Data Exclusivity for New Biological Entities

Congress is current considering legislation that would create a regulatory pathway for follow-on biologics. One critical issue in this regard is the issue of data exclusivity for innovators. This is an important form of intellectual property that complements patent protection. Data exclusivity is the period of time before a follow-on competitor can enter the market with an abbreviated filing that relies in whole or in party on the innovator's data on safety and efficacy. From the standpoint of economic theory, industries where the R&D process is costly and risky need longer exclusivity periods to realize innovation benefits, compared to those industries where innovation is easier and less costly. Similarly, when the output of innovation has important external benefits to society – as in the case of new medicine and new indications for existing medicines – this also supports a longer exclusivity period. An analysis of these characteristics for new biological entities provides support for a substantial data exclusivity period. The R&D process for new biopharmaceuticals is long, costly, and risky. The market sales distribution for those molecules that do reach the market is highly skewed, with long payoff periods to profitability. Recent new biological entities also have resulted in several leading therapeutic advances, with important attendant benefits for human welfare. New biological entities have accounted for a disproportionate share of novel and " best in class " therapies in areas such as oncology and rheumatoid arthritis. This paper also considers what time period might be appropriate to ensure adequate data exclusivity protection for innovators. This is based on a specific analysis of breakeven lifetimes for new biologicals. In this regard, a simulation analysis is undertaken of a model portfolio of biotech products with sales that are representative of the actual historical distribution. The breakeven lifetimes were found to be between 12.9 and 16.2 years at alternative discount rates of 11.5% and 12.5% respectively. This breakeven economic analysis, while preliminary in nature, also provides support for legislative proposals that include a substantial data exclusivity period for new biologicals.