Taxol: How the NIH Gave Away the Store

The old-growth trees and luxuriant, rolling lawns give the National Institutes of Health (NIH) campus in Bethesda, MD the outward appearance of an insurance company’s sprawling headquarters. Appearances can be deceiving. The campus is home to as concentrated a focus of medical brainpower as you are likely to encounter anywhere on the planet. Several of the great discoveries of modern medicine have taken place here — from unglamorous basic science research to drugs for AIDS and cancer.

While some of the research may not lead to commercial products, pharmaceutical companies eye the work being conducted at NIH like hawks, continually on the lookout for tasty morsels of technologies that can be brought to market profitably. In their efforts, the companies are aided by the Federal Technology Transfer Act of 1986 that established contracts called Cooperative Research and Development Agreements (CRADAs) to facilitate the commercialization of technologies developed at the NIH. In exchange for licensing its technology to a private company, the NIH can collect royalties based on sales.

Because of concern that NIH was not adequately bargaining for higher royalty rates and believing that the terms of those licensing agreements should be made public, Public Citizen brought suit against the NIH in 2000. Incredibly, the Federal District Court for the District of Columbia ruled that, even though taxpayers (through the NIH) are parties to the agreements, they are not allowed to learn these royalty rates. In modern America, the confidentiality of commercial information, the “legal” grounds for non-disclosure, evidently takes precedence over the public’s right to know how its government conducts its business.

Recently, however, the General Accounting Office (GAO) lifted the lid of secrecy on one of these CRADAs — and the contents were not pretty. The drug in question was Taxol, an extract of the bark of the Pacific Yew, now marketed by Bristol-Myers Squibb (BMS) to treat breast, ovarian, lung and AIDS-associated cancers. At the request of Senator Ron Wyden of Oregon, the GAO reviewed the history of the Taxol CRADA and uncovered a remarkably one-sided deal — with taxpayers clearly on the short end.

It is fair to say that without the NIH there would have been no Taxol. The agency identified a component of the Pacific Yew as having anti-tumor activity as long ago as 1963 and identified the chemical responsible for this activity back in 1971. In 1983, the NIH began the first of several clinical trials of Taxol; BMS was essentially absent from the scene until it signed a CRADA with the NIH in 1991. When in 1992 the Food and Drug Administration approved Taxol for the treatment of ovarian cancer, BMS relied upon six studies, five of which had been conducted by the NIH. BMS went on to conduct additional studies, particularly for other cancer indications. Between 1993 and 2002, BMS grossed a tidy $9 billion in Taxol sales worldwide. From 1977 to 1997, when the CRADA ended, the GAO estimates that the NIH spent $183 million in research on Taxol. The vast majority of this actually took place after the CRADA took effect.

What does the NIH (and the public) have to show for all these years of government creativity and investment? A paltry $35 million, according to the GAO. Even this minimal cost to BMS has been recouped many times over from the Federal government itself; through its Medicare program, the U.S. spent $687 million on Taxol between 1994 and 1999.

And what of the royalty rate that the court deemed so secret that it had to be shaded from public disclosure? The GAO, which can examine documents not available to the public (with the apparent exception of the records of the Dick Cheney/Enron Energy Task Force), learned that the government received a feeble 0.5% royalty rate, based on worldwide sales, well below what Public Citizen believes private companies negotiating with each other typically are granted.

In a further twist, Florida State University (FSU) also had a licensing agreement with BMS, ironically based on NIH-funded research. These investigations had led to a method for the synthesis of Taxol that lessened dependence upon the uncommon Pacific Yew. Under yet another shortsighted Federal law, the so-called Bayh-Dole Act of 1980, universities that develop patentable technologies using NIH research funds can license the technology to the private sector in exchange for royalties. Even though FSU’s patent was merely for a synthetic pathway to produce Taxol, as opposed to the NIH’s multiple clinical trials first proving the effectiveness of Taxol, FSU collected royalties at a rate of about 4.2% of worldwide sales — worth about $65 million in 2000 alone.

The GAO report suggests a likely NIH motive for resisting disclosure of its royalty rates that transcends legal niceties. What if taxpayers actually knew what a lousy deal the NIH had negotiated on its behalf?

Under the circumstances, the GAO’s conclusion is remarkably pallid: “In light of the significant federal investment, questions remain regarding the extent to which NIH used its broad authority in its negotiations with BMS on the royalty payments ...” The time is long overdue for either the GAO or the Congress itself to answer these remaining questions by conducting a more wide-ranging investigation into NIH’s royalty practices.