Until recently the Obama Administration had not taken any particularly strong or controversial stances with respect to intellectual property protection. Sure, President Obama appointed a former RIAA attorney to a top spot in the Department of Justice, asked for study of open source initiatives for the federal government and has complained about counterfeiting and copyright infringement abroad. On patent matters though the President and his Administration were relatively silent, perhaps even AWOL, until he finally announced that he would eventually be formally nominating David Kappos to become the Director of the Patent and Trademark Office. Now this week Peter Orzag, the Director of the Office of Management and Budget, sent a letter to Congressman Waxman explaining the President’s position on the appropriate length of exclusive protection for pioneering biologics. The biotech and pharmaceutical industry had been lobbying for 12 to 14 years of exclusivity, and President Obama favors roughly half that time frame, claiming that 7 years “strikes the appropriate balance between innovation and competition by providing for seven years of exclusivity.” So the battle lines are being drawn, and this will in fact become the first patent battle for the Obama Administration. Whether they get this right will impact the future of revolutionary medical advances. If the exclusivity is too low there will be no incentive to undertake the extraordinarily risky endeavor associated with researching, developing, testing and commercializing pioneering biologics, which would mean the tremendous rate of scientific advances on treatments and cures for deadly diseases could slow to a standstill.
Let’s not mince words here. The debate over the appropriate exclusivity for pioneering biologics will decide the rate at which industry develops and goes to market with life saving and live sustaining drugs for diseases that have heretofore been incurable. This debate is always a tough one because for those with diseases that could be cured today they want the drugs, biologics or treatments that will save their lives or the lives of loved ones. It does no one any good to forget that we are talking about life and death, and it is completely understandable for those who are faced with life and death decisions to want to choose life and be willing to do whatever it takes to help themselves and loved ones.
Regardless of how anyone wants to characterize these questions, it is completely disingenuous to claim that no exclusivity or even severely limited exclusivity is the greater good. It simply is not and anyone who clings to that belief must not be trusted in this debate. Whether that position is taken for the self-serving reasons that are completely understandable (i.e., personal health or the health of a loved one) or that position is taken for irrational reasons related to outright hatred of intellectual property and/or capitalism in general, the greater good is not to remove incentive to innovate. The amount of money that is necessary to innovate and get to market with respect to medical treatments such as drugs and biologics is enormous, and no one will take an enormous risk without prospects of several times greater magnitude of enormous returns. When you are talking hundreds of millions of dollars without guarantee that a drug or bioligic will ever be approved by the Food and Drug Administration (FDA), there needs to be an awful big pot at the end of the rainbow in order to entice the activity that we all want, which is greater innovation that leads to cures and truly live sustaining treatments for all kinds of cancer, HIV and many other deadly diseases.
Any truly worthwhile innovation needs to not only pay for itself and provide a reasonable return on investment, it needs to pay for the many innovations that did not work and couldn’t pay for themselves. That is why a certain minimum amount of exclusivity is absolutely essential in order to advance science and technology and to lead to benefit for society. This will mean whatever length of time is provided will create a certain amount of animosity because there will be some who simply are unable to afford the price associated with revolutionary cures. This will no doubt be true for as long as exclusivity exists, and to a lesser extent will continue even after generics, or in the case of biologics — follow-on-biologics, enter the market.
It is clear and cannot be argued with any rational or logical arguments that the greater good is to tolerate a period of exclusivity that will no doubt harm many who cannot afford brand name alternatives. The greater good is to provide the amount of exclusivity that is required to entice industry to create the cures and treatments we want in the first place. If we do not provide enough exclusivity then we will not get the cures and treatments that are scientifically possible, and then not only will those who could not afford treatment during the exclusivity period suffer, but everyone that could have benefited after the exclusivity ended will suffer as well. There is no moral good or logical rationale that can be associated with a decision to forego cheap, live saving treatments and cures that would be available to all the world after half a generation of exclusivity.
So what is the right length of exclusivity? I don’t know, you don’t know, President Obama doesn’t know and I would venture to say that the industry really doesn’t know either. We will have a real good idea in about 5 or 10 years though, particularly if the exclusivity period winds up being too short, but by then how many people that could have been helped will not have been helped?
Here is something to consider. The Federal Trade Commission published a lengthy report on June 10, 2009, which among other things stated:
- The substantial costs to obtain FDA approval, plus the substantial fixed costs to develop manufacturing capacity, will likely limit the number of competitors that undertake entry with FOB products. FOB products are likely to take eight to ten years to develop, and their development will likely cost between $100 and $200 million. These amounts differ substantially from the product development costs for small-molecule generic drugs, which typically take three to five years to develop and cost between $1 and $5 million.
- The lack of automatic substitution between an FOB product and a pioneer biologic drug will slow the rate at which an FOB product can acquire market share and thereby increase its revenues. In small-molecule drug markets, automatic substitution erodes a branded manufacturers’ market share quickly once the first generic product enters the market. This situation is unlikely to occur in FOB markets. Unlike small-molecule generic drugs, FOB products will not be designated as “therapeutically equivalent” with the pioneer biologic drug product. The lack of therapeutic equivalence means that, like pioneer manufacturers, FOB manufacturers will have to market their products and negotiate individual contracts with purchasers.
- Biologic drugs currently are not reimbursed pursuant to strategies that payors often use to incentivize the use of lower-priced drugs; this, too, may limit market share acquisition by FOBs. Biologic drug products are typically delivered to patients by healthcare providers as part of medical treatments (e.g., dialysis treatments or oncology treatments) and reimbursed by health insurers as part of patients’ medical benefits rather than pharmacy benefits. Consequently, traditional payor strategies to incentivize utilization of lower-priced drugs, including the use of co-pays and tiered formularies, are unlikely to apply to drive up the market share of FOBs. FOB pricing and market shares also are likely to be affected by the reimbursement methodologies used by Centers for Medicare and Medicaid Services (“CMS”) for infused and injected drugs, which may not effectively drive share to lower-priced drugs.
- As a result of these factors, FOB competition against a pioneer biologic drug is likely to develop as follows: FOB entry is likely in biologic drug markets of greater than $250 million. Only two or three FOB manufacturers are likely to attempt entry for a given pioneer drug product. These FOB entrants are unlikely to introduce their FOB products at price discounts any larger than between 10 and 30 percent of the pioneer products’ price. Although not as steep a discount as small-molecule generic drugs, a 10 to 30 percent discount on a $48,000 drug product represents substantial consumer savings. Pioneer manufacturers are expected to respond and offer competitive discounts to maintain market share. This price competition is likely to lead to an expanded market and greater consumer access. Nonetheless, the lack of automatic substitution will slow significant market share acquisition by FOB products. As a result, pioneer manufacturers are likely to retain 70 to 90 percent of their market share and, therefore, will likely continue to reap substantial profits years after entry by FOB drugs.
What this means is that even with a short period of exclusivity the likelihood that follow-on-biologics will make it to market seems remote, and if they do make it to market the cost impact will be minimal and regardless the brand name creator of the pioneering biologic will retain a whopping 70 to 90 percent of the market. It doesn’t take a rocket scientist to understand that with these findings of fact by the Federal Trade Commission overwhelmingly support a longer, not shorter, exclusivity period. If follow-on-biologics will reduce cost by maybe 10%, 20% or 30% at best, then why in the name of all that is right would anyone take the risk of aiming too low with exclusivity? If we aim too low we won’t get these revolutionary, life saving cures and treatments, and it looks to me like those within the Obama Administration who have looked at this have made an exceptionally compelling case arguing in favor of the position taken by the industry.
I guess what I am saying is that too little exclusivity is bad, and too much exclusivity seems like it will have little or no impact. Call me crazy, but with the risk that too little exclusivity means we don’t get the innovation we want would provide little benefit to society, I would error on the side of giving more exclusivity because then we can guarantee the creation of revolutionary treatments and cures.
Mr. President, this is an easy one, with an objectively correct answer, which also happens to coincide with the greater good. If you cannot get this one right the innovation community is in for a long 3.5 more years!