Is the Bayh-Dole Act Stifling Biomedical Innovation?

The productivity of biomedical research has fallen dramatically during the past three decades. For example, Nicholas Bloom and colleagues, in a 2017 National Bureau of Economic Research working paper, found that productivity in cancer research (measured as the ratio between years of life saved per one hundred thousand people and the number of publications reporting on clinical trials for cancer therapies) fell at an annual rate of 5.1% from 1975 to 2006 for all cancers. For breast cancer the annual decline was 10.1%. The researchers also looked at heart disease, and they found that between 1968 and 2011 research productivity fell at an annual rate of 7.2%. Another measure of productivity, the ratio of new medical products approved by the Food and Drug Administration to the number of researchers, fell at 3.5% per year from 1970 through 2014. Using yet another measure, Jack Scannell and colleagues, writing in Nature in 2012, documented an 80-fold decrease in the number of new drugs approved per dollar over the period 1950 to 2010.

Can this downward trend be reversed?

Public funding in the United States for biomedical science follows two paths. The direct path is typically through the National Institutes of Health’s (NIH) intramural research efforts and its extramural support of university research. The indirect path is through the purchases of pharmaceutical products and services by Medicare and Medicaid, the Veterans Administration, and the Affordable Care Act. Portions of the revenue generated from those sales are then invested in industrial pharmaceutical research and development (R&D).

One policy approach to improving productivity along these two pathways has been to encourage university-industry collaborations in the belief that the basic research focus of universities and the applied focus of industrial R&D are complementary. For example, the Bayh-Dole Act of 1980 required universities to pursue patents based on commercializable discoveries made by their scientists. Other policy interventions aimed, at least in part, at increasing collaboration between industry and universities include the National Cooperative Research Act (NCRA) of 1984; the National Cooperative Research and Production Act (NCRPA) of 1993; and the Advanced Technology Program (ATP), created through the Omnibus Trade and Competitiveness Act of 1988 (though terminated in 2007). Approximately 15% of research joint ventures created in response to the NCRA and the NCRPA had a university as a research partner, and about one-half of ATP-funded joint ventures had a university as a research partner.

More recently, NIH pronouncements on the importance of translational medicine, and its formation in 2012 of the National Center for Advancing Translational Sciences, suggest that the agency recognizes the need for a convergence of universities and industry research domains. Indeed, industrial and NIH R&D priority areas for new therapies are generally the same, focusing on oncology and immunomodulators, nervous system disorders, and anti-infectives. NIH is also trying to fund the development of new drugs that target common diseases that are also being addressed by pharmaceutical companies. NIH’s Active Requests for Applications include an emphasis on diabetes, Alzheimer’s disease, cancer detection, and stem cell products.

Pursuing stronger links between universities and firms conducting biomedical research may seem like a sensible way to reverse declining productivity. But empirical studies we have conducted on university involvement in private-sector industrial research, especially company research funded by NIH through its Small Business Innovation Research (SBIR) program, tell a different story. Our research finds that the R&D productivity of companies is thwarted by university partnerships. Could university involvement in industrial R&D actually be one cause of the productivity decline in biomedical innovation, actually stifling research and technological progress?

Our analyses focused on three research performance metrics: whether or not the NIH-funded SBIR project resulted in a commercialized technology; the number of new project-related employees retained by the company performing the SBIR-funded project at the completion of Phase II (pre-commercialization) studies; and the overall growth in employment after the completion of Phase II studies directly attributable to the funded SBIR project. We found that firms that received SBIR-funding and partnered with a university were, compared with similar firms that did not partner with a university, less likely to commercialize their technology, less likely to retain employees who were hired to help with the funded project, and less likely to realize employment growth beyond what would have been predicted in the absence of the award.

What might explain these counterintuitive findings? We believe the culprit is the Bayh-Dole Act. The role of Bayh-Dole in distorting the innovation system is apparent. Pursuit of intellectual property has generated conflicts between universities over precedence and restricted the use of knowledge by both university and industry researchers, as exemplified by the competing claims of the University of California, Berkeley, and the Massachusetts Institute of Technology for patents on the CRISPR-Cas9 genome-editing system. There are also patent infringement lawsuits between universities and industry over alleged unauthorized use of university ideas, as with the well-known case of the University of California, San Francisco’s suit over the development of human growth hormone by Genentech. When university collaborations are with new companies, rather than established ones, as is often the case with the SBIR projects, conflicts and possibly insurmountable barriers often arise in the negotiations about how to share any profits that result from a collaborative R&D project. Some industry partners in such projects report that universities overestimate the market value of their research contribution, and this often creates a conflict over how to divide any resulting intellectual property and profits; such conflicts translate into inefficient research partnerships. Most intellectual property negotiations between universities and companies involve technology transfer officers, and case-based research has shown that such individuals are often less well trained in evaluating the commercial prospects for potential technologies than are their company counterparts.

By allowing universities to secure intellectual property rights for findings from publicly funded research, the Bayh-Dole Act inhibits the open flow of knowledge. The exclusive licensing arrangements typically used by universities give established companies rights to use the university’s intellectual property, at standard terms (with modest up-front fees, milestone payments, royalties, and sublicense payments) that provide revenue for the university while leaving generous amounts of expected returns to industry. Exclusive licensing agreements tie up new basic knowledge so that other university and industry scientists can’t use it. Though nonexclusive licensing arrangements can partly solve this problem, they are likely to generate less revenue for the university. Moreover, universities’ technology transfer offices may have little bargaining power with a large company capable of developing ideas generated by academic scientists, and find it hard to resist granting an exclusive license to a company then willing to pay for the right to develop the technology and commercialize it. Bayh Dole requires universities to seek patents for potentially commercializable discoveries. Universities, often increasingly strapped financially, are incentivized to seek maximum returns on these patents. Knowledge created at universities that would otherwise be freely available to innovative companies is instead locked up.

In our view, Bayh-Dole has pushed patenting too far upstream. More effective innovation policies would provide incentives for universities to make their commercializable discoveries freely available and to disseminate them widely. Firms, sometimes working with university partners, could then develop patentable, commercializable biomedical products, and the industrial R&D would in turn provide feedback stimulating new directions for university research and ideas. For example, patents protect valuable intellectual property underlying the great commercial success of drug-eluting stents used in life-saving cardiac interventions. The pharmaceutical company Johnson & Johnson’s Cordis unit holds a very valuable patent for drug-eluting stents, and that patent cites university research. Subsequent university research and patent filings in turn were stimulated; such research develops new types of stents, new drugs to coat the stents, and new delivery systems for implantation of the stents with the prospects for better patient outcomes.

In an era of decreasing state and federal support to higher education, universities are acting rationally as they seek to identify and protect commercially valuable intellectual property under the mandate provided by the Bayh-Dole Act. But freely sharing the knowledge created by university research has social benefits, and when that knowledge is the result of research that has been publicly funded, making the knowledge freely available would seem to be appropriate. Indeed, the history and theory of invention and innovation teach that discoveries and innovations occur most readily when knowledge is shared freely among diverse organizations that are competing to discover critical invention insights.

Though the problem of declining biomedical research productivity almost certainly has many interrelated causes, the possibility that Bayh-Dole is a significant contributing factor has not, to our knowledge, been recognized. Mostly, Bayh-Dole has been celebrated as advancing the nation’s innovation system by greatly increasing the number of university-based patents. Our research suggests that such increases may, on the contrary, be contributing to the slow-down of biomedical innovation. We recommend that Congress revisit the Bayh-Dole Act, and amend it to require that NIH extramural research recipients make public their research results. Open innovation should thus be asserted by NIH as a condition for receiving public monies. Intellectual property would be taken when the freely available ideas created with public funding at US universities are incorporated into developed biomedical technology.

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Cite this Article

Link, Albert N., John T. Scott, and Robert S. Danziger. “Is the Bayh-Dole Act Stifling Biomedical Innovation?” Issues in Science and Technology 34, no. 2 (Winter 2018).

Vol. XXXIV, No. 2, Winter 2018