The Trans-Pacific Partnership and Innovation in the Bioeconomy: The Need for 12 Years of Data Protection for Biologics

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Executive Summary

• The biotechnology industry is one of the most research-intensive industries. It spends tens of billions of dollars throughout the world each year on vital research to improve the lives of people across the globe. It has a remarkable track record of delivering life-saving biological treatments for patients with serious unmet medical needs, as well as a wide range of vaccines that contribute substantially to global public health.

• The vast majority of biotechnology companies are small, start-up companies that are heavily reliant on private investment capital, lack revenues from marketed products, and operate in financial loss positions. They are engaged in highly risky and costly endeavors that take, on average, more than a decade and in excess of $1.2 billion to bring a biological product to market. Accordingly, they are highly sensitive to changes in market risk.

• Biologic pharmaceutical products are complex and challenging to manufacture. They present unique considerations relative to pharmaceutical products containing active ingredients made by traditional chemical synthesis. These distinctions translate into different kinds of challenges – both with respect to the regulatory approval of these products and how they can be effectively protected by intellectual property standards.

• One important distinction is that, unlike generic drugs, a biosimilar product is not identical to the innovator product. Among other things, this means there is greater uncertainty as to whether an innovator’s patent rights will cover a biosimilar version of the innovator’s product, as compared to a traditional generic drug. Without the certainty of some substantial period of market exclusivity, innovators will not have the incentives needed to conduct the expensive, risky, and time-consuming work to discover and bring new biological products to market.

• In 2010, Congress created a pathway for approving biosimilar versions of biological products. Under this law, biosimilar products must be highly similar to earlier approved innovator biological products. This requirement enables FDA to rely on its earlier findings of safety and efficacy with respect to the innovative product to decrease the development requirements for subsequent market entrants with highly similar products, thus reducing the cost, time, and uncertainty in gaining approval of the biosimilar product.

• The legislative process that produced the U.S. system was deliberate, thoughtful, and driven by rigorous analysis. Extensive research by noted economists demonstrated that developers of innovative biological products require a period of market exclusivity of between 12 and 15 years simply to break even on their investments in developing a new biological product.

• This economic evidence was reinforced by practical insights of every sector of the community involved in development of biological products – ranging from investors to patient groups to research universities and the full spectrum of companies that make up BIO (including many that make or plan to make biosimilars). The unified message from this community was that, in addition to strong IP protections, an extended period of regulatory data protection – beyond that given to traditional, small molecule drugs in the generic drug context – was essential to properly incentivize the development of new biological products and new uses of those products.

• Patents and regulatory data protection, while complementary, serve two distinct purposes. Patents protect inventions ranging from the foundational inventions that underpin new drugs and biologics to the incremental advances necessary to bring those products to market and manufacture them at the scale needed by patients. Patents provide such protection even where a third party conducts its own, full research and development program to develop the same or similar product. Data protection, on the other hand, is intended to incentivize biomedical innovators to invest the enormous amount of resources and time necessary to conduct the complex development work required to prove a new drug or biological product is safe and effective, and to secure regulatory approval of that new product. Data protection does so by requiring third parties seeking to gain approval of a same or similar product to independently generate the full range of pre-clinical and clinical evidence for their own product, or to wait a defined period of time before seeking a regulatory shortcut to approval based on the innovator’s prior approval. Data protection thus prevents parties from unfairly “free riding” on the investments and efforts made by the innovator to secure original approval of its product.

• For small molecule products, the period of data protection – five years in the United States – is less important, because the regulatory approval standard for generics requires a generic to have the identical active ingredient. This requirement allows for patents to predictably provide effective market exclusivity – that is, patents on the innovator’s product will cover the generic product as well. In addition, the U.S. Hatch- Waxman Act provides patent term restoration to compensate new drug and biologic developers for periods of lost effective patent life consumed by the regulatory approval process. Through term restoration, a patent covering the product or its use or manufacture may be extended up to 14 years post-FDA approval. Thus, studies show that the interplay of these extended patent rights and the stringent regulatory standard for approval of generics combine to provide innovator products protection against premature generic competition for, on average, 12 years.

• As noted above, the regulatory approval standard for a biosimilar product does not require identity with the innovator product it references. This creates a potential “patent protection gap” that – without an extended period of data protection – could create a situation in which it is possible to rely on the innovator’s regulatory approval while eluding an innovator’s patents. That likelihood is exacerbated by two critical facts. First, because of the nature of biologic products – large molecules produced by living cells and organisms through highly specific processes – patent protection is often narrower than that of small molecule drugs. Second, the creation of an abbreviated pathway for approval of similar biological products creates new and strong incentives for competitors to exploit this patent protection gap.

• Recognizing these challenges, Congress, with broad bipartisan support, adopted a system that provides at least 12 years of regulatory data protection for innovative biological products – essentially creating parity in market exclusivity between small molecule and biological products, though utilizing a different mix of protections to achieve that comparable result. Under the U.S. system, FDA will not approve a biosimilar that relies on the prior FDA approval of the innovator’s product until at least 12 years following innovator approval. Congress found this period of data protection necessary to mitigate the risks and uncertainty described above, and to preserve robust incentives for continued investment and development of innovative biological products.

• During the legislative process, the U.S. Federal Trade Commission (FTC) presented an outlier view that data exclusivity was wholly unnecessary for 5 biological products, as patent protection would remain strong and be sufficient to incentivize innovators. This view was shown to be based on serious errors and faulty assumptions, and was consequently rejected by a broad spectrum of experts and stakeholders. Congress also overwhelmingly rejected legislative proposals based on the FTC’s position.

• There are many sound reasons why Congress did not adopt the FTC’s recommendations. One was the important recognition, seemingly ignored by the FTC, that regulatory data protection runs concurrently with patent protection. As a result, data protection will not defer entry of a biosimilar except in those instances in which a biosimilar manufacturer is able to design around the innovator’s patents while still relying on the innovator’s prior regulatory approval. Thus, if the FTC is correct that patents alone are able to provide effective market protection against early entry of a biosimilar that is comparable to the protection patents provide small molecule drugs against generics – i.e., roughly 12 years post innovator approval – then a 12-year data protection period would have no effect on when biosimilar products could reach the market. But if the FTC’s key assumption about the strength of biologic patents is wrong – as many experts believe – then the 12-year data protection period becomes critically important. Specifically, it becomes the only mechanism to prevent premature biosimilar market entry that would undermine the incentives necessary for innovators. Properly understood, then, the 12- year data protection period serves only as an insurance policy against the uncertainty of patent rights preventing premature market entry by biosimilars.

• To encourage continued development of innovative biological vaccines and therapies, it is critically important to implement effective standards of IP protection within the TPP region. The realities of modern research and development in this industry demonstrate that each TPP member has the potential to participate in the discovery and development of new biological products, or new uses of existing products. The highly leveraged and disseminated nature of the biotechnology industry enables research institutions and small start-up companies in any TPP country to be the seed of this process of discovery, innovation, and development.

This innovative potential requires an IP infrastructure that is certain and consistent throughout the TPP region. As we move to more tightly integrate the economies of the TPP countries and to promote collaborations throughout this region, discrepancies in the IP infrastructure will become substantial obstacles to collaboration. For this reason, we believe it is imperative that the TPP create a set of strong intellectual property standards – particularly those governing data protection, patents and trade secret protection – that are relevant to biological products. BIO believes this approach will help achieve the TPP’s vision of promoting high standards that integrate the trade and investment climate in the region.


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