The Obama Administration regrettably continues its campaign to weaken intellectual property (IP) rights, moving beyond antitrust policy (see articles by me, here and here) to the realm of substantive legislation. In his fiscal year 2017 budget proposal, President Obama proposed to reduce the period of exclusivity granted producers of “biologic” drugs from twelve to seven years. If adopted, this change would disincentivize pharmaceutical innovation, with harmful consequences for future patients as well as for the economy, as explained in an article published today in the Heritage Foundation’s Daily Signal.

Zarxio is the U.S.’s first authorized “biosimilar” drug, or a copycat of an already-approved “biologic.” Biologics are widely regarded to be the future of medicine, proving effective against a number of today’s incurable diseases. Unlike traditional pharmaceuticals, biologics refer to molecular, combination treatments made within cells themselves. While typical pharmaceuticals are based on a single molecule and are therefore easily identifiable and chemically replicable, biologics are much more complex. Created by cellular processes, biologics are large, intricate, and sometimes impossible to fully characterize.

The Biologics Price Competition and Innovation Act of 2009 (enacted in 2010 as part of Obamacare) provides twelve years of exclusivity for a biologic, after which a copycat biosimilar can be produced and marketed. A reduction in the exclusivity period to seven years could destroy incentives to carry out the R&D needed to develop future biologics (and, thus, future follow-on biosimilars). Henry Grabowski, a professor at Duke University, found that 12 years of data exclusivity is required to allow a biologic developer a reasonable opportunity to recoup its costs.  Another study determined that biologic firms usually do not break even for 13-to-16 years (also see here). Would you start a business if you knew ahead of time that you wouldn’t break even? Nobody would—including those who would otherwise discover and produce revolutionary cures to diseases.

In short, reduction of the exclusivity period for biologics would, by decimating the biologics industry, slow pharmacologically-driven improvements in health care, and thereby harm the economy and the health of the American public.  It may be hoped that the Obama Administration will weigh the evidence and rethink its position on this topic.  In any event, Congress should refuse to countenance weakening IP protection in this critical emerging sector of the pharmaceuticals market.