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I. Introduction
Naloxone — an essential opioid antagonist and overdose reversal agent — is widely recognized as an essential piece of the public health response to the opioid crisis.Reference Aubrey1 In recent years, state legislatures have passed naloxone access laws2 that 1) “grant criminal or civil immunity to bystanders who possess or use illegal drugs … [if] they administer naloxone or call an emergency responder”; and 2) let people obtain naloxone without a prescription through “standing orders, collaborative practice agreements, or pharmacists' prescriptive authority.”3 Since 2014, the federal government has, through the Substance Abuse and Mental Health Services Administration (SAMHSA), administered a Substance Prevention and Treatment Block Grant program allowing recipients to “purchase naloxone (Narcan) and the necessary materials to assemble overdose kits and to cover the costs associated with the dissemination of such kits.”4 Community organizationsReference Kuehn5 and medical expertsReference Doyon, Aks and Schaeffer6 have similarly advocated for making naloxone more accessible to non-medical experts in the community.
But efforts to expand access to naloxone have thus far only led to a modest increase in naloxone use.7 Increased demand for the drug has also driven up prices, putting pressure on organizations that provide access to the drug, including municipal governments,Reference Cohn8 first responders,Reference Kodjak9 and private purchasers such as community organizations.
In recent years, there has been insufficient competition in the production of the three FDA-approved formulations of naloxone.10 While the injectable form of naloxone was first approved in 1971 and has been available as a generic since 1985,11 only four manufacturers produce generic naloxone.Reference Tirrell12 The two other forms of naloxone — Narcan, the nasal spray, and Evzio, the voice-guided auto-injector that instructs users on how to operate the device13 — are each produced by a single manufacturer. This lack of competition has contributed to price increases for the drug as the opioid crisis deepens.
Limited access to naloxone will continue to be problematic as the opioid crisis intensifies, with the introduction of cheaper and deadlier synthetic opioids like fentanyl.Reference Achenbach14 Fentanyl-induced overdoses can still be reversed through naloxone, but may require “a higher dose or multiple number of doses per overdose event … due to the high potency of [fentanyl].”15 Fentanyl-related overdose deaths more than doubled from 2015 to 2016, and rose by 540% over the last three years.Reference Katz16
The urgent need for cheap, accessible naloxone is manifest because state governments and community organizations will continue to play an important role in expanding naloxone access. For example, in 2016, Massachusetts created a bulk-purchasing fund for its municipal police and fire departments to purchase naloxone,17 and passed comprehensive legislation designed to combat the crisis.18 In the wake of these changes, the state called on the federal government to help make naloxone more accessible because it was having trouble meeting these goals in its state budget.Reference LeBlanc19
In this context, the federal government could take a more active role in guaranteeing access to naloxone. This is consistent with the Trump Administration's “5-Point Strategy” to combat the opioid epidemic, which identifies as one of its points “[t]argeting availability and distribution of overdose-reversing drugs.”20 Further, the declaration of a public health emergency regarding the opioid crisis in 2017 could signal an opportunity to leverage the federal government's procurement authority to negotiate lower prices for naloxone.Reference Hargan21
Our proposal is similar to, but more limited than, a recent proposal submitted by Knowledge Ecology International, a nonprofit group engaged in “global public interest advocacy” around social justice and intellectual property policy, to the Trump Administration, calling on the government to invoke § 1498 to “authorize third parties to manufacture and sell affordable versions” of both Narcan and Evzio. While the government use provision has not been invoked to reduce brand-name drug costs in recent decades, this proposal is consistent with past experience in which § 1498 was invoked to address high costs of necessary antibiotics for military uses in the 1960s, and was threatened to be invoked in 2001 to stockpile drug treatment in response to the anthrax threat.
As a first step, federal government should invoke its authority under the government use provision — 28 U.S.C. § 1498 — to address the high price of one naloxone administration device on the market: Evzio.Reference Doyle22 Our proposal is similar to, but more limited than, a recent proposal submitted by Knowledge Ecology International, a nonprofit group engaged in “global public interest advocacy” around social justice and intellectual property policy,23 to the Trump Administration, calling on the government to invoke § 1498 to “authorize third parties to manufacture and sell affordable versions” of both Narcan and Evzio.24 While the government use provision has not been invoked to reduce brand-name drug costs in recent decades, this proposal is consistent with past experience in which § 1498 was invoked to address high costs of necessary antibiotics for military uses in the 1960s,Reference Brennan, Kapczynski, Monahan and Rivzi25 and was threatened to be invoked in 2001 to stockpile drug treatment in response to the anthrax threat.Reference Kapczynski and Kesselheim26
Section II outlines the problem of rising naloxone costs. We briefly describe factors driving the overall increase in prescription drug costs, and consider how these factors have affected the prices of Narcan and Evzio. Section III describes the government use provision, concluding that courts and the Comptroller General have held that the provision enables the government to apply its authority to drug patents. Section IV considers why the federal government should apply § 1498 to Evzio, and how it would do so.
II. The Rising Cost of Naloxone
Naloxone is currently available as an injectable, auto-injectable, and nasal spray. The FDA originally approved injectable naloxone in 1971. The brand-name version of naloxone that was approved that year is no longer available on the market, but since 1985, generic injectable naloxone has been available connected to this approval.27
In recent years, the National Institute on Drug Abuse (NIDA)28 and FDAReference Mahoney29 have highlighted the importance of alternative methods of naloxone administration for use in community settings. In April 2018, United States Surgeon General Jerome Adams issued a national advisory suggesting more Americans carry and learn to administer naloxone.Reference Goodnough30 Properly administering injectable naloxone requires professional training, but naloxone can be more easily administered via auto-injector or nasal spray by non-medical professionals. The first non-traditional form of naloxone, approved in 2014, was a naloxone auto-injector, Evzio.31 The Evzio auto-injector includes verbal instructions announced to the user. The second form of naloxone approved for community use was a nasal spray, called Narcan.32
The FDA's emphasis on naloxone suited for community use has translated into more sales of naloxone for outpatient settings: from 2010 to 2015, those sales increased by 72%. By contrast, sales to inpatient and ER settings dropped by 12%.Reference Rosenberg33 In light of the increasing importance of naloxone for community use and outpatient settings, this paper focuses on the rising price of non-injectable naloxone.
A. Drug Costs and the Problem of Pharmaceutical Patents
The increasing price of naloxone is part of a broader trend of increasing prescription drug prices in the U.S. Today, prescription drug spending is “rising and [is] projected to continue to rise faster than overall health spending thereby increasing this sector's share of health care spending” due in large part to increasing drug prices.34 The U.S. is a global leader in prescription drug spending, far outpacing other countries. This is true even accounting for rebates commonly offered by brand-name manufacturers to U.S. payers: “These [price] disparities are reduced, but remain substantial … [and] [i]n 2010, estimated average postrebate prices for medications were 10% to 15% higher in the United States than in Canada, France, and Germany.”Reference Kesselheim, Avorn and Sarpatwari35
There are two key drivers of increasing prescription drug prices. One is the market exclusivity enjoyed by brand-name manufacturers in the form of patents granted by the U.S. Patent and Trademark Office and other statutory market exclusivities.36 Drug patents ensure a fixed term of market exclusivity, insulating pharmaceutical manufacturers against direct generic competition until the patent term expires. During that period, drug manufacturers can charge prices at whatever level the market will bear.37 The Supreme Court has recognized that “[a] patent empowers the owner to exact royalties as high as he can negotiate with the leverage of that monopoly,”38 though the “patent holder cannot charge royalties for the use of his invention after its patent term has expired.”39 As Justice Kagan has noted, “[p]atents endow their holders with certain superpowers” — for example, the ability to charge extortionate prices, or engage in price discrimination — “but only for a limited time …. [W]hen the patent expires, the patentee's prerogatives expire too.”40 Yet pharmaceuticals can prolong this monopoly by engaging in various strategies, such as making small adjustments to existing products and obtaining new patents that generic manufacturers must also respect.Reference Hemphill and Sampat41
Market exclusivity alone does not guarantee high prices: “During a drug's market exclusivity period, the primary counterweight against excessive pricing is the negotiating power of the payer,” provided that the payer controls a substantial segment of demand.42 In a properly functioning marketplace for prescription drugs, private and public payers could force pharmaceuticals to come to the negotiating table by withholding lucrative contracts. But in the U.S., both private and public payers are constrained their abilities to negotiate lower drug prices.
Several federal laws prevent public payers from negotiating lower drug prices, while also limiting public programs' ability to exclude coverage of FDA-approved drugs. A well-known one is the Medicare Part D “noninterference” clause. While the 2003 Medicare Modernization Act expanded access to prescription drugs through Medicare Part D, it also prevented the Secretary of HHS from negotiating lower prices, leaving “prescription drug plans [to] compete for enrollees and negotiate directly with manufacturers.”Reference Lee, Gluck and Curfman43 State Medicaid programs face additional restrictions on their drug formulary and are required to cover essentially all FDA-approved drugs, though they are also entitled to “receive a rebate of at least 23.1% of the average manufacturer price for most branded medications and [are] protected from price increases exceeding inflation.”44 By contrast, the Veterans Health Administration is not only entitled to a rebate of 24% of the average price, but “also has broad authority to exclude products from its formulary,” allowing the VHA to “achieve[] additional discounts below what the Medicare drug program and state Medicaid plans pay.”45
Private payers are theoretically less restricted in their ability to negotiate lower drug prices, though “[p] ublic programs and private payers receiving federal funds are also subject to nondiscrimination requirements that may limit their latitude to create restrictive formularies,”46 and various state laws applicable to private payers can also restrict formulary exclusions. A recent op-ed has argued that pharmacy benefits managers can serve as important consumer advocates pushing down drug prices.Reference Pezalla47 But for most private payers, “aggressive price negotiation [relating to prescription drugs] is not the norm.” Prescription benefit management companies (PBMs) seldom attempt to “negotiate prices directly with drug supplies or to curtail their formularies to avoid paying for prescriptions that are less cost-effective.”48 This is partly a problem of distorted incentives: PBMs “typically guarantee[] a minimum rebate on every prescription … [and] often takes home 30% to 50% of [any price reduction it secures] above the guaranteed rebate.”Reference Galvin and Longman49 PBMs can also see some profit from higher drug prices as their cuts grow above the guaranteed rebate.
The interaction of patent-guaranteed market exclusivity and statutory limits on buyers' abilities to negotiate lower prices results in a market in which the patent system, “bolstered in various ways by exclusivity offered via the drug regulatory system, typically ensures that companies introducing new drugs enjoy a decade or more of market exclusivity.”50
B. Case Studies: Narcan and Evzio
To illustrate how the overall trend of increasing prescription drug prices plays out in the marketplace for naloxone, we turn to the cases of Narcan and Evzio. In a 2016 article penned by then-FDA officials, the agency noted that they had “strongly supported the development and marketing of countermeasures that can reverse overdoses, such as the opioid antagonist naloxone … The recent rapid approvals of intramuscular (via auto-injector) and intranasal naloxone were important steps in improving access to this lifesaving therapy.”Reference Califf, Woodcock and Ostroff51 The results of that effort are Narcan, produced by Opiant and Adapt Pharma, and Evzio, produced by Kaléo. In this section, we briefly discuss the approval histories and pricing of Narcan and Evzio. We put particular emphasis on Evzio, and conclude that Evzio should be singled out for the federal government's application of § 1498.
i) Narcan
In August 2013, Lightlake Pharmaceuticals — a small specialty pharmaceutical founded in 200952 — announced a partnership with NIDA to “evaluate the pharmacokinetic properties of Lightlake's intranasal naloxone application in 14 health volunteer subjects.” NIDA funded a two week clinical study, and contingent on favorable outcome, “plan[ned] to file an IND [Investigational New Drug] application for a larger study” with the goal of bringing an intranasal naloxone solution to the market in 12-18 months.53 In July 2014, Lightlake filed an IND, and announced an “additional commitment from [NIDA] … to fund a second study with respect to Lightlake's nasal spray.”54 The FDA approved Narcan in November 2015.55 Narcan benefitted from Fast-Track Designation and received Priority Review, being approved in less than four months.56 The FDA's press release singled out NIDA as a partner in developing the drug.57 And on its website, Opiant lists Adapt Pharma and NIDA as partners.58
In December 2014, Lightlake entered into a licensing deal with Adapt Pharma, a wholly-owned subsidiary of Adapt Pharma Limited (an Irish pharmaceutical manufacturer). As part of that deal, Adapt received a “global license to develop and commercialize Light-lake's intranasal naloxone opioid overdose reversal treatment.”59 Narcan is the only FDA-approved drug Opiant produces,60 and is the only drug listed on Adapt Pharma's website.61
Narcan-associated patents prevent other generic naloxone sprays from entering the marketplace. Since late 2016, Adapt and Teva have been engaged in an active patent litigation relating to Teva's version of naloxone spray.Reference Kennedy62 In October 2017, Adapt filed another amended complaint opposing Teva's filing of an Abbreviated New Drug Application (ANDA) to produce a generic version of Narcan, and asked the court, among other requests for relief, to ensure that the ANDA is not approved on a date earlier than the expiration of Adapt's patents.63 The cost of a two-dosage package of Narcan has remained at $125 since the drug was first introduced.64
ii) Evzio
Another beneficiary of the federal government's growing concern with community-oriented naloxone treatment was Kaléo, a small manufacturer founded in 2008.65 Kaléo has a portfolio of two products: Evzio, and an epinephrine auto-injector (Auvi-Q).
On April 3, 2014, the FDA announced its approval of Evzio as the first naloxone treatment “specifically designed to be given by family members or caregivers” outside of a health care delivery setting. In that press release, the FDA noted that “existing naloxone drugs require administration via syringe,” making them better suited for use by trained medical professionals.Reference Walsh66 Evzio filled a critical gap in the continuum of care from the site of an overdose to a health care facility. As the “first combination drug-device product designed to deliver a dose of naloxone for administration outside of a health care setting,”67 Evzio empowered laypersons to provide immediate assistance to overdose patients while waiting for emergency medical assistance to arrive by administering intramuscular naloxone.
Evzio received Fast-Track designation and priority NDA review.68 In its press release, the FDA touted the fact that “Evzio's approval is also the result of efforts by several federal agencies,” including the White House Office of National Drug Control Policy, HHS, and the FDA.69 That said, these press releases do not indicate that Kaléo was a beneficiary of any federal funding tied to Evzio's development.
Kaléo claims that it has invested “more than $100 million in the research, development and commercialization of Evzio.”70 However, in financial statements provided to the Securities and Exchange Commission, Kaléo indicates that it spent $8,869,021 million in research and development in 2013, and $6,906,514 in 2014.71 At this rate, and assuming (generously) that all of this spending was on Evzio only, it would have taken over 10 years for Kaléo to spend $100 million. But Kaléo was founded in 2008, and received FDA approval for Evzio in 2014, suggesting that Kaléo spent at nearly double the rate it reportedly spent on research and development in 2013 and 2014.
We encourage the government to take corrective action by threatening to use 28 U.S.C. § 1498 to infringe on Kaléo's patents by importing generics or contracting with another pharmaceutical to produce Evzio. Doing so could pressure Kaléo to produce the drug in exchange for a reasonable royalty.
Kaléo established early dominance in the naloxone market, despite the high price (initially, $575 for two doses) it set for its auto-injector.Reference Ramsey72 This occurred in part because there are no competing naloxone auto-injectors on the market. Today, Evzio accounts for a substantial share of naloxone prescriptions overall: since obtaining approval in 2014, Evzio has accounted for 20% of naloxone dispensed in retail outlets, and almost half of all naloxone products prescribed to patients between ages 40 and 64, the group that comprises the bulk of naloxone users.73
The absence of competition has allowed Kaléo to charge extremely high prices. In 2017, Kaléo raised the price of Evzio dramatically, from $690 to $4,500.Reference Dreyfuss74 The seven-fold price increase drew condemnation from medical professionals,75 public officials,Reference Banerjee76 and the news media.77 Kaléo's CEO, Spencer Williamson, explained that the company raised prices “[t]o support our enhanced patient access program and to ensure that as many patients as possible have access to Evzio for $0.”Reference Emery78 In public statements on the price increase, Kaléo attempted to distinguish the list price of the drug from the “true” price to consumers, arguing that the drug was no more difficult to obtain at $4,500 than it was at $690.Reference Duarte79
It is true that Kaléo sponsors programs that facilitate access to Evzio for insured individuals and public health organizations. The company's patient assistance program, Evzio2You, allows commercially insured patients to pay nothing out of pocket for the device. Its companion program, Kaléo Cares, guarantees Evzio at no cost to individuals who are 1) legal U.S. residents; 2) not beneficiaries of any government/commercial drug coverage; 3) lack commercial insurance; 4) ineligible for state/federal government insurance; and 5) have an annual household income less than $100,000.80 By engaging in price discrimination, Kaléo may be able to provide higher quantities of Evzio. Further, Kaléo donates units to nonprofit organizations and public health agencies. As of June 2017, Kaléo donated has donated at least 250,000 auto-injectors in 30 states.81 Qualifying nonprofit organizations and public agencies must apply to the Kaléo Cares Product Donation Program and demonstrate need.82 However, the number of available auto-injectors is limited, since in 2017, the donation program was exhausted by July for the remainder of the year.Reference Simon83
But it has been pointed out that the increased drug costs are borne by the public, even if consumers and public health organizations may not feel the increases directly.Reference Schumaker and Golgowski84 Since the fraction of a drug's cost paid by an individual is an even smaller fraction of the overall price paid by the payer, these corporate social responsibility programs “are used to inoculate the company against [individual] complaints,” while still allowing the company to recoup profits in premiums and other costs borne by taxpayers.85
In sum, Evzio is clearly benefitting from the inefficient U.S. drug pricing market, including market exclusivity and the limited negotiating power of public and private payers. To provide some safety-net coverage, the manufacturer has organized ad-hoc donation programs for specific purchasers in lieu of decreasing the price for all consumers.
So far, state and federal officials have only been able to respond to Kaléo's price increases by implicitly threatening litigation or regulation. Shortly after Evzio's announced price increase, the Massachusetts Attorney General released an advisory alert clarifying that the price increase would have no effect on the price of naloxone “purchased through the state's Municipal Naloxone Bulk Purchasing Program.”86 In addition to serving as a “reminder” to municipalities interested in purchasing naloxone from the state program, the alert could be interpreted as a warning to Kaléo to make good on its promised discount to the state, or face possible litigation. Indeed, the press release announcing this alert makes reference to an August 2015 $325,000 settlement that the Attorney General's office obtained from Amphastar Pharmaceuticals, after the pharmaceutical doubled the wholesale price of generic naloxone (from $15 to $30 per dose).87 At the federal level, a group of thirty U.S. Senators led by Claire McCaskill sent a letter to Kaléo CEO Spencer Williams, asking him to explain the price increase and address concerns about the pharmaceutical's various donation and rebate programs.88 This letter could herald corrective legislation (or other intervention by the federal government) if Kaléo fails to provide an adequate response.
We encourage the government to take corrective action by threatening to use 28 U.S.C. § 1498 to infringe on Kaléo's patents by importing generics or contracting with another pharmaceutical to produce Evzio. Doing so could pressure Kaléo to produce the drug in exchange for a reasonable royalty.
III. Government Use of Drug Patents: 28 U.S.C. § 1498
As a general matter, sovereign immunity protects the federal government from patent infringement suits. One section of the code, 28 U.S.C. § 1498 (the government use provision), provides a narrow exception to this immunity, allowing owners of patented inventions “used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same” to recover “[r]easonable and entire compensation” in the form of monetary damages.89 The provision covers the use or manufacture of an invention by a government “contractor, subcontractor, or any person, firm, or corporation for the Government with the authorization or consent of the Government, shall be construed as use or manufacture for the United States.”90 The owner of the infringed patent must bring the claim to the Court of Federal Claims.91
Damages are the sole remedy available to a plaintiff bringing a § 1498 claim. The provision does not allow a court to provide injunctive relief.92 Hence, section § 1498 can be considered a variant of eminent domain. Just as eminent domain prevents a “hold-out to a new railroad project … [from] demand[ing] a price that would extract the full social value of the railroad,” § 1498 can be used to prevent a patent holder, like “a pharmaceutical company [that] holds a key patent” covering a prescription drug product, from demanding prices that extract the full social value of the drug.93
Case law interpreting appropriate damages under § 1498 is “far from pellucid,”94 though compensation has typically been calculated as a “reasonable royalty arising from a hypothetical negotiation”95 guided by the fifteen-factor analysis detailed in Georgia-Pacific Corp. v. U. S. Plywood Corp.96 Notably, “[w]hile these factors are often probative of a reasonable royalty rate, the court is neither constrained by them nor required to consider each one where they are inapposite or inconclusive.”97 As such, courts typically apply a “highly case-specific and fact-specific analysis, relying upon mixed considerations of logic, common sense, justice, policy, and precedent.”98 Brennan et al. derive three key principles from the case law calculating a reasonable royalty rate: first, damages based on lost profits are highly disfavored due to risk of over-compensation to the patent holder;99 second, reasonable royalty is pegged to an established royalty where available (if there is no such royalty available, then the Court of Claims can set this royalty);100 and third, some deviations to the reasonable royalty rate can be warranted where the patentee “took risks and bore the expense of developing the [infringing products] and creating a market for them.”101
Today, federal agencies “routinely rel[y] on § 1498 to use or acquire patented inventions,”102 and the Federal Circuit has recognized that “[t]he coverage of § 1498 should be broad so as not to limit the Government's freedom in procurement by considerations of private patent infringement.”103 In recent years, the Department of Treasury has relied on § 1498 to procure financial software;104 the Department of Defense has manufactured and procured patented special ammunition;105 and the Navy has infringed on a patented design for “large, fast ships.”106 Due to the posture of these cases, neither considers the question of damages under the provision. But these examples do show that, even today, federal agencies rely on § 1498 to use patented inventions.
The government use provision has important implications for government procurement. Companies bidding for government contracts can invoke § 1498 as a defense against patent infringement liability. For example, in TVI Energy Corp v. Blane,107 the government held a public bidding process for “disposable thermal targets.”108 The procurement procedure required bidders to “submit specimen thermal targets and conduct live demonstrations.”109 In the course of the demonstration, one competitor (TVI Energy Corporation) discovered that another competitor's (Blane's) target infringed on the former's patents, and brought suit in the Eastern District of Virginia. On appeal, the Federal Circuit held that the Blane's activities — as a competitor for a government contract — fell within the scope of § 1498, since Blane was required to “demonstrate the allegedly infringing targets as part of the Government's bidding procedure.”110 Read broadly, TVI licenses competitors for government contracts to infringe on each other's patents in the bidding process, letting the government select the producer that can produce the patented invention at the lowest cost.
Most relevant to our discussion of pharmaceutical patents are a series of opinions issued by the Comptroller General beginning in the late 1950s.111 Those cases establish a rule that the government should not consider patent infringement liability when “evaluating bids or proposals in the procurement of patented items.”Reference Mossinghoff and Allnutt112 This rule was successfully applied to the federal government's procurement of patented drugs, most notably in the Department of Defense's purchasing of the antibiotic tetracycline from an Italian supplier, violating Pfizer's patent.113 Despite efforts by the drug lobby to cabin the rule to more limited circumstances, the Comptroller General's 1958 pronouncement remains in force.114
One difference between the naloxone case and the 1950s use precedent is that the patents at issue here are device rather than drug patents. The government's authority to infringe on device patents in the pharmaceutical context using 28 U.S.C. § 1498 has not, to our knowledge, been squarely addressed by either the courts or the Comptroller General. But the courts have generally read § 1498 broadly to insulate the federal government against direct infringement claims involving design patents similar to the ones that would be at issue if the federal government were to infringe upon Kaléo's patents.115
IV. Applying the Government Use Provision to Evzio
The government could invoke § 1498 to infringe on Kaléo's patents associated with Evzio to drive down the cost of this drug. If Kaléo refuses to lower the price of Evzio, the government could contract with another pharmaceutical manufacturer to manufacture the auto-injectors, or try to import a generic naloxone auto-injector. Alternatively, the government could negotiate a patent buyout, providing annual payments to Kaléo, while ensuring low-cost public access to the drugs.116
The Bush Administration's invocation of § 1498 to procure a necessary drug in response to the anthrax scare provides a recent and instructive example. In 2001, HHS Secretary Tommy Thompson threatened to infringe on Bayer's patents of ciprofloxacin (Cipro), an anthrax-treating antibiotic that was patented at the time, by importing cheaper generics from abroad.Reference Bradsher and Andrews117 Thompson's threat succeeded in getting Bayer to agree to prices much lower than its initial offer of $1.83 per pill.118 HHS purchased 100 million tablets at $0.95 per pill instead, using funds included in a $1.6 billion emergency proposal approved by Congress.119
Similarly, in this context, HHS could threaten to import a generic naloxone auto-injector, or contract with another pharmaceutical manufacturer to produce Evzio, using yet-to-be-appropriated federal funds in the public health emergency fundReference Davis120 to stockpile naloxone auto-injectors.
Our proposal requires HHS to purchase and stockpile or immediately distribute Evzio. At present, HHS does not directly purchase naloxone, but instead provides block grants to states that in turn purchase naloxone, or use those funds for training and distribution. If HHS was to purchase and stockpile Evzio directly, these auto-injectors could be distributed in the same manner that the CDC currently distributes medicines from the Strategic National Stockpile, providing “state, local, tribal, and territorial responders [who] request federal assistance … [with] medicine and supplies … [for] those who need them most during an emergency.”121 In the alternate, other federal programs, such as the Department of Veterans' Affairs, could invoke § 1498 for Kaléo's patents, and provide Evzio to veterans, as the VA has done previously to provide life-saving medicines to service members in the Republic of Georgia and India.122
One practical impediment to this approach is that there are currently no generic manufacturers of naloxone auto-injectors. If Kaléo refused to produce Evzio, the government might have difficulty finding an alternative supplier. This differs significantly from the situation in 2001, when the federal government could point to over 80 generic manufacturers in India supplying ciprofloxacin at less than 3% of the U.S. cost.Reference McNeil123 Further, there were at least five other pharmaceuticals that had been “tentatively approved to manufacture ciprofloxacin … but, due to the existence of the Bayer patent, they [could] not begin the commercial manufacture and sale of generic product.”124 If the federal government had held public bidding, these manufacturers could be treated as potential bidders for a government contract.125
While this is a significant obstacle, it bears noting that naloxone itself is a decades-old small-molecule drug and Kaléo is a small manufacturer. It seems reasonable to assume that more established manufacturers, equipped with Kaléo's patent documents, would be able to produce similar auto-injectors in exchange for a lucrative government contract. In any case, the government could first open a public bidding process to see if other manufacturers would have the capacity to produce similar auto-injectors, insulating those manufacturers from patent liability under § 1498. If no manufacturers were capable of doing so, the government could then explore the possibility of a patent buyout.
A. Benefits and Objections
One of the authors has argued that the government should consider invoking § 1498 when two of the following criteria are met: “First, there appears to be a large disconnect between the risk-adjusted costs of research and development and the price a patent holder is commanding, and second, substantial public health benefits could accrue from the use of section § 1498.”126 It is likely that the first criteria is satisfied here: while Kaléo's research and development costs are unclear, the fact that prices rose very dramatically three years after the drug's release suggest that the drug's current price is disconnected from its research and development costs. The second criterion is almost certainly satisfied. There are important public health benefits to moving forward with this strategy for responders and public health departments already struggling to obtain naloxone at a reasonable cost, and for community members responding to increasingly common fentanyl-induced overdoses. Government intervention to address the price of Evzio could deter other pharmaceuticals from engaging in similar pricing. It may be politically preferable for the federal government to start taking action against rising naloxone prices by first targeting Evzio, in view of the fact that Kaléo has attracted widespread criticism for its pricing practices. Further, invoking § 1498 to procure Evzio could make an extremely accessible and effective naloxone delivery deviceReference Edwards127 immediately accessible to many community members.
In addition to the practical obstacles to implementing our proposed strategy, there are substantive objections to applying the government use provision to Evzio. One is that this may have potential chilling effects on innovation for the development of other naloxone administration devices and non-addictive pain relief. This objection hinges on a related objection: that our proposal does not specify the cost to the federal government of adopting this strategy, making it difficult to assess whether this strategy is more costly than leaving the current market for naloxone administration devices for community use as is.
This is a valid objection, but addressing this empirically is challenging because we have limited data about the actual research and development costs for Evzio. As noted above, calculating damages under § 1498 is a highly fact specific inquiry, but generally allows manufacturers to collect a reasonable royalty which can be adjusted based on “the amount invested in the relevant drug, adjusted for the risk of failure …. [to] permit royalty awards that were sufficiently robust to induce the development of new medicines.”128 Even if the government regularly invoked § 1498 to procure drugs, guaranteeing royalties that exceeded research and development costs, it might still induce manufacturers — especially smaller ones like Kaléo, with few products in the pipeline — to enter a marketplace with guaranteed lucrative returns. Indeed, this might be preferable to the current pharmaceutical marketplace, which offers lottery-like returns for certain “blockbuster” drugs. As applied in the context of drugs treating hepatitis C virus infection, one of the authors has argued that “even a very modest royalty, akin to the 10 percent common in the military context,” would ensure that a major pharmaceutical recoup its investment and profit, while also allowing the federal government to treat patients with hepatitis C virus at a much lower cost.129
If this objection arises, or critics insist that the price of this intervention needs to be measured against accepting the current public health costs of allowing the opioid crisis to deepen, it should encourage Senators who have already expressed concerns about Kaléo's pricing to use their subpoena power to request data on Kaléo's research and development costs. But even if these data are ultimately unavailable, and we admit that government use does reduce incentives for innovation by some small amount, “the net effects in efficiency terms — more simply, for health — can still be strongly positive.”130 Here, the public health risks of not acting on naloxone costs are extremely high, such that the risk of applying § 1498 in this limited context is likely to be outweighed by the public health benefits. While it is possible that making Evzio cheaper and more accessible could make intense highs more enticing to opioid users in the short term, this risk could be mitigated in the longer term by pairing our strategy with policy interventions related to medication assisted treatment, prescription drug monitoring programs, and more. As noted above, there broad agreement among municipalities, states, and the federal government that increased access to naloxone is an urgent policy priority in the short term.
It is important to note that the federal government already funds state purchases of naloxone. SAMHSA's FY 2018 budget included $12 million in block grants to states for purchasing naloxone, supporting trainings on proper administration of naloxone, equipping first responders, and providing other materials in overdose kits.131 The Trump Administration appears to favor giving states block grants to expand access to naloxone,132 and as the opioid epidemic intensifies, it stands to reason that demands on federal funding will increase. States equipped with federal funds may be able to strike favorable ad hoc agreements with Kaléo to obtain lower prices. But states with less bargaining power may find negotiating lower prices especially difficult, leaving poor states with high opioid usage rates to fend for themselves. If the federal government invoked § 1498 to procure Evzio or a generic naloxone auto-injector, it could not only ensure that all states receive naloxone auto-injectors at a uniform, reasonable cost, but also reduce the need to fund naloxone administration trainings. The federal government could reduce block grant funding accounting for these savings.
The government could use its authority under 28 U.S.C. § 1498 to either bring Kaléo to the negotiating table to lower its prices; or formally invoke government use and procure Evzio naloxone auto-injectors by other means. This approach is consistent with past exercises of the federal government's authority under § 1498. This approach is also good policy. It will allow the current administration to help promote public health goals by helping achieve low-cost access to a drug that could be life-saving to many struggling with the opioid epidemic.
A second objection could be that because Evzio and Narcan are essential pieces of the public health response to the opioid crisis, focusing on only Evzio is unjustified and may be ineffective in reducing overall naloxone prices. Government patent use might successfully reduce the cost of Evzio, but could invite Opiant to increase its price for Narcan, now with no competing product suited for naloxone administration in the community. There are two reasons we think that Narcan's price is unlikely to increase, and two reasons we think that Evzio is still a better candidate for government patent use.
First, Narcan's price has not increased since it was first introduced in 2014; thus, Opiant has demonstrated some measure of pricing restraint. While it is possible that Opiant may change its tune once it becomes the sole provider of naloxone for community use, there are other reasons that Opiant is unlikely to increase its price.
Second, Opiant's Narcan patents are potentially subject to other legal strategies that could be invoked to help reduce the price, so § 1498 may not be necessary. A full discussion of these strategies is outside the scope of this paper, but they generate from the fact that Narcan was developed and received FDA approval with the direct financial and technical support of the federal government. If it qualifies as the product of government-sponsored research, the Bayh-Dole Act gives the government authority to ensure that “final products emerging from … government-sponsored research [are] available to the public on reasonable terms.”Reference Treasure, Avorn and Kesselheim133 To achieve that goal, the law gives the government both a fully paid-up license in the product as well as so-called “march-in” rights to turn an exclusive license to manufacture the product into a non-exclusive license.
Third, while Evzio and Narcan both could work to address the rash of overdoses resulting from the opioid epidemic, Evzio does not require additional training to administer correctly. A recent study comparing intramuscular to intranasal naloxone concluded “[l]aypersons experienced substantially greater success administering a simulated dose of naloxone, both before and after training, using [automated injection] versus [intranasal delivery] during a simulated opioid overdose emergency. No participants correctly used [the intranasal delivery system] without training.”134 The study also found that “both products resulted in a statistically significant reduction in time to administer a dose following one-on-one training by a healthcare professional … [but] less than 60% of participants were able to use [intranasal naloxone] as compared to 100% with [Evzio, or an auto-injector equivalent].”135 In response, cities like New HavenReference Hernandez136 and Boston137 have hosted Narcan training sessions. In May 2017, Cambridge (MA) city police set up a Narcan demonstration in Central Square, directing passersby to a lockbox and explaining how to administer Narcan. Public reactions were generally positive, indicating a willingness and ability to administer the medication.Reference Seelye138 Trainings may gradually expand the population capable of administering Narcan, but the rapid uptick in overdose deaths demands an immediate response in the meantime.
Fourth, notwithstanding the training requirements for Narcan, Evzio may become an increasingly important tool to respond to fentanyl-induced overdoses. As a general matter, intramuscular and intra-nasal naloxone are similarly effective in responding to opioid overdoses.Reference Kerr139 But the delivery mechanism matters for the amount of naloxone administered. Naloxone administered intramuscularly has higher absolute bioavailability and absorption relative to naloxone administered intranasally.Reference Edwards140 Because fentanyl overdoses can require a substantially higher dosage of naloxone (in some cases, more than 4 mg, while the typical initial dose of naloxone is only 0.1 to 0.2 mg intravenously),Reference Tomassoni141 there is increased possibility of overestimating the amount of naloxone needed to reverse an overdose, resulting in acute opioid withdrawal.Reference Kim and Nelson142 Evzio may thus prove to be more useful than Narcan as potent opioids like fentanyl expand in their use.
In some ways, Narcan is especially well-suited for government patent use. Opiant already has a generic competitor (Teva) producing a naloxone nasal spray. Because of the Bayh-Dole Act, if Opiant were to sue for patent infringement after § 1498 was invoked, the government would have extremely low risk of a damages judgment. However, Narcan's price does still remain lower than that of Evzio.
Finally, while there are arguments against applying the government use provision in addressing rising U.S. drug prices, those objections are less acute here, in the context of a widely-recognized public health emergency and a niche-market product. While the sales of naloxone have increased in recent years — from $21.3 million in 2011 to a $81.9 million in 2015Reference Gillette143 — this market is still much smaller than other context that might also be candidates for 1498, such as the new direct-acting antivirals for hepatitis C virus infection, in which patent-holding companies might “lose approximately $10 billion in annual sales to the federal government.”144
V. Conclusion
The government could use its authority under 28 U.S.C. § 1498 to either bring Kaléo to the negotiating table to lower its prices; or formally invoke government use and procure Evzio naloxone auto-injectors by other means. This approach is consistent with past exercises of the federal government's authority under § 1498. This approach is also good policy. It will allow the current administration to help promote public health goals by helping achieve low-cost access to a drug that could be life-saving to many struggling with the opioid epidemic.
