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September 11, 2009



I wonder if you could give us your take on this Kev.

Glad to, 6.

If patients are unhappy with the high costs of drugs, then they need to look not to the people who make the drugs but to the healthcare system that pays for the drugs. The fact is that the cost of bringing a biologic drug to market is much higher and much riskier than for traditional drugs, and the diseases they treat are more intractable - think of cancer versus syphilis, for example. Both can kill you, but penicillin is all you need to cure the STD.

We could decide to mandate that biotech companies can't provide sufficient return on investment to garner venture capital so they can develop the drugs, or we can decide that the generics companies of the world should be able to enter the marketplace with all deliberate speed. But there is a cost - no new drugs. If you doubt that, name me the last generic company that developed its own new drug (although I know there are some innovator companies that are also in the generic space, but I think they are the exception).

Reasonable people can differ about drug pricing, and I am on record as saying innovator drug companies need to make provisions for getting drugs to underdeveloped countries in the world. And I agree that there are Americans who can't afford their drugs. But it's a little convenient to go after the companies that are making the drugs that are making the difference, without addressing the rest of the healthcare system (for example, insurance companies).

Patents are part of the discussion, but there are plenty of other "government" costs involved (like the FDA). I hope no one is suggesting we should do less safety and efficacy testing, are they? Yet that testing significantly adds to development costs that, once again, increase the costs of the treatment.

No easy answers, just deciding where to draw the lines - do we reduce drug company revenues and leave insurance company profits untouched? Do we let the "free market" determine that some Americans benefit from the healthcare system while others cannot? Do we demonize any attempt at reducing the (ab)use of emergency rooms for primary care, because we aren't willing to pay for primary care for all Americans? Tough choices - maybe if/when we have guaranteed healthcare for all the choices will get better, but probably not until then.

Hope that helps. 6.

So what is your take on that piece of legislation under discussion?

Sorry, 6, I misunderstood your question.

There have been lots of estimates about how long the data exclusivity period for follow-on biologics should be. Let's define the term, though: this has little to do with patenting. It is a regulatory term, wherein the FDA will not permit a generic drug company to use the innovator's safety and efficacy data to support the generic's FOB application (like an ANDA for traditional drugs) during the data exclusivity period. Unlike patents, this has nothing to do with excluding anyone from doing their own development - it is limited to whether the generic has to provide their own safety or efficacy data or can use the innovator's. (Patent infringement would be pretty much off the table for a variety of reasons.)

Now, there is an economics professor at Duke who says the "right" data exclusivity term is 13-16 years, and BIO originally wanted 14 years, and the present Senate bill is at 12 years (the House hasn't acted). The White House has proposed 7 years, a number supported by another economist, and Congressman Waxman wants about 5 years. Finally, the FTC says 0 years, based on assumptions not shared by most other commentators.

I don't know the right number, and no one else does, either - it's a guess, with varying degrees of it being an educated guess, but every guess has many assumptions that are hard to evaluate (accurately, that is; everyone who has proposed a term has a basis for their estimates, and believes their assumptions are accurate).

But it seems to me that the industry says it needs 14 years but will take 12 (since they don't have a crystal ball, either), because anything less will disincentive investment. They are either right or wrong (like everyone else). But if they are right, and Congress mandates a shorter period, and innovation suffers, it will be very hard to increase the term. Prudence suggests that the law sets the term at 12 years, and then waits 5 years or so and re-evaluates. If the term is too long, it can be shortened. But if venture capital moves from biotech into, say, safer, more traditional drugs or better formulations of existing drugs, or gets out of the drug business entirely, I think we will have a problem.

(And, of course, without a bill the term is essentially infinity, so 12 years is a vast improvement on the current situation.)

So, no answers just a belief that what is best for the country is to avoid the short-term benefits of lower drug cost to protect the long-term need for new drugs. Which is itself a choice (and you can see how people with serious illnesses now would be less receptive to taking a long view).

Let me know if you need anything else.

That's fine. I had a feeling that was the issue at play I had figured you might lean one way or the other about it.

The only thing that gets me is that 300 thousand per year seems a bit excessive for anything other than pills made of pure gold. Seems like they're gouging their customers a bit and relying on a legal monopoly on their lives to do it. I mean come on, are these guys picking the rarest flowers in the whole world out of the Amazon, bringing them back to the US and submitting them to a years worth of processes in order to produce the biologic or what? 300k seems vastly unwarrented.

I understand the desire and the need to generate a profit, but that 300k seems unacceptable as a proposition to me. I recently heard that most people have a ~2 million lifetime amount that their insurance will pay for, that would seem to start to become an issue really fast at 300k a year. Frankly I don't understand how the guy is still alive. Or, if he somehow does manage to get his drugs, how he lives above the poverty line.

What really gets me is why anyone would continue to live in the states after needing such a thing. Seems like they could probably go elsewhere in the world and get the drugs in most cases. And do it for a fraction of the cost. In that event, it seems like the wisest move is simply to move.

Dear Kevin,

I have some very basic questions. Why is it difficult to calculate the correct exclusivity period? What is the missing data that prevents a good calculation? It seems to me (though I admit I am no expert) that there is ample data to say with a high degree of certainty if 7 yrs or 12 yrs is correct (lets forget about 0 yrs as this is clearly odd). I know that there are many assumptions(and you wrote about this earlier), but the industry has a long history of successful products. Why is that background insufficient?

How do we know that shorter periods really create less investment and innovation if there is such uncertainty as to what is a good exclusivity period? Why do you believe that it is easier for Congress to shorten a long period than it is to lenghten a short period? Is there precedent? If based on prudence, whose prudence?

My point is this. Everyone is biased on this important issue. BIO is fighting for its members. GPhA is working for its members. Politicians vote according to their big time donors. It would be better to set up a diverse group(innovator, generic, health providers, patients, govern't, economist, investors) who would gather the right and relevant data and let that group come up with a more objective and correct exclusivity period.

As always, I enjoy your writings.

Dear Baltazar:

When I say prudence, here is what I mean. There is data (that some dispute) that says we need 13-16 years of data exclusivity. BIO had its own white paper that said 14 years. BIO has indicated that the bipartisan Senate compromise of 12 years is acceptable to a majority of its members.

My take on this is that in view of all the competing interests, a report as you suggest would not lead to a clear answer but be more like a horse designed by a committee - i.e., a camel (apologies to camel-lovers; it is an old illustration of the point). There is no way to get an unbiased view.

The answer will be political compromise. Do we get a bill or don't we? If I were on the biogenerics side, I would accept the 12 years of data exclusivity, maybe push for accommodations on other points, and get the bill passed. Then we can all see what happens, and fix the number if we need to.

I think having a bill is better than not having one, and will reduce drug prices for biologics drugs. Which is what most people want, I think. So rather than making lobbyists, economists, and pundits rich on the issue, we can get to the goal.

And then we can sit back and in 5 years compare investment, drug pricing, innovation, etc. and see what has happened.

Finally, we get back to the unspoken reality in all this - if biogenerics think 12 years is too long, they can do the safety and efficacy studies themselves. My sneaking suspicion is we will find out that permitting a biogeneric to use innovator data on this point may be a mistake, and that it will be much more difficult to get safe and effective biogenerics than for conventional small molecule drugs. I hope to be surprised.

Thanks for the comment.

Dear 6:

I think yachts and Phillipe Patek watches are too expensive, too, and I know $300,000 a year sounds like a lot of money. Until you remember that the alternative is death, and the diseases that folks who pay these amounts for treatment are chronic, previously intractable and otherwise untreatable.

There are no good alternatives to having start-up companies backed by venture capitalists do the discovery research, and then partner with or be acquired by drug companies who can bring the treatment to market. (To those who respond that a lot of the work in the biotech area is done in universities, my response is that there is a vast difference between making a biological observation and even doing proof of concept for a therapeutic drug, much less bringing it to market.)

One of the differences between the US brand of capitalism and the types practiced elsewhere is this high risk-high reward model. It has helped the US go from a rustbucket in the 1980's to a biotech and IT-fueled powerhouse in the 1990's, and more importantly, it fuels the discovery cycle for biotech. Which means that the drugs that come out will reflect these costs, plus the risk - if the return isn't high enough, there won't be investment.

And keep in mind that for every drug that makes money there are several that do not. Biologic drugs are even more uncertain.

So it's fine for you to say it sounds too expensive to you. But the evidence is that if these drugs weren't so expensive, they wouldn't be developed in the first place. I like a world where the drugs exist; the rest is just accounting and, unfortunately, the failures of US healthcare policy.

Thanks for the comment.

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