oversight

Technology Transfer: NIH-Private Sector Partnership in the Development of Taxol

Published by the Government Accountability Office on 2003-06-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to the Honorable Ron Wyden,
             U.S. Senate



June 2003
             TECHNOLOGY
             TRANSFER
             NIH-Private Sector
             Partnership in the
             Development of Taxol




GAO-03-829
Contents


Letter                                                                                       1
               Results in Brief                                                              3
               Background                                                                    5
               NIH-BMS Partnership Provided Research Results Critical to
                 Developing Taxol’s Commercial Uses                                        10
               NIH Invested Heavily in Taxol-Related Research, but Federal
                 Financial Benefits Have Been Limited                                      13
               Several Factors Affected NIH’s Exercise of Its Broad Authority in
                 Technology Transfer Activities Related to the Development of
                 Taxol                                                                     18
               Concluding Observations                                                     20
               Agency and Bristol-Myers Squibb Company Comments and Our
                 Evaluation                                                                21

Appendix I     Selection of “Clinical Development of Taxol”
               CRADA Partner                                                               23



Appendix II    Catalog of CRADAs and License Agreements
               Related to Taxol                                                            24



Appendix III   Chronology of the Research and Development of
               Taxol (Paclitaxel)                                                          26



Appendix IV    Comments from the National Institutes of Health                             29



Appendix V     GAO Contact and Staff Acknowledgments                                       35
               GAO Contact                                                                 35
               Acknowledgments                                                             35




               Page i                      GAO-03-829 Technology Transfer in Taxol Development
Tables
         Table 1: BMS’s Worldwide Taxol Sales, 1993-2002                                           16
         Table 2: CRADAs Related to Taxol                                                          24
         Table 3: Patents Related to Taxol                                                         25


Figure
         Figure 1: NIH’s Funding for Paclitaxel-Related Research                                   14




         Abbreviations

         AWP               average wholesale price
         BMS               Bristol-Myers Squibb Company
         CRADA             cooperative research and development agreement
         FDA               Food and Drug Administration
         FSU               Florida State University
         FSS               Federal Supply Schedule
         IND               investigational new drug application
         NCI               National Cancer Institute
         NDA               new drug application
         NIH               National Institutes of Health
         OFM               Office of Financial Management
         OTT               Office of Technology Transfer
         PHS               Public Health Service




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         Page ii                           GAO-03-829 Technology Transfer in Taxol Development
United States General Accounting Office
Washington, DC 20548




                                   June 4, 2003

                                   The Honorable Ron Wyden
                                   United States Senate

                                   Dear Senator Wyden:

                                   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.1 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.




                                   1
                                    Paclitaxel is the name of the generic equivalent of Taxol. The drug was known as taxol
                                   from its discovery in the 1960s until 1992, when BMS trademarked the name Taxol. At that
                                   time, BMS objected to researchers using taxol as the generic name, and so it was changed
                                   to paclitaxel. In this report, we use the name Taxol to refer to the brand-name drug sold by
                                   BMS, and we use paclitaxel to refer to the drug in other contexts.



                                   Page 1                             GAO-03-829 Technology Transfer in Taxol Development
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.2 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.3 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


2
 BMS voluntarily agreed to the disclosure of its commercial information in the CRADAs
and the license agreement so that our study could be completed and the results of our
review could be made publicly available.
3
Throughout the report, dollars are reported as actual dollars, not adjusted for inflation.




Page 2                             GAO-03-829 Technology Transfer in Taxol Development
                   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.


                   NIH’s collaboration with BMS provided the company with research results
Results in Brief   that enabled paclitaxel to be quickly commercialized as the brand-name
                   drug Taxol and made available as a treatment—initially for ovarian cancer
                   patients, and later for other cancer patients. Prior to the signing of the
                   1991 CRADA between NIH and BMS, and during the first 2 years of the
                   CRADA, NIH conducted most of the clinical trials associated with
                   paclitaxel. The results of NIH’s clinical trials were critical for BMS to
                   secure FDA’s initial approval in 1992 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. As agreed in the CRADA, BMS supplied paclitaxel to NIH researchers
                   to overcome previous shortages that had limited NIH’s research. The
                   additional paclitaxel supplied by BMS allowed NIH researchers to increase
                   the number of patients enrolled in NIH clinical trials for paclitaxel from
                   less than 500 patients in 1989 to 28,882 through the end of the CRADA
                   term. Three inventions—which were methods for administering paclitaxel
                   and treating side effects—resulted from the 1991 CRADA and were later
                   patented by NIH. In 1996 NIH signed an agreement to license these
                   inventions to BMS, but BMS officials told us that they were not used in any
                   of BMS’s applications to FDA to expand the approved uses of Taxol. In
                   addition, an NIH grant to FSU led to the important discovery of a method
                   for producing paclitaxel, which was licensed to BMS by FSU in 1990 and
                   later used to produce Taxol.

                   NIH made substantial investments in 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 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. 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


                   Page 3                       GAO-03-829 Technology Transfer in Taxol Development
from 1977 to 2002 to $484 million. Overall, BMS officials told us that the
company spent $1 billion to develop Taxol. BMS’s worldwide sales of
Taxol totaled over $9 billion from 1993 through 2002. In its 1996 license
agreement with NIH, BMS agreed to pay NIH royalties at a rate of 0.5
percent of worldwide sales of Taxol, and NIH received royalty payments
totaling $35 million through 2002. The 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 would occur. The federal
government has been a major payer for Taxol, primarily through Medicare.
Medicare payments for Taxol totaled $687 million from 1994 through 1999,
the last full year before a generic version of Taxol was approved for
marketing.

Several factors affected NIH’s exercise of its authority in technology
transfer activities related to the development of paclitaxel. First, in
negotiations regarding a CRADA for paclitaxel, NIH’s ability to exercise its
authority was limited because, even though its research findings could be
valuable in securing FDA approval for marketing the drug, NIH did not
have a patent on paclitaxel, and thus could not grant a possible CRADA
partner an exclusive patent license to market the drug upon FDA approval.
Second, NIH’s evaluation suggests that there was a shortage of available,
qualified alternative CRADA partners. According to NIH’s records, BMS’s
CRADA application scored significantly higher than others. Finally, the
negotiation of royalties for NIH’s later 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. While
nothing in applicable law restricts the amount of royalties NIH can
negotiate, a number of considerations bear on the negotiations. These
include the stage of product development, the potential market value of
the invention, and the contribution to public health of making the product
available. In this case, BMS officials told us that NIH’s inventions did not
contribute to BMS’s successful marketing of Taxol.

In commenting on a draft of this report, NIH provided additional
information about its expenditures and the contributions of BMS, which
we incorporated, and also discussed its efforts to evaluate the pricing of
Taxol. In its comments on a draft of this report, BMS expressed concern
about our estimates of NIH’s expenditures; we have revised our
presentation based on information contained in NIH’s comments. BMS
also expressed concerns that our analysis overstated the cost of Taxol to
Medicare. Our analysis did not overstate the cost, and we have clarified
our discussion.


Page 4                      GAO-03-829 Technology Transfer in Taxol Development
                            Taxol is currently used to treat several types of cancer, including
Background                  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.


Public-Private Technology   The 1991 NIH-BMS CRADA was one of the first CRADAs to result in a
Transfer                    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 19804 and the Bayh-Dole
                            Act5—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 Act6 amended the Stevenson-Wydler



                            4
                            Pub. L. No. 96-480, 94 Stat 2311.
                            5
                            Pub. L. No. 96-517, § 6(a), 94 Stat. 3019.
                            6
                            Pub. L. No. 99-502, 100 Stat. 1785.




                            Page 5                                GAO-03-829 Technology Transfer in Taxol Development
                           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’s Role in Technology   NIH, with a budget of over $23 billion in fiscal year 2002, is the principal
Transfer                   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.7 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.


                           7
                            OTT also manages the patent and licensing activities for FDA and is responsible for the
                           central development and implementation of technology transfer policies for NIH, FDA, the
                           Centers for Disease Control and Prevention, and the Agency for Healthcare Research and
                           Quality.




                           Page 6                           GAO-03-829 Technology Transfer in Taxol Development
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.8 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.”9 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


8
 Phase 1 studies of an investigational new drug for cancer are generally conducted in a
small group of cancer patients to test for safety; phase 2 studies are generally conducted to
test for safety and effectiveness in several hundred patients who have the condition under
investigation; and phase 3 studies, which are performed after preliminary evidence
suggesting effectiveness has been obtained in phase 2 trials, may include several hundred
to several thousand people.
9
21 U.S.C. § 355(b)(1)(D) (2000).




Page 7                             GAO-03-829 Technology Transfer in Taxol Development
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 [NIH] 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.10 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.


10
 See 15 U.S.C. § 3710a(c)(7); 18 U.S.C. § 1905 (2000). See Public Citizen v. NIH, 209 F.
Supp. 2d 37 (D.D.C. 2002), see also, 5 U.S.C. § 552(b)(4) (2000), which exempts trade
secrets, and commercial and financial information that is privileged or confidential, from
public disclosure.




Page 8                             GAO-03-829 Technology Transfer in Taxol Development
The Development of Taxol   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.11 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 [paclitaxel].” 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


                           11
                            54 Fed. Reg. 31733 (1989).




                           Page 9                        GAO-03-829 Technology Transfer in Taxol Development
                      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 1984.12 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.13 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.14 (See the
                      chronology in app. III for more information on the research and
                      development of Taxol.)


                      The NIH-BMS collaboration provided BMS access to NIH research results
NIH-BMS Partnership   that were critical for BMS’s quick commercialization of Taxol. It provided
Provided Research     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
Results Critical to   paclitaxel research. BMS later licensed three NIH inventions that resulted
Developing Taxol’s    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
Commercial Uses       additional indications. An NIH grant led to the important discovery of a
                      method for the semisynthesis of paclitaxel by FSU researchers.



                      12
                       Pub. L. No. 98-417, 98 Stat. 1585.
                      13
                        21 U.S.C. § 355(c)(3)(D)(ii) (2000). See H.R.Rep. No. 98-857, pt. 1, at 29 (1984), reprinted
                      in 1984 U.S.C.C.A.N. 2647, 2647-48, 2662.
                      14
                       21 U.S.C. § 355(j)(5)(B)(iii) (2000). In theory, a company could choose to waive its right to
                      marketing exclusivity. In the case of Taxol, NIH and BMS could have agreed to such a
                      waiver during CRADA or licensing negotiations, but we are not aware of such discussions.




                      Page 10                               GAO-03-829 Technology Transfer in Taxol Development
NIH-BMS Collaboration       The NIH-BMS collaboration gave BMS unlimited access to NIH research
Gave BMS Access to          results that were critical to BMS’s ability to quickly receive FDA approval
Critical Research Results   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.15 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.


NIH-BMS Collaboration       Under the terms of the 1991 CRADA, BMS supplied paclitaxel for NCI’s
Allowed NIH to Expand Its   own studies as well as for NCI-funded trials at other institutions that were
Paclitaxel Research         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



                            15
                              BMS officials told us that the number of patients in the five NCI trials and the one BMS
                            trial were very similar (186 and 159 patients, respectively).




                            Page 11                            GAO-03-829 Technology Transfer in Taxol Development
                            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.


NIH Licensed Inventions     In 1996, NIH signed an agreement to license to BMS three patented
from CRADA to BMS           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.


NIH Funding Supported       The supply of natural paclitaxel was a continuing problem, since the bark
Development of              of the Pacific yew was scarce and it took about 10,000 to 30,000 pounds of
Semisynthesis Process for   dried bark to produce about 1 kilogram of the compound.16 Under the
                            terms of the 1991 CRADA, BMS agreed to initiate an aggressive search for
Producing Paclitaxel        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




                            16
                             In response to the demand for Pacific yew bark, the Pacific Yew Act was enacted in 1992.
                            The purposes of the Pacific Yew Act are to (1) provide for the efficient collection and
                            utilization of those parts of the Pacific yew that can be used in the manufacture of
                            paclitaxel for the treatment of cancer, (2) provide for the sale of Pacific yew for the
                            commercial production and sale of paclitaxel at a reasonable cost to cancer patients,
                            (3) ensure the long-term conservation of the Pacific yew, and (4) prevent the wasting of
                            Pacific yew resources while successful and affordable alternative methods of
                            manufacturing paclitaxel are being developed. Pub. L. No. 102-335 § 2(b), 106 Stat. 859-860.




                            Page 12                            GAO-03-829 Technology Transfer in Taxol Development
                        supply of Taxol.17 BMS officials told us that BMS did not start using the
                        FSU invention to manufacture Taxol until 1996.


                        Although NIH estimates that it has invested heavily in research related to
NIH Invested Heavily    paclitaxel, its financial benefits from the collaboration with BMS have not
in Taxol-Related        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
Research, but Federal   through 1997, the end of the CRADA’s term, although not all of this was for
Financial Benefits      research supporting the 1991 CRADA. For one portion of its investment in
                        Taxol, NIH estimates that its net cost for conducting clinical trials that
Have Been Limited       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.




                        17
                         BMS officials declined to disclose the amount of the Taxol-related royalties BMS paid to
                        FSU. However, we estimate that FSU received a royalty rate of approximately 4.2 percent
                        of BMS’s total worldwide sales of Taxol. For example, FSU’s Office of Technology Transfer
                        website reported that FSU received $67 million in royalties in 2000 and an FSU official told
                        us that 98 percent of those royalties were from the license with BMS
                        (www.techtransfer.fsu.edu/tts.html, downloaded June 3, 2003). This represents about 4.2
                        percent of Taxol’s total worldwide sales in calendar year 2000.




                        Page 13                            GAO-03-829 Technology Transfer in Taxol Development
NIH’s Financial Investment                                  Based on figures provided by NIH of its yearly expenditures for all
in Paclitaxel Increased                                     research involving paclitaxel, we estimate that NIH spent $183 million on
Significantly in the 1990s                                  paclitaxel-related research from 1977 through 1997, the end of the
                                                            CRADA’s term. 18 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.)

Figure 1: NIH’s Funding for Paclitaxel-Related Research

Dollars in thousands
80,000


70,000
                                                                                                           First NIH-BMS CRADA ended
60,000
                                                                                               NIH-BMS license agreement signed
50,000


40,000


30,000
                                                                                           Taxol commercialized
20,000                                                                 First NIH-BMS CRADA started

10,000


      0
          1977    '78   '79   '80   '81   '82   '83   '84        '85   '86   '87   '88   '89   '90   '91   '92   '93   '94   '95   '96   '97   '98   '99   '00   '01   '02

                 NIH funding for research on paclitaxel
Source: GAO.

                                                            Note: GAO analysis based on data provided by NIH.




                                                            18
                                                             NIH officials told us that NIH could not estimate its paclitaxel-related expenditures for
                                                            years earlier than 1977.




                                                            Page 14                                    GAO-03-829 Technology Transfer in Taxol Development
                              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).19


NIH Has Received about        NIH’s financial benefits from the collaboration with BMS have not been
$35 Million in Royalties on   great in comparison with BMS’s revenue from the drug. In 1996, when
Taxol Sales                   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 2002.20 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.21

                              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 1991.22 Costs
                              included supporting clinical trials (including its payments to NIH),


                              19
                               FSS prices represent the prices at which some federal programs can purchase Taxol. NIH
                              estimated that the paclitaxel supplied by BMS had a value of $151 million based on average
                              wholesale prices, which are generally higher than FSS prices.
                              20
                                From 1996 through 2002, NIH’s total royalty income from all its licensed inventions was
                              $296 million.
                              21
                                NIH distributes royalty income in accordance with federal law and NIH policy. The
                              inventors’ share of royalties varied from year to year, based on BMS’s sales per year. The
                              income remaining after the inventors’ share went to NCI.
                              22
                               A recent analysis estimated that the average out-of-pocket cost of developing a new drug
                              was $543 million (in 2000 dollars). See J.A. DiMasi, R.W. Hansen, and H.G. Grabowski, “The
                              Price of Innovation: New Estimates of Drug Development Costs,” Journal of Health
                              Economics, vol. 22 (2003).




                              Page 15                            GAO-03-829 Technology Transfer in Taxol Development
                        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.

                        Table 1: BMS’s Worldwide Taxol Sales, 1993-2002

                            Year                                                                      Total sales in dollars
                            1993                                                                                162,000,000
                            1994                                                                                344,000,000
                            1995                                                                                580,000,000
                            1996                                                                                813,000,000
                            1997                                                                                941,000,000
                            1998                                                                              1,204,000,000
                            1999                                                                              1,453,000,000
                            2000                                                                              1,561,000,000
                                                                                                                           a
                            2001                                                                             1,112,000,000
                            2002                                                                                857,000,000
                            Total                                                                            9,027,000,000

                        Source: BMS.
                        a
                         Taxol sales decreased after 2000, in part, because the first generic version of paclitaxel was
                        released to the marketplace in late 2000.




1991 CRADA Did Not      At the time the 1991 CRADA was negotiated, NIH had a reasonable pricing
Require Evidence That   policy that there should be “a reasonable relationship between the pricing
Taxol Would Be          of a licensed product, the public investment in that product, and the health
                        and safety needs of the public.”23 NIH’s standard reasonable pricing clause
Reasonably Priced       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




                        23
                          Shortly after introducing the policy of “reasonable pricing,” industry objected, considering
                        it a form of price control, and many companies withdrew from further interaction with
                        NIH. According to NIH, this ultimately created a barrier to expanded research
                        relationships. The policy was revoked by NIH in 1995.




                        Page 16                                GAO-03-829 Technology Transfer in Taxol Development
                          presented to show that this would occur.24 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.


Federal Government Is a   The federal government, primarily through Medicare, has been a major
Major Payer for Taxol     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.25 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.26



                          24
                           HHS-OIG, Technology Transfer and the Public Interest: Cooperative Research and
                          Development Agreements at NIH, OEI-01-92-01100 (Washington, D.C.: November 1993).
                          25
                            Federal agencies that directly procure pharmaceuticals have access to the FSS. Medicare
                          does not purchase cancer drugs directly, but instead pays providers for cancer drugs that
                          they have purchased. FSS prices are negotiated and are based on the actual best prices
                          manufacturers charge some of their customers. Manufacturers must also sell brand-name
                          drugs listed on the FSS to four federal drug purchasers—the Department of Veterans
                          Affairs, the Department of Defense, the Public Health Service, and the Coast Guard—at a
                          price at least 24 percent lower than the nonfederal average manufacturer price, a ceiling
                          price that is lower than the FSS price for many drugs. Medicare payments are determined
                          by the average wholesale price (AWP), a number reported by manufacturers. AWP often
                          considerably exceeds the price a manufacturer actually receives for a drug. See U.S.
                          General Accounting Office, Medicare: Payments for Covered Outpatient Drugs Exceed
                          Providers’ Costs, GAO-01-1118 (Washington, D.C.: Sept. 21, 2001).
                          26
                            For this analysis, we examined the FSS and Medicare prices for Taxol and 12 other drugs
                          for the treatment of cancer that were identified as among the top 35 drugs for Medicare
                          Part B spending in 2001 and 2002 by the Centers for Medicare and Medicaid Services. These
                          prices reflect solely drug procurement prices; they do not include any payments for
                          administering the drugs.




                          Page 17                           GAO-03-829 Technology Transfer in Taxol Development
                              Although NIH has broad authority under applicable statutes to negotiate
Several Factors               CRADAs and license agreements with outside partners, several factors
Affected NIH’s                affected its exercise of that authority in the technology transfer activities
                              related to the development of Taxol. Such negotiations involve a weighing
Exercise of Its Broad         of NIH’s goals and priorities with those of a potential partner, recognizing
Authority in                  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
Technology Transfer           have a patent on paclitaxel and because its evaluation found that there
Activities Related to         was a shortage of available, qualified alternative CRADA partners. With
the Development of            regard to the license negotiations on the inventions resulting from the
                              CRADA, the setting of royalties was affected by the criteria that both NIH
Taxol                         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.


NIH’s Negotiating Position    One factor affecting NIH’s CRADA negotiating position is its ability to
for the CRADA Was             offer a potential partner exclusive marketing rights to an invention. In its
Potentially Affected by Its   paclitaxel negotiations, NIH’s position was affected by the fact that it did
                              not have a patent on paclitaxel.27 As NIH acknowledged in the 1991
Lack of a Patent on           CRADA, because of this NIH was unable to grant any potential partner an
Paclitaxel and by the         exclusive patent license to market paclitaxel. NIH was able to offer
Shortage of Qualified         potential partners access to the findings of the research it conducted prior
Alternative Partners          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



                              27
                               In its comments on a draft of this report, NIH stated that it could not patent paclitaxel
                              because the relevant information about the compound was already in the public domain.




                              Page 18                            GAO-03-829 Technology Transfer in Taxol Development
                           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.


License Negotiations       Applicable law does not restrict the royalty rate NIH can negotiate in a
under the CRADA Resulted   license agreement, although NIH’s model CRADA at the time of the Taxol
in Royalty Payments to     negotiations suggested that a ceiling be set at 5 to 8 percent. This
                           specification has since been removed, and the current model CRADA sets
NIH                        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.28 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


                           28
                            15 U.S.C. § 3710a(b)(1) (2000).




                           Page 19                            GAO-03-829 Technology Transfer in Taxol Development
               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.29 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.


               From the perspectives of NIH and BMS, the 1991 CRADA is an example of
Concluding     a successful collaboration between the public and private sectors in
Observations   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,


               29
                Public Citizen v. NIH, at 54.




               Page 20                          GAO-03-829 Technology Transfer in Taxol Development
                      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.


                      We provided a draft of this report to NIH and BMS for their review. In its
Agency and Bristol-   comments, NIH provided us with additional information about its
Myers Squibb          expenditures related to the 1991 NIH-BMS CRADA and BMS’s
                      contributions to NIH research under the CRADA, and also presented the
Company Comments      reasons that it did not patent paclitaxel. NIH acknowledged that the 1991
and Our Evaluation    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.


                      As we agreed with your office, unless you publicly announce its contents
                      earlier, we plan no further distribution of this report until 30 days from the
                      date of the report. At that time, we will send it to the Secretary of Health
                      and Human Services, the Director of NIH, and others who are interested.


                      Page 21                      GAO-03-829 Technology Transfer in Taxol Development
We will make copies available to others upon request. In addition, the
report will be available at no charge on GAO’s Web site at
http://www.gao.gov.

If you or your staff have any questions about this report, please call me at
(202) 512-7119. Another contact and key contributors are listed in
appendix V.

Sincerely yours,




Marcia Crosse
Acting Director, Health Care—Public
 Health and Science Issues




Page 22                      GAO-03-829 Technology Transfer in Taxol Development
                Appendix I: Selection of “Clinical
Appendix I: Selection of “Clinical
                Development of Taxol” CRADA Partner



Development of Taxol” CRADA Partner

                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.




                Page 23                        GAO-03-829 Technology Transfer in Taxol Development
              Appendix II: Catalog of CRADAs and License
Appendix II: Catalog of CRADAs and License
              Agreements Related to Taxol



Agreements Related to Taxol

              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.

              Table 2: CRADAs Related to Taxol

               CRADA number Title                          Partners                   Active dates
               64            Clinical Development of       NCI and BMS          1/23/91 to 12/31/97
                             Taxol
               97 (amendment Clinical Development of       NCI and BMS          7/17/95 to 12/31/97
               to 64)        Taxol: Studies on
                             Mechanisms of Action
                             and Resistance,
                             Identification of Analogs
                             Active in Resistant Cell
                             Lines
               686           Taxol: Studies on the         NCI and BMS             6/9/98 to 6/9/01
                             Mechanisms of Action
                             and Resistance
               148           CRADA for the Clinical        NCI and Rhône-                   5/14/92
                             Development of                Poulenc Rorer                  to 3/1/00
                             Taxotere
               363           Use of Paclitaxel and         NIH, Angiotech,         Currently active
                             Microtubule-Stabilizing       and the Johns
                             Agents for the                Hopkins University
                             Prevention of Restenosis

              Source: NIH.



              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




              Page 24                         GAO-03-829 Technology Transfer in Taxol Development
Appendix II: Catalog of CRADAs and License
Agreements Related to Taxol




other is for a method of effecting tumor regression with a low-dose, short-
infusion Taxol regimen.

Table 3: Patents Related to Taxol

 Patent                                                                                   Date
 number               Title                                    Assignee              approved
 5496804              Method for Treating Taxol Side           Department of          3/5/1996
                      Effects with G-CSF                       Health and Human
                                                               Services
 5496846              Taxol Treatment of Breast Cancer         Department of           3/5/1996
                                                               Health and Human
                                                               Services
 5641803              Methods for Administration of Taxol      Bristol-Myers         6/24/1997
                                                               Squibb Co.
 5670537              Method for Effecting Tumor               Bristol-Myers         9/23/1997
                      Regression with a Low-Dose, Short-       Squibb Co.
                      Infusion Taxol Regimen
 6150398              Methods for the Treatment of Cancer Department of             11/21/2000
                                                          Health and Human
                                                          Services

Source: U.S. Patent and Trademark Office.



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.




Page 25                                     GAO-03-829 Technology Transfer in Taxol Development
                 Appendix III: Chronology of the Research and
Appendix III: Chronology of the Research
                 Development of Taxol (Paclitaxel)



and Development of Taxol (Paclitaxel)

1958         •   The National Cancer Institute (NCI) initiates the Natural Products
                 Program to screen 35,000 plant species for anticancer activity.


1963         •   Researchers at Research Triangle Institute in North Carolina find that an
                 extract from the bark of the Pacific yew tree has antitumor activity.


1971         •   Researchers at Research Triangle Institute identify compound 17—
                 paclitaxel—the active ingredient in the Pacific yew tree.


1979         •   Researchers at Albert Einstein College of Medicine discover how
                 paclitaxel works to prevent cell division, by means of a mechanism called
                 tubulin stabilization.


1980         •   Stevenson-Wydler Technology Innovation Act and Bayh-Dole Act enacted.


1983         •   NCI files an investigational new drug application (IND) to initiate clinical
                 trials of paclitaxel. IND is approved, and phase 1 clinical trials begin.


1985         •   NCI begins phase 2 clinical trials.


1986         •   Federal Technology Transfer Act enacted.


1987         •   Hauser Chemical becomes contractor to NIH, collecting yew tree bark and
                 manufacturing paclitaxel.


1989         •   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.


1990         •   FSU and BMS sign a license agreement for BMS’s use of the semisynthesis
                 process.



                 Page 26                          GAO-03-829 Technology Transfer in Taxol Development
           Appendix III: Chronology of the Research and
           Development of Taxol (Paclitaxel)




1991   •   NCI signs CRADA with BMS for the clinical development of paclitaxel.


1992   •   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).


1993   •   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.


1994   •   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.


1996   •   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.




           Page 27                          GAO-03-829 Technology Transfer in Taxol Development
           Appendix III: Chronology of the Research and
           Development of Taxol (Paclitaxel)




1997   •   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.


1998   •   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.


1999   •   BMS obtains FDA approval in October for adjuvant treatment of node-
           positive breast cancer administered sequentially to standard doxorubicin-
           containing combination chemotherapy.


2000   •   First generic version of paclitaxel approved in September.
       •   Generic versions of paclitaxel enter the marketplace.


2002   •   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
                            2
           dose of 75 mg/m .




           Page 28                          GAO-03-829 Technology Transfer in Taxol Development
              Appendix IV: Comments from the National Institutes of Health
Appendix IV: Comments from the National
Institutes of Health




              Page 29                          GAO-03-829 Technology Transfer in Taxol Development
Appendix IV: Comments from the National Institutes of Health




Page 30                          GAO-03-829 Technology Transfer in Taxol Development
Appendix IV: Comments from the National Institutes of Health




Page 31                          GAO-03-829 Technology Transfer in Taxol Development
Appendix IV: Comments from the National Institutes of Health




Page 32                          GAO-03-829 Technology Transfer in Taxol Development
Appendix IV: Comments from the National Institutes of Health




Page 33                          GAO-03-829 Technology Transfer in Taxol Development
Appendix IV: Comments from the National Institutes of Health




Page 34                          GAO-03-829 Technology Transfer in Taxol Development
                  Appendix V: GAO Contact and Staff
Appendix V: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Martin T. Gahart, (202) 512-3596
GAO Contact
                  Other key contributors to this report are Helen Desaulniers, Anne Dievler,
Acknowledgments   Julian Klazkin, Carolyn Feis Korman, Carolina Morgan, and Roseanne
                  Price.




(290243)
                  Page 35                         GAO-03-829 Technology Transfer in Taxol Development
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