Source: Taiga Biotechnologies, Inc.
How long should biologics enjoy protection from competition? That hotly debated question in Congress has produced a wide range of opinions, from 5, 7 to 12 years. While some Congresspeople favor a 5 year period, Howard Dean, the National Venture Capital Association, and Senator Edward Kennedy all support 12 or more years of data exclusivity for biologics, and the Obama administration has proposed a 7 year compromise,. The 12 year proposal (Kennedy's is 13.5 years) seems to be gaining traction. This time period implicates innovation, drug costs, and competition.
Biologics are strong, highly targeted drugs produced from living tissues and organisms. They are not chemically derived or produced. Applications include cancer, rheumatoid arthritis, and psoriasis. Biologics are very expensive, with costs averaging $200,000 per patient.
The length of data exclusivity determines how long a company producing a follow-on biologic, or biosimilar, must wait before using the biologic producer's clinical data to support its FDA application for approval of a follow-on biologic. Biosimilars are not the equivalent of generic versions of branded drugs. Biosimilars are not identical to the biologic because no two cell or tissues lines, developed separately, can be identical.
Innovation, Drug Costs And Competition
1. The Case For Longer Data Exclusivity
Patented biologics enjoy 20 years of protection. However, pharmaceutical companies typically spend 6 or 8 years on clinical trials and the FDA approval process, effectively reducing the period of patent protection to 12 to 14 years. Under the different bills under consideration, if a company's patent were successfully challenged the biologic would still enjoy protection from competition until expiration of the data exclusivity period. This is part of the reasoning behind the 12 year exclusivity proposal.
Proponents of a longer exclusivity period argue that protection gives biotech companies the incentive to innovate. Without such protection, companies will have little incentive to undertake the lengthy and risky clinical trial and FDA approval, and then face competition from biosimilars. Data exclusivity is particularly important to biologics because (1) the patent system provides inadequate protection, and (2) the payback period for the investment is between 13 and 16 years. An American Enterprise Institute report contains a detailed analysis of competition and data exclusivity for biologics.
2. The Case For Shorter Data Exclusivity
In contrast, proponents of a shorter exclusivity period points to benefits including lower drug prices and cost savings to patients. The Federal Trade Commission recently concluded that biosimilars would be priced 10 to 30 percent below biologics, resulting in cost savings of more than $40 billion per year. While follow-on biologics may reduce costs to the health care system and society, a drop in price from $50,000 to $40,000 means little to a patient who cannot afford the drug even at the lower price.
In supporting a 7 year exclusivity period, the FTC report pointed out important differences between follow-on biologic competition and branded/generic drug competition. Among the differences the report cites are:
- The high costs to obtain FDA approval for follow-on biologics, plus the high costs to build manufacturing capacity, will limit competition from follow-on biologics;
- The lack of complete substitution between a follow-on biologic drug and a pioneer biologic drug will make it difficult for follow-on biologics to acquire market share;
- Follow-in biologics may have difficulty gaining market share because of concerns about safety and efficacy differences with the pioneer biologic drug;
- Pioneer manufacturers are expected to respond and offer competitive discounts to maintain market share and are likely to retain 70 to 90 percent of their market share and will continue to reap substantial profits, even after follow-on biologic entry.
If correct, these differences strongly suggest that 12 years of exclusivity may be unnecessary. Genentech, a major manufacturer of biologics, also cites safety and efficacy as concerns about follow-in biologics. The structure of competition between biologics and biosimilars may provide sufficient protection and incentives for the pioneer manufacturers.
Data Exclusivity In The E.U. Is Eight Years
It is worth noting that the exclusivity period for biologics is shorter in other countries. In the European Union, the exclusivity period is 8 years for data, 2 years of marketing, and 1 year for new medical indications. A 12 year data exclusivity period in the U.S. means that biotech companies would enjoy high profit margins for longer, while prices would be higher for longer. To the extent that a universal health care system would cover biologics, that means taxpayers pay for the exclusivity period.
This difference raises the question of why a longer exclusivity period should be longer in the United States. Let's put aside political explanations aside for the moment. Is there something different about the health care, competitive or patent environment in the E.U. such that 8 years of data exclusivity makes sense? Or do the Europeans have it wrong?
Douglas Y. Park
Twitter: @DougYPark
