The Strength and Importance of Government-Funded Patents for Approved Drugs

Publication Date

7-15-2025

Abstract

The US National Institutes of Health (NIH) has an annual budget of about $50 billion that it invests predominantly in basic or translational biomedical research, an investment that is essential in the discovery of new drugs, with previous studies estimating that 99.4% of new drugs approved from 2010 to 2019 can be linked to NIH funding1. But NIH funding can also contribute to the later stages of drug development2, in some cases leading to a new product or method of treatment that is patentable3. The NIH RePORTER database contains references to 42,053 issued US patents based on NIH-funded grants from 27 November 1979 to 30 May 2023 (ref. 4). These patents are typically obtained by NIH scientists or NIH-funded investigators at public sector research institutions or universities. Other streams of government funding for pharmaceutical innovation come, for example, from the US Department of Veterans Affairs and Department of Defense. Patents arising from government funding must include a statement indicating that the invention has been made with government support awarded by a federal agency5.

Patents linked to promising investigational drugs are then licensed to drug manufacturers that complete further testing; obtain US Food and Drug Administration (FDA) approval; and manufacture, commercialize and distribute the drugs. However, not all drug patents are created equal. “Primary” patents, covering the active ingredient, are hard to invalidate when challenged by competitors. By contrast, “secondary” patents, usually protecting different drug formulations or manufacturing processes or even methods of use, are easier to design around or overturn in court6. Another marker of a patent’s importance or strength is whether the manufacturer selected it to receive a patent term extension. Under the Hatch-Waxman Act, each new drug product can be awarded up to five more years of term on one patent, which compensates the patentee for the loss of patent term caused by the testing and approval process needed for FDA approval. Drug manufacturers can choose only one patent per drug to earn this benefit, meaning that patents with a patent term extension tend to be strong and valuable patents that are less likely to be overturned in subsequent litigation7.

There has been controversy over how to manage the availability of drugs with patents derived from government funding. For example, the Biden administration proposed that the government consider whether such drugs are excessively priced and potentially leverage the government’s patent interest to seek more reasonably priced alternatives for patients, but the pharmaceutical industry has argued that such steps might undermine innovation. To inform such debates, we investigated the strength and contribution of government-funded patents to approved drugs.

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