President's Budget Proposal Increases Funding for Basic Research But Seeks to "Trim" Data Exclusivity Period and Pay-for-Delay Agreements

By Donald Zuhn --

President Obama unveiled his 2012 budget last week, and while the President's budget calls for cuts in many areas of government, he would like to raise investment in basic research.  As a result, under the President's budget proposal, funding for the National Institutes of Health (NIH) would rise from the current $31.3 billion to $32.3 billion in fiscal 2012, and the National Science Foundation would get $7.77 billion in 2012, or 13% more than it did in 2010.  In a statement on the White House website entitled "Winning the Future through Innovation," the Office of Management and Budget (OMB) states that "[h]aving emerged from the worst recession in generations, the President has put forward a plan to rebuild our economy and win the future by out-innovating, out-educating, and out-building our global competitors and creating the jobs and industries of tomorrow."  The OMB outlines a number of ways in which the budget will "spur innovation," including:

Increase Investment in Research and Development and Create Transformational Technologies.  For many years, the United States has been a world leader in research and development (R&D) spending, as well as in the quality and impact of that spending.  The challenge is for the Nation to make private and public investments in science, research and development that will keep the U.S. as the world's leader in innovation for decades to come.  The 2012 Budget does that by providing $148 billion for R&D overall, while targeting resources to those areas most likely to directly contribute to the creation of transformational technologies that can create the businesses and jobs of the future.  The Budget makes progress toward the President's commitment to double funding for key basic research agencies:  the National Science Foundation (NSF), the Department of Energy's Office of Science, and the National Institute of Standards and Technology (NIST) laboratories.  These funds will be directed at priority areas, such as clean energy technologies, advanced manufacturing technologies, and cyber security.  In addition, the Budget provides $12 million in NIST for the Advanced Manufacturing Technology Consortia program, a new public-private partnership that will develop road maps for long-term industrial research needs and fund research at universities, government laboratories, and businesses directed at meeting those needs.  The Budget also funds research at the National Institutes of Health with an increased focus on translating research discovering into clinical trials.

Support Biomedical Research at the National Institutes of Health.  The Budget includes $32 billion for basic and applied biomedical research supported by the National Institutes of Health (NIH).  Innovation in this field creates and sustains companies, products, and jobs.  Through implementation of the National Center for Advancing Translational Sciences and the Cures Acceleration Network, NIH will increase its focus on bridging the translational divide between basic science and therapeutic applications.  By fostering novel collaborations among government, academia, and industry, NIH will accelerate the development of treatments for diseases and disorders that affect millions of Americans.  NIH will continue to pursue the leading edge of discovery in basic cancer science, development of new cancer treatments, and prevention and early detection of cancer, focusing on recent discoveries regarding cancer genomes.  For Alzheimer's disease, NIH is partnering with the private sector to find new methods for early diagnosis and to support early drug discovery and preclinical drug development.  Ongoing research into environmental factors, early detection, and novel treatments will transform our understanding and care for those with autism spectrum disorders.

The OMB also notes that the budget will:

Improve the Patent System and Protect Intellectual Property.  The Budget proposes to give the U.S. Patent and Trademark Office (USPTO) full access to its fee collections and strengthen USPTO's efforts to improve the speed and quality of patent examinations through a temporary fee surcharge and regulatory and legislative reforms.  The surcharge will better align application fees with processing costs.  In total, this will provide USPTO with over $2.7 billion of resources in 2012, or more than 34 percent more than in 2010.

In announcing the budget proposal, the President declared that it was important "to invest in those things that are absolutely critical to preparing our people and our Nation for the economic competition of our time," which could be accomplished in part "by encouraging American innovation and investing in research and development -- especially in the job-creating industries of tomorrow such as clean energy."  The President noted that:

[S]ince many companies do not invest in basic research that does not have an immediate pay off, we -- as a Nation -- must devote our resources to these fundamental areas of scientific inquiry.  In this Budget, we are increasing our investment in research and development that contributes to fields as varied as biomedicine, cyber-security, nano-technology, and advanced manufacturing.

Lost in the initial discussion of the President's 2012 budget were two proposals that would have a significant impact on drugmakers.  With respect to the $79.9 billion of the budget targeted for the Department of Health and Human Services (HHS), the Administration notes that the 2012 budget:

Increases Affordability and Reduces Costs for Prescription Drugs Across Federal Programs.  The high cost of prescription drugs is a burden for many Americans.  The Administration will accelerate access to more affordable pharmaceuticals that will lead to cost savings for consumers and health programs across the Federal Government.  The President's Budget includes two proposals to increase availability of generic drugs by providing the Federal Trade Commission authority to stop drug companies from entering into anticompetitive agreements intended to block consumer access to safe and effective generics, and hastening availability of generic biologics while retaining the appropriate incentives for research and development for the innovation of breakthrough products.

A Reuters report noted that the President would accomplish the goal of "hastening availability of generic biologics while retaining the appropriate incentives for research and development for the innovation of breakthrough products" by trimming the data exclusivity provision of the Approval Pathway for Biosimilar Biological Products section of the Patient Protection and Affordable Care Act (PPACA) from 12 years to 7 years.  In an article in the San Francisco Business Times, Biotechnology Industry Organization (BIO) President and CEO Jim Greenwood said that the budget proposal to reduce the exclusivity period "flies in the face of President Obama's own call for the U.S. to 'win the future' and maintain our nation's leadership in research and technology."

In a document entitled "Terminations, Reductions and Savings" on the President's website, the White House states that:

The Administration is proposing to give consumers more access to affordable pharmaceuticals by: 1) reducing the exclusivity period for brand biologics to encourage faster development of generic biologics; and 2) giving the Federal Trade Commission the authority to prohibit brand and generic drug companies from entering into anticompetitive or "pay-for-delay" agreements intended to keep more generics off the market.

The Administration attempts to justify both proposals by explaining that:

Generic Biologics.  Under current law, innovator brand biologics have 12 years of exclusivity and broad "evergreening" authority, whereby innovator manufacturers are able to make relatively minor changes to the "potency, purity, and safety" of their products to receive an additional 12 years of exclusivity.

Under the Administration proposal, beginning in 2012, innovator brand biologic manufacturers would have 7 years of exclusivity and would be prohibited from receiving additional exclusivity by "evergreening" their products.  According to the Federal Trade Commission, 12-year exclusivity is unnecessary to promote innovation by brand biologic drug manufacturers and can potentially harm consumers by directing scarce research and development funding toward developing low-risk clinical data for drug products with proven mechanisms of action rather than toward new products to address unmet medical needs.  The Administration policy strikes a balance between promoting affordable access to medication while at the same time encouraging innovation to develop needed therapies.

Pay-for-Delay.  In these agreements, a brand name company settles its patent law suit by paying the generic firm to delay entering the market.  Such deals can cost consumers billions of dollars because generic drugs are typically priced significantly less than their branded counterparts.  The Administration proposal would give the Federal Trade Commission the authority to prohibit pay-for-delay agreements in order to facilitate access to lower-cost generics.

As for the savings derived from each proposal, the Administration asserts that shortening the exclusivity period will produce $330 million in savings between 2012 and 2016 (but no savings between 2012 and 2014) and $2.34 billion in savings between 2012 and 2021.  The Administration estimates that the pay-for-delay ban will produce $3.42 billion in savings between 2012 and 2016 and $8.79 billion between 2012 and 2021.

While the means of accomplishing both goals may be surprising, the Administration's positions on both are not.  Before signing the PPACA last March, the President pushed hard for a reduction of the 12-year period (see "Snatching Defeat from the Jaws of Victory?").  Moreover, the Administration's support for a 7-year exclusivity period can be traced back to a letter the White House sent in June 2009 to Rep. Henry Waxman (D-CA), the Chairman of the House Energy and Commerce Committee, stating that a biosimilars regulatory pathway providing a 7-year data exclusivity period would "strike[] the appropriate balance between innovation and competition" (see "White House Recommends 7-Year Data Exclusivity Period for Follow-on Biologics").  In addition, little is new about the Administration's proposal "to stop drug companies from entering into anticompetitive agreements intended to block consumer access to safe and effective generics."  Prior to the February 2010 health care meeting at the White House, the President outlined 34 key improvements to reform health care, including a ban of pay-for-delay settlements, wherein a brand-name pharmaceutical company can delay generic competition through an agreement to pay a generic company to keep its drug off the market for a period of time (see "President's Health Care Plan Includes Pay-for-Delay Ban and Biosimilar Regulatory Pathway").  Nevertheless, when coupled with the Administration's decision to send the Acting Solicitor General to argue in support of the Justice Department's amicus curiae brief in the Association of Molecular Pathology v. U.S. Patent and Trademark Office appeal (see "Curiouser and Curiouser"), the President's budget proposals leave many of his supporters to question whether the biotech industry will have a role in helping the nation "win the future."

Comments

[Don C. Reed]

PROTECT NIH FUNDING

This is a great article on a crucial subject. Every patient advocate in America needs to know that the funds for medical research are at risk. The President's proposal is sensible and forward-looking. All who who hope for a cure for a disease or disability must protect the NIH budget.

Don C. Reed

[6]

Seriously, I'm down for protecting NIH budget. Also, I think they should give me a grant to develop a cure for cancer since all the rest of these guys don't seem to be able to do it.

[I Hate Young Whippersnappers]

"the President's budget proposals leave many of his supporters to question whether the biotech industry will have a role in helping the nation "win the future.""

Well (under)stated!

[Dan]

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