The Bayh-Dole Act of 1980 succeeded because it incentivized innovation by expanding patent rights and unleashing market cooperation.

Tweet

"You say you’ve got a real solution, well, you know,
We’d all love to see the plan…
You say you’ll change the constitution, well, you know,
We’d all love to change your head…"

—"Revolution," by John Lennon and the Beatles

As John Lennon observed in his trademark acerbic fashion, it’s easy to knock things and lecture everyone how you’ve got better ideas, if only the rest of the world put you in charge.  

Talk is cheap, however, unless you can actually offer a superior alternative.  

Which brings us once again to our ongoing health care and drug policy debate, as this week brought news of yet another American pharmaceutical company ready to distribute its coronavirus vaccine for public use.  The U.S. Food and Drug Administration (FDA) announced on Tuesday that Moderna Inc.’s vaccine was “highly effective,” and merits emergency authorization to crush the pandemic.  

Vaccines typically take a decade or more to develop, but multiple U.S. drug companies have accomplished that task in less than a year.  

According to chin-stroking tenured professors earning six figures and some unwise voices in Congress, however, what this country needs is a frontal assault against private pharmaceutical companies.  They would use the 1980 Bayh-Dole Act to “march in” and effectively commandeer new drugs developed by those companies, disregarding patent rights and the enormous investments necessary to conceive, perfect and produce those new drugs.  According to critics, public contributions to pharmaceutical research and development justify those heavy-handed intrusions, as if pharmaceutical companies are enjoying some sort of free ride at taxpayer expense in order to subsequently bilk consumers.  

What they’re not telling you, however, is that private funding for research and development dwarfs public funding.  According to the National Institutes of Health (NIH) itself, as of 2015 private-sector R&D funding was five times NIH funding, $150 billion to $30 billion.  In 2018, the NIH spent $3 billion on clinical trials involving new or existing drugs, whereas the U.S. biopharmaceutical industry alone invested $102 billion in R&D.  

In fact, the pharmaceutical industry stands as the single largest source of business R&D funding in the U.S., accounting for 17.6% of all U.S. business R&D.  The next-closest is the software sector, at 9.1%, with the auto industry in third place with 5.9% and the aerospace industry in fourth at 4.1%.  

As a result, the U.S. pharmaceutical industry outpaces the rest of the world in innovation – combined.  According to the National Science Foundation, the U.S. accounts for 57% of all patents grated to new medicines worldwide.  The entire European Union combined accounts for only 19.5%, with Japan at 5.2% and China at 2.6%.  The U.S. also accounts for 66.4% of worldwide venture capital investment in biopharmaceutical startups, with China a distant second at 12.7%.  

Simply put, there is no close competitor to the U.S. in term of pharmaceutical leadership.  

Nevertheless, proponents of weaker patent rights and heavier government regulation typically respond that Europeans pay lower prices for pharmaceuticals than Americans.  The problem is that you can only pay lower prices for drugs that are actually available to you, and Europeans do not possess nearly the same access to new lifesaving drugs that Americans do.  

According to official government data, Americans possessed 100% access to new medicines launched between 2011 and 2019.  Germans could access only 68% of new drugs during that same period, Britons 65%, French 55%, Canadians 52%, Japanese 49% and Australians 44%.  Moreover, Americans faced only a three-month delay in access to new medicines during that 2011 – 2019 period, whereas Germans waited 10 months, Britons 11 months, Canadians 15 months, Japanese 16 months, French 18 months and Australians 20 months.  So not only do Americans enjoy access to far more lifesaving new drugs, they also access them far more quickly.  

Consequently, survival rates for cancer and other deadly diseases are substantially higher in the U.S. than those counterpart advanced nations.  

And by the way, the myth that biopharmaceutical companies somehow enjoy outlandish profit margins is false.  Over recent years, they earned 4.6% (profits minus capital expenditures), compared to 61% for advertisers, 29.1% for aerospace and defense companies, 13.3% for automobile parts suppliers, 12.0% for food wholesalers, 7.9% for software companies and 6.8% for retailers generally.  Hardly the robber barons of all-too-common myth.  

Another oddly persistent myth is that pharmaceutical companies spend an outsized amount of money on needless advertising.  The truth is that, as of 2016, pharmaceutical R&D outpaced advertising expenses by $90.5 billion to $28.1 billion.  

Most ironically, those in Congress and academia who foolishly target the U.S. pharmaceutical industry with heavier regulation and weaker patent rights seek to accomplish their goals through the Bayh-Dole Act of 1980, which The Economist magazine once labeled “possibly the most inspired piece of legislation to be enacted in America over the past half-century.”  The Act achieved that lofty status because it extended patent rights to universities and nonprofit research groups that received federal funds to assist their research.  As Information Technology and Innovation Foundation (ITIF) Vice President Stephen Ezell observed, that unleashed a torrent of innovation:  

Prior to the Bayh-Dole Act, when the federal government retained ownership of the innovations it funded, very few were ever commercially produced. Only 390 patents were awarded to universities in the year the act was passed. But in 2017, that number had increased to nearly 7,500. In fact, more than 100,000 patents have been issued to U.S. universities or nonprofit research institutes between 1996 and 2017, resulting in more than 420,000 inventions and 13,000 startup companies formed.  

The Bayh-Dole Act of 1980 succeeded because it incentivized innovation by expanding patent rights and unleashing market cooperation.  It would be a tragedy if activists in Congress and academia succeeded in using its provisions to reverse those gains, and threatened America’s lead in pharmaceutical innovation – which we continue to witness amid this pandemic – as a result.