How should policymakers incentivize and regulate convalescent serum therapy for COVID-19?

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

Over 120 years ago, a milk wagon horse named Jim was the United States’ most potent weapon against a raging diphtheria epidemic. During his lifetime, Jim—inoculated against the bacterial toxin that causes the disease—produced gallons of anti-diphtheria serum that, once extracted, could then be administered directly to patients. But tragic difficulties in making a safe and standard therapy from a single horse led Congress to pass the 1902 Biologics Control Act—the predecessor to the FDA’s current oversight over biologic products.

While convalescent sera have largely fallen out of favor since the development of modern vaccines, there is renewed hope in the space: the development of therapeutic sera from recovered COVID-19 patients. Encouraging the development of safe, pure, and potent COVID-19 convalescent serum has recently tasked policymakers with numerous challenges—some old, and some new. In this post, we explain the “manufacture” of COVID-19 convalescent sera and explore the regulatory and innovation policy difficulties in maintaining it.

What is convalescent serum therapy?

Recovered COVID-19 patients—including more than one million Americans—generally have antibodies to the SARS-CoV-2 virus, proteins in the blood to help their immune systems fight the infection. Some diagnostic tests look for these antibodies to determine whether someone has previously been infected; a successful COVID-19 vaccine would help patients actively produce their own antibodies before infection. These “neutralizing” antibodies are important to combat SARS-CoV-2 and are the source of significant promise for a robust treatment. One experimental intervention is to administer serum from recovered patients containing neutralizing antibodies to those who have not yet developed them—a process known as convalescent serum therapy, convalescent plasma therapy, or passive antibody therapy.

This labor-intensive process begins with collection of plasma (the liquid portion of blood with cells removed) from a patient with SARS-CoV-2 antibodies, a process that takes around 45 minutes as blood is removed, plasma is fractionated, and the remainder—mainly red blood cells—are returned to the patient. (The FDA has compiled information on donation options.) The antibody-rich plasma or serum (plasma with clotting factors removed) can then be administered to COVID-19 patients to help them fight the disease until their immune system develops its own active response.

Passive antibody therapy has a long history—including some improvements in survival during the 1918 flu pandemic and against the coronaviruses that caused SARS and MERS—and is expected to be most effective when administered before infection (when it can provide weeks to months of protection) or shortly after the onset of symptoms. Some researchers are studying the preventative effect of convalescent plasma in health care workers, but given the scarcity of plasma donors, this intervention mostly has been used for hospitalized COVID-19 patients.

The first randomized convalescent plasma trial for COVID-19 treatment, with 103 patients in China, found no statistically significant benefit among all patients but promising enough results among severely ill patients that a JAMA editorial found “optimism for the future of antibody therapy in this disease.” A matched control study in which 39 NYC patients with severe COVID-19 received convalescent plasma transfusions concluded that the treatment improved survival for non-intubated patients but not for intubated patients. But the lack of randomization makes interpretation more challenging. A report on 5,000 hospitalized COVID-19 patients as part of the FDA expanded access program for convalescent plasma concluded that the treatment appears safe—but the study did not have a control arm, leaving efficacy uncertain. A number of registered randomized trials are recruiting patients, although enrolling a sufficient number of participants can be challenging. As the New York Times reports, although the “only way to know for sure if the treatment works is to randomly assign patients to receive antibodies or a placebo … it can be impossible to find many patients who agree to have their treatment randomized to an unknown treatment,” especially because the product is already accessible outside the clinical trial setting.

How is convalescent serum regulated?

Convalescent serum is mainly regulated through the Public Health Services Act’s oversight of “biological products.” Section 262(i)(1) of the pertinent statute defines “biological products” subject to FDA approval, and specifically includes “therapeutic serum” in its list of covered products (a prophylactic serum would presumably be included in the term “blood component or blood derivative,” also in the list). Accordingly, any therapeutic serum must be approved by the FDA, something the Agency has not yet done for convalescent serum to treat COVID-19.

Despite the Act’s specific designation of therapeutic sera as biological products, historically, they have been quite rare. The use of serum was relatively popular in the 1920s and 1930s to treat polio, measles, and mumps, before the development of vaccines. The Public Health Services Act’s placement of therapeutic sera under the FDA’s jurisdiction wasn’t enacted until 1942. More recently, convalescent sera have been sparingly used in other pandemic contexts before other treatments were available; in 2009 it was used to treat patients in the H1N1 flu pandemic, and in 2013 in the West African Ebola outbreak.

Because it has not yet approved sera to treat COVID-19 patients, the FDA regulates convalescent serum as an Investigational New Drug (IND). In general, the FDA requires information to demonstrate that a product subject to an IND is adequately identified, pure, strong, and of sufficient quality (21 CFR 312.23(a)(7) and 21 CFR 312.305(b)(2)(vi)). This is easy enough to state. But regulation of serum is tremendously difficult. Every donor is slightly different, and the things the FDA normally measures—quality, purity, strength, and manufacturing chemistry processes—are not easy to measure for a product derived from individual donors’ blood. Serum is deeply unlike the manufacture of a standardized product produced at an identifiable facility. To the contrary, it has parallels with other difficult-to-regulate human donor products, such as stem cell therapy or fecal microbiota transplants. Regulating systems like these is substantially more complex than regulating standardized antibody products, which are complex enough on their own. The FDA’s May 1 guidance attempts to standardize the process of manufacturing convalescent serum, laying out requirements for patient and donor eligibility, the labeling of products, and recordkeeping. But substantial uncertainty—and significant variability, donor to donor, batch to batch—remains.

Normally, products being studied under an IND can only be obtained by participating in a clinical trial; the FDA first approved trials of the use of convalescent serum for COVID-19 in April. However, the FDA has created a nationwide expanded access (EA) program (not to be confused with its Emergency Use Authorization (EUA) program), within which patients can access the treatment without being part of a clinical trial. The COVID-19 therapeutic serum EA centers on clinical trials being run by the Mayo Clinic; over 2,600 sites are connected with the program, and over 40,000 patients have been infused. If patients cannot access convalescent serum through this EA, a physician can request an individual patient-level emergency IND; incredibly, the FDA normally responds within four hours. While this streamlined access helps patients get treatment, it also makes it difficult to enroll robust numbers of clinical trial participants.

How can innovation policy encourage convalescent serum?

Convalescent serum differs from standard pharmaceutical therapies in ways that limit the potential effectiveness of many typical approaches for encouraging innovation of a biologic product. As noted, because convalescent serum is typically obtained from donors rather than manufactured in large factories, one may worry that the lack of standardization and some randomness associated with finding a batch of effective plasma decreases companies’ incentives and ability to study it for its intended uses. In typical circumstances, this would suggest increasing the need for governmental funding in this space to overcome FDA regulatory challenges and to encourage standardization.

But there are more ways policymakers might encourage the development of convalescent sera at their source: encouraging sera donation from and sera administration to COVID-19 patients. First, there are a number of other therapeutic areas involving donation of human bodily materials (including blood, plasma, gametes like eggs and sperm, and fecal matter). The FDA and Congress in particular can learn from the ways both monetary and non-monetary incentives have been used to encourage donation, including the ways in which recovering COVID-19 patients might feel altruistically motivated to participate in a study that might help future patients. More directly, clinicians might seek to repurpose existing donation mechanisms for COVID-19 purposes. As one example, the Red Cross has begun testing all blood donations for COVID-19 antibodies. This provides a benefit to donors, who can learn whether or not they have been exposed to the virus, while holding themselves out to be asked whether they would like their serum to go to COVID-19 patients if they test positive.

Second, policymakers should prioritize federal funding not only for clinical trials evaluating the efficacy of convalescent serum in COVID-19 patients, but also in studying additional aspects of the use of convalescent serum. For instance, as has been documented in the fecal transplant space, it might be that material from particular donors is far more effective at treating the condition in question than material from others. It would be important to determine, for instance, whether donations from patients who had developed asymptomatic COVID-19 infections differed from patients who had developed symptomatic infections and displayed different levels of efficacy when later administered to symptomatic patients. Such information—which is comparatively nonexcludable and likely under-incentivized for larger-scale developers—should be a prime target for federal funding.

Third, the FDA might seek to set ex ante standards, as it has already begun to do in its May guidance document, to help scientists determine how to structure the collection process as well as clinical trials. Standardization in collection and processing might also help regulators compare the results of different clinical trials, help determine which convalescent sera have demonstrated efficacy, and encourage efforts to characterize the sera more clearly.

Policymakers also ought to pay attention to the ethical dimensions of the donation and use of convalescent plasma. A market has developed for blood donations from COVID-19 survivors, potentially raising concerns both about exploitation of donors and access to expensive treatments. More generally, the history of research involving human biological materials is filled with examples of human tissue sampling without subjects’ consent—especially from people who were disproportionately likely to be members of minority communities (although not exclusively so). Suffice it to say, the people from these examples did not share in the profits reaped by researchers and commercial developers. Convalescent serum, like other potential COVID-19 therapies, sheds yet more light on the racial disparities in COVID-19 cases. As policymakers work through ways to fund sera-based therapies, they should be attentive to equity in all parts of sera development—from donor to patient. 

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

How will the FDA’s new COVID-19 vaccine guidance affect development efforts?

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

Policymakers are expectantly awaiting the development of a COVID-19 vaccine, which they view as critical to future management of the pandemic. A number of pharmaceutical companies have jumped into the vaccine race, moving at record speed, with several vaccines already about to enter Phase III trials. Last week, the Food and Drug Administration (FDA) released a guidance document on the development of new vaccines for COVID-19. In this post, we review the FDA’s new guidance, consider the ways in which the FDA must attempt to balance risk and access in this context, and address the critical question of patient access to future approved vaccines.

What does the FDA’s COVID-19 vaccine guidance do?

The FDA’s June 30 guidance broadly details the agency’s requirements for clinical trials of COVID-19 vaccines. These include considerations for trials’ designs and subject populations, measures of efficacy, statistical considerations, and safety thresholds, among other requirements. Notably, the guidance is the first from the FDA to establish such measures for a COVID-19 vaccine specifically. Besides providing vaccine developers, well, guidance for vaccine development, guidances issued early in the development process also bind the FDA to its own evidentiary mast against the siren song of political pressure. (In this way, guidances, too, can serve as an instrument in augmenting public trust.) 

The guidance clearly specifies current areas of scientific uncertainty and expresses what evidence the agency is looking for and how to obtain it. For example, the guidance admits that “[u]nderstanding of SARS-CoV-2 immunology, and specifically vaccine immune responses that might predict protection against COVID-19, is currently limited and evolving”—and, as a consequence, the goal of COVID-19 vaccine trials is not necessarily to demonstrate immunogenicity but “efficacy in protecting humans from SARS-CoV-2 infection and/or disease.” 

More specifically, the June 30 guidance notes a preference for vaccine trials with a 1:1 randomization of vaccine candidate:placebo, rather than trials investigating multiple different treatment arms. It also encourages following up with study participants for “at least” one or two years to determine the length of protection provided by the vaccine as well as to watch for potential adverse events. And the guidance suggests using a lab-confirmed SARS-CoV-2 infection as a trial’s primary endpoint, with incidences of severe COVID-19 as at least a secondary endpoint. The guidance also acknowledges the racial disparity in COVID-19 outcomes by “strongly encouraging” enrolling racial and ethnic minorities in any vaccine clinical trials. Developing a vaccine that is less effective when administered to Black patients, for example, would only exacerbate differential COVID-19 outcomes and contribute to health inequities.

More controversially, however, the guidance pegs studies’ primary efficacy endpoint at “at least 50%”—a far cry from the 90%+ efficacy for vaccines against polio or HPV. This means, of course, that at least some vaccinated individuals (including high-risk individuals) would become infected. At the same time, an efficacy endpoint of 50% is not unheard of for vaccine development, and is used routinely for seasonal influenza vaccines. In cases like the flu, the goal is not necessarily to inoculate everyone, but to flatten the curve enough (i.e., to bring down R0) so that transmission is effectively halted. Mandating a coronavirus vaccine to demonstrate 90%+ efficacy while the pandemic rages would be allowing the perfect to be the enemy of the good.

For now, Moderna, a vaccine developer relatively far along in the approval process, has delayed part of its trial, seemingly to conform to the guidance. Moderna’s technology—an RNA-based vaccine approach—is novel and has its fair share of skeptics. But the guidance, like all good guidances, has the salutary effect of committing the FDA and developers to a common set of principles and evidence to the usher development of important therapeutics.

How does the FDA use its information-forcing powers to balance risk and access in the COVID-19 vaccine context?

The FDA doesn’t just regulate to ensure that new products are safe and effective; a key part of its role is to require and shape the production of costly information about the products it regulates. Professor Rebecca Eisenberg has argued persuasively that the FDA is an innovation agency, not just a consumer protection agency, and this information-forcing role is central to that purpose. It is difficult and expensive to generate information about health-care innovations, whether therapeutic drugs, medical devices, or vaccines. In the face of manufacturers’ incentives to underproduce this information, the FDA steps in to require a certain amount before it will allow products to be marketed. The amount of information required is debatable—as we have previously discussed, requiring more information decreases the risk of the FDA making a mistake during the approval process but delays patients’ access. This role is particularly important in a pandemic, where urgency colors every new biomedical development but high quality information is still needed, not least because errors can be particularly costly in terms of both medical outcomes and public trust. 

The guidance’s specific requirements (e.g., 1:1 vaccine:placebo, 1-2 year follow-up, specified endpoints) are an effort to ensure that the information generated about a vaccine is robust enough to merit approval and the likely widespread use that will follow. Ideally, as multiple candidates are taken through clinical trials, developers will learn more about the virus and more about effective development efforts. The FDA may require more and better information to approve later vaccines, both because firms (and the FDA) have more experience, but also because once the first vaccine is on the market, the need for a second vaccine is not quite as desperate. That said, the FDA has suggested that accelerated approval—a faster and easier approval pathway—may be more likely later after more is known about how the virus works. More vaccines will still be needed, but the agency can afford to be slightly pickier with each approved vaccine, and correspondingly to demand better evidence of efficacy and safety (for instance, once an approved vaccine exists, non-inferiority trials for later vaccines would look for an efficacy within 10%).

One crucial step the FDA could take to improve the information produced in vaccine trials would be to facilitate the sharing of information about failures in vaccine development. In the ordinary course of drug development, failures are minimally shared, as knowledge of dead ends not to follow is considered valuable confidential business information. Keeping failures secret in the COVID-19 vaccine development efforts would be a terrible waste, particularly as the clinical landscape is already littered with inefficiency and duplication. The European Medicines Agency already exercises a similar authority more generally.

The FDA’s role of ensuring that developers generate high quality information about safety and efficacy is in some tension with another prominent government initiative: Operation Warp Speed. Operation Warp Speed is an effort to speed the development of therapeutics and vaccines as much as possible, but part of that effort means that the government (particularly BARDA, the Biomedical Advanced Research and Development Authority) will be picking winners and supporting particular candidates—long before they have the sort of information the FDA is looking for. The FDA is correspondingly emphasizing its independence from other efforts; the information required to approve a vaccine seemingly does not change based on the mechanics of Operation Warp Speed or other government efforts. Nevertheless, and with good reason, the firms operating under Operation Warp Speed will be using the FDA’s guidance to shape their development efforts.

If the FDA approves a COVID-19 vaccine, how will the United States pay for it?

The FDA’s rigorous requirements and stated reluctance to issue a vaccine EUA have been described as throwing cold water on the goal of having a COVID-19 vaccine in 2020. Experts suggest that even summer 2021 is an aggressive goal, requiring tremendous duplicative spending and a lot of luck. But while an effective COVID-19 vaccine remains aspirational, politicians, patient advocates, and pharmaceutical innovation experts have been worrying about vaccine cost since the early stages of the pandemic. We think it would be helpful if these discussions distinguished between affordability—the out-of-pocket costs to patients that can pose barriers to access—and the separate question of overall financial incentive for developers, recognizing that pharmaceutical profits and public health are not incompatible.

Any FDA-approved vaccine will likely be free for Americans who want it. The push for adoption of U.S. vaccines typically comes from the CDC’s Advisory Committee on Immunization Practices (ACIP), which formed a COVID-19 work group in April to create an independent framework for assessing vaccines and to review early clinical trial data. The Affordable Care Act requires insurers to cover ACIP-recommended vaccines with no cost-sharing (at least as long as it is not overturned). As we have previously discussed, HHS has also used CARES Act funding to create a COVID-19 Uninsured Program Portal, which will cover any FDA-approved vaccine for uninsured Americans, when available. The Trump administration stated in June that any COVID-19 vaccine will be free for “any American who is vulnerable, who cannot afford the vaccines.” It seems likely to us that Congress will allocate additional funding for vaccine coverage if necessary, including to ensure that patients are not billed for the health care provider’s administration of the vaccine (in addition to the product itself).

But free at the point of sale to patients need not—and should not—mean free to the U.S. government. Vaccine development is tremendously expensive, requiring customized manufacturing facilities that usually take many years to build. Having any chance of meeting 12-to-18-month development timelines requires building these factories now for promising candidates, with recognition that most will have to be abandoned as unrecoverable sunk costs when clinical trials do not pan out. Vaccines are also less profitable than repeat-use treatments, and political pressure often pushes profits even lower. But vaccines can have huge positive externalities for society beyond the benefits provided to individual vaccinated patients—as illustrated by the enormous daily costs of COVID-19 that an effective vaccine would eliminate.

The conventional solution for this kind of market failure in innovation policy is to supplement market rewards with public funding—and the federal government is indeed putting substantial sums into COVID-19 vaccine development. A $1.6 billion contract with Novavax was announced Tuesday, following pledges of “up to $1.2 billion” to AstraZeneca and about $1 billion more divided among Moderna, Johnson & Johnson, Merck, and Sanofi. Some commentators have pointed to this funding as justification for compulsory licenses or price caps on successful vaccines. But the goal of this funding is to correct for market rewards that are insufficient to motivate companies to build facilities at-risk, before a vaccine candidate's efficacy is known; decreasing market-based incentives would subvert this goal and exacerbate this market distortion. Total public funding for COVID-19 vaccine development so far is less than the daily social cost of the pandemic in the United States alone. If this funding speeds vaccine development even slightly, it will have been worth it.

Indeed, in addition to laying out guidance for the standards that will be used for vaccine approval, the federal government should consider committing now to reimbursement rates for an approved vaccine, akin to what it has done for advanced COVID-19 diagnostic testing technologies. As multiple scholars have noted, an effective COVID-19 vaccine is the kind of technological problem that lends itself well to an innovation challenge prize known as an advance market commitment (AMC), in which the government commits to paying a certain amount per vaccinated person, under certain assumptions about the vaccine’s effectiveness that align with the FDA’s guidance. Even though an entirely new prize system isn’t politically likely, wide-scale government purchasing can replicate most of the benefits of market-based prize systems like AMCs. Committing to a profitable reimbursement rate could provide additional motivation to get working COVID-19 vaccines into Americans’ arms more quickly.

The legal and policy issues arising in the context of vaccines for COVID-19 are not entirely unique to the vaccine context. The federal government has already faced questions around the FDA’s approval standards, regulating in the face of uncertainty, and ensuring access to other new healthcare technologies for COVID-19, such as drugs and diagnostics. But the particular facts underlying the development of new vaccines counsel in favor of solutions to this problem that differ from those the federal government has already considered. Now, several months into COVID-19’s spread into the United States, federal policymakers should work to ensure that plans specifically encouraging innovation into and access to vaccines are developed and implemented.

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

Remdesivir Part II: Allocating Access

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

Last week, we focused on incentives for developing clinical evidence supporting the use of remdesivir for COVID-19 and analyzed the FDA’s grant of an emergency use authorization (EUA) for the drug. This week, we consider mechanisms for allocating access to the drug, including distribution, payment, and patents. Importantly, many of these issues are relatively uncommon to encounter in the prescription drug space. The government does not usually control the allocation and distribution of new drugs after marketing authorization has been granted, although it is doing so for remdesivir. These novel issues raise opportunities, but also concerns, for law and policy.

Why and how is the federal government controlling remdesivir distribution in the US? 

In granting the EUA for remdesivir, the FDA stated that the drug’s distribution will be “controlled by the United States (U.S.) Government.” The government played a similar role in the distribution of hydroxychloroquine under the FDA’s EUA for that product, and in both cases the government seeks to control distribution and ensure that the products are being prescribed for their restricted, authorized uses. But for remdesivir, the federal government has taken a heavier hand in the product’s distribution. Unlike hydroxychloroquine, for which public health authorities can obtain distributions from the strategic national stockpile, remdesivir is in relative scarcity because of the time needed to ramp up manufacturing capacity. For now, Gilead is planning to donate its existing supply of the drug to governments around the world, placing them in charge of the distribution process.

Unfortunately, the federal government’s initial distribution of remdesivir across the country was chaotic and opaque. In early May, the government made distributions directly to hospitals in many states. But news reports suggested that the distributions seemed “random.” The drug did not go to hospitals treating the most patients, or the sickest patients, or to hospitals in states with the highest burdens. Procedurally, physicians expressed frustration with the lack of transparency as to which hospitals were receiving the product (information which was crowdsourced on Twitter), or even who in the federal government was responsible for ordering the distribution to occur as it did. Subsequently, Dr. Deborah Birx, a member of the White House Coronavirus Task Force, expressed that there was a “misalignment of the therapeutic and on-the-ground current need in the first shipment.”

On May 9, HHS issued a press release to provide more information about how remdesivir would be distributed going forward. The drug would be sent to the “areas of the country hardest hit by the pandemic,” and the federal government would distribute the product to states, which would themselves need to decide how to allocate the drug among their many hospitals. Yet this explanation also raised more questions than answers. Substantively, HHS’s list of states that have received distributions of the drug did not seem to match data on disease burden among states. Whether in terms of case count or cases per capita, several states near the top of each ranking were left off the initial distribution lists for remdesivir. More procedurally, it was still not clear who within the administration was responsible for the decision of allocating the drug to the states. HHS also provided no additional explanation for why the initial shipments were made to hospitals, rather than the states, nor guidance for states on how to make their internal allocation decisions.

HHS is now stating that all 50 states have received doses of remdesivir. But these states must then decide how to allocate the drug to the patients who may need it. Different states appear to be adopting different approaches. Some states are considering a lottery among patients. Others are assembling teams of physicians to decide how to allocate the drug based on medical need. How to best allocate a scarce, potentially life-saving drug is just one of the bioethics-laden policy issues made especially salient by the pandemic.

Is intellectual property a significant barrier to access?

In other circumstances, one possible cause for supply not fully meeting demand is intellectual property protection, such as patents. This is because, in the classical economic account at least, patents may encourage the artificial restriction of supply if there’s an absence of acceptable substitutes. But while there’s been public focus (and outrage) on IP and regulatory protections for COVID-19 drugs—including remdesivir—patents have little, if anything, to do with the drug’s scarcity.

Remdesivir particularly suffers from a disconnect between the drug’s sudden, enormous demand and its current capacity to be safely manufactured (a process which takes six to eight months, at least). This is similar, in many ways, to the other drug shortages we’ve previously explained. The key problem here, as there, are the physical limits of supply chains—the same supply chains rent by the pandemic. Encouraging manufacturers to make supply chains more robust to sudden spikes in demand, like this one, is likely well worth the effort; the cost of retooling drug manufacturing supply chains is likely marginal relative to the economic and social cost of the crisis.

Far from using patents to restrict supply, remdesivir’s sky-high demand means that Gilead has a strong profit—and PR—incentive to manufacture as many doses as it possibly can, including licensing its product to generic manufacturers in India and Pakistan for distribution in 127 countries. Under these licenses, generic firms have been allowed to set their own prices and will not have to pay Gilead royalties until the WHO declares an end to the public health emergency, or another therapy is approved for prevention or treatment.

To be clear, Gilead still owns patents that cover remdesivir, and those patents might cause access problems in the future. Gilead applied for, received, and—after some intense controversy—withdrew FDA orphan drug designation for the therapy. Remdesivir also has principal patent protection until at least 2036. These may very well be used—as with virtually all other branded drugs—to stymie competition. And this is so even though, as noted by Professors Justin Hughes and Arti Rai, remdesivir seems more the product of public investment than is typical of similar drugs.

But for now, these concerns are far enough out in the future that they should not be the principal focus of COVID-19-related pharmaceutical policy. Hughes and Rai, even while questioning whether there are omitted government inventors on remdesivir’s patents, recognize the importance of incentivizing continued private-sector investment in this area and the ability to address access concerns without eliminating patent rights:

Going forward, policymakers considering what to do about the patents on remdesivir need to think carefully about the precedents they may establish. Our system of collaborative public/private biopharmaceutical research is messy, and perhaps far from optimal, but it produces a steady stream of innovations like remdesivir. And we need that system to continue churning out drugs that may someday work against viruses we cannot yet imagine but we know will threaten millions. . . . As long as the public role is properly accounted for, the current emergency does not need to set fundamentally new rules for patents.

How should remdesivir be distributed?

Normally, decisions about who gets what drugs are relatively obscured—the market allocates access through price, and everyone who can pay for a drug (and whose doctors will prescribe it) can get it. Sometimes that system breaks down, and we have shortages of drugs, for a host of reasons that have generated a lot of scholarship. In those situations, access is often determined through patchwork, ad-hoc mechanisms. This is different.

For remdesivir, every country has limited access. In the US, the government is currently making the decisions about which hospitals get the drug at two levels: state and federal. Only then does the decision shift to hospitals, which have to determine which patients within their walls actually receive the drugs. These decisions are tremendously fraught. Some states will get more and others less; some hospitals within states will get less or nothing; many patients will not get remdesivir.

The shortage raises many ethical questions without easy answers; a host of commentary and articles addresses these issues. Should the drugs go just where there is the greatest need (i.e., the most or the most severe cases), or where they might do the greatest good (i.e., systems with the resources best to use the drugs or patients most likely to respond)? Should the drugs go to many states, or just the few with the most cases? Within a class of similarly situated patients, should they be allocated first-come, first-served, randomly, or by some other metric? Should allocation of treatment take account of preexisting conditions that may affect outcome, and if so, should we change that account if those preexisting conditions are based on societal inequity? These issues have been raised before in other rationing situations, whether about drugs, ventilators, or donated organs.

Making all of this substantially worse is the lack of good information. We might wish to give remdesivir to the patients who are most likely to benefit, but there is limited evidence as to who those patients are. On the disparate racial impact of COVID-19, we know there are disparities, but are missing many details; many states are not even reporting racial or ethnic information in their statistics and the groups hardest hit by the pandemic are generally underrepresented in clinical trials.

Transparency clearly helps if for no other reason than it can inform us about how treatments are actually being allocated. On this front, the initial federal response certainly fell short; we hope that further responses will do better. On the hospital front, transparency also seems useful, though hospitals that shared their guidelines for distribution of other scarce resources received substantial backlash.

How should the price for remdesivir be set?

For now, COVID-19 patients are receiving remdesivir for free. In addition to supplying the drug for compassionate use and clinical trials, Gilead committed in April to donating its existing supply of 1.5 million doses of remdesivir (enough for over 140,000 treatment courses). After the FDA granted an EUA in May, 607,000 of those doses were pledged to the US, and Gilead has since increased the number of doses donated to the US to around 940,000. But there is already enormous interest and speculation in how remdesivir will be priced.

On May 1, the nonprofit Institute for Clinical and Economic Review (ICER) issued an expedited report on remdesivir pricing, which described two different approaches. On the low end, if the drug is priced based on allowing Gilead to recover its costs, then a 10-day course should cost about $10. On the high end, a model based on cost-effectiveness—including a reduction in mortality (“a critically important uncertainty”)—suggests a 10-day course price around $4,500. Drug pricing experts have given a similarly wide range of suggestions, including noting the difficulty determining the drug’s value from the limited clinical trial data released so far.

Importantly, the price of remdesivir in the US will have only a limited effect on access. For uninsured patients, the federal government has already committed to paying for COVID-19 treatment at Medicare rates. Rather, the main effect of the remdesivir pricing will be on the dynamic incentives for further innovation.

As we discussed last week, there are really two innovation policy problems here. First, we need better evidence of how effective remdesivir actually is. Using randomized trials when allocating access to scarce supplies would improve this evidence base, and Gilead would have an incentive to continue these trials if the size of reimbursement were conditioned on producing stronger evidence of efficacy. Second, development of drugs that are more effective at treating COVID-19 should still be a first-order policy priority. Other firms will be watching what kind of evidence Gilead is required to produce and how much revenue it brings in—and how the revenue compares with the company’s spending on remdesivir’s development and distribution, which “could be up to $1 billion or more, primarily comprising manufacturing scale-up costs” according to a recent SEC filing. So far, investors have been skeptical that Gilead will see a real return. When regulating the price of remdesivir, policymakers should make clear that truly effective drugs will be handsomely rewarded. Given the daily social costs of COVID-19, ensuring robust profits for treatments and vaccines with robust evidence of efficacy seems like one of the most cost-effective investments we can make.

Disclosure: Rachel Sachs sits on the Midwest Comparative Effectiveness Public Advisory Council for ICER. She has had no involvement with ICER’s analysis and publications on remdesivir.

Remdesivir Part I: Incentivizing Antiviral Innovation

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

The antiviral drug remdesivir, developed by California-based biopharmaceutical company Gilead Sciences in collaboration with government scientists, has emerged as the new standard of care for COVID-19 patients. The drug has also been beset by controversy, from Gilead’s withdrawn orphan drug application to conflicting reports of clinical trial results to an opaque and haphazard distribution process. We examine the role of legal institutions in the remdesivir rollout in two posts focused on the two (separable) parts of innovation policy. This week focuses on the innovation incentives for producing information about remdesivir and other COVID-19 treatments, including the FDA’s role in deciding whether and under what conditions a new drug can reach the market. Next week we will turn to pharmaceutical allocation mechanisms, including payment and distribution.

What do we know about how well remdesivir works?

Remdesivir emerged early as a potential COVID-19 treatment because it had already been developed as a potential treatment for hepatitis or Ebola, although it failed clinical tests for efficacy and was never approved by the FDA. Gilead began distributing remdesivir for COVID-19 patients under a “compassionate use” basis in late January, until anecdotes of successful outcomes and promotion by the President led to overwhelming demand by late March.

Many of the clinical trials investigating remdesivir for treating COVID-19 can be tracked at ClinicalTrials.gov. (Trial pre-registration is required for FDA-approved drugs, though compliance is low.) On April 29, The Lancet published results from a randomized controlled trial in Wuhan, which led to disappointment for finding no statistically significant clinical benefits. The trial had been terminated early, however, due to insufficient new cases and only enrolled 237 patients rather than the original plan of 453. On the same date, preliminary results were released from a 1,063-patient trial conducted in the US by the NIH’s National Institute of Allergy and Infectious Diseases (NIAID). The results are thin but somewhat promising: NIAID found that 100mg of intravenous remdesivir decreased recovery time from 15 days to 11 days (p<0.001), and decreased mortality—although, not to standard levels of statistical significance—from 11.6% to 8.0% (p=0.059).

The NIAID study is “the most important and rigorously designed” remdesivir trial yet, but it has still been subject to multiple lines of criticism. The clinical benefit is modest. The primary endpoint of the trial was changed shortly before releasing the results, although this appears to have occurred before the data was unblinded. The study was stopped early: promising results caused patients randomized to the placebo to be offered remdesivir when only 480 of the 1,063 patients had recovered, limiting the ability to collect more data. And NIAID has so far released only a press release rather than the full study results, making it difficult to reconcile these results with the Chinese study’s finding that there was no difference in viral load reduction. In short, substantial questions remain about not just the optimal timing and dosage, but also remdesivir’s overall efficacy. Even under the most optimistic reading of these results, remdesivir is not a silver bullet that will fundamentally shift the course of the pandemic—but it appears to be the best we have for now.

How will remdesivir change COVID-19 treatment in the US?

Primarily on the basis of this NIAID-administered clinical trial, on May 1 the FDA issued an Emergency Use Authorization (EUA) for remdesivir. Most importantly, an EUA is not the same as a typical FDA approval. One principal difference between the two is in the approval requirements: under an EUA, the FDA asks whether the product in question “may be effective,” which is short of the FDA’s typical approval standards. The EUA also lasts only for the duration of a particular public health emergency (unless it is revoked earlier), after which time the product would be pulled from the market if it failed to obtain full approval. There are a wide range of other limitations that accompany EUAs (as detailed in the FDA’s guidance on the topic), including limitations on advertising that are not as easily imposed on products approved through the normal process.

The EUA does allow physicians to prescribe and administer remdesivir for their patients. (Assuming they can obtain the drug, as we will consider in Part II of this post next week.) But those physicians are under greater limitations on the conditions of distribution and administration than they would typically be for newly marketed products. Typically, once the FDA approves a new drug, physicians can prescribe it to patients beyond the scope of the drug’s label. This might represent a small deviation from the drug’s intended use—prescribed to patients with mild disease, rather than moderate-to-severe disease, for instance—or a larger deviation, such as when a drug is used in an entirely different condition. In some cases, such as for opioids and other drugs with particular risks, the FDA does impose more restrictive conditions on prescriptions, but those are not the norm. In the EUA context, such restrictions are standard, and the FDA has restricted the administration of remdesivir to COVID-19 patients with relatively severe disease.

Now that remdesivir has been authorized for prescription, some (including the FDA’s former chief scientist) have argued that the EUA for hydroxychloroquine issued on March 28 ought to be revoked. At the time, the FDA granted the EUA because, in the agency’s view, (1) it was “reasonable to believe” that hydroxychloroquine “may be effective” for COVID-19 and (2) “there is no adequate, approved, and available alternative” to these products for treating COVID-19. More than a month later, now that remdesivir has received an EUA, have these dynamics changed? In some ways yes, but in other ways, no.

The clinical trial evidence supporting a moderate benefit of remdesivir does change the dynamics that led to the EUA for hydroxychloroquine. Essentially, the existence of a new drug with some demonstrated efficacy against COVID-19 changes the political and scientific dynamics that led to the hydroxychloroquine EUA. Particularly in light of new studies (albeit observational ones) continuing to show no benefit of hydroxychloroquine, it may no longer be reasonable to think that the drug has efficacy against COVID-19. As the FDA noted in its EUA for remdesivir, “there is no adequate, approved, and available alternative” to remdesivir for COVID-19.

However, it is not obvious that the “adequate, approved, and available” criterion used in the EUA for hydroxychloroquine has changed. Remdesivir is not approved, but is authorized. And questions of remdesivir’s availability loom large in its distribution process, as we will discuss next week. Further, the fact that hydroxychloroquine is already FDA-approved for other indications means that removing the EUA may have little impact on physicians’ ability to prescribe it for COVID-19, although physicians themselves are already prescribing less of the product, likely due to the lack of evidence for its efficacy. The FDA should take a hard look at the continuing viability of the EUA for hydroxychloroquine over the coming days, but removing the EUA may have little policy impact.

How can we get better evidence of remdesivir’s effectiveness?

Under an EUA or not, it’s important to demonstrate whether remdesivir is actually effective in improving patient outcomes. In an ideal world, the potential importance of remdesivir would command better studies than those that have been conducted so far—a larger sample size and more treatment arms, for example. But the quality of clinical trial design is often tethered to the FDA approval regime. In general, once the approval threshold can be crossed, drug marketers have no further incentives to design more robust trials. Indeed, they have every incentive not to, quailed by the fear that negative information about the drug’s safety or efficacy could threaten a likely approval. A 2012 Institute of Medicine report described just this “oversight” for FDA-required post-approval clinical studies.

Having entities other than the drug’s principal marketer conduct such studies may help. For instance, government agencies with public health mandates have stronger incentives to ensure the best possible information about approved drugs makes its way to clinicians and the public. (This is one of the reasons why Professor Rebecca Eisenberg referred to FDA’s role as not just gatekeeping, but also “the development of credible information about the effects of drugs.”) Such a project, in fact, has recently been launched by the WHO, and included several government agencies around the world, Gilead (the commercial marketer of remdesivir), and AbbVie, a company with an interest in a remdesivir combination therapy. Government and nonprofit researchers may still face political pressure or career-related incentives to focus on positive results, but they are still more likely to report negative results than industry-funded scientists.

In addition, government involvement in coordinating such trials has an international virtue—the ability to coordinate trials across countries. While drug approval is typically a domestic concern, the global nature of the COVID-19 pandemic, and harm possibly wrought by conducting duplicate trials across borders, makes international coordination all that more important. Indeed, this is a principal motivating factor behind the WHO’s study and its attempt to coordinate public health agencies from ten different countries. Government agencies have the power to persuade, purchase, partner, and pilot the best studies needed to generate evidence of remdesivir’s efficacy—or, as it may turn out, lack thereof.

What does this mean for incentivizing other anti-COVID-19 drugs?

Given that remdesivir has at most a modest clinical benefit, having a treatment that would greatly reduce mortality should still be a first-order policy priority. This is perhaps an obvious point, but an important one: we should still be putting a lot of thought, effort, and money into developing treatments for COVID-19. That includes non-pharmaceutical treatments like medical devices (including ventilators) or more effective procedures, but most obviously it means finding drugs that work—ideally substantially better than remdesivir. Last night, the FDA released guidance for developing new COVID-19 drugs, and policymakers should make sure firms have ample incentives to investigate potential candidates.

In pursuing this priority, policymakers have access to a well-stocked toolbox of options. Patents provide the innovation incentive backdrop, letting companies appropriate a substantial portion of the social benefit of their invention. But market-based rewards may under-incentivize treatments for pandemic infections for a variety of reasons. For example, most drug candidates are also existing drugs that are being evaluated to see if they might work against COVID-19, rather than totally new drugs (for which the development timeline is just too slow)—and patents are a relatively weak incentive for this type of development.

Grants, prizes, reimbursement policies, and tax incentives are other big tools in the toolbox for pharmaceutical innovation, all of which can be tailored to correct for failures in market-set rewards, including through conditions on transparency and affordability. Tax incentives reduce development costs (and indeed, one benefit of Gilead’s seeking orphan drug status for remdesivir would have been a hefty tax credit). Insurance reimbursement policies can be shaped to provide rewards for particular innovative treatments, effectively acting as prizes for solving a particular problem and getting the solution to patients. Grants similarly provide up-front funding for projects that reviewers deem promising and important. Government-set incentives such as grants and prizes are least effective when it is hard for the issuer to know what problems are important to solve or how valuable the solutions are, but that’s not the case here; improving outcomes for COVID-19 is a clearly-defined problem and—as long as trials are done right, measuring success should be straightforward.

We think policymakers should keep two key points in mind as they sort through these options. First, substantial public funding is needed, but failures in the political market for allocating this funding can be just as bad as market failures in the patent system. One promising innovation policy for limiting discretion (and political whim) in funding allocations is the Advance Market Commitment (AMC), a form of prize in which the government commits to spending a certain amount per patient successfully treated. The AMC model was successfully used to incentivize development of a pneumococcal vaccine, and it has been championed in the COVID-19 vaccine context: two months ago Daniel Hemel and Lisa Ouellette suggested a commitment of $500 per person vaccinated, and last week Susan Athey, Michael Kremer, Christopher Snyder and Alex Tabarrok suggested $100. But AMCs are not limited to vaccines: we think the model could also be used to incentivize more effective treatments, and it has the potential for bipartisan appeal.

Second, effective coordination is critical. Public funding of research and clinical trials is sometimes criticized as picking winners and losers (though that criticism may be overblown). Here, we have even more robust pushing by the government, including the allocation of patients to clinical trials, funding for development and manufacture, streamlining of approval at FDA (with the possibility of political pressure), and the general prioritization of particular research strategies. This sort of full-press effort seems entirely justified, but it’s important to recognize that we need multiple candidates, and that efforts to prioritize one treatment shouldn’t sap the energy of ongoing research into other, better cures.

Who’s Afraid of Section 1498?: Government Patent Use as Versatile Policy Tool

Guest post by Christopher Morten & Charles Duan

Chris Morten (@cmorten2) is the Clinical Teaching Fellow and Supervising Attorney in NYU’s Technology Law and Policy Clinic. Charles Duan (@Charles_Duan) is Director of Technology and Innovation Policy at the R Street Institute.

From vaccines to ventilators to diagnostic tests, technology has dominated response strategies to the ongoing COVID-19 pandemic. Where technology leads, patent law and policy follow. Recently, some attention has turned to federal government patent use under 28 U.S.C. § 1498. Jamie Love of KEI has called on the federal government to explore use of section 1498 in its response to COVID-19, to reduce prices, expand supplies, and ensure widespread, equitable access to patented technologies. (We have, too.) There is a long line of scholarship, including Amy Kapczynski and Aaron Kesselheim, Hannah Brennan et al., Dennis Crouch, Daniel Cahoy, and others discussing the relevance of section 1498 in a variety of contexts.

Yet others have encouraged the government to “tread lightly” and described use of section 1498 as a “nuclear option”—potent but dangerous—because it can be used to make massive interventions in the market for patented products—e.g., by issuing compulsory licenses to patents on high-priced brand-name drugs, “breaking” patent monopolies and accelerating the entry of numerous generic competitors. One recent example: a few years ago, Gilead’s high prices on hepatitis C drugs exacerbated a different public health crisis and prompted a chorus of voices, including Senator Bernie Sanders and the New York Times editorial board, to call on the federal government to exercise its section 1498 power to “break” Gilead’s patents in just this way, which might have saved tens of billions of dollars in public spending. (The federal government did not do so.)

Irrespective of the merits of 1498 as a general matter, in the context of a crisis such as the COVID-19 pandemic we see real value in bold, “nuclear option” use of section 1498 to save billions on high-priced prescription drugs and maximize their availability. But that is not the only way section 1498 can be used. It can also be used in modest, incremental, unexceptional ways—it can be as much as a scalpel or a Swiss Army knife as a nuclear weapon, and some of its virtues in this regard have gone underappreciated.

Accordingly, we highlight four particularly valuable features of government patent use under section 1498 in a crisis like the present one: (1) speed, (2) flexibility, (3) ex post determination of the appropriate compensation, and (4) determination of that compensation by an impartial adjudicator. In particular, we compare section 1498 with an alternative policy tool, patent buyouts, which can also expand public access to patented technologies, and identify several reasons why section 1498 may be the preferable tool.

Two Options for Responding to Patents in a Crisis

Section 1498 and patent buyouts are two tools that the government may use in response to a patent that covers technology relevant to a national crisis such as COVID-19. A brief description of each is provided below.

Section 1498 permits the federal government to “use[] or manufacture[]” technologies protected under current U.S. patents without the permission of the patent holder and provides the patent holder with an action “for the recovery of his reasonable and entire compensation.” In other words, when the federal government infringes, patent owners receive monetary compensation rather than an injunction. Application of section 1498 could immediately achieve various public benefits—lowering prices, expanding supply, and shielding socially useful activity (like diagnostic testing) from the risk of liability or injunction. The federal government could do this, for example, by purchasing COVID-19–fighting technologies through the Strategic National Stockpile (which qualifies as “manufacture[] by or for the United States” protected by section 1498, as Alex Wang and Aaron Kesselheim have noted) and then using them, or redistributing them to states and localities in need.

Under section 1498, the government will pay “reasonable and entire compensation” proportionate to the patent holder’s injuries. Both the Federal Circuit and the predecessor Court of Claims have deemed reasonable royalty awards to be “the preferred manner” of compensation under section 1498; in Tektronix Inc. v. United States, the Court of Claims expressed doubt that lost profits could ever be awarded except “after the strictest proof that the patentee would actually have earned and retained those sums in its sales to the Government.” That royalty is no pittance: In Hughes Aircraft v. United States, the successful patent claimant won “millions of dollars in compensation” from the government based on patents questionably infringed and used just 81 times.

Patent buyouts can also expand public access to patented technologies. As Daniel Hemel and Lisa Ouellette have written, “[g]overnments can offer strong incentives to drug makers while ensuring affordability by committing to patent buyouts for effective treatments. In a buyout, the government purchases the patents on a new drug—typically at a price that matches or exceeds what the patent holder otherwise would have earned—and then allows makers of generics to produce and sell low-cost versions.”

Four Valuable Features of Section 1498 in a Crisis of Infectious Disease

We now turn to the advantageous features of section 1498. Notably, many of these features derive from a key difference between section 1498 and patent buyouts: the difference between liability rules and property rules. And just as courts have increasingly recognized the value of monetary damages over injunctions in patent infringement cases under the eBay Inc. v, MercExchange LLC framework, we think government patent use under section 1498 will often be preferable to a buyout in a fast-moving crisis.

1. Speed

The U.S. government can exercise its powers under section 1498 instantly, without any procedure—not even notice to the holder of patent rights in the product being used or manufactured by the government. Indeed, the federal government can exercise its rights under section 1498 unwittingly—e.g., if it unknowingly purchases products from a supplier that turn out to be covered by another party’s patents. Section 1498 even arguably enables the government to absolve third parties’ liability for past acts of infringement: section 1498 applies to acts performed (1) “by or for” the government and (2) with the government’s “authorization or consent,” and in Advanced Software v. Federal Reserve Bank, the Federal Circuit recognized that “post hoc” consent may satisfy the second prong of that test and that “significant benefits to the United States” satisfy the first.

By contrast, a patent buyout with even a willing, good faith patent holder could take weeks to negotiate—weeks the government may not have to spare. Moreover, the government may not know all the patents it needs to buy. For example, many different firms are now developing—and likely patenting—new ventilator designs; “newly designed, cutting-edge ventilators may be on the way from the likes of tech giant Dyson, General Motors, MIT and a British consortium led by Airbus.” In situations like this, a wide-ranging search of active patents and full-fledged “clearance” (aka “freedom to operate”) study by the government would be necessary to identify all relevant patents and their owners before the government could confidently undertake buyout negotiations. Just a single such study on even a single product could take weeks or months.

In practice, the government may choose to try to negotiate a buyout or license first, in the same way that the government tends to attempt to negotiate a land purchase before invoking eminent domain. Section 1498 nevertheless serves as an important backstop to ensure that any patent holder cannot use feet-dragging as a negotiation tactic.

2. Flexibility

Section 1498 can be used flexibly, in numerous ways, some modest.

In past crises of infectious disease, suppliers that hold patents on important technologies have been unable to keep up with demand, even while they have declined to license their patents to competitor manufacturers—e.g., Bayer with ciprofloxacin (Cipro) in 2001 (to treat anthrax) and Roche with oseltamivir (Tamiflu) in 2009 (to treat swine flu).

The same is happening now. Abbott Laboratories has drawn praise for developing a relatively reliable, fast diagnostic test for COVID-19, but (at least as of mid-April 2020) its manufacturing capacity has been unable to keep up with demand. Similarly, 3M has apparently been unable to meet demand for its patented N95 respirators, leading Governor Beshear of Kentucky to call on 3M to license its patents to competitor manufacturers to increase supply.

Circumstances like these suggest an unusual use of section 1498 to increase supply: it could be used to make “surgical strikes” where there is a need move quickly to expand supply of patented products—e.g., ventilators to New Orleans, say, or diagnostic tests to emerging rural hotspots. HHS could, for example, purchase as many COVID-19 tests from Abbott as the company can manufacture while simultaneously soliciting bids for further supply of diagnostic tests that mimic Abbott’s. Assume that Abbott holds one or more patents on its tests and can manufacture up to about one million tests per week. Assume further that Abbott declines to license its patents voluntarily to competitor manufacturers (as, so far, it seems to have). Public and private demand for tests is now running much higher than one million tests per week; some public health experts now estimate that the United States must administer five million tests per day, or perhaps even more, before the lockdown can be lifted safely. Under these circumstances, Abbott might ordinarily sell its tests at a high price to the highest-bidding users as it gradually ramps up its manufacturing capacity, leaving everyone else without access to Abbott’s testing technology. HHS could expand supply more quickly by invoking section 1498 to enable generic manufacturing as it continues to buy kits at Abbott’s monopoly price (or simply lets Abbott sell kits to the highest bidder). Such use of section 1498 would protect Abbott’s returns, as Abbott would receive compensation under section 1498 for the government-authorized generic manufacturing in addition to its profits on all of the tests it is able to manufacture and sell at full price.

Section 1498 could also be used to shield specific socially useful activities from the threat of unexpected patent infringement liability. For example, in March 2020, a non-practicing entity filed a patent infringement suit seeking injunctive relief against a company whose equipment is used in some COVID-19 diagnostic testing, raising concern over the (admittedly remote) possibility that the lawsuit would reduce or delay testing. As Alex Moss and Elliott Harmon of EFF have argued, HHS could conceivably step in situations like this, authorizing the allegedly infringing activity under section 1498 and thereby ensuring the activity continues, as occurred in Advanced Software. (The authorization satisfies the second prong of that test; the for-the-government prong is likely satisfied by the benefit to the United States of more testing. “When the government requires private parties to perform quasi-governmental functions, . . . there can be no question that those actions are undertaken ‘for the benefit of the government.’”) This is something that a patent buyout cannot necessarily do, or at least do efficiently, when a patent has not been identified in advance of the infringing activity.

To be sure, patent buyouts could also be used flexibly. For example, the government could negotiate a customized license to a patent that provides few rights or many, for a short time or in perpetuity, etc. Our point here is simply that section 1498 has more, and more modest, applications than may be widely appreciated.

3. Ex Post Determination of the Appropriate Compensation

Under section 1498, the appropriate compensation due to the patent owner is determined ex post, when the injured patent holder brings a claim for compensation in the Court of Federal Claims, perhaps long after the government’s first use. In our view, this has numerous benefits in a crisis like COVID-19. Sober patent valuation is hard amidst a pandemic. For example, estimates of the fair market value of a vaccine or treatment may be wildly variable until its therapeutic properties—e.g., its side effects, its efficacy, and (in the case of a vaccine) its duration of effect—are fully established, years after first approval. (As the FDA has stated, “the true picture of a product’s safety actually evolves over the months and even years that make up a product’s lifetime in the marketplace.”) In that sense, section 1498 may actually end up offering the patent holder a better deal in the end, if the pandemic takes a turn substantially for the worse or the invention turns out to be especially useful.

Of course, if a patent holder in fact thinks it would get a better deal from an ex post determination, it could achieve the same result—or any of a flexible array of outcomes—through a patent buyout. For example, the patent holder for an effective COVID-19 treatment could offer rights to its drug for $X upfront plus $Y per use plus $Z on the basis of patient outcomes (as determined through, say, an arbitration process). But such a negotiation would take time—and would thus cost additional lives—to reproduce an effective ex post evaluation system that already exists under section 1498.

4. Determination of Compensation by an Impartial Adjudicator

When the government uses patents under section 1498, the appropriate compensation is adjudicated not by the government or the patent holder but by impartial judges. As noted above, this makes section 1498 a liability rule: the value of the patent is objectively determined (by a court) rather than subjectively determined by the patent holder and the executive branch negotiator. Many of the entities likely to hold important patents on COVID-19 technologies are the same set of pharmaceutical, medical device, and biotechnology companies accused for decades of regulatory capture, price-gouging, strategic gamesmanship of the patent and data exclusivity systems, and antitrust violations. (And others may be non-practicing patent assertion entities like the one noted above.) There is a real risk of gamesmanship and hold-up by patent holders in the event of a rushed negotiation precipitated by an ongoing public health crisis—as in 2001’s anthrax scare, when Bayer refused to budge on the price of ciprofloxacin until HHS threatened to use section 1498.

Other benefits flow from section 1498’s use of a court as impartial adjudicator to determine compensation. Judges are not susceptible to the same degree of industry lobbying as government negotiators, and government IP negotiators are apparently so inexpert that Congress in the 2018 National Defense Authorization Act called for formation of an IP “cadre” to help. (While courts certainly make errors in patent damages cases, they seem more likely to set compensation appropriately than an official in a Department of Health and Human Services that has made notable blunders in its pandemic response so far.) Discovery in litigation will disgorge otherwise secret information relevant to the calculation of compensation—on R&D costs, clinical properties, and so on. And the critical issues of patent validity, enforceability, and infringement can be properly ventilated and decided. (Like any defendant in standard infringement litigation, the government owes no compensation whatsoever if the asserted patent turns out to be invalid, unenforceable, or not infringed.) Patent holders perhaps benefit from this independent adjudicator, too, insofar as the government cannot use its vast media and regulatory powers, or its sometime monopsony purchaser status, to strong-arm an unduly cheap deal.

Conclusion

In our nation’s response to COVID-19, we haven’t yet confronted a powerful patent controlling access to critical medical technologies, but as new vaccines, treatments, devices, and other products inch closer to FDA approval, that day may come. For all the reasons we’ve laid above, we think section 1498 merits a careful look from federal policymakers as they work to end the pandemic. In particular, in view of the discussion above, section 1498 appears to be especially useful to deal with at least four possible scenarios during a pandemic: (1) a dilatory or intransigent patent owner, (2) a critical technology covered by a large and/or unknown set of patents, (3) a technology of uncertain value, and (4) a holdup caused when a surprise patent is asserted against an already-deployed technology.

In light of the potential value of using section 1498 to solve crisis-borne patent problems quickly, policymakers ought to direct some attention to the question of when and how section 1498 should be put into practice. As Daniel Cahoy recognized almost a decade ago, the failure of nations to consider policies like section 1498 in their emergency plans “creates a danger that a bureaucratic hurdle will prevent a nation from acting as quickly as it otherwise could.”