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September 17, 2008

Expert Says Eshoo-Barton Bill Stifles Drug Innovation

Economist Finds Excessive Market ProtectionThreatens Development of New Biologics

Washington, D.C. – Pending legislative proposals in Congress to create a follow-on biologics (FOBs) pathway risk overextending monopoly protection and undermining innovation, according to a comprehensive analysis released today by Boston University Economics Professor Laurence J. Kotlikoff and commissioned by Teva Pharmaceuticals USA.

Dr. Kolikoff found that biogeneric legislation drafted by Representatives Anna Eshoo (D-CA) and Joe Barton (R-TX), as well as proposals by Senator Edward Kennedy (D-MA) and Representative Jay Inslee (D-WA) all contain provisions that would “delay the pace at which innovative drugs are brought to market and lower the speed at which today’s innovations are incorporated in tomorrow’s discoveries.”

The scientific and legal framework for the approval of small-molecule generic drugs is well developed. But so far Congress has not been able to come to consensus on establishing a regulatory pathway for the approval of FOBs, which are also commonly referred to as biosimilars or biogenerics.

At the center of the debate is the number of years of monopoly protection afforded brand manufacturers after the marketing of a new biologic drug. Dr. Kotlikoff’s work closely examines each of the exclusivity provisions in the pending biogenerics legislative proposals, as well as the current standard applied to chemical drugs.
He concludes that excessive monopoly protection for biologics, such as the structure outlined in the Eshoo-Barton proposal, will cause inventors to focus on protecting intellectual property and marketing shares rather than developing a dramatically different and better version of the product. According to Dr. Kotlikoff, Congress should instead consider the landmark 1984 Hatch-Waxman Act as a model for establishing a regulatory pathway for biogenerics.

“The average development time for new biological entities is only 7.4 months longer than that for new chemical entities. In comparison, compared with Hatch-Waxman, the Eshoo-Barton and Inslee bills call for between 12 months and 120 months of extra monopoly protection depending on when the biologic is brought to market,” Dr. Kotlikoff wrote. “There are no compelling differences between the chemical-based and protein-based medication industries to justify deviating from a policy that has succeeded for over a quarter of a century in both dramatically reducing drug prices and stimulating innovation.”

“Dr. Kotlikoff’s work presents a compelling case that we need to achieve the delicate balance between two equally important objectives—reward for innovation and incentives for future discovery” said William Marth, President and CEO of Teva North America. “We hope Congress will carefully consider this balance when it crafts a clean, science-based regulatory pathway for the approval of safe and effective biogenerics.”
Highlights from the paper include:

• Kennedy, Eshoo-Barton, and Inslee bills overextend marketing exclusivity for biologics by leading to less, not more, innovation over time. In fact, all three of these proposals would reward companies that delay bringing biologics to market with longer monopoly protection.
  
• Hatch-Waxman’s success did not come at the price of innovation. On the contrary, the legislation appears to have accelerated innovation, with significant rise in new pharmaceutical products since 1984.
  
• Compared with pharmaceuticals, biologics are more costly to produce, but their reward is also considerably higher. Indeed, compared to chemical medications, biologic medications appear to have a lower ratio of invention cost to invention reward.
  
• When it comes to non-diversifiable risk, the biotech industry is riskier than most, but not by much. Consequently, the cost of equity capital in biotech is only 18 percent higher than the average across all other industries. The pharmaceuticals industry, interestingly enough, is much riskier than biotech. Its cost of capital is 35 percent above average.
  

Dr. Kotlikoff’s full report is available on Teva’s government affairs Web site at www.tevadc.com. Journalists may contact him by calling 202-879-5828 or emailing yshi@gibraltar-llc.com.

About Laurence J. Kotlikoff
Laurence J. Kotlikoff is Professor of Economics at Boston University, Research Associate of the National Bureau of Economic Research, Fellow of the American Academy of Arts and Sciences, Fellow of the Econometric Society, and President of Economic Security Planning, Inc., a company specializing in financial planning software. Professor Kotlikoff received his B.A. in Economics from the University of Pennsylvania in 1973 and his Ph.D. in Economics from Harvard University in 1977. From 1977 through 1983 he served on the faculties of economics of the University of California, Los Angeles and Yale University. In 1981-82 Professor Kotlikoff was a Senior Economist with the President's Council of Economic Advisers. Professor Kotlikoff has served as a consultant to the International Monetary Fund, the World Bank, the Harvard Institute for International Development, the Organization for Economic Cooperation and Development, as well as many other foreign government entities. Professor Kotlikoff has consulted for the Office of Management and Budget, the U.S. Department of Education, the U.S. Department of Labor, the Joint Committee on Taxation, The Commonwealth of Massachusetts, The American Council of Life Insurance, Merrill Lynch, Fidelity Investments, AT&T, AON Corp., and other major U.S. corporations. He has provided expert testimony on numerous occasions to committees of Congress including the Senate Finance Committee, the House Ways and Means Committee, and the Joint Economic Committee. Professor Kotlikoff is author or co-author of 13 books and hundreds of professional journal articles. Professor Kotlikoff publishes extensively in newspapers, and magazines on issues of deficits, generational accounting, the tax structure, social security, Medicare, health reform, pensions, saving, insurance, and personal finance.

About Teva Pharmaceuticals USA
Teva Pharmaceuticals USA is the leading generic pharmaceutical company, marketing products from a wide range of therapeutic areas with operations in nine states. Teva USA products are marketed to chains, wholesalers, distributors, hospitals, managed care entities, and government agencies. Teva USA has an aggressive Research and Development effort and one of the best overall ANDA approval records in the industry. The company's mission is to play a leading role in the transformation of the U.S. healthcare system through its pre-eminence in the development, manufacture and marketing of generic and innovative pharmaceuticals. Teva USA is a wholly-owned subsidiary of Teva Pharmaceutical Industries Ltd., one of the largest generic pharmaceutical companies in the world and among the top 20 pharmaceutical companies, with more than 27,000 employees in 50 countries.