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. 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. 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. 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.)