on  the clinical effectiveness of Taxol and made available to BMS under the  CRADA were critical to BMS’s success in rapidly commercializing its  brand-name drug Taxol for the treatment of cancer. The additional  supplies of the scarce paclitaxel provided by BMS to NIH under the  CRADA were critical for the expansion of NIH’s research.
NIH’s goals in the technology transfer process emphasize public health  benefits over financial considerations. In the case of Taxol, the benefit to  public health was clearly demonstrated, as there were few treatments for  women with ovarian or breast cancer when Taxol came on the market.  However the financial return to NIH was more limited. NIH made a  substantial investment in the development of Taxol. In return, NIH  received royalty payments of about $35 million from its license agreement  with BMS, and received paclitaxel and financial support from BMS for the  CRADA research. We noted that the federal government has spent over  half a billion dollars in payments to health care providers for Taxol under  the Medicare program. In light of the significant federal investment,  questions remain regarding the extent to which NIH used its broad  authority in its negotiations with BMS on the royalty payments and the  price of the drug to obtain the best value for the government.
section_title: Agency and Bristol- Myers Squibb Company Comments and Our Evaluation
paragraphs: We provided a draft of this report to NIH and BMS for their review. In its  comments, NIH provided us with additional information about its  expenditures related to the 1991 NIH-BMS CRADA and BMS’s  contributions to NIH research under the CRADA, and also presented the  reasons that it did not patent paclitaxel. NIH acknowledged that the 1991  CRADA did not require that evidence be presented to assure that Taxol  was reasonably priced; however, NIH states that its analysis of other  information led it to conclude that Taxol was fairly priced. In response, we  have incorporated the new information from NIH into the report as  appropriate. However, we were not able to evaluate the basis for NIH’s  judgment that Taxol was fairly priced. NIH’s comments are included as  appendix IV. NIH also provided technical comments, which we have  incorporated as appropriate.
In its comments, BMS expressed concern that our estimates of NIH’s  expenditures for the development of Taxol gave an exaggerated view of  NIH’s spending. We have revised our presentation of NIH’s spending based  on additional information contained in NIH’s comments. BMS also  expressed two concerns about our analysis of the price of Taxol to  Medicare relative to other cancer drugs. First, BMS suggested that our  analysis may include payments to physicians for administering the drugs in  addition to the procurement price of the drugs. However, our analysis  considered only the prices for drug procurement and did not include  payments for physician services. Second, BMS suggested that our findings  may change if our analysis excluded generic drugs and was restricted to  brand name drugs. However, only 2 of the 12 comparison drugs in our  analysis are generic drugs and our findings do not change if they are  excluded. We found that, while Medicare generally pays more for cancer  drugs than other federal programs that can directly procure  pharmaceuticals, this price premium for Taxol is greater than average.  BMS also made technical comments, which we incorporated as  appropriate.
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section_title: Appendix I: Selection of “Clinical Development of Taxol” CRADA Partner
paragraphs: On August 1, 1989, NIH published a notice in the Federal Register seeking  a pharmaceutical company that could effectively pursue the clinical  development of paclitaxel for the treatment of cancer. Included in the  Federal Register announcement were nine criteria for the selection of the  CRADA partner:    Experience in the development of natural products for clinical use.    Experience in preclinical and clinical drug development.    Experience in and ability to produce, package, market, and distribute  pharmaceutical products in the United States and to provide the product  at a reasonable price, and experience in doing so.
Experience in the monitoring, evaluation, and interpretation of the data  from investigational agent clinical studies under an investigational new  drug application.
Willingness to cooperate with the Public Health Service in the collection,  evaluation, publication, and maintaining of data from clinical trials of  investigational agents.
A willingness to cost-share in the development of paclitaxel, including the  acquisition of raw material and isolation or synthesis of paclitaxel in  adequate amounts as needed for future clinical trials and marketing.
Establishment of an aggressive development plan, including appropriate  milestones and deadlines for preclinical and clinical development.
An agreement to be bound by the HHS rules involving human and animal  subjects.
Provision for equitable distribution of patent rights to any inventions.
NIH’s Taxol CRADA Review Committee met on October 10, 1989, to  review the applications of the four potential CRADA partners. The  committee scored BMS’s application substantially higher than all of the  others, with none of the other applications receiving a higher score than  BMS on any of the individual criteria. Some of the strengths of the BMS  application that were discussed were BMS’s extensive experience with  natural products, its impressive record in the area of production of  anticancer agents and substantial experience in preclinical drug  development, and its bearing of financial responsibility for collection of  the compound and preclinical toxicology studies. Weaknesses discussed  were pricing and the estimates of available paclitaxel. The applicant  receiving the second-highest score was cited as having no experience in  the United States for natural products and no experience in developing  drugs in the United States.
section_title: Appendix II: Catalog of CRADAs and License Agreements Related to Taxol
paragraphs: NIH has had four CRADAs and one CRADA amendment related to  paclitaxel (see table 2). Two of the CRADAs and the CRADA amendment  were with BMS and concerned development of the drug Taxol. One  CRADA was with Rhône-Poulenc Rorer (now Aventis) and involved  research on Taxotere, a part of the taxane class of chemotherapy drugs,  whose original source is the yew tree. It is also a treatment that can help  destroy cancer cells in the body after previous chemotherapy. An  additional CRADA, which is ongoing, is with Angiotech and the Johns  Hopkins University and involves the use of paclitaxel to coat stents used in  angioplasty.
Although paclitaxel itself has not been patented, methods of  administration of the drug have been patented. There are a few patents  pertaining to paclitaxel (see table 3). The government has an interest in  three of these patents: 5496804, 5496846, and 6150398. Patent 5496804 is  for a method for treating paclitaxel side effects with G-CSF (granulocyte  colony-stimulating factor); patent 5496846 is a method for using paclitaxel  in a 96-hour infusion for breast cancer; and patent 6150398 is for a method  of treating cancer by administration of paclitaxel and a DNA cross-linking  antineoplastic agent (cisplatin). Patents 5641803 and 5670537 are held by  BMS solely. One is a method for administering Taxol over 3 hours, and the  other is for a method of effecting tumor regression with a low-dose, short- infusion Taxol regimen.
NIH has one exclusive patent license agreement with BMS that resulted  from CRADA 64, “Clinical Development of Taxol.” This license agreement  covers three patents: 5496804, 5496846, and 6150398.
In addition, BMS and FSU established a major license agreement  concerning the semisynthetic production of Taxol. Other NIH CRADAs  involving the other industry partners (i.e., Rhône-Poulenc Rorer,  Angiotech, and the Johns Hopkins University) did not result in any  patented inventions or license agreements.
section_title: Appendix III: Chronology of the Research and Development of Taxol (Paclitaxel)
paragraphs: Appendix III: Chronology of the Research and  Development of Taxol (Paclitaxel)
The National Cancer Institute (NCI) initiates the Natural Products  Program to screen 35,000 plant species for anticancer activity.
Researchers at Research Triangle Institute in North Carolina find that an  extract from the bark of the Pacific yew tree has antitumor activity.
Researchers at Research Triangle Institute identify compound 17— paclitaxel—the active ingredient in the Pacific yew tree.
Researchers at Albert Einstein College of Medicine discover how  paclitaxel works to prevent cell division, by means of a mechanism called  tubulin stabilization.
Stevenson-Wydler Technology Innovation Act and Bayh-Dole Act enacted.
NCI files an investigational new drug application (IND) to initiate clinical  trials of paclitaxel. IND is approved, and phase 1 clinical trials begin.
NCI begins phase 2 clinical trials.
Federal Technology Transfer Act enacted.
Hauser Chemical becomes contractor to NIH, collecting yew tree bark and  manufacturing paclitaxel.
Researchers at Florida State University (FSU), funded by NIH, patent a  process for the semisynthesis of Taxol.
NCI publishes a Federal Register announcement petitioning  pharmaceutical companies to compete for the right to develop paclitaxel.  Four companies, including Bristol-Myers Squibb (BMS), apply.
FSU and BMS sign a license agreement for BMS’s use of the semisynthesis  process.
NCI signs CRADA with BMS for the clinical development of paclitaxel.
U.S. Patent and Trademark Office approves BMS’s application to  trademark the name Taxol.
BMS files a new drug application (NDA) with FDA for use of Taxol to treat  ovarian cancer.
BMS obtains FDA approval in December for treatment of patients with  metastatic carcinoma of the ovary after failure of first-line or subsequent  therapy.
Pacific Yew Act enacted (Pub. L. No. 102-335, 106 Stat. 859).
BMS introduces Taxol into the marketplace for treatment of ovarian  cancer.
BMS files supplemental NDAs with the FDA, one for further defining the  optimal dose and schedule of the administration of Taxol, another for use  of paclitaxel as a secondary therapy for breast cancer.
BMS obtains FDA approval in April for treatment of breast cancer after  failure of combination chemotherapy for metastatic disease or relapse  within 6 months of adjuvant chemotherapy. Prior therapy should have  included an anthracycline unless clinically contraindicated.
BMS obtains FDA approval in June for new dosing regimen for patients  who have failed initial or subsequent chemotherapy for metastatic  carcinoma of the ovary.
FDA approves supplemental NDA for semisynthetic production of Taxol  by using the process developed by FSU.
NCI and BMS CRADA extended through December 1997.    NIH is awarded patents for Taxol Treatment of Breast Cancer and Method  for Treating Taxol Side Effects with G-CSF.
NIH and BMS sign license agreement, whereby NIH provides BMS with  exclusive rights to three NCI inventions involving Taxol. BMS is required  to provide NIH with royalty payments and research support, and meet  benchmarks for the clinical development of Taxol.    NIH begins to receive royalty payments from BMS.
BMS obtains FDA approval in August for second-line therapy for AIDS- related Kaposi’s sarcoma.
Other drug companies begin developing generic versions of paclitaxel and  file NDAs and abbreviated new drug applications with FDA.
BMS obtains FDA approval in April for first-line therapy for the treatment  of advanced carcinoma of the ovary in combination with cisplatin.
BMS obtains FDA approval in June for use of Taxol injection, in  combination with cisplatin, for the first-line treatment of non-small-cell  lung cancer in patients who are not candidates for potentially curative  surgery and/or radiation therapy.
BMS obtains FDA approval in October for adjuvant treatment of node- positive breast cancer administered sequentially to standard doxorubicin- containing combination chemotherapy.
First generic version of paclitaxel approved in September.    Generic versions of paclitaxel enter the marketplace.
BMS obtains FDA approval in June for new dosing regimen for the first- line treatment of advanced ovarian cancer: every 3 weeks at a dose of 175  milligrams per square meter of body surface followed by cisplatin at a  dose of 75 mg/m.
section_title: Appendix IV: Comments from the National Institutes of Health
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: Other key contributors to this report are Helen Desaulniers, Anne Dievler,  Julian Klazkin, Carolyn Feis Korman, Carolina Morgan, and Roseanne  Price.