Supporting innovation in next-generation medicines

By Jack Ellis, Associate Researcher, Geneva Network*

*Jack Ellis is a freelance journalist and was previously Asia-Pacific editor of Intellectual Asset Management magazine covering intellectual property and the legal services market.

In medicine, the dominance of small-molecule drugs is coming to an end. In future more treatments will be biologic – complex drugs with molecular structures many times larger, manufactured inside living structures such as animal cells or bacteria.

The new era of biotechnology promises a revolution in how doctors manage disease, offering hope to patients with conditions for which there is currently no treatment. Advances in gene therapy, the development of safer vaccines, precision medicine and superior diagnostics stand to benefit millions.

Despite its transformative potential, research and development (R&D) in medical biotechnology remains concentrated in a handful of countries. The United States is the world leader by far in biotechnological output, followed by the United Kingdom, Switzerland, Germany, France and Japan. Some emerging markets like China have nascent biotech industries, but medical biotech R&D is far from global.

Those countries with strong industries have a robust regulatory environment, adequate R&D infrastructure and an effective intellectual property (IP) system to mobilize the large investment needed to fund risky biotech ventures. 

To promote innovation in biologic medicines the key IP right is not patents but regulatory data protection. For a limited period, regulatory data protection prevents competitors from exploiting the data generated in clinical trials by the original drug developer. The most innovative countries in biotechnology all have clear, legally binding rules to protect these data.

Regulatory data protection explained

Regulatory authorities require data from preclinical and clinical trials to be able to approve and certify that a pharmaceutical technology is safe and effective for consumer use before market entry. Clinical trials are painstaking and expensive and add significantly to the cost of developing a new medicine, estimates for which range from USD 1.2 billion (Office of Health Economics, United Kingdom) to USD 2.6 billion (Tufts University, United States). 

In most sectors companies can protect commercially sensitive data through trade secrecy laws, but the requirement for biotech companies to disclose data to regulators puts them at a competitive disadvantage, according to Susan Finston, co-founder of Indian biomedicine startup Amrita Therapeutics.

“A typical food and beverage company can hold trade secrets on their recipes and so forth, and they can do that in perpetuity. But if you are a biopharma innovator, you have to disclose to regulators what your ‘cookbook’ is,” she says.

Regulatory data protection is critical for biopharma innovators because it ensures that competitors cannot gain regulatory approval and enter the market on the back of an innovator’s test data before the innovator has had a fair opportunity to recoup the costs of compiling it.

“In industries like biopharma or agritech, there is a compelling public interest in regulators having access to the innovators’ test data,” notes Ms. Finston, highlighting the importance of data exclusivity to innovators. “regulatory data protection arrangements allow regulators to access those data on the understanding that they will not disclose it.”

The international landscape

At the international level, regulatory data protection is governed by the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) of the World Trade Organization (WTO). Article 39.3 of TRIPS requires WTO members to protect test data submitted to regulatory authorities against unfair commercial use and disclosure, except when the public interest so requires or when the data is otherwise protected against unfair commercial use. Protection of proprietary rights to drug registration data became a requirement for all WTO members, with the exception of least developed countries, from January 1, 2000, but many countries have yet to implement it.

Clinical test data and biosimilars

One important reason regulators want access to innovators’ test data is to be able to assess follow-on versions of proprietary drugs produced by competitor companies. Just as originators of small-molecule pharmaceuticals face follow-on competition from generics manufacturers, biologic innovators face competition from producers of biosimilars – but with an important twist.

The structure of biologics is far more complex than “traditional” chemically-synthesized drugs, making it impossible to replicate an original biologic precisely. The best competitors can achieve is a biosimilar, a product that is similar in structure and effect. To obtain regulatory authorization for a biosimilar, a company must demonstrate to regulators via clinical trials that its efficacy, quality and safety are comparable to the innovator’s original product. Regulatory authorities can only grant approval if they have access to the innovator’s test data.

Why patents are not enough

Regulatory data protection grants biologics innovators some much-needed security, notes Dr. Kristina Lybecker, an associate professor at Colorado College specializing in pharmaceutical IP rights.

“Patent protection and data exclusivity are complementary forms of IP protection that both serve to incentivize the tremendous investments required for the development of biologic medicines,” she says.

Critics argue that regulatory data protection is a step too far, effectively extending protection after patent expiry and delaying the development of cheaper biosimilars to the detriment of healthcare providers and patients. Advocates, however, argue that it is critical to secure sustained investment in biotech innovation.

“Patent laws give you protection up to a point, but not completely,” explains Jack Lasersohn, general partner at the Vertical Group, a healthcare-focused venture capital firm based in the United States. “It is more difficult to protect a biologic from a biosimilar than it is to protect a small molecule from a generic that is chemically identical. Patent laws simply do not afford the same level of protection if you are going to allow similar drugs to be approved using the same data.”

In 2010, with strong support from the National Venture Capital Association, the United States enacted the Biologics Price Competition and Innovation Act, ushering in a12-year period of regulatory exclusivity for new biologics from the date of first approval by the U.S. regulator.

Mr. Lasersohn welcomed this development. “Property rights, including patents and regulatory data protection, are the foundation of investment,” he says. “No one wants to invest in something that they don’t own a part of. Patents and regulatory data protection give you a form of ownership, and therefore make it possible to invest.

“When venture capitalists look to make an investment, they need to justify it on the rate of return over time. The return you get is directly a function of the durability of the investment – in other words, how long it will produce cash flows and profit. The shorter the period of durability, the less profit that can be made and the smaller the investment that can be justified. For biotech, that durability is associated with data exclusivity.”

Without the promise of a return on their investment, venture capitalists have little reason to invest in such a high-cost, high-risk sector – putting billions of dollars in funding for cutting-edge medicines at risk.

In 2015, venture capitalists in the United States pumped a record USD 8.95 billion into biotech startups.

Producing test data is costly. That, coupled with uncertainty over the patentability of biotech inventions in the wake of US Supreme Court decisions in, for example, eBay v. MercExchange (2006), Mayo v. Prometheus (2012) and Association for Molecular Pathology v. Myriad (2014), and the challenges of enforcing patent rights, further highlight the importance of RDP as a means of sustaining investment in medical biotech.

Emerging markets

While RDP is well established in Canada, Europe, Japan and the United States (see p.39), it is absent in many developing countries. India, for example, an active player in the global pharmaceutical industry, still has some way to go to catch up with the United States and Japan despite active support for regulatory data protection from local investors.

Anil Joshi, managing partner of Unicorn Ventures, a Mumbai-based venture capital firm, believes regulatory data protection would have a positive impact on biotech investment in India. “For biotech, investors would prefer exclusivity as it is important to protect the investment. I would like to see more refined and clear guidelines in protecting IP not only for biotech but for all innovation,” he says.

Amrita’s Susan Finston agrees. “You need incentives for primary research. It needs to be a holistic environment. In that context regulatory data protection is very important – particularly for small companies that don’t have deep pockets for patent litigation,” she explains.

Does regulatory data protection undermine access to medicines?

In an attempt to strengthen protection for biologics manufacturers, the Biotechnology Regulation Bill was introduced to the Indian Parliament in April 2013, but it was rejected following objections from various lawmakers, activists and civil society groups.

Critics of the bill claimed that regulatory data protection simply enables large pharmaceutical corporations to extend protection of their proprietary drugs after patent expiry, increasing the price of medicines and undermining access.

Research from Geneva Network suggests that such fears are ungrounded. Canada and Japan have recently extended the period for regulatory data protection with no significant impact on state expenditure on pharmaceuticals as a percentage of GDP, which remained essentially flat in the years before and following these changes (see Figures 3 and 4).

Considerations of the cost of regulatory data protection must also be weighed against the benefits that new medicines can bring. While regulatory data protection shields biologics manufacturers from biosimilar competition for a limited period, it also “incentivizes innovation, which results in the development of biologic treatments and cures that might not otherwise come into existence,” notes Dr. Lybecker. “These medicines benefit patients, and improve and extend lives. The result is healthier individuals and cost savings to healthcare systems.”

While depriving biologics innovators of regulatory data protection may seem an attractive option in the short term and may lead to more rapid commercialization of biosimilars, what impact will this have on the biologics pipeline in the long term?

“The reality is that venture capitalists are not required by law to invest in biotech,” explains Jack Lasersohn. “We could invest in social media and smartphone apps instead. But as a society, it is probably more important that we are able to fund the next Herceptin, rather than the next WhatsApp.”