By
Donald Zuhn —

In
a paper published earlier this month, David Adelman and Christopher Holman assert
that in the debate on follow-on biologics legislation, "the controversy over
regulatory 'data exclusivity' is
a sideshow."  The authors
argue that policymakers should instead "focus on mitigating the systemic
barriers to entry that pose much greater and longer-term obstacles to
lower-cost biotech drugs." 
Dr. Adelman (at right)
the Harry Reasoner Regents Chair in Law at the University of Texas School of
Law, and Dr. Holman (below left), Associate Professor of Law at the University of
Missouri-Kansas City School of Law (and author of Holman's Biotech IP blog),
discuss these assertions in a paper entitled "Misplaced Fears in the
Legislative Battle Over Affordable Biotech Drugs."

The
authors begin with several observations regarding data exclusivity.  First, they note that "data
exclusivity would neither create restrictions on the use of the [biologic]
itself, nor would it preclude FOB makers from conducting their own studies to
obtain FDA approval."  Next,
the authors note that the inclusion of a twelve-year data exclusivity period in both
the House and Senate health care bills was "driven by concerns that patent
protection is less effective for biotech drugs than it is for conventional
drugs."  While acknowledging
that "[p]revailing uncertainties provide grounds for and against Congress
legislating a twelve-year term of data exclusivity for biotech drugs," the
two professors contend that:

What is unequivocal, though, is that
the effects either way on health care expenditures would be modest.  According to a 2007 estimate by the
Congressional Budget Office, establishing an abbreviated FDA approval process
for FOBs would reduce national spending on prescription drugs by just 0.5
percent over the first ten years of the program.  The impact of a shortened data exclusivity period would be a
fraction of this estimate, since competitive market entry by FOBs would still
face [] barriers to market entry . . . 
.  Overall the health care
savings would be nominal, as drugs account for only about ten percent of total
health care expenditures in the United States.

As
a result, the authors conclude that "on balance, the potential benefit to
patients that might result from a shortened period of data exclusivity for
innovators is outweighed by the financial risks to the biotech industry, and
particularly the negative impacts on investments in research and development."

Regarding
the limitations of the patent system for biologics, the paper points to the
complexity of biologics as creating two mutually reinforcing problems for
innovators.  First, "[t]he
size and complexity of biotech drugs affords competitors many molecular degrees
of freedom, which opens [u]p many opportunities to design around an original
innovator's patents."  Second,
"the scientific uncertainties surrounding the relationship between changes
in structure and protein function bounds the original inventors' capacity to
draft and support broad patent claims."  The paper next focuses on the limited success innovators
have had in enforcing biologic patents, particularly composition-of-matter
patents.  The authors note,
interestingly, that:

The history of cases involving
enforcement of composition-of-matter patents on biotech drugs paints a
decidedly negative picture.  There
does not appear to be a single appellate-level decision in which a patent on
the active ingredient of a biotech drug has been found valid and infringed.

According
to the authors, the problems associated with securing broad biologic patent
protection and then enforcing such patents means that "[a]n abbreviated
FDA approval process could permit FOB producers to have their cake and eat it."  In other words, generic manufacturers
"could benefit not only from the research conducted by the original
innovator but also from its clinical data to gain rapid, low-cost FDA approval
— and all while circumventing the patent on the active ingredient."

For
the authors, the real obstacle to low-cost follow-on biologics is not a
twelve-year data exclusivity period, but rather barriers to entry that would
prevent follow-on biologics from reaching the market even after patent and data
exclusivity protection expires. 
For example, the paper notes that:

Recent studies have developed models to
estimate the number of FOB producers and price reductions of biologics once FOB
entry occurs.  Using conservative
R&D costs assumptions for drugs with mid-level markets (i.e., ~$500 million
annually), one study estimated that the average number of FOB entrants would be
just two, as opposed to nine for traditional drugs, and that on average FOB
prices would remain at eighty-two percent of the brand price.

The
authors argue that if such numbers turn out to be accurate, "this
translates into a negligible impact on total health care costs, as biotech
drugs generate about fourteen percent of the total revenues for
pharmaceuticals, which in turn account for only about ten percent of total
health care costs."  More
importantly, the authors argue that "[t]he low sensitivity of aggregate
health care expenditures to the presence or absence of a data exclusivity term
contrasts the heavy reliance of biotech drug makers on profits from successful
drugs."  The paper also contends
that:

Limiting the term of data exclusivity
could also be counterproductive for everyone.  Although counterintuitive, safeguarding high short-term
profits through a twelve-year data exclusivity term stands to mitigate the
difficulties of balancing innovation and patient access.  Owing to the huge upfront costs of drug
development, the optimal temporal profile of drug prices arguably favors high
initial prices followed by a dramatic drop after patent protection (or data
exclusivity) ends.

The
authors conclude the paper by stating that:

[W]e find reasonable grounds for a
twelve-year term of data exclusivity for biotech drugs, but this issue is
ultimately secondary.  The most
important problem to address is the multiple barriers to entry of FOB
manufacturers.  Designing effective
policies to overcome them warrants much greater attention and careful economic
analysis, as reducing barriers to entry holds out the promise of dramatically
lowering prices of biotech drugs over the long run.

Additional information regarding Dr. Adelman's and Dr. Holman's article can be found on Holman's Biotech IP blog.