Biologics: The Case for 13 or More Years of Data Exclusivity

03/18/2010 05:12 am ET | Updated May 25, 2011
  • Pat Choate Economist, author and public policy commentator

Policymakers on all sides of the health-care debate agree that the United States leads the world in quality of care. Nearly every major disease is more treatable and manageable today thanks to innovative drugs, technologies and procedures. And the future promises new medicines that are even more effective because they're more targeted - combating chronic disease more precisely and with fewer side effects.

The United States will only realize this potential and remain the global leader in medical innovation if we maintain a strong environment for investment in the newest wave - biopharmaceuticals, also known as biologics. These extremely complex drugs are derived from biological processes, as opposed to more straightforward chemical compounds that yield conventional drugs. Biologics are leading the way in treating cancer, diabetes, cystic fibrosis, multiple sclerosis, and a host of other diseases.

Success in developing biologics is costly, time consuming, and marked by failure. Biologics typically take nine years and cost more than a billion dollars to develop. As a result, the price for these treatments tends to be higher than for conventional drugs because investors and manufacturers have a larger gap to clear before they break even.

Since the passage of the Hatch-Waxman Act in 1984, policymakers have given innovative drug manufacturers an extended period of time during which they are the sole manufacturer of a product, so they can earn back their investment and generate a return to spur further innovation. In addition to patent protection, Hatch-Waxman allows a period of data exclusivity, during which a drug innovator maintains proprietary access to data that led to the approval of its drug, before that data has to be made available to generic imitators.

Despite the heavy investment required to bring biologics to market, some in Washington are now advocating that Members of Congress adopt a 10-year period of data exclusivity against decisive and bipartisan votes in Senate and House Committees for 12 years. Proponents of short data exclusivity - or none at all - argue that patent protections alone can ensure adequate returns to innovators and investors, and that the production of follow-on biologic drugs, or "biosimilars," would mean cost savings for consumers.

Yet this isn't the case. Because of lengthy drug-development and patent-approval processes, patent protections usually don't run simultaneously with FDA approval, which means a new drug could be off-patent shortly after hitting the market. The real result would be less investment, fewer new biologics, and worsened care for patients.

What's needed is a process that keeps patients safe, preserves and creates jobs, drives continuous opportunities for innovation and provides for a robust and responsible pathway for FDA approval of biosimilars - one that assures the safety and effectiveness of follow-on drugs while codifying a period of data exclusivity that allows biologic innovators and investors to earn a return.

Venture capital flowing to the biotechnology sector has already declined by 75 percent over the past year. So how can we encourage more investment in breakthrough research necessary to combat the world's most pressing medical challenges?

Duke University economist Henry Grabowski analyzed the costs and market outlook for biologics and determined that breaking even on a new biologic requires a data exclusivity period of between 13 and 16 years. Anything significantly less than that, and we run the risk of stalling drug innovation by pushing investment toward biosimilars rather than catalyzing investment in new drugs or new uses for existing drugs.

Dr. Grabowski notes that the negative impact would be especially pronounced for smaller biotech firms, which rely heavily on venture capital and employ upwards of 40 percent of biotech workers.

Since medical innovation is a bedrock of economic growth and high quality American health-care, the ultimate issue that U.S. policymakers face is whether they want to encourage greater investment in new drugs and therapies, assure that the United States remains the world's leader in this exploding field, develop more and better medicines for patients everywhere, and create tens of thousands of new jobs here. If so, what they need to do is clear.