AEI Believes Advantages of Longer Data Exclusivity Period Outweigh Disadvantages

    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).

Comments

[Kevin Outterson]

If Congress grants any data/market exclusivity for FOBs, we should explore full data disclosure for safety and efficacy, including the full package delivered to the FDA. Early disclosure of this information would allow public vetting of safety and efficacy data, with free riding prevented through marketing exclusivity.

On the issue of funded research, you identify the "Teva-funded white paper" but not Grabowski's funding. You describe AEI and Calfee as "nonpartisan" but there is no doubt that Calfee's work has been pro-PhRMA with significant industry support. Apply the same standard to everyone in the article.

[Donald Zuhn]

Kevin:

With regard to funding, I identified Mr. Brill's white paper as being funded by Teva because the paper itself states so. In addition, Patent Docs provided a separate report on Mr. Brill's paper back in November when it came out (http://www.patentdocs.org/2008/11/white-paper-from-former-house-ways-and-means-economist-finds-7year-data-exclusivity-period-to-be-suf.html). You may be interested to know that Mr. Brill is himself an AEI Research Fellow (http://www.aei.org/scholar/123).

As for the AEI, I described that organization as a "nonpartisan public policy" group because that's how the AEI describes itself on its own website (http://www.aei.org/about). In addition, unlike Mr. Brill's paper, Mr. Calfee's paper does not indicate that it was supported by funding from an entity other than the AEI (if you have evidence to the contrary, we would be happy to report on it).

Finally, with respect to the Grabowski study, you are correct in pointing out that Prof. Grabowski's research was supported in part by a grant from the Pharmaceutical Research and Manufacturers of America (PhRMA) (as well as a grant from the Duke University Program in Pharmaceuticals and Health Economics). However, it should be noted that our reports on Mr. Calfee's and Mr. Brill's papers were about the substance and conclusions of those papers and not Prof. Grabowski's paper (i.e., our reports refer to Mr. Calfee's and Mr. Brill's comments about the Grabowski paper).

One other distinction between the three papers merits consideration: only Prof. Grabowski's paper was published in a peer-reviewed journal.

Don