Post Exclusivity Issues For Biologics

Investments in research resulting in new drug inventions have long taken advantage of patent protection, but such investments may also benefit from market exclusivities granted by the Food and Drug Administration (the "FDA"). Both patent and market exclusivities encourage and protect the significant innovation and investments required to bring a new drug to market.1

For typical small molecule pharmaceuticals, the Hatch-Waxman Act established a "regulatory framework that sought to balance incentives for continued innovation by research-based pharmaceutical companies and opportunities for market entry by generic drug manufacturers."2 Since generic versions of small molecule drugs may be chemically identical to the brand name version of the drug, a generic manufacturer can rely on FDA testing already performed on the brand name drug to support an application for approval of the generic version. This greatly increases the likelihood of entry of generic small molecule drugs into existing drug markets. Without the protections of patent rights and exclusivity incentives, pharmaceutical companies would have diminished incentives for the substantial investment to bring new small molecule drugs to market, since drug prices drop precipitously when protection expires. In the case of traditional small molecule drugs, typically manufactured through chemical synthesis, dramatic price drops of 50-60% are not unexpected.3 Hence the need for balance in marking the ambit of protection and exclusivity: too small and investment in drug innovation is discouraged; too broad, competition and consequent price reductions are too long delayed.

The challenge of striking such balances as to biologic drugs is far greater, or at least more challenging, than with respect to small molecule drugs. For unlike small molecule drugs, biologic drugs are protein-based molecules derived from living matter or manufactured through forms of biotechnology, which are of greater size and complexity than typical pharmaceuticals. Therefore, even after the patent rights and/or exclusivity rights expire for a biologic, significant technological barriers to market entry may remain after such rights expire. As a result, dramatic price decreases may not necessarily follow quickly in the wake of the expiration of patent or market exclusivities for a brand name biologic and the entry of a biologic competitor. But one must be wary of generalities: prices may in fact dramatically drop as to...