Recently, Congress proposed legislation allowing the FDA to approve generic versions of biotechnology drugs after a shortened period of brand-name patent exclusivity. While legislators tout the obvious benefits of such a move, Jim Hollingshead from Deloitte digs deeper to find some unintended consequences:
• Make Hay" effect: Once a drug is introduced to the market, an innovator has a short time to recoup its development costs -- upwards of $1 billion over 12 years -- before a competitor enters the market. Faced with patent protection of limited duration, innovator companies must maximize their revenues in the short period before generics are introduced. To do this, they generally raise prices and invest more in marketing the drug, tactics that run counter to Hatch-Waxman, the intent of which was to lower prices.
• "Blockbuster" effect: Facing increased drug development costs and a limited period of time before generics can compete, innovators typically focus only on those drugs that promise huge returns on investment. To recoup the amount of time and money an innovator spends on a new drug, experts have shown that to break even, a drug would have to achieve annual revenue of roughly $150 million, which is impossible unless a drug targets a large population, or charges a high price per treatment. This blockbuster effect has led pharma companies generally to focus development efforts on only the largest potential indications.
• "No Man's Land" effect: As soon as a company receives a patent for a compound, the clock for commercialization begins ticking. Each year a patented drug spends in development is another year of lost revenue. If enough time elapses, there comes a point where the compound will never be able to earn sufficient return on investment. This could lead to promising compounds being dropped from development, including those for critical diseases like cancer, Parkinson's, Alzheimer's and others, because there is no way to fund the research once the compound has crossed into this "no man's land." Deloitte estimates this can occur within as little as one year of achieving a patent.
Read the press release here (link)
Download a copy of the study here (link)