Dec 7 (Reuters) - The Biden Administration on Thursday announced it is setting new policy that will allow it to seize patents for medicines developed with government funding if it believes their prices are too high.

The policy creates a roadmap for the government's so-called march-in rights, which have never been used before. They would allow the government to grant additional licenses to third parties for products developed using federal funds if the original patent holder does not make them available to the public on reasonable terms.

Under the draft roadmap, seen by Reuters, the government will consider factors including whether only a narrow set of patients can afford the drug, and whether drugmakers are exploiting a health or safety issue by hiking prices.

"We'll make it clear that when drug companies won't sell taxpayer funded drugs at reasonable prices, we will be prepared to allow other companies to provide those drugs for less," White House adviser Lael Brainard said on a press call.

The U.S. government has previously resisted calls to seize the patents of costly drugs, declining in March to force Pfizer (PFE.N) and Astellas Pharma (4503.T) to lower the price of their prostate cancer drug Xtandi.

The government will give the public 60 days to comment on the new proposal before attempting to finalize it.

Vanderbilt University professor Stacie Dusetzina said the new policy could discourage investment in the industry if the government ever exercised march-in rights, but might be "useful to have a credible threat if the industry is being completely unreasonable."

Megan Van Etten, a spokesperson for the leading pharmaceutical industry lobby group PhRMA, said allowing the government to use march-in rights based on price would stunt innovation and harm patients.

“The Administration is sending us back to a time when government research sat on a shelf, not benefiting anyone,” she said.

March-in rights were introduced as a safeguard in the Bayh-Dole Act of 1980, which allows the inventors to retain ownership of inventions or products developed with public funds and hold patents.

Under Bayh-Dole, the National Institutes of Health (NIH) has the power to seize patents of federally-funded medicines, but the agency's former director Francis Collins said it did not have the authority to use march-in rights to lower drug prices.

In her first briefing with reporters on Wednesday, recently confirmed NIH Director Monica Bertagnolli said she shared concerns over high drug prices.

"What I will affirm over and over is that I will use every tool I possibly can with the goal of obtaining the access that our patients need. March-in, if I am to ever apply that, it will be according to principles that allow it to really achieve that specific aim."

Progressive lawmakers in the Democratic Party have this year heaped criticism on drugmakers that developed therapies with government funding, and called on President Joe Biden's administration to use its march-in authority to lower drug prices.

In March, Moderna (MRNA.O) CEO Stephane Bancel was called to testify in Congress after the company flagged plans to raise the price of its COVID-19 vaccine to as much as $130 per dose, drawing the ire of Democratic U.S. Senator Bernie Sanders. The U.S. vaccine maker's Spikevax shot was developed with the help of government funding.

Joseph Allen, who had been a staffer for Senator Birch Bayh and is now director of lobbying group The Bayh-Dole Coalition, said Congress could challenge the new policy if found to be incompatible with the law.

Reporting by Patrick Wingrove Editing by Bill Berkrot