Misplaced Fears in the Legislative Battle Over Affordable Biotech Drugs

Abstract:     
Much like tort reform, the debate over pending legislation on biotech drugs - and particularly regulatory supplements to patent protection - has taken on a significance that dwarfs its impact on overall health care expenditures. Under the pending Health Care Reform legislation, Congress would enact two major reforms: First, creation of an abbreviated Food and Drug Administration (FDA) approval process for follow-on biologics, which are the analogues of generics for conventional drugs. Second, establishment of a twelve-year “data exclusivity” period during which clinical testing data collected by brand-name producers could not be used by competitors to satisfy FDA testing requirements. While the abbreviated FDA approval process enjoys broad support, the data-exclusivity provision has been hotly contested, including strong opposition from the Federal Trade Commission.

We argue that regulatory data exclusivity is a sideshow. Current estimates find that the effect of data exclusivity on health care expenditures would be trivial. For this and other reasons, any potential benefit to patients that might result from a shorter period of data exclusivity would be outweighed by the financial risks to the biotech industry, and particularly the negative impacts on investments in research and development. More importantly, we believe that the current focus on data exclusivity is misplaced. Weak competition in markets for biotech drugs poses a much greater and longer-term problem for patient access - without effective competition, pricing of many biotech drugs will remain high indefinitely. The most important issue for Congress to address ought to be minimizing the barriers to market entry for manufacturers of follow-on biologics after the relevant patent terms and data exclusivity end. We close the article by suggesting a variety of ways in which this objective could be met.

Number of Pages in PDF File: 30

Keywords: Biotechnology, Biologics, Patents, FDA, Health Care Reform

JEL Classification: O33, I18, K29, K39

Accepted Paper Series