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Data Exclusivity: What is it and why does it matter?

Data Exclusivity: What is it and why does it matter?

Data Exclusivity: What is it and why does it matter?
Blog Featured Human Capital Public HealthJanuary 20, 2016

Over the past year, ‘data exclusivity’ has become a popular catch-phrase in discussion of the contentious Trans-Pacific Partnership (TPP). Data exclusivity for biologic medicines is a relatively new intellectual property right that has made its way into recent trade agreements. After all, drugs can cross borders just as frequently as any other good.

Now, before a drug can hit the market for public sale, the Food and Drug Administration (FDA; or the equivalent regulatory organization in other nations) must approve the medicine’s safety and efficacy. Data exclusivity refers to a protected period of time following FDA approval during which competing firms “may not use the innovative firm’s safety and efficacy data, from proprietary pre-clinical and clinical trial results, to obtain marketing authorization for a generic version of the drug.” Data exclusivity essentially gives pharmaceutical companies additional protection outside of a patent – allowing them to spin larger profits for longer while staving off the introduction of generics.

Thrown around by both sides of the debate, it appears as if no one is satisfied with the TPP’s negotiated result of five-year data exclusivity. Biotechnology Industry Organization CEO Jim Greenwood remarked that the TPP’s failure to include 12-year data exclusivity has “the potential to chill global investment and slow development of new breakthrough treatments for suffering patients.” On the other side of the spectrum, Médecins Sans Frontières (A.K.A. Doctors Without Borders) claims that the five-year data exclusivity in the TPP is already far too high – “The TPP will still go down in history as the worst trade agreement for access to medicines in developing countries, which will be forced to change their laws to incorporate abusive intellectual property protections for pharmaceutical companies.”

So what is the truth behind all this coded language?

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Backstory behind data exclusivity

To begin to understand this debate, we must define biologics. Biologics are drugs derived from a biological source; this includes vaccines, anti-toxins, and monoclonal antibodies. Biologic production has spiked in recent decades as technological advancement has made new therapies possible. Because biologics tend to be larger and more structurally complex than traditional ‘small-molecule’ drugs, they are among the most expensive drugs on the market – on average, biologics cost 22 times more than synthetic drugs. Gilead’s new hepatitis C drug immediately comes to mind – grossing $12.4 billion last year, the medicine’s cost exceeds $1,000 per day for patients.

Given the profitability of biologics, there is strong incentive for companies to develop “biosimilars,” which are the generic versions of the original drugs. Biosimilars must undergo the same rigorous FDA approval process before they can be sold, which means that they need to be proven in clinical trials to be safe and efficacious. Companies can sell biosimilars at much lower cost if they can rely on the data generated from clinical trials submitted by the maker of the original biologic, since the two compounds will be extremely similar in chemical make-up. Unsurprisingly, in recent history, the original maker has tended to fight tooth and nail to keep that data confidential for as long as possible, thus keeping the competition at bay and extending monopoly power.

Data exclusivity – which arises from this exact scenario – is entirely separate from patent protection – a patent is generally granted very early in the drug development process, when the initial discovery is made. Under TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights), which is administered by the WTO, a potential drug has 20 years of enforceable patent protection. For some drugs, the 20-year shelf life is not long enough, since the process of discovery, production, and FDA approval does not always run on a smooth and straightforward timeline. That said, 20 years is still a significant amount of protection – in developing nations, which have special TRIPS flexibilities under the Doha Declaration, there is no patent protection at all.

In the situation where a compound is covered by data exclusivity but not by a patent, a company can create a knock-off generic based on the original compound’s chemical properties. And nothing legally bars that company from generating its own data to eventually market the generic drug. The lack of legal barriers, however, is meaningless, because the financial barrier is essentially insurmountable. No company will go through the effort of replicating a full three-pronged clinical trial process for a drug that is already on the market. Though price secrecy is ubiquitous in the pharmaceutical industry, it is well-known that the bulk of production cost comes from the clinical trials. A highly-cited Tufts study on pharmaceutical data in 2003 suggests that the average total development cost of a new drug is US$800 million, of which 60% is incurred through clinical trials. As of 2014, the Tufts Center for the Study of Drug Development has updated that cost to $2.6 billion, which is the number that PhRMA (Pharmaceutical Research and Manufacturers of America) likes to cite. These figures, however, are still being hotly debated, with some experts claiming that the cost is inflated.

Nevertheless, given high up-front costs, with substantially smaller marginal costs, one can see why PhRMA is pushing for longer data exclusivity periods globally. For every one blockbuster drug (like Gilead’s hep C treatment), there are thousands of failures that never see the light of day. Pharmaceutical companies argue that without extensive patent and data exclusivity rights, there is no incentive for companies to engage in risky and expensive innovation, where there are considerable sunk costs spread over a 10-15 year drug development timeframe. Opponents of extended data exclusivity laws – among them the Public Citizen and Médecins Sans Frontières – are quick to point out that pharmaceutical companies already make huge profits and do not need more protection in the market.

The TPP’s data exclusivity clause

The signatory nations of the TPP have varying degrees of data exclusivity. Under the Affordable Care Act, biologics in America currently have 12 years of data exclusivity. In Canada and Japan, they have eight years; in Australia, five years; and in Brunei, Peru, Vietnam, Malaysia, and Mexico, there are no data exclusivity laws at all. Under Article 18.52 of the TPP, all of these signatory countries will be held to an eight-year period of data exclusivity, or a five-year period accompanied by “other measures” and recognition “that market circumstances also contribute to effective market protection.” Ambiguous wording aside, it appears that the actual, working period will be five years.

During negotiations, the United States pushed very hard for a 12-year period, whereas Australia threatened to leave the TPP if such a lengthy data exclusivity period was included. At the height of the drama, there were some who labeled data exclusivity as the ‘death sentence clause.’ That may be a bit overdramatic and sensationalized; but one cannot deny the fact that extended data exclusivity periods will almost certainly raise healthcare costs. For nations that publicly fund healthcare – such as Australia – that cost increase is not insignificant.

Today, roughly 5,600 medicines are in development in TPP countries; a whopping 3,372 come from the U.S., including over 900 biologic medicines. The United States is the world’s foremost leader in the pharmaceutical industry. PhRMA may be “disappointed” that the TPP does not extend data exclusivity in all signatory countries, but that is unlikely to strongly affect the global pharmaceutical industry, especially since companies in the United States will still enjoy a 12-year period. Meanwhile, Médecins Sans Frontières may claim that the biggest losers from the TPP’s five-year data exclusivity mandate will be the developing nations that previously had no data exclusivity laws, since now, they will have to wait at least 5 years before allowing biosimilars to enter the market. But even this concession does not appear to be a huge one, since none of the signatory countries affected are large biosimilar producers.

Thus, the biologic data exclusivity clause in the TPP does not appear to have significant immediate effects, despite what the mainstream media wants to play up. It may have long-term significance, however, as developing nations seek to build up their own pharmaceutical industries, or as generic-producing giants such as India seek to enter into trade agreements like the TPP.

Feature image courtesy Wikimedia Commons.

Caroline Park
Caroline hails from the tiny town of Whippany, New Jersey. She is currently at the University of Melbourne on a U.S. Fulbright Anne Wexler Scholarship in Public Policy. During her undergraduate years, she studied metabolic syndrome at the Cowan Laboratory of the Harvard Stem Cell Institute. As a Herchel Smith Fellow in 2016, she focused on the effects of maternal malnutrition on fetal development. An avid traveler, Caroline has worked on various humanitarian projects throughout Southeast Asia and southern Africa. When she is not working, she can be found jogging around town, eating something spicy, or rooting for the New York Mets.

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Development, Economics, Education, International, Policy, Public Health, Public Policy, Research, Social Responsibility, Sustainability

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