By Donald Zuhn --
In a hearing on follow-on biologics held earlier this week, the House Subcommittee on the Courts and Competition Policy heard testimony from seven witnesses including Rep. Anna Eshoo (D-CA), economist Alex Brill, Momenta Pharmaceuticals General Counsel Bruce Leicher, and representatives from the National Venture Capital Association (NVCA), Biotechnology Industry Organization (BIO), U.S. Public Interest Research Groups (USPIRG), and American Intellectual Property Law Association (AIPLA). On Tuesday, we discussed Rep. Eshoo's written testimony (see Part I); today, we examine Mr. Brill's written testimony.
Mr. Brill should be somewhat familiar to Patent Docs readers. Last fall, the former chief economist to the House Ways and Means Committee released a white paper asserting that a follow-on biologics regulatory pathway providing a data exclusivity period of seven years would be "sufficient for maintaining strong incentives to innovate while fostering a competitive marketplace" (see "Former House Ways and Means Economist Claims 7-Year Data Exclusivity Period Is Sufficient"). And this past June, Mr. Brill, who is a Research Fellow at the American Enterprise Institute, wrote a commentary appearing on Forbes.com in which he addressed the issue of patent reform (see "Former House Economist Sets Sights on Inequitable Conduct 'Reform'" and "A Response to Mr. Brill, and a Modest Proposal Regarding Inequitable Conduct").
In his written testimony to the House Subcommittee, Mr. Brill (at right) began by stating that "[a] properly designed pathway for biogeneric entry will, over time, lead to additional market entrants, lower prices, increased access to drugs and a few billion dollars a year in reduced spending." He reminded the Subcommittee that a properly designed follow-on biologics regulatory pathway must provide "adequate incentives for innovative drug companies to undertake the risk and expense of developing new drugs." However, Mr. Brill warned the Subcommittee against establishing an "[e]xcessive exclusivity that needlessly blocks competition," since such a data exclusivity period would constitute a "government built monopoly that unduly interferes in the marketplace." Thus, Congress was presented with the "crucially important regulatory problem" of determining the optimal data exclusivity period.
Mr. Brill expressed some reservations about resolving this problem by merely patterning a follow-on biologics regulatory pathway on the Hatch-Waxman model. He noted that "[b]ecause of the cost, uncertainty and complexity in biologic drugs (both for discovery and manufacturing), a competitive biologic drug market will be very different than a competitive small-molecule market." Where generic competition in the small molecule arena leads to price declines of up to 80% and innovator drug companies face more than ten new entrants for popular small molecule drugs, Mr. Brill speculated that biologic drug competition could be quite different. For example, the recent Federal Trade Commission (FTC) report on follow-on biologics estimates that biologic drug prices would decline between 10-30% following entry of generic competition, and late last year, the Congressional Budget Office (CBO) estimated a decline in prices of only 40%.
While the FTC report argues that biologic drug patents are stronger than small molecule patents, and therefore contends that no data exclusivity is needed, Mr. Brill states that he "do[es] not take as strong a stand against an exclusivity period as the FTC." Instead, he acknowledges that "[t]here is an immense importance to sufficiently encouraging healthcare innovation," adding that "the costs of providing modest additional intellectual property rights to drug originators will likely outweigh the potential costs (i.e. patents that otherwise would have been successfully challenged remaining valid because of the additional protection provided by data exclusivity)." Stating that "[u]ltimately, it is a balancing act, promoting innovation by shielding a company from market competitors and promoting innovation and price competition by allowing market entrants," Mr. Brill stands by his assessment from last fall that a 7-year data exclusivity period would provide the best balancing between promoting innovation and promoting price competition.
At the end of his written testimony, Mr. Brill briefly addressed the concept of tiered exclusivity for drug improvements (i.e., offering additional periods of exclusivity for new indications, dosages, or formulations). He advised the Subcommittee that the concept could help promote innovation, but only if it satisfied five important principles: (1) the additional exclusivity period was very limited in duration, (2) was granted for the entire product, (3) was added to the end of the existing data exclusivity period, (4) was not limited as to the number of times it could be awarded, and (5) was only granted for "truly novel and substantial improvements."
On a related note, Mr. Brill contacted Patent Docs following the House hearing to comment on a recent NVCA study that suggests that "a data exclusivity period of at least 12 years for innovator products is a critical fulcrum in the effort to balance cost with the preservation of biotech innovation" (see "NVCA Study Supports 12-Year Data Exclusivity Period"). The NVCA study indicates that the cost of capital for early stage biopharma companies is at least 20% -- or almost twice as high as policymakers have assumed. In a statement regarding the study, the NVCA noted that other studies (including Mr. Brill's) "assumed a biotech cost of capital of 10%, based on publicly traded biotech companies."
Mr. Brill countered that "the modeling in the FTC report clearly demonstrates that 7-year data exclusivity is sufficient even assuming a 12.5% cost of capital." He also noted that follow-on biologics models rely on the average cost of capital for the entire developmental cycle, and not just the early stage period. In addition, Mr. Brill suggested that the NVCA would need to provide data on the share of total biotech research and development dollars that venture capitalists are responsible for "in order to do anything useful with their study results." Finally, he pointed out that the Cockburn and Lerner study did not directly address follow-on biologics or data exclusivity, and contended that it was the NVCA that was "making the link" between this study and the issue of data exclusivity.
Dear Don,
Do you think Mr. Brill's analysis is correct or at least reasonable? Or do you think the NVCA study is better.
Posted by: Baltazar | July 17, 2009 at 08:18 AM