As may be expected, interested parties are hard at work in our nation's capital lobbying key health care committee members and their staffs. Today I want to share a small window into this usually closed-off world, informed in part by a conference call with a handful of bloggers yesterday, hosted by Jim Greenwood, President of BIO, the biotech industry association.
"Large molecule" biotech compounds used as next generation drugs for a whole range of diseases and conditions do not get the same sort of patent protection as "small molecule" drugs. Small molecule drugs start the patent and FDA new drug application (NDA) process at the same time, with the usual effect that FDA approval for a new drug comes about 7 years after an initial application, thus giving the patent holder about 12 or 13 years of patent-protected time on the market before generic manufacturers can horn in. Large molecules are not patented directly; the processes by which they are generated are. Thus, a competitor may develop a means to generate a "biosimilar" — a large molecule that has the same therapeutic effect as the original, even though its production and chemical formulation are not identical — and market it without infringing on the innovator's patent. The key to being able to do so is the ability to rely on the innovator's study data as part of its NDA. The key to the innovator's ability to have the market to itself for the equivalent of the term of a patent in the small molecule world is a period of "data exclusivity" (when others can't use its data for their own applications regarding biosimilars) equal to the effective term of patent protection: 12 or 13 years.
Greenwood said yesterday that Peter Orszag and Nancy-Ann Min DeParle have suggested that 7 years' data exclusivity should be sufficient, and that the FTC opposes any data exclusivity. Legislation filed in the last session supported by BIO would have provided 12 years of data exclusivity. The Senate HELP bill provides for 9 years of data exclusivity, with the opportunity to get a 3-year extension in the case of a novel use for the product.
While the arguments made by industry are reasonable, the issue must be placed in context. Drugs and biologics, while undeniably a key component of our current health care system, have contributed greatly to the runaway cost inflation we have seen. The proposed 21.5% cut to the Medicare Physician Fee Schedule — the prospect of which horrifies not only physicians, but those of us who may ever want to obtain physician services in the future — may be tempered by carving out physician-office-administered medications, which include some of the large molecule compounds at issue (an $87.5B line item, over 10 years). Taking this expense out of the physician pot means it has to be dropped back in somewhere else; I mention this because it's an issue at the forefront of the debate, and the price tag (which is not the whole price tag for drugs and biologics) is a big number, which has the attention of policymakers. The total annual cost of biologics has been pegged at $60B. While the industry rightfully wants large molecule protection equivalent to small molecule protection, the public and the government are rightfully concerned about the ultimate cost of such protection, and are seeking an appropriate balance.
The lobbying on this and many other provisions continues in the Senate HELP Committee and other committees. Many compromises lie ahead.
Update 7/16/09: The Senate HELP Committee bill was reported out with 12 years of protection.
David Harlow
The Harlow Group LLC
Health Care Law and Consulting
Getting the balance correct is a difficult problem. There are hardcore ideologues on both sides. Who knows with any degree of certainty what the right number is that balances innovation incentives and cost containment?
One thing is certain, our founding fathers were suspicious of monopolies and rightfully so. Less monopolistic incentive (e.g. patents and copyright) are required when innovation is increasing at a fast rate, especially with respect to patents.
The velocity of innovation has never been greater, the health care industry is no exception. What is missing, as far as I can tell, is empirical evidence to support either extreme. Given that, I am inclined to support a lower number for exclusivity on general principles.