NIH as Partner: New Director Collins Will Stress Royalties, Not Price Oversight

"Partner of choice" is a cliche in the biopharma business development world, but the US National Institutes of Health is trying to breathe new life into the concept under its new director, Francis Collins.

As we report in "The Pink Sheet" DAILY, Collins is making partnerships with industry a key priority as his tenure begins--with an emphasis on shepherding more new scientific ideas far enough into development to make them more viable as licensing candidates. Collins is emphasizing the need to "de-risk" scientific ideas to draw greater interest from pharmaceutical industry partners in areas like rare diseases.

If he succeeds, NIH may find plenty of interested partners waiting on the other side, since "rare" diseases are becoming far more attractive as the blockbuster model erodes.

That all sounds great, but there is one question that is sure to follow any successful effort by NIH to "de-risk" large numbers of interesting compounds: if the US government takes more of the risk out of drug development, shouldn't companies sell any resulting products at lower prices?

Collins, at least, doesn't see it that way. When asked exactly that question during his first press conference as NIH director, Collins responded by citing his experience when NIH briefly tried to enforce "reasonable pricing" terms under its technology transfer agreements. The effort came in the early 1990s, when Bristol-Myers Squibb licensed Taxol from the National Cancer Institute, and the combination of taxpayer funding for early development of the compound coupled with the need to source the drug from the rare Pacific Yew tree prompted Congress to demand that NIH talk with Bristol about the price of the drug.

NIH and Bristol came to terms, and Bristol still had a blockbuster product (arguably the first ever in oncology). But biopharma companies balked at that model, and the "reasonable pricing" clause disappeared.

Collins has no interest in bringing it back. "The debates about reasonable pricing clauses," he said, "made it very clear to me watching it that this was a third rail for the pharmaceutical and biotech companies. The idea of their being some kind of government intervention in terms of setting pricing for products that they had brought to market through clinical trials and FDA approval would make them very uninterested in approaching such a project in the first place."

"But I do think there is a model here that could achieve some of that in a way that would be more acceptable," Collins said. The goal will be "an arrangement where the compound is licensed, the company then takes it through clinical trials and FDA approval, but the license involves a royalty that would then return to the government to support research if in fact the product makes some money."

"So there you are not regulating the cost of the compound that the company is going to set, which seems to be the deal breaker, but you are engineering a system that allows some payback to the public for the public investment."

That formula is one that biopharma sponsors love--since it means not only that companies maintain pricing flexibility, but that NIH actually has a stake in the commercial success of their compound. And that support is all the more important in areas like rare disease, where small patient numbers make eye-popping prices common.