Why is HHS blocking FDA from regulating some diagnostics, and how will this affect COVID-19 testing?

By Lisa Larrimore Ouellette, Nicholson Price, Rachel Sachs, and Jacob S. Sherkow

This week’s FDA news has been dominated by the tumultuous emergency authorization of convalescent plasma on Sunday, but let’s not forget last week’s news: On August 16, the Department of Health and Human Services (HHS) surprised public health experts by publishing a one-paragraph notice on its website rescinding FDA guidance related to laboratory developed tests (LDTs). The notice states that the FDA will not require premarket review of LDTs absent notice-and-comment rulemaking, including for COVID-19 tests. LDTs are tests “designed, manufactured and used within a single laboratory,” such as tests run by large academic medical centers, hospitals like the Mayo Clinic, and testing giants LabCorp and Quest Diagnostics. Former HHS national coordinator for health information technology Farzad Mostashari described this change as “bizarre” and like “[c]losing the barn door 6 months after the horse left the barn, and 3 months after she moved to a different barn!” What’s going on, and how will this change affect COVID-19 testing?

How were LDTs regulated before this announcement?

As we explained in April, LDTs have been regulated by multiple agencies under a messy patchwork of laws and regulations, and interagency coordination problems slowed the rollout of COVID-19 testing. When the FDA acquired the authority to regulate medical devices under the 1976 Medical Device Amendments, it promptly decided that it would exercise enforcement discretion—i.e., not enforce its typical regulatory requirements—for LDTs. It has maintained this posture ever since, though with some waffling: In 2014, the agency decided LDTs had gotten complex enough that it proposed regulating them more; after pushback and the change of administrations, the agency backed off in 2017.

Some oversight still occurred. Sometimes the FDA found ways to enforce its requirements against egregious examples; while 23andMe’s direct-to-consumer genetic testing service was an LDT in that all services happened at one lab, the FDA threatened to yank that test off the market based on a conclusion that the saliva collection tubes mailed to consumers were themselves medical devices. And under the 1988 Clinical Laboratory Improvement Amendments (CLIA), most laboratories conducting LDTs need a certificate of compliance or accreditation every two years from the Centers for Medicare and Medicaid Services (CMS). (Laboratories in New York and Washington state are exempt because these states maintain their own certification programs that are at least as stringent as CLIA’s requirements.) But the FDA typically took a hands-off approach. 

For COVID-19, after HHS declared that the public health emergency justified the use of emergency use authorizations (EUAs) on February 4, the FDA initially said that diagnostic LDTs needed an EUA. This created a Catch-22, as former FDA Commissioner Scott Gottlieb put it; rapid development of COVID-19 tests was needed in the emergency, but the emergency-based EUA requirement slowed them down. Shortages ensued. On February 29, the FDA changed its policy again (in this guidance, which has since been updated), allowing the use of RT-PCR LDTs to determine COVID-19 infection while developers awaited an EUA. Nevertheless, the agency retained the ability to revoke EUAs if a particular LDT turned out to be problematic. For antibody tests to identify past infection, the FDA took the opposite approach. Initially, it allowed anyone to offer tests without going through the agency, but on May 4 it began requiring EUAs—some of which have since been revoked. As the FDA’s website stated, there were important reasons for requiring LDTs to obtain EUAs during this crisis, as these tests have “serious implications … for analyses of disease progression and public health decision-making.”

How does the new notice change regulation of existing LDTs for COVID-19?

HHS’s notice strips (or, if you prefer, narrowly interprets) the FDA’s authority to regulate LDTs. The notice—thus far, only a “brief missive” on its website—states that the FDA “will not require premarket review of [LDTs] absent notice-and-comment rulemaking, as opposed to through guidance documents, compliance manuals, website statements, or other informal issuances.” Given that the FDA has not engaged in notice-and-comment rulemaking for LDTs, and assuming HHS’s statement has legal authority, the notice has the effect of essentially removing a large swath of LDTs from the FDA’s premarketing purview. 

This does not mean that LDT developers are free as the wind; as noted in HHS’s statement, LDT providers must still comply with CLIA, which includes requirements that laboratories set individual benchmarks for the analytic validity of their tests, known in CLIA parlance as “performance specifications.” But CLIA only addresses tests’ analytic validity—essentially, whether tests work as intended—not tests’ clinical validity—“the accuracy with which the test identifies, measures, or predicts the presence or absence of a clinical condition.” In the context of COVID-19, this means that every two years, CLIA will continue to ensure that laboratories are faithfully running their protocols—using the correct reagents, employing qualifying technicians, and so—but will do nothing to guarantee that the specific protocols employed by the laboratory are accurately diagnosing COVID-19.

The notice suggests that developers may voluntarily submit LDT premarketing materials to FDA: “[t]hose seeking approval or clearance of, or an emergency use authorization (‘EUA’) for an LDT may nonetheless voluntarily submit a premarket approval application, premarket notification or an EUA request, respectively, but are not required to do so, and FDA will adjudicate those submissions.” LDT marketers might engage in voluntary submissions to be eligible for PREP Act coverage (immunizing laboratories from liability related to distributing tests in a pandemic), or to help with reimbursement. The FDA might also retain some control on the back end: a recent Washington Post article noted that “the FDA will [continue] have the authority to take a bad test off the market.” But nothing in the notice, or the process it complicates, makes clear how the FDA, legally and mechanically, could do so.

Moving forward, this puts a number of tests in legal limbo. LDTs which have already received EUAs—35 thus far—seem to be unaffected by the announcement for now, although whether the FDA retains jurisdiction to “adjudicate those submissions,” per HHS’s notice, is unclear. The status of other tests—including those with EUA revocations or entirely new tests—is also uncertain. Because an EUA is presumably no longer needed to operate, HHS’s announcement allows entry into the market that, in other circumstances, would have previously been denied. This may similarly be applicable to the almost 200 laboratories, without authorization, that previously reported to the FDA that they validated their own COVID-19 test.

More broadly, HHS’s announcement presents a puzzle as to whether the legal distinction between LDTs and in vitro diagnostics (IVDs) is a salient one. By statute and regulation—that is, independent of HHS’s recent statement—the FDA retains the authority to regulate IVDs, “reagents, instruments, and systems intended for use in the diagnosis of disease or other conditions.” This text plainly includes LDTs. FDA’s enforcement over LDTs, however, has long been controversial, haphazard, and even constitutionally challenged—perhaps serving as one explanation for HHS’s announcement. Nonetheless, it remains to be seen whether the FDA nonetheless retains authority to oversee LDTs under its broader power to regulate IVDs. 

Why is this happening?

We don’t know for sure. But it’s important to at least talk about why it’s happening, because different motivations behind the action may have different implications going forward. 

One possibility is stated clearly at the beginning of the rescission notice: HHS is seeking to minimize “duplicative regulations and unnecessary policies” that are, in its view, impairing the fight against COVID-19. However, on this theory, the agency has not explained why rescinding existing LDT EUA regulation is helpful in fighting COVID-19. This explanation would be important, as it is also very possible that a lack of regulation might itself hamper the fight against COVID-19. The FDA has already seen this play out in the context of EUAs for COVID-19 antibody tests, where as we have explained, the agency’s initial decision not to require EUAs for those products resulted in a flood of inaccurate tests on the market, potentially jeopardizing public health.

A second possibility comes from news reporting on HHS’s decision. Anonymous administration officials told the Washington Post that the change “was made for legal reasons” because “FDA lacks the authority to regulate [LDTs].” Yet these arguments have been around for many years, predating the Trump Administration, and it is not clear why the administration would seek to implement such a view only now, in the middle of a pandemic. Further, if HHS’s view is that the FDA lacks the legal authority to regulate LDTs, it is not clear how these officials can also take the position that “the FDA will [continue] have the authority to take a bad test off the market.” If the FDA has no authority over LDTs, how could they take a bad test off the market? Further, the FDA would not even know that the bad test existed, as its manufacturer would no longer be required to notify the agency it was providing the test.

The lack of public explanation from HHS and the public silence from FDA Commissioner Stephen Hahn have raised a third possible explanation for several commentators: political issues. Professor Art Caplan argued that “HHS didn't have to pick this fight, and they're basically threatening FDA's science and independence.” The FDA’s independence is core to its ability to maintain the public trust, and will be needed if the agency and administration is to convince people that any vaccine eventually approved for COVID-19 is safe and effective. 

What effect will this change have on COVID-19 testing and policy going forward?

The rescission notice is likely to have at least two different impacts on COVID-19 testing going forward. First, it will very likely lead to new tests coming to market which would otherwise have been deterred by the EUA requirement, creating potential public health harms. As a former HHS senior official told POLITICO, the regulatory standard was already a “flexible and low bar” and the “tests likely to come to market under this policy are many of the ones that aren’t reliable and couldn’t get” EUAs at present. Dr. Gottlieb sounded a similar note of caution on Twitter, but the most succinct version of this argument came from Dr. Mostashari: “Regulatory oversight sucks, lack of regulatory oversight sucks more.” And if the FDA lacks the legal authority to regulate these products, it’s not clear how the agency could remove a bad test from the market.

Most challengingly, as noted above, the FDA will be deprived of the information it would need to even know that those bad tests were being marketed. Going forward, it does not seem that companies running LDTs without any FDA authorization need to inform the agency of anything at all. This is especially problematic not just to police the safety of laboratory tests but also because, in the words of Professor Rebecca Eisenberg, the FDA is in the business of “develop[ing] credible information about the effects” of drugs and devices. Without the reporting requirements that come with mandatory EUAs, the public—and other developers—will be left in the dark as to which tests work best and which, not at all. Although the rescission notice left open the possibility that the FDA could act through notice-and-comment rulemaking to exert jurisdiction over LDTs, it is not clear how the agency could do so if HHS believes that the FDA has no statutory authority in this area. Further, it is doubtful that the FDA could do so in the short term, to manage COVID-19-related LDTs. In general, notice-and-comment rulemaking is lengthy, expensive, and burdensome to agencies—tasks which an already-pressured agency could not easily add to its agenda. 

But second (and opposingly), the notice may make it easier for some labs to bring tests to market that otherwise would not have, or may make it easier to scale existing authorized tests (such as Yale’s new saliva test) to labs that have not themselves gone through the FDA’s process. At least some scientists have praised it along these lines. Professor Fyodor Urnov, at UC Berkeley, said the announcement had “simplifie[d] things moving forward and resolve[d] a substantial source of uncertainty that has lingered in the field for some time.” Some experts also note that the rescission notice relies on CLIA as a backstop, which may ensure a certain level of quality from the resulting tests.

Unfortunately, because the effect of the notice is to make it much more difficult for the FDA to observe these tests at all, it will be almost impossible to determine whether the balance of impacts is a good one. Further, the unexpected and unexplained way this change was implemented is particularly worrisome. In the middle of a pandemic, upsetting the expectations of firms that are attempting to address the crisis is not the basis of sound policymaking.

This post is part of a series on COVID-19 innovation law and policy. Author order is rotated with each post.

Multi-Agency Funding for COVID-19 Vaccine Development

By Jacob S. Sherkow, Lisa Larrimore Ouellette, Nicholson Price, and Rachel Sachs

Moderna, Inc., a Cambridge, MA-based biotech company, is a leading contender in the race to develop a SARS-CoV-2 vaccine. Moderna’s vaccine, however, works using a completely novel mechanism, unlike any other vaccine currently approved anywhere in the world. Despite this, the U.S. government—and two agencies in particular, the NIH and Biomedical Advanced Research and Development Authority (BARDA)—has invested, heavily, in the vaccine’s development. This week, we explore how these investments interact through different forms of research partnerships, and what this says about IP, novel technologies, and innovation policy.

What is Moderna’s vaccine and how is the government funding it?

Moderna’s vaccine candidate, mRNA-1273, is a so-called “mRNA” vaccine, which works through a novel mechanism that is not used in any existing vaccine. Traditional vaccines involve injecting an inactivated virus or fragments of a virus; the immune system learns to attack the foreign material and “remembers” that target if the patient is later exposed to the virus. mRNA vaccines take a different approach. The vaccine is a small piece of mRNA—an intermediate between DNA and protein to be made by a cell—coding for the “spike protein” of SARS-CoV-2, which targets the surface of human cells. In theory—but not yet conclusively demonstrated—once the mRNA is injected into a patient’s arm, it will travel inside cells, which will then produce the spike protein. The immune system, recognizing a foreign protein, should attack the spike protein—and learn to attack and destroy the virus just as if the patient were actually infected. 

This approach is new and exciting. mRNA vaccines have the potential to be cheap, easy, stable to manufacture, and easy to scale up to very large quantities. And an mRNA vaccine could be changed to target a different virus (or different variant of the same virus) more easily than a traditional vaccine. 

But the newness of mRNA vaccines is also potentially problematic. mRNA vaccines have never been used or made at scale, and one researcher has described Moderna’s vaccine as having the “most unknown unknowns.” Nonetheless, mRNA-1273 was ready for testing on February 7—weeks before the first reported COVID-19 death in the United States. The firm began Phase III trials on July 27, which it expects to complete by the end of this year after early promising results. 

At the same time, Moderna’s vaccine has not come out of nowhere. Moderna had been working on mRNA vaccines for years under a longstanding CRADA (p. 19) with the National Institute of Allergy and Infectious Diseases (NIAID), a part of the NIH. The agreement consisted of some level of funding from Moderna to the NIH, along with a roadmap for NIAID and Moderna investigators to collaborate on basic research into mRNA vaccines and eventually development of such a vaccine. Such agreements are not unusual for government agencies in general or the NIH in particular. Often, the industry partner may engage in more basic research than it otherwise would, and the NIH takes a greater interest in the later development than it normally might—and often partial ownership of the final product (as it claims for Moderna’s vaccine).

Even with the NIH as a partner, successfully taking a therapeutic product across the finish line—let alone an untested, novel vaccine to be produced at immense scale to combat a globe-spanning pandemic—needs additional support. Enter BARDA. BARDA, which may be less familiar to innovation policy scholars than NIH, is an arm of the Department of Health and Human Services formed in 2006 in response to—wait for it—SARS-CoV-1 (and other health threats). BARDA focuses on countermeasures for biomedical and public health emergencies, which can range from a bioterror attack to public health crises like antibiotic resistance. It provides direct investment in technologies to firms, but also engages in public-private partnerships (PPPs) and coordinates between agencies. A specific part of BARDA’s mission is taking technologies through the “valley of death” between creation and commercialization.

Taken together, Moderna’s vaccine (if successful) will be a product of CRADAs with NIH and a PPP with BARDA—as well as an advance purchase agreement for 100 million doses for milestone payments up to $1.5 billion. Amid the substantial government funding Moderna has received, it has also taken on substantial debt; according to its SEC filing, it had accumulated $1.5 billion in debt by December 31, 2019.

When should policymakers consider supplementing market rewards for innovation with direct public funding?

In general, innovators developing new healthcare technologies (including vaccines) can expect to reap a certain level of market-based rewards, particularly for products serving previously unmet medical needs. But in many cases, market-based rewards may fail to substantially encourage the development of important new technologies; there is additional value in mixing market-set rewards with government-set rewards. The social value of a particular intervention may outweigh the amount an innovator firm is likely to earn in the market because the intervention creates positive externalities, or because the value for some patients is greater than their ability to pay, or because certain aspects of the intervention cannot be patented or otherwise protected by traditional forms of intellectual property. All of these are likely to be true for a pandemic like COVID-19.

Governmental rewards in situations like these may take a variety of forms, several of which we have previously considered in this blog series. Particularly common may be grants, but prizes and advance purchase commitments have also been used to speed the development against healthcare technologies related to COVID-19. But CRADAs, which have the purpose of “mak[ing] Government facilities, intellectual property, and expertise available for collaborative interactions to further the development of scientific and technological knowledge into useful, marketable products” may also be part of the government’s portfolio of innovation policy tools.

In theory, CRADAs should be particularly useful where this type of non-financial support from the government, such as the transfer of tacit knowledge or the pooling of information resources that are typically otherwise artificially divided between different actors, would be beneficial. Given that vaccine development and manufacturing and know-how are highly specialized fields of expertise, CRADAs may be advantageous in the context of vaccines against COVID-19. In addition, non-CRADA PPPs, involving formal agreements between both governmental and private-sector actors to share resources or information, may also be beneficial, and many of the advance purchase commitments for vaccines seem to fall into this category. These arrangements enable the government to share in the financial costs and risks of developing the product in question, while also obtaining a benefit in terms of ownership of the end product. PPPs, like CRADAS, can also serve to pool expertise and transfer information between parties. 

Despite these advantages, many CRADAs and PPPs still fail to produce marketed products. This is not unexpected, given both the large risks and challenges of developing new technologies in the healthcare space and the likelihood that both CRADAs and PPPs will arise in particularly complex technological areas (such as Alzheimer’s). The failure rate might simply be higher than normal. This complexity also makes it challenging to evaluate the best uses of each system. For instance, a CRADA between the Army and Sanofi regarding the development of a Zika vaccine has yet to result in an approved product, due to ongoing development roadblocks. Pooling and information-sharing between the public and private sectors is no guarantee of success.

How should public funding for biomedical research affect pricing?

Given the massive public funding involved in developing COVID-19 vaccines, politicians and patient advocates have criticized vaccine manufacturers like Moderna who won't commit to selling their vaccines for no profit, arguing that for-profit pricing makes U.S. taxpayers “pay twice” for a vaccine. As we’ve explained before, these discussions often conflate the separate issues of affordability for patients and incentives for developers. The real concern is not about access—the federal government is committing to making COVID-19 vaccines available to all Americans for no out-of-pocket costs. Rather, the concern is that vaccine manufacturers will receive “too much” incentive—why should they be able to charge above-marginal-cost prices when taxpayers have already paid a substantial amount of vaccine development costs? A related argument centers on the communitarian commitment that companies who partner with the public sector should have to restrain profits.

As a legal matter, there are many tools the federal government could use to limit the ex post reward for a successful vaccine. Some commentators have suggested that the government allow other manufacturers to use Moderna’s technology, either due to joint government ownership of at least some relevant patents or by issuing what is effectively a compulsory license under 28 U.S.C. § 1498. Expanding generic manufacturing worked for driving down the price of easy-to-copy HIV/AIDS drugs, but is unlikely to be effective for more complex biologic medicines like vaccines, as woefully demonstrated in the context of other complex biologics. 

And yet even when just dealing with a single producer like Moderna, the federal government has options. Efforts to put “fair pricing” clauses in CRADAs in the early 90s were unsuccessful—drug companies refused to sign—but the federal government can negotiate prices in procurement agreements. Or it could turn to the many proposals that it has failed to implement to lower prescription drug prices more generally. State governments also have a number of potential tools for reducing drug prices.

As a policy matter, however, should the government exercise these options? It might sound intuitive that a firm that receives $X in public funding should have its profits reduced by $X (or should return $X to the government from those profits), but if public funding is directed toward innovation that the market undervalues—like vaccines, particularly in a pandemic when they have huge positive externalities and speed is of the essence—then reducing the market reward for these technologies may be counterproductive. This is why it doesn’t make sense as a general matter to ask firms that make use of public funding to provide the public with a “return on investment.” As noted above, although Moderna had substantial government funding, there were good reasons for the government not to pursue this project in-house. It is hard to imagine a public entity having a vaccine ready for testing by February 7, or moving into Phase III trials less than six months later.

Does this mean that the government should pay anything Moderna demands? Of course not. The “market” for drugs and vaccines is in many ways government-constructed, and policy changes like government healthcare coverage that affect the expected market size have demonstrable effects on pharmaceutical innovation; the U.S. healthcare system is not, classically, a “free market.” U.S. policymakers should consider following the lead of most other countries in adding some form of cost-effectiveness analysis (also known as health technology assessment) to healthcare reimbursement policy, which would limit reimbursement for drugs that provide little benefit over existing treatments. Changes in this direction by private pharmacy benefit managers had a measurable effect in pulling innovation toward more scientifically novel research; reform at the federal level would presumably be even more effective. In short, policymakers should make use of the large number of tools at their disposal to tailor developers’ rewards to the actual social value that their products provide. And for COVID-19 vaccines, that value is pretty darn high.

Disclosure: Rachel Sachs sits on the Midwest Comparative Effectiveness Public Advisory Council for the Institute for Clinical and Economic Review, a health technology assessment organization. She has had no involvement with ICER’s analysis and publications on COVID-19 treatments and vaccines.

This post is part of a series on COVID-19 innovation law and policy. Author order is rotated with each post.

Race and Gender in the USPTO: Schuster’s Hard Data for Hard Issues

[I asked some of my RAs to write guest posts this summer, lightly edited by me.  This one is by Jennifer Black, a 3L at Villanova University Charles Widger School of Law]

Intellectual property rights are just that: rights.

Much like other rights, however, they have been unequally granted to people based on factors outside of their control throughout our country’s history. Intellectual property is a means for upward mobility of individuals who, through their own ingenuity, creativity, or otherwise, contribute something of value to our society. It is this exchange of benefits that the patent system is built upon. However, when certain individuals are less likely to reap the rewards of their inventions, they are both disincentivized from creating as well as from engaging with the patent system. Although the extent of these biases is yet unknown, research regarding the subject has been conducted with the intent of identifying and remedying inequity.

The scope of this inequity is difficult to comprehend except by collecting, analyzing, and comprehending the data. Mike Schuster and his coauthors did just that in his article, An Empirical Study of Patent Grant Rates as a Function of Race and Gender (published version in the American Business Law Journal), which examines the patent granting rates as a function of inventors’ races and genders. As scientists and engineers, patent practitioners and examiners will undoubtedly appreciate the amount and quality of his data.

Schuster’s article first focuses on the patent system’s bias against women. While women have come far in their representation in the patent system—from 0.3% of patents in the first 100 years of the United States to 12% in 2016—this is a far cry from equality in a country that is 50.8% female.

Schuster’s study regarding female inventors was twofold: first, he hypothesized that female inventors would be granted patents at lower rates and second, he hypothesized that this disparity would decrease for female inventors with gender nonobvious names. The former hypothesis was supported, yielding a disconcerting result. Women were found to be 62% as likely as male inventors to have their patents granted. This gap narrowed for female inventors without gender identifying names.

Much like female inventors, certain racial minorities were also found to receive patents at lower rates than white counterparts. These numbers, however, were less thoroughly presented and discussed. There were some indications that different racial minorities have different experiences at the USPTO. For example, Asian applicants were indicated to have better outcomes than Black and Hispanic applicants.

Women and minorities’ struggles to obtain patents are a product of aggregating levels of barriers.

First, female and minority students are systematically underrated by teachers and they are discouraged from pursuing STEM and engaging in invention. This has been demonstrated in a number of studies that have teachers rate students’ academic performance generally, academic performance in math and science, and overall intelligence.

Next, women and minorities experience discrimination in employment situations. This is seen both at the forefront, where women and minorities are less likely to get jobs than white male counterparts despite equal credentials. Additionally, Schuster proposed the theory that employers are aware of the USPTO’s implicit biases against these affinity groups, therefore would avoid having these inventors being named first on patent application as a way of increasing odds that the company would receive its patents.

Then, there is the additional layer of implicit bias in the patent system. This was the step analyzed in Schuster’s article.

Minority and female inventors are not the only ones who should care about encouraging and demanding equality in the patent system. It has been proven time and time again that diversity promotes the “progress of science and the useful arts.” If inventors are less successful based on their race and gender, society will lose out on the benefit of diversity in invention. Harm has been aggregating since the founding of the United States—now that we are aware of the still remaining biases, we must focus on remedying them. There have been far too many “Lost Einsteins” for us to remain inactive in the face of bias.

Schuster offered potential solutions to promote equality in the face of systemic bias.

First, he suggested that patent examination should proceed anonymously. While the benefit of this change is clear—it is impossible to discriminate against an inventor you can’t identify—the drawbacks must be mentioned. During examination, inventors are entitled to file their own applications. Transitioning to an anonymous system would not benefit these inventors, as the examiners would be aware of both their pro se status as well as their affiliate groups. This could also result in inventors feeling pressure to seek a patent attorney or agent despite potential financial barriers. Additionally, inventors are permitted to attend examiner interviews, which would negate the benefit of an anonymous system. While this would not affect threshold discrimination (interviews are rarely granted before a rejection has issued), it would not prevent biases from marring the rest of the review of the patent application.

Second, he suggested education as a way to mitigate implicit bias. These biases have been identified in health care, criminal justice, academia, employment, and the judicial as well as the patent system. Each of these systems have proven to benefit from education aimed at the identification, acknowledgment, and mitigation of these biases. However, these trainings must be used in conjunction with real, concerted efforts aimed at preventing such biases from seeping into the patent review process.

Therefore, I believe that the education of patent examiners should be bolstered by two additional factors: maintaining records of inventors’ information and monitoring examiners’ grant rate in light of this information. Much like employment demographic data, applicants maintain the right to refuse to share these details, however, the presence of use of these data would be invaluable. Rather than commentators such as Schuster having to extrapolate the race and gender of various inventors, having this information readily available for internal use and monitoring would allow the Patent Office to prevent such issues from continuing.

While it may cause discomfort among the examiners to know that their grant rates are being monitored, that discomfort is necessary in light of the data. When weighing examiner discomfort against rights granted to all people in the Constitution, the latter more than tips the scale. Growth does not come without difficulty and our system is in dire need of change. I do believe that the increasing depth and regularity of data-based studies such as Schuster’s provide some much-needed accountability in the system and for that, I cannot recommend reading this study enough.

How is the NIH seeking to encourage investment in diagnostic testing for COVID-19?

By Rachel Sachs, Jacob S. Sherkow, Lisa Larrimore Ouellette, and Nicholson Price

In this blog post series, we have written about the importance of ensuring an adequate supply of diagnostic testing for COVID-19, and about the challenges the United States has faced so far on this front. Many months after COVID-19 began spreading in the United States, there is still great concern that we lack sufficient testing to ensure that we can detect and respond to the virus quickly. In this post, we explain a new initiative from the National Institutes of Health (NIH)—the Rapid Acceleration of Diagnostics (RADx) Initiative—that aims to speed the development and marketing of new COVID-19 tests, how RADx is progressing so far, and what policymakers can learn from the initiative about the design of different types of innovation incentives. 

What is the NIH’s RADx Initiative and how is it progressing so far?

NIH’s RADx Initiative is a $1.5 billion award program “for scientists and organizations to bring their innovative ideas for new COVID-19 testing approaches and strategies.” The Initiative’s goal is to “to make millions of accurate and easy-to-use tests per week available to all Americans by the end of summer 2020, and even more in time for the flu season”—in particular, for at-home and point-of-care testing. For purposes of both assessment and funding distribution, RADx is also designed to expand the Point-of-Care Technologies Research Network (POCTRN), a consortium of five research centers working on the “development of inexpensive and easy-to-use medical devices and information sharing tools that provide timely health status information at the point of care.”

RADx serves as both an accelerator, of sorts, and a regulatory liaison for diagnostic innovators whether they hail “from the basement [or] the boardroom.” In recognizing that the pandemic implicates matters of both public health and national security, RADx is an interagency affair, with coordination among the FDA, CDC, BARDA, and NIH. This, perhaps, is noteworthy itself; a significant portion of criticism of the government response to the pandemic has been a lack of substantive interagency coordination (which, to be sure, is also a problem outside the pandemic). RADx appears to be an attempt to change that. The FDA, which oversees laboratory diagnostics, has also committed to expedited review of successful awardees.

RADx is particularly notable for its funding structure. The program aims to fund companies focusing on the development of a diagnostic product, as they’re developed—rather than general, exploratory research, as is classically the case with grants, or upon demonstrated completion of a particular goal, as with traditional prizes. RADx projects are assessed—and funded—in three phases: Phase 0, a basic concept and, possibly, a working prototype; Phase I, a validation study and a risk review assessment; and Phase II, clinical tests, regulatory approval, and a scale-up of manufacturing. These phases are meant to be completed quickly: NIH’s schema shows that an awardee may be able to complete all phases by late summer or fall of this year—only weeks away. The NIH has eschewed calling RADx a series of “prizes”—even though the agency has used such language in the past—and instead referred to Phase 0 of the system as a “Shark Tank”-like competition. 

The speed and commitment to fund all comers seems real. The NIH last week announced that seven companies have received $250 million in awards through RADx. Some winners are quite small, such as Talis Biomedical, a small biotech company from Menlo Park, California. Others are much larger, like the San Diego biotech behemoth, Quidel (market cap: $11 billion). But further RADx funding isn’t limited to these seven firms; others are still eligible for funding, and yet others can jump ahead in the phase queue if they can demonstrate advanced success. Most importantly, “[t]he seven technologies use different methods and formats and can be performed in a variety of settings to meet diverse needs,” including using CRISPR-based technology. Whatever terminology can be used to describe such a funding mechanism, the public health and research arms of government are paying milestone payments to a wide variety of companies to design a product in order to solve a specific problem without being particular to the methodology employed.

How does the RADx Initiative compare to other innovation policy levers, including grants and prizes?

As we have explained throughout this series, COVID-19 calls for heavy use of government-set policies like grants and prizes from the toolkit of innovation policy choices. The large positive externalities of effective interventions mean that market-based rewards alone will be insufficient relative to social value, so government needs to step in. And government-set rewards can be effective because policymakers know what technological goals need to be met—having effective interventions to prevent, diagnose, and treat COVID-19 infections—and the enormous economic and human costs of the pandemic provide some estimate of the social value of bringing it under control.

When choosing among government-set policies, lawmakers still face a choice in award timing: awards can be provided ex ante to the most promising projects before the results of the research are known (like grants), or ex post to only the projects that turn out to be successful (like prizes). Neither choice is uniformly superior. Ex post awards provide a stronger incentive for success and can reduce informational constraints for government funders—defining a technological goal is often, though not always, easier than choosing which teams are most likely to meet that goal. But ex ante awards can be more effective when innovators (1) are risk averse, (2) face constraints raising capital to cover research costs before results become known, particularly in capital-intensive fields such as health care innovations, or (3) are more present-minded than society as a whole.

Intriguingly, RADx has both ex ante and ex post aspects—and that’s probably a good thing. As one of us has explained in work with Professor Daniel Hemel, the reward-timing dimension of innovation policy “is a continuous spectrum rather than a binary choice … transfers can be scheduled at any time during the R&D process, based on varying demonstrations of success,” and mixing “ex ante and ex post rewards represents an effort to achieve the best of both worlds.” Like a grant, RADx funding comes before the stage of R&D for which the funding is targeted—manufacturing and scale-up of diagnostic testing—and is not contingent on the success of that work. But like a prize, RADx rewards firms that have already achieved early-stage success: the seven firms funded so far have already received Emergency Use Authorization (EUA) status from the FDA or have applications being processed.

Government funding for innovation usually isn’t targeted at this intermediate space of the product development timeline. Rather, the bulk of public R&D funding is focused on grants for earlier-stage “basic” research, leaving more “applied” work for the private sector. As Professor Bhaven Sampat has recently explained, this division emerged from a debate on science and technology governance at the end of WWII, when Vannevar Bush’s vision triumphed over that of Senator Harley Kilgore. Sampat argues that Kilgore’s vision, which “involved the government stepping in to do the applied research that profit-oriented firms would not,” is worth more attention today. Indeed, public funding may be valuable not only for traversing the “valley of death” between identifying a promising intervention and demonstrating its commercial viability, but also for even more downstream challenges such as efficient manufacturing and scale-up. 

RADx is a step in this direction. The NIH has run programs similar to RADx before, such as the Antimicrobial Resistance Diagnostic Challenge, although that program’s $20 million in total funding pales in comparison with the $1.5 billion available for RADx. In addition, RADx involves non-monetary support—including regulatory assistance—that is different in kind from both typical grants and typical prizes. The program thus seems like a novel addition to the innovation policy toolkit, which might serve as a blueprint for future policies.

What should policymakers keep in mind as they design initiatives like RADx for COVID-19?

Designing effective innovation incentives, whether grant-like or prize-like, is hard, and policymakers must take care to get it right. When designing prizes, policymakers need to pre-specify milestones with enough clarity and specificity to ensure that the initiative’s goals are met—here, the development and deployment of millions of effective diagnostic tests for COVID-19—but with enough flexibility that innovators aren’t foreclosed from taking creative approaches to answering the challenge. (The inability to foresee the right solution in the first place is, after all, the key reason for initiatives like RADx rather than the government simply creating a solution in the first place.) To take a counterfactual, if RADx had focused solely on point-of-care tests administered by health-care providers, either explicitly as a selection criterion or implicitly by using prize-like reimbursement criteria rather than direct provision of funds, developers would understandably but problematically focus their efforts on provider-administered tests rather than at-home tests. Such errors are easy to make. Professor Zorina Khan has cataloged many historical examples that have failed on these criteria.

It is also crucial to couple intermediate incentives like RADx with other tools from the menu of push/pull incentives. RADx, as something like a milestone prize, provides a useful tool to help advance products from early conception into production phases, especially for capital-intensive scaling and manufacturing processes. But purely ex ante funding, most straightforwardly grants, may still be needed to drive that early conception and proof-of-principle work, especially for small firms that might still face early-stage capital constraints (though it’s not clear that such constraints are particularly problematic in the COVID-19 diagnostic testing space). And after the role of initiatives like RADx, other innovation policy levers may be necessary to ensure that the resulting products are in fact broadly accessible.

Finally, while RADx and other initiatives like it certainly seem like a good idea, they represent a significant departure from the NIH’s typical approach to research funding, and it will be hard to know how well they work without rigorously measuring outcomes. It is perfectly plausible that RADx will be a crucial initiative to drive scale-up of COVID-19 diagnostics, and that the companies selected will bring very large volumes of excellent tests to the market. But it is also plausible that the selected companies would have reached the same outcome without RADx’s help: substantial federal investments are already being made into the development and reimbursement of COVID-19 diagnostics, and the selected firms might already have sufficient capital and access to regulatory expertise. Because there is no comparison group for the funded entities, future researchers will have difficulty understanding this program’s impact. The NIH should carefully observe and record the process and the results for funded companies (as CARB-X, a similar initiative in the antibiotic space, does). A more rigorous way to distinguish such outcomes is to consider structuring future RADx-like initiatives as policy experiments. Policymakers might consider, for example, randomly varying the funding received by each recipient and observing differences in outcome. Just as we need to know what health interventions and diagnostic tests work for COVID-19 and other diseases, we need to know what policy interventions work to improve the overall innovation ecosystem.

This post is part of a series on COVID-19 innovation law and policy. Author order is rotated with each post.

Are COVID-19 vaccine advance purchases a form of vaccine nationalism, an effective spur to innovation, or something in between?

By Nicholson Price, Rachel Sachs, Jacob S. Sherkow, and Lisa Larrimore Ouellette

No vaccine for the novel coronavirus has been approved anywhere. Nevertheless, governments and international organizations around the world are announcing deals for billions of dollars to procure tens of millions of doses of vaccines from companies that are still running clinical trials, including a $2.1 billion deal with Sanofi and GSK announced by the US on Friday. What’s going on? And what do these deals tell us about innovation policy for COVID-19 vaccines? In this post, we lay out the landscape of COVID-19 vaccine pre-purchases; we then turn to the innovation impact of these commitments, and finish by asking what role patents and compulsory licensing have to play.

Who is pre-purchasing COVID-19 vaccines?

Enormous public interest and political pressure are focused on when a COVID-19 vaccine will be approved by the FDA or its counterparts abroad. But developers must also build manufacturing capacity and supply chains to get a vaccine into patients’ arms, which usually takes around five years and costs over three times more than a conventional pharmaceutical factory. These supply chains are already being built at-risk for some promising candidates—with recognition that many candidates fail during clinical trials—but it is still likely that demand will vastly exceed supply in the short term. Against this backdrop, governments and international organizations have been pre-purchasing very large quantities of promising vaccine candidates.

The US federal government has made substantial pre-purchases, including up to $2.1B for 100M doses from Sanofi-GSK, $1.95B for 100M doses from BioNTech-Pfizer, $1.6B for 100M doses from NovaVax vaccine, and $1.2B for 300M doses from AstraZeneca-Oxford. This is unusual! Most vaccines for US adults are purchased by the private sector or public insurers. (Also unusual is that the federal government will be directing allocation choices through the CDC and the Pentagon—which hopefully will go more smoothly than the distribution of the COVID-19 treatment remdesivir by FEMA and HHS.) 

Other governments are also making advance purchases of yet-to-be-approved vaccines, particularly the UK and other European countries. The UK has secured 250M doses from four suppliers; it has 66M people. (Obviously, it has planned in case not all of them work out.) Italy, Germany, France, and the Netherlands set up the Inclusive Vaccines Alliance—which other EU countries may join—and signed a €750M contract for 400M doses of the AstraZeneca-Oxford vaccine. The EU is also concluding talks to purchase 300M doses of the Sanofi-GSK vaccine. China is developing its own vaccines, which other countries may struggle to access. And the few wealthy countries like Canada that are not making substantial COVID-19 vaccine investments face pressure to do so.

These investments have led to charges of “vaccine nationalism” in the popular press, although as Professor Ana Santos Rutschman explains, these strategies are not new. Rutschman also describes the growth of public-private partnerships to offer a more global solution. Most notably, Geneva-based Gavi has created the COVID-19 Vaccine Global Access (COVAX) Facility, which can be joined by both “self-financing” countries and donor-supported countries. COVAX will distribute vaccines to “all participating countries at the same rate until all countries have received sufficient doses through the Facility to ensure coverage of 20% of their populations,” although potential inequity in access by non-self-financing countries has led to some criticism. Many countries have expressed interest, though only 16 of the 36 OECD states, not including the US, Germany, France, Italy, or Spain. The European Commission has advised EU states not to join COVAX for the purpose of buying vaccines.

How do these advance purchases affect vaccine innovation?

As we discussed last week, pull incentives that increase or provide certainty about the expected ex post reward for a new technology are a crucial tool in the government’s arsenal for promoting innovation. Agreements to purchase a product before it actually exists in the world have successfully been used in the vaccine context to drive innovation. Gavi’s $1.5 billion advance market commitment (AMC) for a vaccine against pneumococcal disease has resulted in the immunization of over 180 million children. A few of the above-described arrangements are structured similarly to the pneumococcal AMC, although most of the reported investments in vaccine companies do not appear to be contingent on the success of their innovative efforts. 

 

These COVID-19 vaccine agreements differ in at least three additional, key ways from this previous AMC or other innovation-promoting efforts. First, unlike with previous efforts to use pull incentives in the vaccine context, it is not at all clear that advance purchase commitments are needed to encourage companies to invest in the development of vaccines against COVID-19. COVID-19 is truly global in scale; there is an enormous potential market for the vaccine. There is also less concern that the disease will dissipate before a vaccine arrives, as COVID-19 is harder to contain than other diseases for which vaccines have been researched. With rarer conditions like Ebola, for instance, it is difficult to be sure that there will be enough patients to enroll in clinical trials, as traditional public health tools can successfully contain individual outbreaks of the disease. For other conditions, such as the particular strains of pneumococcal disease prevalent in low-income countries, there may not be a large enough developed-country market to encourage pharmaceutical company investment. Neither is true for COVID-19. As of July 31, there were 26 vaccine candidates in clinical trials and another 129 in preclinical evaluation, many of which lack advanced purchase commitments like those described above.

Second, even if advance purchases are not needed to induce entry, they can still be valuable for increasing the speed of development. In particular, these agreements are designed to promote early investment in vaccine manufacturing, even before a vaccine candidate has demonstrated efficacy. These investments may be wasted in the event that a vaccine candidate fails, and so companies typically would not build this capacity so early in the development process. Here, however, there is enormous social value in enabling speedier access to a vaccine that has demonstrated safety and efficacy, justifying the large government investments. 

Third, governments are using these agreements to reserve doses for their citizens in a way that may lead to a lack of supply for other countries, at least in the short term. These concerns over “vaccine nationalism,” as noted above, may raise grave concerns for equitable access to the vaccine where it could save the most lives. COVAX is a promising development to address this concern, although as of July 31, Gavi had raised only $600 million out of $2 billion in seed funding needed to secure doses for the 92 countries eligible for donor support. At the request of the CDC and NIH, the National Academies just announced a committee to develop a framework for equitable domestic and global allocation of a COVID-19 vaccine; it will be interesting to see if they are able to develop a framework that policymakers will follow.

These advanced purchase commitments also give rise to the potential concern that governments are “picking winners” early, and given high clinical trial failure rates, many of these candidates may fail. However, as noted above, the United States and other countries are diversifying their choices, funding multiple companies using multiple different platforms and hedging their bets to increase their chances of success overall. Further, given the relatively small number of pharmaceutical firms with the know-how to develop and manufacture vaccines, governments may be able to strike deals with many, perhaps most, of the companies with the resources to successfully develop a vaccine against COVID-19. In a range of other contexts, even including the New York taxi manufacturing market, a history of manufacturing success and regulatory sophistication has been relevant to government bodies making awards like these. 

Is compulsory licensing of patents important to ensure adequate access?

Even with advanced market commitments, a number of scholars have voiced their concerns that patents will impede access to or development of COVID-19 vaccines. Professor Sapna Kumar, for example, has called for compulsory licensing by the federal government and generic importation by states. Professor Rutschman has similarly suggested that the US adopt a compulsory licensing regime for coronavirus vaccines, like one recently announced in Chile. Several other scholars, meanwhile, have established the Open COVID Pledge, a voluntary patent pledge for developers who promise to make their “intellectual property available free of charge for use in ending the COVID-19 pandemic and minimizing the impact of the disease.”

Evidence that patents were hindering development of COVID-19-related technologies or that patentees were restricting access to increase profits would help make the case for compulsory licensing during this pandemic. But as of yet, we are unaware of any such examples. As noted above, there are over 150 COVID-19 vaccine candidates in development—an astonishing number for a disease only discovered nine months ago. Clinical trials are already underway for more than two dozen of those. For these vaccines, there’s no evidence that IP is being used to frustrate competition or keep early-stage developers off the market. Nor would patents likely be used to restrict the supply of any successful vaccine. The developer of an effective coronavirus vaccine should maximize its profits (and good PR) by making and distributing as many doses as possible—including through licensing and transfers of know-how to other manufacturers, as they have begun to do. The real access concern, we think, is not that patents will lead to fewer doses being produced—it is that a distribution system principally managed by wealthy nations will fail to adequately distribute the vaccine to those most at risk.

Compulsory licensing doesn’t address these concerns. Whatever merits compulsory licensing offers for some basic pharmaceuticals, vaccines are quite different. In the small-molecule context, entry by numerous generic manufacturers is relatively inexpensive and can rapidly increase supply. But for vaccines, as we’ve detailed before, the more significant impediments to producing a successful coronavirus vaccine lie on the manufacturing side, including issues regarding manufacturing scale-up, the risk of shortages, supply chain management, and other logistical hurdles. That doesn’t even include issues like administrative distribution (e.g., would people receive the vaccine from their employer, physician, or a third-party provider?), or vaccine skepticism that are bound to dog implementation of a COVID-19 vaccine.

The scholarly attention to patents in the pandemic, rather, is part of a long-standing academic debate as to whether patents efficiently mediate a tradeoff of access to the goods they cover and incentives to develop them. But this tradeoff—especially in this context—doesn’t have to be, and often isn’t antagonistic. As we previously explained, whether developers receive high financial incentives from patents and other policies is a separate question from whether consumers face barriers to access; several proposals include provisions that a COVID-19 vaccine will be available to most patients for no out-of-pocket costs. More broadly, the economic and public health impact of COVID-19 counsels that whatever risk exists from payers overpaying for a patent-protected COVID-19 vaccine is a mere rounding error compared to the enormous harm—both economic and human—from the pandemic. If Pfizer stands to reap $2 billion to end a scourge that has already claimed 700,000 lives and stands to cost $82 trillion globally, it’ll be worth it. Given the difficulties of manufacturing and distributing a vaccine, it’s not clear how patent licensing would address the access problem frequently complained about. Rather than focusing on the margins, now is the time for policymakers to “go big. Really, really big.” 

This post is part of a series on COVID-19 innovation law and policy. Author order is rotated with each post.