[Ip-health] Comments for FTC on Proposed U.S. Biogenerics Legislation

[Sarah Rimmington]

On December 22, Essential Action submitted comments to the Federal Trade
Commission (FTC) regarding proposals for U.S. biogenerics legislation.

The comments argue that "providing timely access to affordable, safe and
effective products should be the central purpose" of biogenerics
legislation. "Provisions that extend the monopoly protection period of
brand-name companies, or otherwise make it unreasonably difficult to
sell affordable biogenerics to patients as soon as possible after patent
expiration, would therefore defeat the purpose of the new rules." To
ensure that this purpose is met, Essential Action argues that new rules
should:

1. Avoid Inappropriate Marketing Monopolies (Data Exclusivity); and
2. Ensure Timely Patent Dispute Resolution and Patent Disclosure.

The complete text of the comments appears below.

A .pdf version of the comments is available at:
http://www.essentialaction.org/access/index.php?/archives/177-Comments-on-P=
roposed-U.S.-Biogenerics-Legislation.html

-----
December 22, 2008

Federal Trade Commission
Office of the Secretary
Room H-135 (Annex F)
600 Pennsylvania Ave., NW
Washington, DC 20580

Re: Emerging Health Care Competition and Consumer Issues =96 Comment,
Project No. P083901

Dear Sir or Madam,

Thank-you for providing Essential Action the opportunity to submit
comments on issues raised during the November 21, 2008 =93FTC Roundtable
on Follow-on Biologic Drugs: Framework for Competition and Continued
Innovation.=94

Essential Action is a non-profit organization involved in global access
to medicines issues for more than a decade. We are strongly supportive
of an efficient biogenerics approval process -- one that would ensure
timely access to safe, effective and interchangeable products, yielding
significant savings for individual consumers, government agencies and
other healthcare payers, and making important medicines more widely
available. Our Access to Medicines Project has been funded by the Ford
Foundation and the Open Society Institute.

Comments on Key Issues Raised during the FTC Roundtable
Providing timely access to affordable, safe and effective products
should be the central purpose of U.S. biogenerics legislation.
Provisions that extend the monopoly protection period of brand-name
companies, or otherwise make it unreasonably difficult to sell
affordable biogenerics to patients as soon as possible after patent
expiration, would therefore defeat the purpose of the new rules. To
ensure that this purpose is met, new rules should:

1. Avoid Inappropriate Marketing Monopolies (Data Exclusivity)
2. Ensure Timely Patent Dispute Resolution and Patent Disclosure


1. Avoiding Inappropriate Marketing Monopolies (Data Exclusivity)
The primary rationale for data exclusivity is that drug development is
expensive and risky. Data exclusivity, according to its proponents, is
necessary both to provide an incentive for brand-name companies to
undertake research and development (R&D) and to ensure that they are not
placed at unfair disadvantage as against =91free-riding=92 generic firms.

We believe that provisions data exclusivity provisions should not be
included in U.S. biogenerics legislation that amends the Public Health
Services Act (PHSA), for the following reasons:

A. Data exclusivity is not needed for brand-name biotech companies to
re-coup their R&D Costs;
B. Data exclusivity is a major barrier to generic competition;
C. Data exclusivity overcompensates data originators; and,
D. The cost-sharing approach to registration data is a more efficient,
pro-competitive approach to rewarding innovation than data exclusivity.


A. Data Exclusivity is not needed for brand-name biotech companies to
re-coup their R&D Costs
There is reason to challenge whether data exclusivity or any other form
of compensation for registration data is needed to provide adequate
incentive for biotech R&D. Brand-name biotech companies already have
large incentives under the patent system to conduct R&D =96 patents are
20-year marketing monopolies that allow innovators to set a price that
will allow them to recoup all of their costs plus earn substantial profits.

A related but distinct argument is whether data protection, including
data exclusivity, is necessary to provide a fair return to the companies
that conducted the clinical trials, which are but the final stage of the
research and development process. There is an actual cost to conducting
clinical trials, this argument runs; if generic competitors are able to
rely on marketing approvals based on those trials in order to obtain
their own marketing approval, they will unfairly free ride on the
investment of the originator firm. This argument has less force for
products for which companies benefit from patent protection, because
free from competitive pressures they can set a price that allows them to
earn profits, and not just re-coup their R&D costs.

It must be noted that the brand-name biotech industry is in fact
asserting that the patent system does not adequately incentivize R&D,
primarily in support of its claim that very extensive data exclusivity
-- as much as fourteen years -- should be granted to biologic drugs
approved under the PHSA. This exclusivity period is substantially longer
than that five to eight years available to conventional drugs and
biologics approved under the Food, Drug and Cosmetic Act (FDCA). BIO
(the brand-name Biotechnology Industry Association) has argued that
there is the =93very real potential=94 patent protection will not provide
the incentives needed for continued biologics innovation =96 and data
exclusivity must step in to take patents=92 place. In particular, BIO
asserts that an extended data exclusivity period is necessary because
patent protection might be narrower for many of these products. This
might allow generics manufacturers to design around patent claims,
producing products that are similar, but nevertheless, not infringing
the innovator=92s patents.

But that is not what BIO told U.S. Congress last year during debate over
the patent reform bill. Then, BIO lobbied for strong patent protection,
citing accomplishments in biotechnology and stating, =93All of this
innovation is possible because of the certainty and predictability
provided by the U.S. patent system.=94

It is clear, therefore, that the brand-name biotechnology industry
believes patents do play a critical role in incentivizing innovation,
while at the same time it seeks unprecedented levels of data
exclusivity. But the only possible public justification for an extended
period of data exclusivity is that the patent system will not work to
reward innovators. The industry cannot have it both ways: either patents
do or do not provide adequate incentive for research and development.
Because the limits of patentability and patent claims are not being
considered in the context of U.S. biogenerics legislation, no data
exclusivity should be granted to brand-name companies, to ensure the
industry does not receive a windfall at the public=92s expense.

Additionally, even in the absence of data exclusivity or patent
protection, brand-name firms enjoy both the same benefits as first
entrants in conventional pharmaceutical markets (including building up
brand-name identity and allegiance) but advantages unique to the
biologics market. Biologics may enjoy a period of de facto exclusivity
resulting from the difficulties inherent in producing them. As with
brand-name companies, it will also take generic firms several years to
develop FDA-approved manufacturing processes for biologics, and even
with a streamlined regulatory pathway -- something which certainly
remains politically contested -- this approval process will likely be
considerably longer and more expensive bin many cases than for
conventional drugs. In some cases, biogeneric production may push the
limits of cost-efficiency.


B. Data Exclusivity is a Major Barrier to Generic Competition
Providing data exclusivity in addition to patents to reward innovators
is also not desirable because data exclusivity poses major barriers to
generic entry. In general, if generic firms are unable to use or rely on
originators=92 data, they will not enter the market until they are able to
rely on the data. Redoing the tests conducted by brand-name companies is
not only wasteful, it is frequently too time-consuming and expensive for
the relatively low-capitalized generic industry to manage, not to
mention unethical in the case of testing that involves humans. Thus data
exclusivity confers an effective marketing monopoly for the term of the
exclusivity period, potentially delaying the onset of generic
competition, keeping medicine prices high for a longer period of time.

Where patent monopolies extend beyond the period of data exclusivity
provided, data exclusivity may have little practical effect. But
frequently data exclusivity will be of consequence. The provision of
exclusive rights to registration data can provide patent-like
protections in cases where the patent is found to be invalid, or for
which the patent term has expired.

If its patents are invalid, it is not clear that the brand name product
contributes significantly to innovation, and it is not clear that the
public should insulate the company from competition. Indeed, when a
product lacks the innovative properties to qualify for patent
protection, it is generally in the interest of innovation to promote
competition, so that the next innovations =96 like another company=92s
improvement on an existing drug =96 are not held up by exclusive rights.

In the case of U.S. biogenerics legislation, the likelihood of extensive
delays to price-lowering generic competition resulting from data
exclusivity is a major concern because brand-name companies are
advocating for an unprecedented exclusivity period of 14 years, which
significantly longer that five to eight years granted to innovators of
conventional and biologic drugs under Hatch-Waxman. The Hatch-Waxman
history is replete with abuses of the exclusivity process, including
elaborate and sophisticated evergreening strategies that game the system
in order to extend monopoly protections beyond those envisioned by the
statute. There is every reason to suspect similar strategies will be
employed with a parallel system for biologics, so that exclusivity may
in practice extend even beyond 14 years.

C. Data exclusivity overcompensates data originators
Data exclusivity is also economically inefficient, because an effective
marketing monopoly is likely to provide overcompensation for data
originators, enabling them to earn many times the cost of the clinical
tests that produced the data.

There is also no evidence to support brand-name company arguments that a
substantially lengthier exclusivity period is warranted for biologic
products approved under the PHSA than is available for products approved
under the FDCA. For example, the brand-name industry frequently cites
published studies that report the cost of producing brand-name
conventional drugs and biologic drugs is almost identical ($1.2 billion
versus 1.3 billion). If it doesn=92t cost significantly more to develop
biotech products, there is no objective justification for the brand-name
industry=92s proposal to increase the amount of data exclusivity granted
to these products by almost 300 percent, from a minimum of five years
guaranteed by Hatch-Waxman to fourteen years.

D. The Cost-sharing approach to registration data is a more efficient,
pro-competitive approach than data exclusivity
If policymakers wish to create an additional incentive specifically for
the cost of clinical trials, there are approaches -- such as sharing the
cost of clinical trials -- that satisfy the public policy rationale for
providing data exclusivity to innovators, at a much lower cost and while
avoiding data exclusivity-conferred marketing monopolies that undermine
access to medicines and other public health objectives. If a policy
decision is made that innovator companies need investment protections
beyond those afforded by the patent system, the cost-sharing approach
would be an efficient and pro-public health alternative to the data
exclusivity approach. This approach gives generic firms an automatic
right to use originators=92 data, but requires them to pay a share of the
documented costs of generating the data, proportionate to the size of
the markets in which they are selling their product.

The cost-sharing approach gives generic competitors an automatic right
to rely on the registration data generated by originator companies, or
marketing approval authorizations based on that data. But it requires
the generic entrants to pay for use of the data (or for relying on
marketing approvals based on the data). Under the cost-sharing approach,
the amount generic competitors pay for using or relying on the data is
based on the actual costs of generating the data and the proportionate
global market share obtained by the generic competitor.

The key features of such a system are:
=95 The originator of the data must disclose and document the actual costs
incurred in generating the data
=95 The generic competitor pays a proportionate share of cost.

To avoid overcompensation for data, or double compensation for
originators of data, caps and limits on payment should be applied under
this approach:
=95 If a product is covered by a patent, no registration data compensation
is paid;
=95 When the company that originated the data earns from sales a certain
multiple (we propose 20 times) of its cost in generating registration
data, it loses its right to data compensation from generic competitors;
=95 The right to compensation expires five years after marketing approval
has been granted to data originators.

Here's how the system would work in practice: Innovator A receives
marketing approval for biologic pharmaceutical P in 2010. Generic
company G1 gains marketing approval in 2012 and immediately gains a 50
percent market share. Stipulate that P is sold only in the United
States. A documents clinical testing costs of $100 million. G1 must pay
$10 million to A at the end of 2012, at the end of 2013 and the end of 2014=
.

Now assume another generic entrant, G2 enters the market in 2013. A, G1
and G2 each have a 33 percent market share. G1 and G2 must each pay
$6.67 million to A in 2013 and 2014.

This system would be administratively manageable. A version is already
in effect for U.S. approval of agricultural chemicals, although the
agrichemical cost-sharing scheme follows only after grant of an initial
marketing monopoly.

The cost-sharing approach acknowledges that there are genuine and
significant costs associated with conducting clinical trials to obtain
marketing approval for biologics. By providing compensation to companies
that originate registration data, the cost-sharing approach deals
directly with the claim by brand-name companies that "free-riding" by
generic entrants will undermine R&D incentives or unfairly situate the
originators of registration data.

The cost-sharing approach also narrowly tailors the reward offered to
data originators. It provides direct compensation based on the actual
cost of data used to obtain marketing approval, ensuring that data
originators obtain proportionate compensation for others=92 use of the
results of the originators=92 investment.

This approach contrasts sharply to the data exclusivity approach, which
rewards data originators with effective marketing monopolies. The
cost-sharing approach considers an effective marketing monopoly as
likely to provide overcompensation for data originators, enabling them
to earn many times the cost of their investments, with monopoly rewards
unrelated to the size of their investment. The cost-sharing approach
also rejects the idea of marketing monopoly as appropriate for an
investment-based compensatory scheme =96 one that is trying to avoid uses
of the fruits of originators=92 investment that may be considered
"unfair," but is not trying to reward creative genius in the fashion of
patents.


2. Timely Patent Dispute Resolution and Patent Disclosure
The patent resolution system in U.S. biogenerics legislation should aim
for clear disclosure of patents claimed by first registrants, and rapid
resolution of potential patent claims. We believe that key features
should be:

A. Initial registrants should be required to disclose claimed patents as
a condition of enforcement;
B. Second entrants should be able to seek resolution of patent claims at
any point after the reference product registration;
C. There should be no requirement for second entrants to share
confidential information in advance of any litigation process; this
objective can be achieved by placing responsibility for initiating a
patent resolution process on the second entrant; and
D. Second entrants should have the option to bypass the early patent
resolution system

A. Patent Disclosure Should be Mandatory

The patent system is premised on public disclosure. Not only is the
basic fact of a patent claim supposed to be public knowledge, but the
very provision of a patent is supposed to embody a trade-off whereby the
means to make the underlying invention is publicized in exchange for
grant of the patent monopoly. Moreover, to perform their
property-delineating function effectively, patents must provide
effective notice to the public and potential industry competitors.

Given the essential public component and notice functions of the patent
system, there is no legitimate public policy rationale in patent claims
on medicines being treated as proprietary or subjected to industry
gamesmanship.

Routine patent disclosure should therefore be the norm for medicines.
For conventional drugs registered under the Food, Drug and Cosmetic Act,
this routine disclosure is achieved through Orange Book listings. This
is a problematic approach because of the linkage system, but it does at
least achieve the disclosure objective. We believe a sound public policy
approach would require disclosure of claimed patents as a condition of
enforcement, and believe this regime should be adopted for biologics
registered under the Public Health Service Act.

Thus, initial registrants should be required at the time of application
to indicate any granted or filed patents that they believe apply to the
biologic for which they seek marketing approval. This should include
both patents granted to the registrant or which have been licensed to
them. They should be required to update this list for any new patent
filings, within a statutorily defined period, perhaps 30 days. Failure
to disclose should forfeit the right to enforce.

B. The Patent Resolution Process Should Be Available at Any Point After
Initial Registration

Given the centrality of patents to pharmaceutical manufacture, and the
considerable up-front costs of undertaking tests to determine generic
substitutability (or comparability, or therapeutic equivalence, or
similarity), it is often impractical for generic manufacturers to
introduce a product onto the market without ascertaining that they can
do so without infringing the patents held or licensed by the registrant
of the reference product. For biologics, the expected greater cost of
achieving and demonstrating substitutability, comparability,
equivalence, or similarity will likely deter in many cases pre-marketing
investments unless there is certainty about the patent landscape. It is
thus vital that there be a system for pre-marketing resolution of the
validity and applicability of reference product patents to a subsequent
generic or similar product.

The objective of such a system should be to clear patent claims so that
a) invalid patents do not delay investment in, or introduction of,
generic or similar products; b) non-applicable patents do not delay
investment in, or introduction of, generic or similar products; and c)
all potential patent claims are resolved in advance of any applicable
marketing exclusivities.

The originators have a legitimate interest in protecting and enforcing
their patents. They do not have a legitimate interest in enforcing
invalid patents, however, or delaying second entrant entry by
brandishing patents that do not apply to the second entrant's product.

Delays in starting the process of pre-marketing patent resolution serve
only to enable invalid or non-applicable patents to delay second entrant
investment or marketing. If a pre-marketing patent resolution process
leads to a finding that a patent is valid and/or applicable to a second
entrant, then the originator will be able to obtain full protection for
that patent, no matter when the process is originated.

We thus believe that potential second entrants should be free to
initiate patent resolution processes at any point following approval of
an originator product.

With such a system, there may be cases in which a second entrant
initiating a patent resolution process does so before developing its
process to make its version of the reference product. In such a case, it
might not be able to obtain clarity on process patents. This would be a
risk borne by the second entrant. It would retain the right to initiate
a patent resolution process for potentially applicable process patents
at a later date.

C. The Second Entrant Should Not Be Required to Share Confidential
Information During the Administrative Process

Some legislative proposals for early patent resolution require the
second entrant to share confidential information with the maker of the
reference product. Statutory promises of protection notwithstanding, it
is hard to imagine such information remaining confidential and not being
shared with scientists employed by the originator company. Such a
requirement to share confidential information is notably discordant with
the confidentiality protections afforded to originators.

Second entrants should not be required to share confidential information
with reference product makers, at least until a court proceeding is
underway.

This problem can be avoided by placing responsibility for initiating a
patent resolution process on to the second entrant. If the second
entrant identifies claimed patents that it believes to be invalid or not
to cover its product, then those disputes can be litigated or resolved
through an appropriate process, without any pre-screening of second
entrant confidential information by the originator.

The originator company would reserve the right to enforce at a later
date any patent not addressed through the pre-marketing patent
resolution process.

D. Second Entrants Should Have the Right to Opt Out of the Early Patent
Resolution System

Second entrants should reserve the right to bypass the early patent
resolution system. It is especially important to preserve this right if
the early patent resolution system requires the second entrant to share
confidential information.

There is no diminution of the patent holders' rights if a second entrant
chooses to bypass a pre-marketing patent resolution process.

Because there are significant business risks in doing so, it is unlikely
that most second entrants would exercise this option. But it should
remain open. It may be the preferred choice for second entrants in
particular cases, or because the pre-marketing patent resolution process
evolves in such a fashion as to constitute a barrier to investment and
marketing


Conclusion
Essential Action appreciates the opportunity to comment on issues raised
in the FTC roundtable on developing a regulatory pathway for
biogenerics. We would be happy to provide further input or clarification
on our comments, as needed.

Sincerely,

Robert Weissman,
Director

Sarah Rimmington,
Attorney


--
Sarah Rimmington
Attorney
Essential Action, Access to Medicines Project
Washington, DC
Tel: (202) 387-8030
Cell: (202) 422-2687
www.essentialaction.org/access/