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November 18, 2008

Economist Finds Flaws in 14-Year Data Exclusivity

Claim for Biogenerics

AEI Fellow Alex Brill Concludes Data Exclusivity Period Half of What Biotech Industry Demands is Sufficient

Washington, D.C. – A white paper released today by Alex Brill, a former House Ways and Means Committee chief economist and senior advisor and currently a research fellow at the American Enterprise Institute, found that a sufficient data exclusivity period to grant brand biologics manufacturers before biogenerics can come to market is seven years, rather than the 14 years currently supported by the Biotechnology Industry Organization (BIO).

Brill reached this conclusion by extending and updating an economic model developed by Duke University economist Henry Grabowski and widely touted by BIO for its longer exclusivity recommendation. 

“Patent protections and a period of data exclusivity are important to encourage research and development in new drugs and Professor Grabowski has established a useful framework to determine a ‘break-even’ point for a portfolio of investments in the biologic drug industry. However, the results are affected considerably when tested with more plausible assumptions,” Brill said. “Furthermore, Professor Grabowski’s model only estimates a “break-even” point and does not estimate an optimal data exclusivity period because it does not take into consideration financial rewards patent holders can expect well after the expiration of monopoly protection.”

By slightly changing two key data variables in the Grabowski model – the cost of capital and the contribution margin – to reflect more plausible assumptions, Brill found the ‘break-even’ number to be near nine years, rather than the 12.9 – 16.2 years suggested by Professor Grabowski.  Then, by imposing the likely effects of competition on price and market share as assumed by the non-partisan Congressional Budget Office (CBO), Brill determines that seven years of data exclusivity would be sufficient to reward patent holders while encouraging market competition that spurs innovation. 

Brill’s analysis, commissioned by Teva Pharmaceuticals USA, was released as a newly elected Congress and Administration are poised to create a pathway for the approval of biogenerics that is expected to generate significant cost savings for the American health care system.

“Alex Brill’s findings inject a new and much-needed perspective on the debate around data exclusivity and biogenerics,” said William Marth, President and CEO of Teva North America. “This work underscores the importance of finding the balance needed to appropriately reward biologics innovators while maximizing health care cost savings.”

Neither Brill’s paper nor Professor Grabowski’s work includes considerations of important other factors that may further incentivize biologics innovation.  Some examples of this include legal patent protection arguments and the practice of “evergreening” – the ability of patent holders to produce second-generation innovations based on the original product. 

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

About Alex Brill
Alex M. Brill is a research fellow at the American Enterprise Institute as well as economic policy advisor to Buchanan Ingersoll & Rooney PC and principal at Matrix Global Advisors, LLC.  From 2002 to early 2007, Alex was a staffer on the House Committee on Ways and Means where he served as chief economist and later senior advisor to the Chairman.  In this capacity, Alex was the Committee’s policy director and led staff negotiations on a number of important pieces of legislation including tax, pension, and health policy matters.  In 2001, Alex worked for the White House Council of Economic Advisers on tax, budget and financial services issues.  He has a B.A. in Economics from Tufts University and a M.A. in Mathematical Finance from Boston University.  He is also a Term Member of the Council on Foreign Relations. 

About Teva Pharmaceuticals USA
Teva Pharmaceuticals USA is the leading generic pharmaceutical company, marketing products from a wide range of therapeutic areas including analgesic, anti-infective, cardiovascular, oncology, CNS, dermatological and anti-inflammatory. Dosage forms include extended and immediate release tablets and capsules, injectables, creams, ointments, solutions, and suspensions. 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 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.