Technology Transfer: NIH-Private Sector Partnership in the	 
Development of Taxol (04-JUN-03, GAO-03-829).			 
                                                                 
The transfer of technology from government-funded medical	 
research laboratories to the private sector aims to have new	 
pharmaceuticals brought to market more efficiently than would be 
possible for a federal agency acting alone. Much of the 	 
pharmaceutical-related technology transfer originates with	 
research funded by the National Institutes of Health (NIH). GAO  
was asked to examine the legal and financial issues involved in  
technology transfers as illustrated by the research, development,
and commercialization of Taxol. Taxol was developed through a	 
cooperative research and development agreement (CRADA) between	 
NIH and the Bristol-Meyers Squibb Company (BMS) and by 2001 had  
become the best-selling cancer drug in history. Specifically, GAO
examined (1) how the technology transfer partnership affected the
research and development of Taxol, (2) what NIH's financial	 
investment was in Taxol-related research, and what the financial 
outcomes were of the technology transfer process related to	 
Taxol, and (3) what factors influenced how NIH exercised its	 
authority in Taxol-related technology transfer activities. GAO	 
reviewed relevant materials and statutes governing technology	 
transfer, reviewed the patent history of Taxol, interviewed NIH  
and BMS officials, and reviewed data on NIH's financial 	 
investment and drug pricing policies.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-829 					        
    ACCNO:   A07075						        
  TITLE:     Technology Transfer: NIH-Private Sector Partnership in   
the Development of Taxol					 
     DATE:   06/04/2003 
  SUBJECT:   Cooperative agreements				 
	     Laboratories					 
	     Medical research					 
	     Pharmaceutical industry				 
	     Pharmacological research				 
	     Technology transfer				 
	     Private sector					 
	     Taxol						 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-03-829

Report to the Honorable Ron Wyden, U. S. Senate

United States General Accounting Office

GAO

June 2003 TECHNOLOGY TRANSFER

NIH- Private Sector Partnership in the Development of Taxol

GAO- 03- 829

Page i GAO- 03- 829 Technology Transfer in Taxol Development Letter 1
Results in Brief 3 Background 5 NIH- BMS Partnership Provided Research
Results Critical to

Developing Taxol*s Commercial Uses 10 NIH Invested Heavily in Taxol-
Related Research, but Federal Financial Benefits Have Been Limited 13
Several Factors Affected NIH*s Exercise of Its Broad Authority in
Technology Transfer Activities Related to the Development of Taxol 18
Concluding Observations 20 Agency and Bristol- Myers Squibb Company
Comments and Our

Evaluation 21 Appendix I Selection of *Clinical Development of Taxol*
CRADA Partner 23

Appendix II Catalog of CRADAs and License Agreements Related to Taxol 24

Appendix III Chronology of the Research and Development of Taxol
(Paclitaxel) 26

Appendix IV Comments from the National Institutes of Health 29

Appendix V GAO Contact and Staff Acknowledgments 35 GAO Contact 35
Acknowledgments 35 Contents

Page ii GAO- 03- 829 Technology Transfer in Taxol Development Tables

Table 1: BMS*s Worldwide Taxol Sales, 1993- 2002 16 Table 2: CRADAs
Related to Taxol 24 Table 3: Patents Related to Taxol 25 Figure

Figure 1: NIH*s Funding for Paclitaxel- Related Research 14 Abbreviations

AWP average wholesale price BMS Bristol- Myers Squibb Company CRADA
cooperative research and development agreement FDA Food and Drug
Administration FSU Florida State University FSS Federal Supply Schedule

IND investigational new drug application NCI National Cancer Institute NDA
new drug application NIH National Institutes of Health OFM Office of
Financial Management OTT Office of Technology Transfer PHS Public Health
Service

This is a work of the U. S. Government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. It may contain
copyrighted graphics, images or other materials. Permission from the
copyright holder may be necessary should you wish to reproduce copyrighted
materials separately from GAO*s product.

Page 1 GAO- 03- 829 Technology Transfer in Taxol Development

June 4, 2003 The Honorable Ron Wyden United States Senate

Dear Senator Wyden: The transfer of technology resulting from federally
funded research to the private sector is intended to bring pharmaceuticals
to the marketplace much sooner and more efficiently than would have been
possible for a federal agency acting alone. Much of the pharmaceutical-
related technology transfer between the public and the private sectors
originates with research conducted or funded by the National Institutes of
Health (NIH). NIH uses mechanisms such as cooperative research and
development agreements (CRADA) with industry partners and the licensing of
patented inventions arising from research it funds to provide incentives
for businesses to develop pharmaceuticals. However, the financial success
of certain drugs that have benefited from governmentfunded research has
raised concerns about whether the federal government is getting a fair
return on its investment in the research leading to these products.

An example of pharmaceutical technology transfer is Taxol (paclitaxel),
which by 2001 had become the best- selling cancer drug in history. 1 Taxol
was commercialized by the Bristol- Myers Squibb Company (BMS). Through a
collaboration with NIH, BMS benefited from substantial investments in
research conducted or funded by NIH. In this instance, the NIH research
examined the safety and effectiveness of this naturally occurring compound
for the treatment of cancer and resulted in techniques for administering
the drug. NIH transferred its research results

and discoveries to BMS for its use in seeking approval from the Food and
Drug Administration (FDA) to market the drug. 1 Paclitaxel is the name of
the generic equivalent of Taxol. The drug was known as taxol from its
discovery in the 1960s until 1992, when BMS trademarked the name Taxol. At
that time, BMS objected to researchers using taxol as the generic name,
and so it was changed to paclitaxel. In this report, we use the name Taxol
to refer to the brand- name drug sold by BMS, and we use paclitaxel to
refer to the drug in other contexts.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 03- 829 Technology Transfer in Taxol Development

You asked us to examine the legal and financial issues involved in
technology transfer as illustrated by the case of the research,
development, and commercialization of Taxol. Specifically, you asked us to
examine the following questions: (1) How did the NIH- BMS technology
transfer collaboration affect the research and development of Taxol? (2)
What was NIH*s financial investment in Taxol- related research, and what
were the financial outcomes of the technology transfer process related to
Taxol? (3) What factors influenced how NIH exercised its authority in
Taxol- related technology transfer activities?

To address these questions, we reviewed published and unpublished
documents describing NIH and BMS*s partnership and their efforts to
research and develop Taxol. Using the U. S. Patent and Trademark Office*s
database, we reviewed the patent history of Taxol. We reviewed the primary
Taxol- related CRADA between NIH and BMS, which was signed in 1991. We
also reviewed an additional Taxol- related CRADA and the license agreement
between NIH and BMS. 2 We interviewed the principal investigators
associated with those CRADAs to understand the research involved. To
assess NIH*s investments and financial outcomes resulting from Taxol-
related research, we obtained and reviewed data from NIH*s National Cancer
Institute (NCI), Office of Financial Management (OFM), and BMS*s Annual
Reports. 3 We also reviewed Medicare drug purchase data from the Medicare
part- B Extract Summary System and pricing data from the Federal Supply
Schedule (FSS). We interviewed officials from BMS and from NIH*s OFM,
Office of Technology Transfer (OTT), and NCI about spending estimates and
the use of royalty payments. To assess the factors that influence how NIH
exercises its legal authority, we reviewed the relevant statutes and
regulations pertaining to the technology transfer process and interviewed
pertinent officials involved in the process at NIH

and BMS. We also interviewed officials from one of NIH*s key partners in
paclitaxel- related research, Florida State University (FSU), where much
of the early research on a semisynthetic method of producing paclitaxel
was performed. The scope of our report was restricted to NIH*s investment
in paclitaxel, and we did not evaluate the effectiveness of
commercializing Taxol in comparison to other drugs. For this reason, we
consider the implications of the development of Taxol as a case study, not
necessarily

2 BMS voluntarily agreed to the disclosure of its commercial information
in the CRADAs and the license agreement so that our study could be
completed and the results of our review could be made publicly available.
3 Throughout the report, dollars are reported as actual dollars, not
adjusted for inflation.

Page 3 GAO- 03- 829 Technology Transfer in Taxol Development

as representative of the way NIH performs technology transfer activities.
We conducted our work from October 2002 to June 2003 in accordance with
generally accepted government auditing standards.

NIH*s collaboration with BMS provided the company with research results
that enabled paclitaxel to be quickly commercialized as the brand- name
drug Taxol and made available as a treatment* initially for ovarian cancer
patients, and later for other cancer patients. Prior to the signing of the

1991 CRADA between NIH and BMS, and during the first 2 years of the CRADA,
NIH conducted most of the clinical trials associated with paclitaxel. The
results of NIH*s clinical trials were critical for BMS to secure FDA*s
initial approval in 1992 to market Taxol for the treatment of advanced
ovarian cancer. Five of the six studies submitted to FDA by BMS in support
of its marketing application were either conducted or funded by NIH. As
agreed in the CRADA, BMS supplied paclitaxel to NIH researchers to
overcome previous shortages that had limited NIH*s research. The
additional paclitaxel supplied by BMS allowed NIH researchers to increase
the number of patients enrolled in NIH clinical trials for paclitaxel from
less than 500 patients in 1989 to 28,882 through the end of the CRADA
term. Three inventions* which were methods for administering paclitaxel
and treating side effects* resulted from the 1991 CRADA and were later
patented by NIH. In 1996 NIH signed an agreement to license these
inventions to BMS, but BMS officials told us that they were not used in
any of BMS*s applications to FDA to expand the approved uses of Taxol. In
addition, an NIH grant to FSU led to the important discovery of a method
for producing paclitaxel, which was licensed to BMS by FSU in 1990 and
later used to produce Taxol.

NIH made substantial investments in research related to Taxol, but its
financial benefits from the collaboration with BMS have not been great in
comparison to BMS*s revenue from the drug. NIH estimates that it invested

$183 million in research related to paclitaxel from 1977 through 1997, the
end of the CRADA*s term, although not all of this was for research
supporting the 1991 CRADA. For one portion of its investment in Taxol, NIH
estimates that its net cost for conducting clinical trials that supported
the development of Taxol through the 1991 CRADA was $80 million* NIH
estimates that it spent $96 million on the studies, and this expense was
offset by $16 million in financial support from BMS. We estimate that the
paclitaxel BMS supplied NIH through the CRADA had a value of $92 million.
NIH spent an additional $301 million on paclitaxel- related research from
1998 through 2002, some of which supported cancer research, bringing NIH*s
total investment in paclitaxel- related research Results in Brief

Page 4 GAO- 03- 829 Technology Transfer in Taxol Development

from 1977 to 2002 to $484 million. Overall, BMS officials told us that the
company spent $1 billion to develop Taxol. BMS*s worldwide sales of Taxol
totaled over $9 billion from 1993 through 2002. In its 1996 license
agreement with NIH, BMS agreed to pay NIH royalties at a rate of 0.5
percent of worldwide sales of Taxol, and NIH received royalty payments
totaling $35 million through 2002. The CRADA noted NIH*s concern that
Taxol be fairly priced given the public investment in Taxol research and
the health needs of the public, but it did not require that reasonable

evidence be presented to show that this would occur. The federal
government has been a major payer for Taxol, primarily through Medicare.
Medicare payments for Taxol totaled $687 million from 1994 through 1999,
the last full year before a generic version of Taxol was approved for
marketing.

Several factors affected NIH*s exercise of its authority in technology
transfer activities related to the development of paclitaxel. First, in
negotiations regarding a CRADA for paclitaxel, NIH*s ability to exercise
its authority was limited because, even though its research findings could
be valuable in securing FDA approval for marketing the drug, NIH did not
have a patent on paclitaxel, and thus could not grant a possible CRADA
partner an exclusive patent license to market the drug upon FDA approval.
Second, NIH*s evaluation suggests that there was a shortage of available,
qualified alternative CRADA partners. According to NIH*s records, BMS*s
CRADA application scored significantly higher than others. Finally, the
negotiation of royalties for NIH*s later Taxol- related inventions was
affected by multiple considerations, including the priorities that both
NIH and BMS assigned to different factors in the setting of royalties.
While nothing in applicable law restricts the amount of royalties NIH can
negotiate, a number of considerations bear on the negotiations. These
include the stage of product development, the potential market value of
the invention, and the contribution to public health of making the product
available. In this case, BMS officials told us that NIH*s inventions did
not contribute to BMS*s successful marketing of Taxol.

In commenting on a draft of this report, NIH provided additional
information about its expenditures and the contributions of BMS, which we
incorporated, and also discussed its efforts to evaluate the pricing of
Taxol. In its comments on a draft of this report, BMS expressed concern
about our estimates of NIH*s expenditures; we have revised our
presentation based on information contained in NIH*s comments. BMS also
expressed concerns that our analysis overstated the cost of Taxol to
Medicare. Our analysis did not overstate the cost, and we have clarified
our discussion.

Page 5 GAO- 03- 829 Technology Transfer in Taxol Development

Taxol is currently used to treat several types of cancer, including
advanced ovarian and breast cancer, certain lung cancers (non- small cell)
in patients who cannot have surgery or radiation therapy, and AIDSrelated
Kaposi*s sarcoma. The bioactive compound in Taxol was first extracted from
the bark of the slow- growing Pacific yew tree Taxus brevifolia in the
1960s. Following this discovery, the drug was developed primarily through
research funded by NIH, and then transferred to the

private sector and successfully commercialized by BMS. The 1991 NIH- BMS
CRADA was one of the first CRADAs to result in a breakthrough drug. The
groundwork for the public- private partnership that fostered the success
of Taxol was laid in 1980. Prior to that time, the government generally
retained title to any inventions created under federal research grants and
contracts. This situation became a source of dissatisfaction because of a
general belief that the results of governmentowned research were not being
made widely available for the public*s benefit. For example, there were
concerns that biomedical and other technological advances resulting from
federally funded research at universities were not leading to new products
because the universities had little incentive to seek uses for inventions
to which the government held title. In 1980, the Congress passed two
landmark pieces of legislation* the Stevenson- Wydler Technology
Innovation Act of 1980 4 and the Bayh- Dole Act 5 *with the intent of
promoting economic development, enhancing U. S. competitiveness, and
benefiting the public by encouraging the commercialization of technologies
developed with federal funding.

Although the acts have common objectives, the Stevenson- Wydler Act
focuses on inventions owned by the federal government, while the BayhDole
Act focuses on inventions created under federal contracts, grants, and
cooperative research and development agreements. Under the Stevenson-
Wydler Act, inventions owned by the government remain the property of the
agencies that produce them. However, the act as amended sets out
guidelines and priorities that encourage commercialization of

these inventions through the licensing of technology to U. S. business. In
1986 the Federal Technology Transfer Act 6 amended the Stevenson- Wydler

4 Pub. L. No. 96- 480, 94 Stat 2311. 5 Pub. L. No. 96- 517, S: 6( a), 94
Stat. 3019. 6 Pub. L. No. 99- 502, 100 Stat. 1785. Background

Public- Private Technology Transfer

Page 6 GAO- 03- 829 Technology Transfer in Taxol Development

Act and enhanced the authority of federal agencies in this area,
authorizing them to enter into CRADAs with nonfederal partners to conduct
research.

The Bayh- Dole Act authorizes federal agencies to execute license
agreements with commercial entities to promote the development of
federally owned inventions, and to collect royalties for such licenses.
The act also gives small businesses, universities, and other nonprofit
organizations the right to retain title to and profit from the inventions
arising from their federally funded research, provided they adhere to
certain requirements. In 1983, a presidential memorandum extended this
patent policy to large businesses. The act also contains several
provisions to protect the public*s interest in commercializing federally
funded

inventions, such as a requirement that a contractor or grantee that
retains title to a federally funded invention file for patent protection
and attempt commercialization. In return, the government retains the right
to use the inventions without paying royalties. In general, most
biomedical inventions are not a final end product; therefore the
government rights would not extend to a final product. NIH, with a budget
of over $23 billion in fiscal year 2002, is the principal

federal agency that conducts and funds biomedical research, including
research on drugs. Within NIH, OTT is responsible for licensing the
inventions of NIH employees to the private sector for development to
benefit the public health. OTT oversees patent prosecution, negotiates and
monitors licensing agreements, and provides oversight and central policy
review of CRADAs. 7 NIH*s stated goals with regard to the technology
transfer process are, in order of priority, to foster scientific
discoveries, to facilitate the rapid transfer of discoveries to the
bedside, to make resulting

products accessible to patients, and to earn income. NIH has broad
authority under the statutes described above to negotiate agreements with
outside partners in pursuit of its technology transfer goals.

NIH scientists and laboratories, scientists and laboratories in academia
or other research institutions that receive public funding, and industry
researchers are often all involved in the development of pharmaceuticals.

7 OTT also manages the patent and licensing activities for FDA and is
responsible for the central development and implementation of technology
transfer policies for NIH, FDA, the Centers for Disease Control and
Prevention, and the Agency for Healthcare Research and Quality. NIH*s Role
in Technology

Transfer

Page 7 GAO- 03- 829 Technology Transfer in Taxol Development

Usually, government and academic scientists conduct basic research on the
biology of a disease and identify compounds, methods, and chemical
reactions and pathways that may be of value in treating disease. They also
conduct preclinical and clinical testing of drugs (phase 1 and 2 trials).
Industry conducts more extensive clinical trials (phase 3 trials) and
markets the drugs, although there is some overlap in these roles. 8 NIH*s
overall mission and authority, as well as the requirements of the Federal
Food Drug and Cosmetic Act, suggest that NIH cannot sponsor a drug

through FDA*s new drug application (NDA) process. This act requires those
who submit NDAs to FDA to provide *a full description of the methods used
in, and the facilities and controls used for, the manufacture, processing,
and packing, of such drug.* 9 While NIH conducts its own research and
funds biomedical research at other institutions, it does not have a
manufacturing, processing, or packing facility.

NIH can, however, license inventions directly to pharmaceutical firms
without the necessity of working through a CRADA. For example, NIH
officials told us that of the 16 drugs and vaccines currently approved by
FDA that contain an NIH technology, only 3 involved a CRADA. To attract
private- sector partners, NIH publicizes the availability of technologies
that

it seeks to license directly. NIH officials told us that it has entered
into CRADAs with private- sector partners in at least two other cases that
were similar to paclitaxel* naturally occurring substances for which
shortages had limited NIH*s ability to conduct research.

The Public Health Service (PHS) created a model CRADA because the Federal
Technology Transfer Act of 1986 provided few specifics about the CRADA
process. In general, the model CRADA sets forth the policies of NIH and
other PHS agencies on various aspects of cooperative research and
intellectual property licensing that derive from the Federal Technology
Transfer Act. The model CRADA has been updated several times over the
years. The 1991 CRADA between NIH and BMS referred to a March 27, 1989,
version of the model CRADA. The 1989 model CRADA stated that NIH would be
willing to grant exclusive licenses to its CRADA

8 Phase 1 studies of an investigational new drug for cancer are generally
conducted in a small group of cancer patients to test for safety; phase 2
studies are generally conducted to test for safety and effectiveness in
several hundred patients who have the condition under investigation; and
phase 3 studies, which are performed after preliminary evidence suggesting
effectiveness has been obtained in phase 2 trials, may include several
hundred to several thousand people.

9 21 U. S. C. S: 355( b)( 1)( D) (2000).

Page 8 GAO- 03- 829 Technology Transfer in Taxol Development

collaborators. The 1989 model CRADA also contained a provision known as
the *reasonable price clause.* It stated that PHS has *a concern that
there be a reasonable relationship between the pricing of a licensed
product, the public investment in that product, and the health and safety
needs of the public. Accordingly, exclusive commercialization licenses
granted for [NIH] intellectual property rights may require that this
relationship be supported by reasonable evidence.* NIH dropped the
reasonable pricing clause in 1995, and the current version of the model
CRADA no longer has any stipulation regarding the pricing of products that
are developed under the CRADA.

Under federal law and NIH policy, royalty income from license agreements
is shared between the inventors and the institute or center within NIH in
which the technology was developed. NIH uses the royalties for multiple
purposes that contribute to the technology transfer program and the
research of its laboratories. Specifically, the royalty payments can be
used to (1) reward employees of the laboratory, (2) further scientific
exchange among the laboratories of the agency, (3) educate and train
employees of

the agency or laboratory, (4) support other activities that increase the
potential for transfer of the technology of the laboratories of the
agency, (5) pay expenses incidental to the administration and licensing of

intellectual property by the agency or laboratory, and (6) support
scientific research and development consistent with the research and
development missions and objectives of the laboratory.

Federal laws also generally prohibit agencies from disclosing information
that concerns or relates to trade secrets, processes, operations,
statistical information, and related information. 10 Therefore the federal
technology transfer process that NIH engages in with the private sector is
not entirely transparent to the general public, nor are the details of the
negotiations

and agreements that NIH makes with industry partners publicly known.
However, information may be disclosed to those who have oversight
authority over the agencies that generate such information, such as the
Congress and its oversight bodies. In this way, information about the
details of the federal investment and return on investment in the
commercialization of a drug like Taxol can be examined for policymaking
purposes.

10 See 15 U. S. C. S: 3710a( c)( 7); 18 U. S. C. S: 1905 (2000). See
Public Citizen v. NIH, 209 F. Supp. 2d 37 (D. D. C. 2002), see also, 5 U.
S. C. S: 552( b)( 4) (2000), which exempts trade secrets, and commercial
and financial information that is privileged or confidential, from public
disclosure.

Page 9 GAO- 03- 829 Technology Transfer in Taxol Development

NIH played a role in both basic and clinical research leading to the
development and use of Taxol. In 1958, NCI, a component of NIH, initiated
the Natural Products Program, which screened 35,000 plant species for
anticancer activity. Researchers at the Research Triangle Institute found
that an extract from the bark of the Pacific yew tree had antitumor
activity in 1963 and isolated the compound paclitaxel in the bark of the
Pacific yew in 1971. In 1979, scientists at Albert Einstein College of
Medicine discovered how paclitaxel works to prevent cell division.

In 1983, NCI filed an investigational new drug application (IND) with FDA
to initiate clinical trials of paclitaxel. The IND was approved, and phase
1 trials began. In 1985, NCI began funding phase 2 clinical trials. By
1989, two studies of paclitaxel*s effect on ovarian cancer had
demonstrated positive results.

In August 1989, NIH announced in a Federal Register notice that it was
seeking a pharmaceutical company that could develop paclitaxel to a
marketable status. 11 The notice stated that paclitaxel could not be

patented. Instead, NIH offered a potential CRADA partner the exclusive
rights to the source data from its clinical trials. Although 20 commercial
firms replied to the announcement, only 4 companies, BMS among them,
decided to apply for the CRADA opportunity.

NIH chose BMS as its CRADA partner, and the CRADA, *Clinical Development
of Taxol,* took effect on January 23, 1991. (For details on the CRADA
partner selection process, see app. I.) Under the 1991 CRADA, NCI and BMS
agreed to collaborate on ongoing and future clinical studies to obtain FDA
approval for the marketing of paclitaxel, and NCI would make available
exclusively to BMS the data and the results of all paclitaxel studies. As
part of the CRADA, BMS was to supply NCI with sufficient amounts of
paclitaxel for research and clinical trials. NCI could terminate the
agreement if BMS *failed to exercise best efforts in the commercialization
of taxol [paclitaxel].* Following this first Taxol- related CRADA, NIH
entered into another CRADA with BMS in 1998 and has had other paclitaxel-
related CRADAs with two other companies (see app. II).

In 1991, a phase 2 trial of paclitaxel demonstrated its effectiveness in
treating breast cancer. In 1992, BMS filed and received approval for
trademark protection for the name Taxol. Also in 1992, BMS filed an NDA

11 54 Fed. Reg. 31733 (1989). The Development of Taxol

Page 10 GAO- 03- 829 Technology Transfer in Taxol Development

for Taxol with FDA. On December 29, 1992, FDA approved Taxol for the
treatment of ovarian cancer, an indication for which it had been shown to
be effective in earlier studies. In January 1993, Taxol was introduced
into the marketplace by BMS for the treatment of ovarian cancer.

FDA*s approval of BMS*s NDA to market Taxol for the treatment of ovarian
cancer triggered a provision in federal law granting BMS 5 years of
marketing exclusivity for Taxol as a new chemical entity under the Drug
Price Competition and Patent Term Restoration Act of 1984. 12 The statute
provides marketing protection for unpatentable pharmaceuticals, stating
that during this 5- year period *no application* may be submitted* to FDA
that *refers* to the approved drug, a provision that generally prohibits
the introduction of a generic drug during the exclusivity period. 13 Prior
to the expiration of this period, in June 1997, BMS received two patents
regarding the administration of Taxol. In July 1997, a number of generic
drug manufacturers filed applications with FDA to market a generic

version of paclitaxel, and notified BMS of their intent. BMS then filed
suit in a federal district court alleging violations of its most recent
patents. Under federal law, this granted BMS an additional 30 months of
marketing exclusivity while the issues were being resolved in court. 14
(See the chronology in app. III for more information on the research and
development of Taxol.)

The NIH- BMS collaboration provided BMS access to NIH research results
that were critical for BMS*s quick commercialization of Taxol. It provided
other benefits for both parties and for the health of the public as well.
BMS supplied paclitaxel to NIH, enabling NCI to dramatically expand its
paclitaxel research. BMS later licensed three NIH inventions that resulted
from the CRADA; however, BMS ultimately decided not to use any of the
inventions in its applications to FDA for approval to market Taxol for

additional indications. An NIH grant led to the important discovery of a
method for the semisynthesis of paclitaxel by FSU researchers.

12 Pub. L. No. 98- 417, 98 Stat. 1585. 13 21 U. S. C. S: 355( c)( 3)( D)(
ii) (2000). See H. R. Rep. No. 98- 857, pt. 1, at 29 (1984), reprinted in
1984 U. S. C. C. A. N. 2647, 2647- 48, 2662. 14 21 U. S. C. S: 355( j)(
5)( B)( iii) (2000). In theory, a company could choose to waive its right
to marketing exclusivity. In the case of Taxol, NIH and BMS could have
agreed to such a waiver during CRADA or licensing negotiations, but we are
not aware of such discussions. NIH- BMS Partnership

Provided Research Results Critical to Developing Taxol*s Commercial Uses

Page 11 GAO- 03- 829 Technology Transfer in Taxol Development

The NIH- BMS collaboration gave BMS unlimited access to NIH research
results that were critical to BMS*s ability to quickly receive FDA
approval to market Taxol. BMS submitted an NDA for paclitaxel to FDA on
July 21, 1992, 18 months after the 1991 CRADA took effect, and FDA
approved the

drug for initial marketing on December 29, 1992. Paclitaxel was one of the
first oncological compounds tested by NCI, and the public health community
was highly interested in exploring its potential. The collaboration
between NIH and BMS was beneficial to BMS because it gained access to the
results of NIH*s basic, preclinical, and clinical research studies related
to paclitaxel, including NIH studies conducted both prior to and during
the term of the CRADA. Prior to the signing of the 1991 CRADA, and during
the first 2 years of the CRADA, NCI conducted most of the clinical trials
associated with paclitaxel. These studies were

important for securing FDA*s initial approval to market Taxol for the
treatment of advanced ovarian cancer. Five of the six studies submitted to
FDA by BMS in support of its marketing application were either conducted
or funded by NIH; one was conducted by BMS. 15 BMS subsequently applied to
FDA to market Taxol for other indications, including metastatic breast
cancer and AIDS- related Kaposi*s sarcoma. BMS has received FDA approval
to market Taxol for eight indications as of May 12, 2003.

Under the terms of the 1991 CRADA, BMS supplied paclitaxel for NCI*s own
studies as well as for NCI- funded trials at other institutions that were
initiated pursuant to the CRADA. Three months after the CRADA was signed,
BMS began shipments of paclitaxel to NIH. BMS reported that by the end of
1991, 1.35 kilograms of bulk drug, or 45,000 vials, had been delivered. In
January 1992, shipments were increased from 5,000 vials per

month to 25,000 vials per month, and by April 50,000 vials per month were
being provided at no charge to NIH.

BMS*s shipments of paclitaxel overcame shortages that had limited NCI
research. In 1989, before the CRADA, a cumulative total of fewer than 500
patients had been treated with paclitaxel. Because of BMS*s efforts to
expand the collection and production of paclitaxel, NCI was able to
establish more than 40 treatment referral centers for therapy of patients
with refractory ovarian cancer (previously treated, unresponsive ovarian
cancer) and breast cancer. According to NCI, 28,882 patients were treated
15 BMS officials told us that the number of patients in the five NCI
trials and the one BMS

trial were very similar (186 and 159 patients, respectively). NIH- BMS
Collaboration

Gave BMS Access to Critical Research Results

NIH- BMS Collaboration Allowed NIH to Expand Its Paclitaxel Research

Page 12 GAO- 03- 829 Technology Transfer in Taxol Development

in its clinical trials over the course of the CRADA, and the paclitaxel
was supplied free of charge by BMS to NCI for use in both the clinical
trials and the treatment centers.

In 1996, NIH signed an agreement to license to BMS three patented
paclitaxel- related inventions that resulted from the 1991 CRADA. While
the compound itself was not patented, NIH patented three methods for using
paclitaxel in cancer treatment. These inventions were (1) use of GCSF
(granulocyte colony- stimulating factor) to avoid the side effects of
using Taxol in higher doses, (2) a 96- hour infusion method to overcome
multidrug resistance, and (3) a method for using Taxol in combination with
another drug (cisplatin). BMS licensed these three inventions because it
thought they had potential to provide important contributions to
treatment. BMS considered adding these methods as new indications to the
Taxol product label, but ultimately decided not to use any of the

inventions in its applications to FDA for approval to market the drug. The
supply of natural paclitaxel was a continuing problem, since the bark of
the Pacific yew was scarce and it took about 10,000 to 30,000 pounds of
dried bark to produce about 1 kilogram of the compound. 16 Under the terms
of the 1991 CRADA, BMS agreed to initiate an aggressive search for
alternative sources of paclitaxel to lessen or eliminate dependence on the
Pacific yew. Prior to the signing of the CRADA, however, NCI had funded
research at FSU that led to the development of a semisynthetic process for

producing paclitaxel that started the manufacturing process with materials
from another type of yew tree that was plentiful. NIH provided about $2
million in funding to FSU for this research. Researchers at FSU patented
the semisynthesis process in 1989 and subsequently licensed the patent to
BMS in 1990. Under the terms of the license agreement, BMS paid FSU
substantial royalties for this patent in order to increase the

16 In response to the demand for Pacific yew bark, the Pacific Yew Act was
enacted in 1992. The purposes of the Pacific Yew Act are to (1) provide
for the efficient collection and utilization of those parts of the Pacific
yew that can be used in the manufacture of paclitaxel for the treatment of
cancer, (2) provide for the sale of Pacific yew for the commercial
production and sale of paclitaxel at a reasonable cost to cancer patients,
(3) ensure the long- term conservation of the Pacific yew, and (4) prevent
the wasting of

Pacific yew resources while successful and affordable alternative methods
of manufacturing paclitaxel are being developed. Pub. L. No. 102- 335 S:
2( b), 106 Stat. 859- 860. NIH Licensed Inventions

from CRADA to BMS NIH Funding Supported Development of Semisynthesis
Process for Producing Paclitaxel

Page 13 GAO- 03- 829 Technology Transfer in Taxol Development

supply of Taxol. 17 BMS officials told us that BMS did not start using the
FSU invention to manufacture Taxol until 1996.

Although NIH estimates that it has invested heavily in research related to
paclitaxel, its financial benefits from the collaboration with BMS have
not been great in comparison to BMS*s revenue from the drug. NIH estimates

that it has invested $183 million in research related to paclitaxel from
1977 through 1997, the end of the CRADA*s term, although not all of this
was for research supporting the 1991 CRADA. For one portion of its
investment in Taxol, NIH estimates that its net cost for conducting
clinical trials that supported the development of Taxol through the 1991
CRADA was $80 million* NIH estimates that it spent $96 million on the
studies, and this expense was offset by $16 million in financial support
from BMS. We estimate that the paclitaxel BMS supplied NIH through the
CRADA had a value of $92 million. In addition, NIH spent an additional
$301 million on paclitaxel- related research from 1998 through 2002, some
of which supported cancer research, bringing NIH*s total investment in
paclitaxelrelated research from 1977 to 2002 to $484 million. Overall, BMS
officials told us that the company spent $1 billion to develop Taxol.
Worldwide sales of Taxol have totaled over $9 billion through 2002. As a
result of its license agreement with BMS, NIH has received $35 million in
royalty payments. The 1991 CRADA noted NIH*s concern that Taxol be fairly
priced given the public investment in Taxol research and the health needs
of the public, but it did not require that reasonable evidence be
presented to show that this had occurred. The federal government has been
a major payer for Taxol, primarily through Medicare. For example, Medicare
payments for Taxol totaled $687 million from 1994 through 1999.

17 BMS officials declined to disclose the amount of the Taxol- related
royalties BMS paid to FSU. However, we estimate that FSU received a
royalty rate of approximately 4.2 percent of BMS*s total worldwide sales
of Taxol. For example, FSU*s Office of Technology Transfer website
reported that FSU received $67 million in royalties in 2000 and an FSU
official told us that 98 percent of those royalties were from the license
with BMS (www. techtransfer. fsu. edu/ tts. html, downloaded June 3,
2003). This represents about 4.2 percent of Taxol*s total worldwide sales
in calendar year 2000. NIH Invested Heavily

in Taxol- Related Research, but Federal Financial Benefits Have Been
Limited

Page 14 GAO- 03- 829 Technology Transfer in Taxol Development

Based on figures provided by NIH of its yearly expenditures for all
research involving paclitaxel, we estimate that NIH spent $183 million on
paclitaxel- related research from 1977 through 1997, the end of the
CRADA*s term. 18 NIH officials told us that these figures reflect all NIH
research using paclitaxel* even when it is given to patients as the
standard of care in studies of other remedies* not just research
investigating paclitaxel and Taxol. This figure includes spending for
research on the effectiveness of paclitaxel for conditions other than
cancer as well as research to develop analogues or alternative compounds
to paclitaxel to increase the number of available drugs. We estimate NIH
spent an additional $301 million on paclitaxel- related research from 1998
through 2002, some of which supported cancer research, bringing NIH*s
total investment in paclitaxel- related research from 1977 to 2002 to $484
million. (See fig. 1.)

Figure 1: NIH*s Funding for Paclitaxel- Related Research

Note: GAO analysis based on data provided by NIH.

18 NIH officials told us that NIH could not estimate its paclitaxel-
related expenditures for years earlier than 1977. NIH*s Financial
Investment

in Paclitaxel Increased Significantly in the 1990s

Source: GAO. NIH funding for research on paclitaxel 0

10,000 20,000

30,000 40,000

50,000 60,000

70,000 80,000

Dollars in thousands 1977 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02

NIH- BMS license agreement signed First NIH- BMS CRADA started

First NIH- BMS CRADA ended Taxol commercialized

Page 15 GAO- 03- 829 Technology Transfer in Taxol Development

NIH estimates that its net expenditures to conduct clinical trials that
supported the 1991 CRADA were $80 million. NIH estimates that it spent $96
million to conduct the clinical trials and BMS provided a reimbursement of
$16 million to offset the costs of the studies. NIH*s estimate includes
costs incurred during the CRADA and costs associated with clinical trials
conducted prior to the CRADA, the results of which helped BMS obtain FDA
approval to market Taxol. Almost all ($ 15.6 million) of BMS*s financial
support was paid to offset clinical trial costs

during the last several years of the CRADA. In addition, we estimate the
paclitaxel BMS supplied to NIH under the CRADA had a value of $92 million
(based on FSS prices). 19 NIH*s financial benefits from the collaboration
with BMS have not been

great in comparison with BMS*s revenue from the drug. In 1996, when BMS
licensed from NIH three patents on methods for using Taxol in cancer
treatment, it negotiated its first and only license agreement with NIH for
Taxol, requiring BMS to pay royalties to NIH at a rate of 0.5 percent of
its worldwide sales of Taxol. The NIH- BMS license agreement resulted in
about $35 million in royalties for NIH through 2002. 20 NIH reports that
10 individual inventors received 22 percent of the total $35.3 million in
royalty payments, or an aggregated amount of $7.7 million, while NIH kept
the remainder, $27.5 million. 21 Worldwide Taxol sales totaled over $9
billion from 1993 through 2002.

Sales exceeded $1 billion annually from 1998 through 2001 (see table 1).
BMS officials told us that the company invested over $1 billion toward the
development of Taxol since signing the CRADA in January 1991. 22 Costs
included supporting clinical trials (including its payments to NIH),

19 FSS prices represent the prices at which some federal programs can
purchase Taxol. NIH estimated that the paclitaxel supplied by BMS had a
value of $151 million based on average wholesale prices, which are
generally higher than FSS prices.

20 From 1996 through 2002, NIH*s total royalty income from all its
licensed inventions was $296 million. 21 NIH distributes royalty income in
accordance with federal law and NIH policy. The inventors* share of
royalties varied from year to year, based on BMS*s sales per year. The

income remaining after the inventors* share went to NCI. 22 A recent
analysis estimated that the average out- of- pocket cost of developing a
new drug was $543 million (in 2000 dollars). See J. A. DiMasi, R. W.
Hansen, and H. G. Grabowski, *The Price of Innovation: New Estimates of
Drug Development Costs,* Journal of Health

Economics, vol. 22 (2003). NIH Has Received about

$35 Million in Royalties on Taxol Sales

Page 16 GAO- 03- 829 Technology Transfer in Taxol Development

preparing the NDA, and finding alternative sources of the compound through
yew cultivation and research on the semisynthesis process and plant cell
culture techniques. For example, BMS officials told us that the company*s
clinical trials had enrolled over 21, 000 patients by 1997.

Table 1: BMS*s Worldwide Taxol Sales, 1993- 2002 Year Total sales in
dollars

1993 162,000,000 1994 344,000,000 1995 580,000,000 1996 813,000,000 1997
941,000,000 1998 1,204,000,000 1999 1,453,000,000 2000 1,561,000,000 2001
1,112,000,000 a 2002 857,000,000

Total 9,027,000,000 Source: BMS. a Taxol sales decreased after 2000, in
part, because the first generic version of paclitaxel was released to the
marketplace in late 2000.

At the time the 1991 CRADA was negotiated, NIH had a reasonable pricing
policy that there should be *a reasonable relationship between the pricing
of a licensed product, the public investment in that product, and the
health and safety needs of the public.* 23 NIH*s standard reasonable
pricing clause was modified in the 1991 CRADA. The CRADA noted NIH*s
concern that

*there be a reasonable relationship between the pricing of Taxol, the
public investment in Taxol research and development, and the health and
safety needs of the public.* BMS agreed in the 1991 CRADA that these

factors would be taken into account in establishing a fair market price.
However, the 1991 CRADA did not require that reasonable evidence be

23 Shortly after introducing the policy of *reasonable pricing,* industry
objected, considering it a form of price control, and many companies
withdrew from further interaction with NIH. According to NIH, this
ultimately created a barrier to expanded research relationships. The
policy was revoked by NIH in 1995. 1991 CRADA Did Not

Require Evidence That Taxol Would Be Reasonably Priced

Page 17 GAO- 03- 829 Technology Transfer in Taxol Development

presented to show that this would occur. 24 In its comments on a draft of
this report, NIH stated it gathered other evidence to reach its conclusion
that the price of Taxol was reasonable. NIH also entered into a CRADA with
another company to develop a product that could provide competition for
Taxol (see CRADA 148 in app. II). This alternative product, Taxotere
(docetaxel), received its first marketing approval from FDA in 1996.

The federal government, primarily through Medicare, has been a major payer
for Taxol. Medicare payments for Taxol totaled $687 million from 1994
through 1999, the last full year of marketing exclusivity for Taxol.
Medicare payments for Taxol were $202 million in 1999, accounting for more
than one- fifth of Taxol*s total domestic sales. Medicare*s payments
reflect, in part, the price it pays for Taxol. Compared to other federal
programs, Medicare pays relatively more for Taxol than it does for other
widely used cancer drugs. To assess the pricing of Taxol, we reviewed the
price Medicare pays for Taxol and other cancer drugs compared to the
prices paid by federal programs that directly procure these drugs. 25 We
found that in the fourth quarter of 2002, Medicare paid 6.6 times the
price these other federal programs paid for Taxol, while it paid an
average of 3.0 times the price these other federal programs paid for other
widely used cancer drugs. 26 24 HHS- OIG, Technology Transfer and the
Public Interest: Cooperative Research and Development Agreements at NIH,
OEI- 01- 92- 01100 (Washington, D. C.: November 1993).

25 Federal agencies that directly procure pharmaceuticals have access to
the FSS. Medicare does not purchase cancer drugs directly, but instead
pays providers for cancer drugs that they have purchased. FSS prices are
negotiated and are based on the actual best prices manufacturers charge
some of their customers. Manufacturers must also sell brand- name drugs
listed on the FSS to four federal drug purchasers* the Department of
Veterans Affairs, the Department of Defense, the Public Health Service,
and the Coast Guard* at a price at least 24 percent lower than the
nonfederal average manufacturer price, a ceiling

price that is lower than the FSS price for many drugs. Medicare payments
are determined by the average wholesale price (AWP), a number reported by
manufacturers. AWP often considerably exceeds the price a manufacturer
actually receives for a drug. See U. S. General Accounting Office,
Medicare: Payments for Covered Outpatient Drugs Exceed Providers* Costs,
GAO- 01- 1118 (Washington, D. C.: Sept. 21, 2001). 26 For this analysis,
we examined the FSS and Medicare prices for Taxol and 12 other drugs

for the treatment of cancer that were identified as among the top 35 drugs
for Medicare Part B spending in 2001 and 2002 by the Centers for Medicare
and Medicaid Services. These prices reflect solely drug procurement
prices; they do not include any payments for administering the drugs.
Federal Government Is a

Major Payer for Taxol

Page 18 GAO- 03- 829 Technology Transfer in Taxol Development

Although NIH has broad authority under applicable statutes to negotiate
CRADAs and license agreements with outside partners, several factors
affected its exercise of that authority in the technology transfer
activities related to the development of Taxol. Such negotiations involve
a weighing of NIH*s goals and priorities with those of a potential
partner, recognizing

that tradeoffs may be necessary to reach an agreement. In the case of
Taxol, NIH*s ability to exercise its authority was limited because it did
not have a patent on paclitaxel and because its evaluation found that
there was a shortage of available, qualified alternative CRADA partners.
With regard to the license negotiations on the inventions resulting from
the CRADA, the setting of royalties was affected by the criteria that both
NIH and BMS used to help guide royalty negotiations. BMS officials told us
that NIH*s inventions did not contribute to BMS*s successful marketing of
Taxol.

One factor affecting NIH*s CRADA negotiating position is its ability to
offer a potential partner exclusive marketing rights to an invention. In
its paclitaxel negotiations, NIH*s position was affected by the fact that
it did

not have a patent on paclitaxel. 27 As NIH acknowledged in the 1991 CRADA,
because of this NIH was unable to grant any potential partner an exclusive
patent license to market paclitaxel. NIH was able to offer

potential partners access to the findings of the research it conducted
prior to the CRADA and to its research during the term of the CRADA.

Another factor affecting the leverage that NIH has in negotiating a CRADA
is the availability of other qualified applicants. If NIH were to be
dissatisfied with the CRADA negotiations with an applicant, it
theoretically could turn to another applicant and begin new negotiations,
accepting the inherent delays. It also could seek multiple CRADA partners,
recognizing that multiple partners may grant less favorable terms than one
receiving an exclusive agreement. In the case of paclitaxel, it was
advantageous for NIH to enter into a CRADA with an industry partner
qualified to bring paclitaxel to the marketplace and to provide an
adequate supply of paclitaxel for its work. NIH received four applications
from potential CRADA partners. Using nine criteria to rank applications,
including that an applicant have experience with both natural products and
other drug development and be able to supply adequate amounts of

27 In its comments on a draft of this report, NIH stated that it could not
patent paclitaxel because the relevant information about the compound was
already in the public domain. Several Factors Affected NIH*s

Exercise of Its Broad Authority in Technology Transfer Activities Related
to the Development of Taxol

NIH*s Negotiating Position for the CRADA Was Potentially Affected by Its
Lack of a Patent on Paclitaxel and by the Shortage of Qualified
Alternative Partners

Page 19 GAO- 03- 829 Technology Transfer in Taxol Development

the drug as needed for future clinical trials (see app. I), NIH reviewers
scored the BMS application substantially higher than all of the others.
While some concerns were raised about the BMS application, greater
concerns were raised about other applications. For example, the applicant
that received the second- highest score was cited as having no experience
in the United States involving natural products and no experience in

developing pharmaceutical agents in the United States and as providing
incomplete responses, especially on how it would make Taxol available and
how much it could supply annually.

Applicable law does not restrict the royalty rate NIH can negotiate in a
license agreement, although NIH*s model CRADA at the time of the Taxol
negotiations suggested that a ceiling be set at 5 to 8 percent. This
specification has since been removed, and the current model CRADA sets no
ceiling. By law, NIH is required to offer its CRADA partners the option

to choose an exclusive license for any inventions that arise from the
CRADA work. 28 NIH is not prohibited from specifying in the CRADA what the
royalty rate will be, rather than waiting until a subsequent license
agreement is negotiated. When NIH and BMS entered into the license
agreement 5 years after the

1991 CRADA took effect, how the parties viewed the benefits of an
agreement likely affected the royalty rate negotiations. NIH officials
indicated that they generally take eight factors into account in
negotiating royalty rates. These include the stage of product development,
the type of product, the market value of the product, the uniqueness of
the materials, the scope of the patent coverage, the market timing, NIH*s
contribution to the product, and the public health benefit. An NIH OTT
official reported that the ultimate determination of a royalty rate is not
the result of a neat formula but is based on a balancing of these factors,
with the public health benefit receiving the highest consideration. In
contrast, BMS officials told us that the company considers three factors
when negotiating royalty

rates: scientific risk, coverage, and exclusivity. In the case of Taxol, a
BMS official reported that the company determined it had high scientific
risk (i. e., it did not know if the inventions would be successful),
narrow coverage (i. e., the license was for very specific ways of treating
a tumor), and a lack of exclusivity (i. e., the treatment regimens BMS
licensed would not prevent other firms from marketing generic paclitaxel
after BMS*s

28 15 U. S. C. S: 3710a( b)( 1) (2000). License Negotiations

under the CRADA Resulted in Royalty Payments to NIH

Page 20 GAO- 03- 829 Technology Transfer in Taxol Development

period of marketing exclusivity expired), all making the inventions less
valuable.

In general, NIH*s leverage in negotiating royalty rates is affected by the
amount of competition for a license. In 2000, NIH*s director of OTT
testified that the vast majority of NIH inventions require active
marketing and more often than not only one firm is generally interested in
licensing any particular type of technology. 29 In fiscal year 2000, there
were 45 requests for exclusive licenses, and only 2 technologies had two
applications for licenses each. For nonexclusive license requests, there
were 253 requests, and only 31 had more than one application. NIH*s
director of OTT reported that, at that time, OTT had approximately 2,000
technologies available for licensing, 30 percent of which had been
available for more than 5 years. In the case of Taxol, it is not clear
whether other companies would have been interested in the inventions
developed out of the CRADA, as BMS had exclusive rights to market
paclitaxel at that time.

From the perspectives of NIH and BMS, the 1991 CRADA is an example of a
successful collaboration between the public and private sectors in
pharmaceutical technology transfer. Early studies supported by NIH on the
clinical effectiveness of Taxol and made available to BMS under the CRADA
were critical to BMS*s success in rapidly commercializing its brand- name
drug Taxol for the treatment of cancer. The additional supplies of the
scarce paclitaxel provided by BMS to NIH under the CRADA were critical for
the expansion of NIH*s research.

NIH*s goals in the technology transfer process emphasize public health
benefits over financial considerations. In the case of Taxol, the benefit
to public health was clearly demonstrated, as there were few treatments
for women with ovarian or breast cancer when Taxol came on the market.
However the financial return to NIH was more limited. NIH made a
substantial investment in the development of Taxol. In return, NIH
received royalty payments of about $35 million from its license agreement
with BMS, and received paclitaxel and financial support from BMS for the
CRADA research. We noted that the federal government has spent over half a
billion dollars in payments to health care providers for Taxol under the
Medicare program. In light of the significant federal investment,

29 Public Citizen v. NIH, at 54. Concluding

Observations

Page 21 GAO- 03- 829 Technology Transfer in Taxol Development

questions remain regarding the extent to which NIH used its broad
authority in its negotiations with BMS on the royalty payments and the
price of the drug to obtain the best value for the government. We provided
a draft of this report to NIH and BMS for their review. In its

comments, NIH provided us with additional information about its
expenditures related to the 1991 NIH- BMS CRADA and BMS*s contributions to
NIH research under the CRADA, and also presented the reasons that it did
not patent paclitaxel. NIH acknowledged that the 1991 CRADA did not
require that evidence be presented to assure that Taxol

was reasonably priced; however, NIH states that its analysis of other
information led it to conclude that Taxol was fairly priced. In response,
we have incorporated the new information from NIH into the report as
appropriate. However, we were not able to evaluate the basis for NIH*s
judgment that Taxol was fairly priced. NIH*s comments are included as
appendix IV. NIH also provided technical comments, which we have
incorporated as appropriate.

In its comments, BMS expressed concern that our estimates of NIH*s
expenditures for the development of Taxol gave an exaggerated view of
NIH*s spending. We have revised our presentation of NIH*s spending based
on additional information contained in NIH*s comments. BMS also expressed
two concerns about our analysis of the price of Taxol to Medicare relative
to other cancer drugs. First, BMS suggested that our analysis may include
payments to physicians for administering the drugs in addition to the
procurement price of the drugs. However, our analysis

considered only the prices for drug procurement and did not include
payments for physician services. Second, BMS suggested that our findings
may change if our analysis excluded generic drugs and was restricted to
brand name drugs. However, only 2 of the 12 comparison drugs in our
analysis are generic drugs and our findings do not change if they are
excluded. We found that, while Medicare generally pays more for cancer
drugs than other federal programs that can directly procure
pharmaceuticals, this price premium for Taxol is greater than average. BMS
also made technical comments, which we incorporated as appropriate. As we
agreed with your office, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 30 days from
the date of the report. At that time, we will send it to the Secretary of
Health and Human Services, the Director of NIH, and others who are
interested. Agency and BristolMyers Squibb

Company Comments and Our Evaluation

Page 22 GAO- 03- 829 Technology Transfer in Taxol Development

We will make copies available to others upon request. In addition, the
report will be available at no charge on GAO*s Web site at http:// www.
gao. gov.

If you or your staff have any questions about this report, please call me
at (202) 512- 7119. Another contact and key contributors are listed in
appendix V. Sincerely yours,

Marcia Crosse Acting Director, Health Care* Public

Health and Science Issues

Appendix I: Selection of *Clinical Development of Taxol* CRADA Partner

Page 23 GAO- 03- 829 Technology Transfer in Taxol Development

On August 1, 1989, NIH published a notice in the Federal Register seeking
a pharmaceutical company that could effectively pursue the clinical
development of paclitaxel for the treatment of cancer. Included in the

Federal Register announcement were nine criteria for the selection of the
CRADA partner:

 Experience in the development of natural products for clinical use. 
Experience in preclinical and clinical drug development.  Experience in
and ability to produce, package, market, and distribute

pharmaceutical products in the United States and to provide the product at
a reasonable price, and experience in doing so.  Experience in the
monitoring, evaluation, and interpretation of the data

from investigational agent clinical studies under an investigational new
drug application.  Willingness to cooperate with the Public Health
Service in the collection, evaluation, publication, and maintaining of
data from clinical trials of

investigational agents.  A willingness to cost- share in the development
of paclitaxel, including the

acquisition of raw material and isolation or synthesis of paclitaxel in
adequate amounts as needed for future clinical trials and marketing. 
Establishment of an aggressive development plan, including appropriate

milestones and deadlines for preclinical and clinical development.  An
agreement to be bound by the HHS rules involving human and animal

subjects.  Provision for equitable distribution of patent rights to any
inventions.

NIH*s Taxol CRADA Review Committee met on October 10, 1989, to review the
applications of the four potential CRADA partners. The committee scored
BMS*s application substantially higher than all of the others, with none
of the other applications receiving a higher score than BMS on any of the
individual criteria. Some of the strengths of the BMS application that
were discussed were BMS*s extensive experience with natural products, its
impressive record in the area of production of anticancer agents and
substantial experience in preclinical drug development, and its bearing of
financial responsibility for collection of the compound and preclinical
toxicology studies. Weaknesses discussed were pricing and the estimates of
available paclitaxel. The applicant receiving the second- highest score
was cited as having no experience in the United States for natural
products and no experience in developing drugs in the United States.
Appendix I: Selection of *Clinical

Development of Taxol* CRADA Partner

Appendix II: Catalog of CRADAs and License Agreements Related to Taxol

Page 24 GAO- 03- 829 Technology Transfer in Taxol Development

NIH has had four CRADAs and one CRADA amendment related to paclitaxel (see
table 2). Two of the CRADAs and the CRADA amendment were with BMS and
concerned development of the drug Taxol. One CRADA was with Rhone- Poulenc
Rorer (now Aventis) and involved research on Taxotere, a part of the
taxane class of chemotherapy drugs, whose original source is the yew tree.
It is also a treatment that can help destroy cancer cells in the body
after previous chemotherapy. An additional CRADA, which is ongoing, is
with Angiotech and the Johns Hopkins University and involves the use of
paclitaxel to coat stents used in angioplasty. Table 2: CRADAs Related to
Taxol

CRADA number Title Partners Active dates

64 Clinical Development of Taxol NCI and BMS 1/ 23/ 91 to 12/ 31/ 97 97
(amendment to 64) Clinical Development of

Taxol: Studies on Mechanisms of Action and Resistance, Identification of
Analogs Active in Resistant Cell Lines

NCI and BMS 7/ 17/ 95 to 12/ 31/ 97 686 Taxol: Studies on the

Mechanisms of Action and Resistance

NCI and BMS 6/ 9/ 98 to 6/ 9/ 01 148 CRADA for the Clinical

Development of Taxotere NCI and RhonePoulenc

Rorer 5/ 14/ 92 to 3/ 1/ 00

363 Use of Paclitaxel and Microtubule- Stabilizing Agents for the

Prevention of Restenosis NIH, Angiotech, and the Johns

Hopkins University Currently active

Source: NIH.

Although paclitaxel itself has not been patented, methods of
administration of the drug have been patented. There are a few patents
pertaining to paclitaxel (see table 3). The government has an interest in
three of these patents: 5496804, 5496846, and 6150398. Patent 5496804 is
for a method for treating paclitaxel side effects with G- CSF (granulocyte
colony- stimulating factor); patent 5496846 is a method for using
paclitaxel in a 96- hour infusion for breast cancer; and patent 6150398 is
for a method of treating cancer by administration of paclitaxel and a DNA
cross- linking antineoplastic agent (cisplatin). Patents 5641803 and
5670537 are held by BMS solely. One is a method for administering Taxol
over 3 hours, and the Appendix II: Catalog of CRADAs and License

Agreements Related to Taxol

Appendix II: Catalog of CRADAs and License Agreements Related to Taxol

Page 25 GAO- 03- 829 Technology Transfer in Taxol Development

other is for a method of effecting tumor regression with a low- dose,
shortinfusion Taxol regimen.

Table 3: Patents Related to Taxol Patent number Title Assignee Date

approved

5496804 Method for Treating Taxol Side Effects with G- CSF Department of
Health and Human Services

3/ 5/ 1996 5496846 Taxol Treatment of Breast Cancer Department of

Health and Human Services

3/ 5/ 1996 5641803 Methods for Administration of Taxol Bristol- Myers

Squibb Co. 6/ 24/ 1997 5670537 Method for Effecting Tumor

Regression with a Low- Dose, ShortInfusion Taxol Regimen

Bristol- Myers Squibb Co. 9/ 23/ 1997

6150398 Methods for the Treatment of Cancer Department of Health and Human
Services

11/ 21/ 2000 Source: U. S. Patent and Trademark Office.

NIH has one exclusive patent license agreement with BMS that resulted from
CRADA 64, *Clinical Development of Taxol.* This license agreement covers
three patents: 5496804, 5496846, and 6150398.

In addition, BMS and FSU established a major license agreement concerning
the semisynthetic production of Taxol. Other NIH CRADAs involving the
other industry partners (i. e., Rhone- Poulenc Rorer, Angiotech, and the
Johns Hopkins University) did not result in any patented inventions or
license agreements.

Appendix III: Chronology of the Research and Development of Taxol
(Paclitaxel)

Page 26 GAO- 03- 829 Technology Transfer in Taxol Development

 The National Cancer Institute (NCI) initiates the Natural Products
Program to screen 35,000 plant species for anticancer activity. 
Researchers at Research Triangle Institute in North Carolina find that an

extract from the bark of the Pacific yew tree has antitumor activity. 
Researchers at Research Triangle Institute identify compound 17*

paclitaxel* the active ingredient in the Pacific yew tree.  Researchers
at Albert Einstein College of Medicine discover how

paclitaxel works to prevent cell division, by means of a mechanism called
tubulin stabilization.  Stevenson- Wydler Technology Innovation Act and
Bayh- Dole Act enacted.  NCI files an investigational new drug
application (IND) to initiate clinical

trials of paclitaxel. IND is approved, and phase 1 clinical trials begin.
 NCI begins phase 2 clinical trials.  Federal Technology Transfer Act
enacted.  Hauser Chemical becomes contractor to NIH, collecting yew tree
bark and

manufacturing paclitaxel.  Researchers at Florida State University (FSU),
funded by NIH, patent a

process for the semisynthesis of Taxol.  NCI publishes a Federal Register
announcement petitioning

pharmaceutical companies to compete for the right to develop paclitaxel.
Four companies, including Bristol- Myers Squibb (BMS), apply.  FSU and
BMS sign a license agreement for BMS*s use of the semisynthesis

process. Appendix III: Chronology of the Research

and Development of Taxol (Paclitaxel) 1958 1963 1971 1979 1980 1983

1985 1986 1987

1989 1990

Appendix III: Chronology of the Research and Development of Taxol
(Paclitaxel)

Page 27 GAO- 03- 829 Technology Transfer in Taxol Development

 NCI signs CRADA with BMS for the clinical development of paclitaxel. 
U. S. Patent and Trademark Office approves BMS*s application to

trademark the name Taxol.  BMS files a new drug application (NDA) with
FDA for use of Taxol to treat

ovarian cancer.  BMS obtains FDA approval in December for treatment of
patients with

metastatic carcinoma of the ovary after failure of first- line or
subsequent therapy.  Pacific Yew Act enacted (Pub. L. No. 102- 335, 106
Stat. 859).

 BMS introduces Taxol into the marketplace for treatment of ovarian
cancer.  BMS files supplemental NDAs with the FDA, one for further
defining the

optimal dose and schedule of the administration of Taxol, another for use
of paclitaxel as a secondary therapy for breast cancer.

 BMS obtains FDA approval in April for treatment of breast cancer after
failure of combination chemotherapy for metastatic disease or relapse
within 6 months of adjuvant chemotherapy. Prior therapy should have
included an anthracycline unless clinically contraindicated.  BMS obtains
FDA approval in June for new dosing regimen for patients

who have failed initial or subsequent chemotherapy for metastatic
carcinoma of the ovary.  FDA approves supplemental NDA for semisynthetic
production of Taxol

by using the process developed by FSU.  NCI and BMS CRADA extended
through December 1997.  NIH is awarded patents for Taxol Treatment of
Breast Cancer and Method

for Treating Taxol Side Effects with G- CSF.  NIH and BMS sign license
agreement, whereby NIH provides BMS with

exclusive rights to three NCI inventions involving Taxol. BMS is required
to provide NIH with royalty payments and research support, and meet
benchmarks for the clinical development of Taxol.  NIH begins to receive
royalty payments from BMS. 1991

1992 1993 1994

1996

Appendix III: Chronology of the Research and Development of Taxol
(Paclitaxel)

Page 28 GAO- 03- 829 Technology Transfer in Taxol Development

 BMS obtains FDA approval in August for second- line therapy for
AIDSrelated Kaposi*s sarcoma.  Other drug companies begin developing
generic versions of paclitaxel and

file NDAs and abbreviated new drug applications with FDA.  BMS obtains
FDA approval in April for first- line therapy for the treatment

of advanced carcinoma of the ovary in combination with cisplatin.  BMS
obtains FDA approval in June for use of Taxol injection, in

combination with cisplatin, for the first- line treatment of non- small-
cell lung cancer in patients who are not candidates for potentially
curative surgery and/ or radiation therapy.

 BMS obtains FDA approval in October for adjuvant treatment of
nodepositive breast cancer administered sequentially to standard
doxorubicincontaining combination chemotherapy.

 First generic version of paclitaxel approved in September.  Generic
versions of paclitaxel enter the marketplace.

 BMS obtains FDA approval in June for new dosing regimen for the
firstline treatment of advanced ovarian cancer: every 3 weeks at a dose of
175 milligrams per square meter of body surface followed by cisplatin at a

dose of 75 mg/ m 2 . 1997

1998 1999 2000 2002

Appendix IV: Comments from the National Institutes of Health Page 29 GAO-
03- 829 Technology Transfer in Taxol Development

Appendix IV: Comments from the National Institutes of Health

Appendix IV: Comments from the National Institutes of Health Page 30 GAO-
03- 829 Technology Transfer in Taxol Development

Appendix IV: Comments from the National Institutes of Health Page 31 GAO-
03- 829 Technology Transfer in Taxol Development

Appendix IV: Comments from the National Institutes of Health Page 32 GAO-
03- 829 Technology Transfer in Taxol Development

Appendix IV: Comments from the National Institutes of Health Page 33 GAO-
03- 829 Technology Transfer in Taxol Development

Appendix IV: Comments from the National Institutes of Health Page 34 GAO-
03- 829 Technology Transfer in Taxol Development

Appendix V: GAO Contact and Staff Acknowledgments

Page 35 GAO- 03- 829 Technology Transfer in Taxol Development

Martin T. Gahart, (202) 512- 3596 Other key contributors to this report
are Helen Desaulniers, Anne Dievler, Julian Klazkin, Carolyn Feis Korman,
Carolina Morgan, and Roseanne Price. Appendix V: GAO Contact and Staff

Acknowledgments GAO Contact Acknowledgments

(290243)

The General Accounting Office, the audit, evaluation and investigative arm
of Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability of
the federal government for the American people. GAO examines the use of
public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO*s commitment to
good government is reflected in its core values of accountability,
integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no cost
is through the Internet. GAO*s Web site (www. gao. gov) contains abstracts
and fulltext files of current reports and testimony and an expanding
archive of older products. The Web site features a search engine to help
you locate documents using key words and phrases. You can print these
documents in their entirety, including charts and other graphics.

Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as *Today*s Reports,* on its
Web site daily. The list contains links to the full- text document files.
To have GAO e- mail

this list to you every afternoon, go to www. gao. gov and select
*Subscribe to daily E- mail alert for newly released products* under the
GAO Reports heading.

The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent of
Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
copies mailed to a single address are discounted 25 percent. Orders should
be sent to: U. S. General Accounting Office 441 G Street NW, Room LM
Washington, D. C. 20548 To order by Phone: Voice: (202) 512- 6000

TDD: (202) 512- 2537 Fax: (202) 512- 6061

Contact: Web site: www. gao. gov/ fraudnet/ fraudnet. htm E- mail:
fraudnet@ gao. gov Automated answering system: (800) 424- 5454 or (202)
512- 7470 Jeff Nelligan, Managing Director, NelliganJ@ gao. gov (202) 512-
4800

U. S. General Accounting Office, 441 G Street NW, Room 7149 Washington, D.
C. 20548 GAO*s Mission Obtaining Copies of

GAO Reports and Testimony

Order by Mail or Phone To Report Fraud, Waste, and Abuse in Federal
Programs Public Affairs
*** End of document. ***