The delicate compromise on biosimilars crafted by leading Senate Democrats and Republicans in June tackles patent and exclusivity
issues head-on. To encourage innovation while supporting access to less costly therapies, Congress proposes an extensive data-exclusivity
period that would delay Food and Drug Administration (FDA) approval of a follow-on biologic (FOB) application for 12 years.
This approach recognizes that patents may not provide comparable protection for large-molecule therapies.
Biotech products regulated under the Public Health Service (PHS) Act have not benefited from data-exclusivity provisions provided
for drugs. At the same time, the long R&D process for developing large-molecule therapies often eats up patent terms before
a product gets to market.
Several added factors erode patent protection for biopharmaceuticals. Because biologics are made from living organisms, it
is difficult to define the scope of the invention, which results in narrow patent claims. And biotech patents often cover
cell lines, fermentation, and purification processes, which traditionally have not provided strong protection from competitors.
Biotech patents would provide less protection against follow-ons, moreover, because FOBs are not identical. The whole premise
of the follow-on pathway is that the new products are similar to the innovator, but slightly different due to the nature of
the production process and variations in active ingredients. Thus, follow-on makers could engineer production systems to develop
new versions of a therapy without infringing process patents.
So if a new law permits FDA to approve abbreviated applications for FOBs, it would open the door to patent challenges on most
newly approved biological products. Without substantial data exclusivity, we would see "an explosion in patent challenges
shortly after a new product is launched," said Duke University economist Henry Grabowski at a seminar on FOBs sponsored by
the American Enterprise Institute (AEI) in June. That could result in high litigation costs and added uncertainty for innovators
about their ability to recover R&D expenses.
How Much Exclusivity?
The Biotechnology Industry Organization (BIO) asserts that 14 years of exclusivity protection is needed to maintain incentives
for innovator firms to take on the costly biotech R&D process. Grabowski explained that it costs more than $1 billion to develop
a new biotech therapy, including the cost of capital and of R&D failures; actual out-of-pocket cost runs over $500 million.
This means that the "break-even lifetime" for a biologic—i.e., the time needed to recover R&D costs and earn a risk-adjusted
return on capital—runs 13 to 16 years. Without such protection, small firms would have difficulty attracting venture capital
firms and other investors.
More Biosimilars for Europe
Although one legislative proposal in the House offered 14 years of exclusivity, the FOB measure sponsored by Rep. Henry Waxman
(D-CA) ignored the issue. This prompted policymakers to suggest splitting the difference with a seven-year exclusivity period.
That would be similar to the exclusivity provided orphan drugs, a policy that has encouraged development of treatments for
Alternatively, the Hatch-Waxman Act of 1984 sets a floor with a five-year exclusivity period for conventional new drugs. That
aimed to provide some protection from generic competition for those drugs that had little or no remaining patent protection
at time of launch, but pharma companies consider it much too low for today's highly competitive market. The result has been
extensive patent litigation with brand-name firms bringing infringement suits to keep generics off the market for another
two or three years and filing new patents to extend exclusivity even longer.
At the other end of the spectrum is the 10+1 years' exclusivity for drugs and biologics in the European Union. A longer exclusivity
period in Europe is warranted, conceded Bruce Downey, chairman of Barr Laboratories, at the AEI seminar, because price controls
make it harder for manufacturers to recoup R&D investment. And patents expire earlier in Europe, he noted, because they don't
become involved in lengthy litigation.