By Donald Zuhn —

In a follow-on biologics report that has received widespread media attention, the Federal Trade Commission concluded last week that a 12-14 year data exclusivity period was not needed to promote innovation by pioneer biologics companies (see "No One Seems Happy with Follow-on Biologics According to the FTC").  The FTC's conclusion was significant in that it directly conflicts with the conclusion reached in a number of prior economic studies, including that of Duke University economist Henry Grabowski in a paper published in May 2008 in Nature Reviews Drug Discovery (see "Follow-on biologics: data exclusivity and the balance between innovation and competition").  In his paper, Prof. Grabowski determined that it takes between 12.9 and 16.2 years for an innovator to generate profits for a given biologic.  Other studies, however, have leaned more towards the FTC's conclusion.  For example, last November, a Teva-funded white paper determined that a 7-year data exclusivity period would be sufficient (see "Former House Ways and Means Economist Claims 7-Year Data Exclusivity Period Is Sufficient").

In a report issued by the American Enterprise Institute for Public Policy Research (AEI), the nonpartisan public policy group has indicated that longer data exclusivity periods would provide the more prudent approach (see "When Patents Are Not Enough:  Data Exclusivity for Follow-On Biologics").  The report, authored by John Calfee (at left), begins by noting that "[w]ithout a patent  system and the temporary protection from competition by imitators it provides, developers of new drugs would have little prospect of collecting the profits necessary to motivate innovative research."  However, echoing the title of his report, Mr. Calfee states that "the patents undergirding biologics are often more complex and subject to changing legal standards," and are "therefore more susceptible to legal challenge than patents for small-molecule drugs."  As a result, he argues that for biologics, a market dynamic is created "in which generic manufacturers can observe research on a promising biologic and, if the drug finally meets success and obtains FDA approval, quickly launch patent challenges, which, if successful, would open the door to competition from nonpioneer products."  Thus, he predicts that early patent challenges and early follow-on entry would have obvious adverse consequences for R&D investment.

Mr. Calfee's report states that "[g]iven the stakes — a substantial amount of future R&D hangs in the balance — Congress should exercise an abundance of caution in designing follow-on biologic legislation so as not to endanger valuable future research."  Not surprisingly, the report considers the problem of setting an appropriate data exclusivity period to be the primary issue requiring Congress' attention.  In analyzing the problem, the report notes that the European biosimiliar regulatory pathway provides for ten years of data exclusivity, with an additional year for new indications approved within eight years of initial approval.  The report also notes that for patented small molecule therapeutics, "the research-intensive pathway to FDA approval tends to leave perhaps ten to twelve years of postapproval patent life."  The report also cites Prof. Grabowski's 12.9 to 16.2 year payback estimates, stating that "[s]uch results might serve as a guide to a suitable period of data exclusivity."  While acknowledging that Prof. Grabowski's calculations involve "numerous assumptions about the cost of capital, profit margins, and prices after the first follow-on enters the market," and therefore could "easily" be off by 30 to 40%, Mr. Calfee ultimately concludes that "the social losses from providing for fairly long exclusivity periods (twelve to fourteen years) would be small compared to what are likely to be substantial social gains from exclusivity."  While the AEI report does not advocate for a particular data exclusivity period, the above statement suggests that the AEI would find favor with the 14-year period specified in the follow-on biologics bill (H.R. 154) introduced by Rep. Anna Eshoo (D-CA).