Biotech products regulated under the Public Health Service (PHS) Act currently do not benefit from data exclusivity provisions for drugs. At the same time, biotech innovators are less secure because the long biotech R&D process often eats up patent terms before a product gets to market.Because biologics are made from living organisms, it is difficult to define the scope of the invention, resulting in narrow patent claims. Also, because manufacturing is an essential part of a biologic's identity, biotech patents often cover cell lines, fermentation, and purification processes, which do not provide strong obstacles to competitors.
Another key factor that would reduce protection by biotech patents is that FOBs are not identical products. 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 varying active ingredients. That will encourage generics firms to engineer production systems so that new versions of a therapy do not infringe process patents.
Thus, a revised law that permits FDA to approve FOBs based on abbreviated applications would give generics makers a strong incentive to challenge patents of 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 Henry Grabowski, economist, Duke University, at a seminar on FOBs sponsored by the American Enterprise Institute (AEI) in June. The result would be high litigation costs and additional uncertainty for innovators about their ability to recover R&D expenses.
HOW MUCH EXCLUSIVITY?
According to the Biotechnology Industry Organization (BIO), 14 years of exclusivity protection are 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 R&D failures; actual out-of-pocket cost runs over $500 million. This means that the "breakeven lifetime" for a biologic—the time needed to recover R&D costs and earn a risk-adjusted return on capital—runs 13 to 16 years and is needed to attract venture capital firms and other investors.
Although one House bill proposed 14 years of exclusivity, the FOB measure sponsored by Rep. Henry Waxman (D-CA) ignored the issue. This prompted some policy makers to suggest splitting the difference with a seven-year exclusivity period. That would be similar to the exclusivity provided orphan drugs, which has encouraged development of many treatments for rare diseases.
Alternatively, the Hatch-Waxman Act of 1984 sets a floor with five years exclusivity for conventional new drugs; that provides some protection from generic competition for those drugs that have little or no remaining patent protection at the time of launch. At the other end of the spectrum is the 10+1 years exclusivity for drugs and biologics in the EU. This longer data exclusivity period in Europe compared to the US is warranted, said 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 mired in lengthy litigation.
Generics makers, not surprisingly, blasted the 12-year exclusivity period offered in the Senate compromise as "unprecedented and unwarranted." Kathleen Jaeger, president of the Generic Pharmaceutical Association (GPhA), sought clearer limits on products eligible for exclusivity and language to prevent "evergreening" patent monopolies through minor product changes.