Eight takeaways from the Army/Sanofi/Zika license fiasco

For those of you following the efforts by the US Army to license a patent on a vaccine for the Zika vaccine, to Sanofi, the French drug and vaccine manufacturer, here is a quick summary of the facts, and a few takeaways.

The facts.

  1. The US Army invented in the vaccine in the spring of 2016, applied for a patent, and shortly thereafter, proposed licensing the patent on an exclusive basis to Sanofi, a giant French drug company.
  2. The US government is financing and conducting a Phase 1 clinical trial, right now.
  3. The US government is paying Sanofi $43 million to conduct a Phase 2 trial of the vaccine.
  4. The US government will pay Sanofi another $130 million pay for the Phase 3 trial.
  5. Sanofi describes its contribution as a willingness to do the Phase 2 and 3 trials (at US government expense) instead of having its workers do something even more profitable, as if Sanofi can only work on one vaccine at a time.
  6. The US Army has rejected the suggestion they wait to license the patents until data from the any of the Army/NIH/BARDA financed Phase 1–3 trials are in, even though that would only make the government’s leverage stronger, if the results are positive.
  7. Sanofi has been cited four times since 2009 for cheating Medicaid, veterans and US consumers, and faces criminal charges in France and Germany for kickbacks and fraud. The most recent US case was April 3, 2017, and involved a $20 million fine for overcharging the U.S. Department of Veterans Affairs (VA). (link here)
  8. Sanofi has a history of charging US residents more. For example, the price for its multiple sclerosis drug Aubagio (teriflunomide) is more than $6,000 per month in the United States ($5,276 for Medicare in 2015), and about $750 per month in France. (more here)
  9. According to MSF, Sanofi has a track record of charging high prices for vaccines in developing countries.
  10. The largest share of U.S. cases of the Zika virus are in Puerto Rico, where many of the persons who need to be vaccinated are on Medicaid.
  11. The US Army asked Sanofi if they were willing to make a binding commitment to not charge US residents more than the price charged in other high income industrialized countries. Sanofi said — no. Sanofi wants the freedom to charge whatever they want in the US market. (Who can blame Sanofi, at least they at least know what’s best for their shareholders.)

The takeaways

  1. The notion that you can solve drug pricing problems by subsidizing clinical trials (a “new idea” floated every couple of years) is flawed, if you don’t connect the public sector investments to the product pricing.[1]
  2. Complaining about high prices is more popular with politicians than doing something about it.
  3. The Army’s unwillingness to deal with what is obviously a bad deal for the US taxpayers and consumers is largely a resistance to creating a precedent. The Army, like the NIH, does not want to ever be asked to consider the costs of the monopoly on the public, or negotiate shorter monopoly terms and/or conditions on pricing. The Zika license is a threat to this tranquility.
  4. Agencies that end up paying for drugs and vaccines don’t weigh-in on licensing decisions. This is surprising, given how much money exclusive licenses end up costing Medicare, Medicaid, the Department of Veterans Affairs and federal employees.
  5. OMB does not reflect on the future budget impact of exclusive licenses.
  6. Lately, the only members of Congress who have shown an interest in the absurdity of paying for the R&D, without getting any conditions on pricing, are democrats, a partisan split which makes the reforms quite difficult.
  7. The smart move here is for the Army to at least delay signing a bad contract, until the government has results from the Phase 2 trial, it has ALREADY FUNDED. Doing nothing for now does not preclude an exclusive license later, but even that is hard to accomplish.
  8. Sanofi and the Army both have managed to tell Congress and the public the minimum about the proposed license, even when the details are fairly routine. Why? Because a bad deal is more defensible when the Army can dismiss its critics as uninformed.

Notes: [1] Dean Baker in 2008 proposed that public financing of drug trials be tied to a specific mandated reduction in the prices paid for drugs in the Medicare program. See: Dean Baker, The Benefits and Savings from Publicly-Funded Clinical Trials of Prescription Drugs (available at http://cepr.net/documents/publications/clinicaltrials_2008_03.pdf ). When Lewis, Reichman and So proposed public funding of trials, they simply assumed the subsidy would allow actors to negotiate lower drug prices, even though this has not happened with the Orphan Drug Tax Credit subsidy for trials or federal R&D subsidies in general. Tracy R. Lewis, Jerome H. Reichman, and Anthony D. So, “The Case for Public Funding and Public Oversight of Clinical Trials,” The Economists’ Voice, 2007, Vol. 4, Issue. 1.

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