Follow-On Biologics And Patent Reform

Will They Discourage Venture Capital Investment In The Biotechnology Industry?

According to National Venture Capital Association statistics, venture capital (VC) investing hit a fiveyear high in 2006 with $25.5 billion invested. Notably, the life sciences sector, which includes biotechnology and medical devices, accounted for 28% of VC money invested, the largest investment sector in 2006.

As life sciences venture capital investing has risen, the biotechnology industry has become increasingly dependent on such funding. This is particularly true for start-up companies that cannot rely on revenue from marketed biologics to fund their research and development pipeline. To cover the nearly $1 billion capital investment required to bring a biologic drug to market from discovery through clinical trials, early-stage companies rely on VC investing. Investing in emerging companies, however, is risky for a venture capitalist: Only one in ten drugs discovered actually makes it to market and, despite the more than $50 billion spent on biotech drugs in 2006, only about a quarter of biotech companies are profitable.

Given the high failure rates and enormous costs of bringing a biologic to market, companies and their investors look to successful drugs to reap sufficient revenue to compensate for both the research and development costs of the successful drug and the expense of failed biologics. In this landscape, intellectual property protection is critical to the startup biotech company and to its VC investors, with no assurance that there is adequate market exclusivity to allow a successful biologic product to earn adequate profits, VC investors have no guarantee of a return on investment and will be hesitant to direct their funds to the life sciences sector.

Unfortunately, recent proposals in Congress to create an abbreviated pathway for approval of "biosimilar drugs," in tandem with attempts to reform the patent system, may weaken intellectual property protection for emerging biologic companies to the extent that venture capitalists may be less willing to risk capital investment in the industry. For many early-stage companies, intellectual property is the only asset of value. Weakened intellectual property protection may stifle innovation and ultimately hinder patient access to life-saving new biological medicines.

Follow-On Biologics: Market Exclusivity Is Essential To Protecting VC Investment

Under current law, most biologics are licensed for marketing by the Food and Drug Administration (FDA) under the Public Health Service Act. By contrast, small molecule drugs are approved for marketing under the Federal Food, Drug, and Cosmetic Act. The landmark 1984 Hatch-Waxman Act created an abbreviated pathway for approval which allowed generic versions of brand drugs to be approved without clinical studies. If the generic company could show its product was bioequivalent to the brand compound, it could rely on approval of the brand drug as evidence that the generic drug was safe and effective and could therefore also be FDA-approved. There is no such pathway available under the Public Health Service Act for biosimilar products, but several pending proposals in Congress would create such an abbreviated pathway for biosimilars, also known as follow-on biologics (FOBs). Legislation introduced by Senators Hillary Clinton, Mike Enzi, Orrin Hatch, and Edward Kennedy appears to be the most viable, although it may change considerably before passage. In its current form, the Biologics Price Competition and Innovation Act (BPCIA), introduced and marked up in committee in June 2007, contains worrisome provisions affecting intellectual property.

The initial concern is that the proposal offers only 12 years of data exclusivity for a licensed biological product. "Data exclusivity" refers to a period of time during which an FOB applicant may not rely on clinical data from the innovator product as evidence of safety and effectiveness. Whether this exclusivity period is sufficient has been the subject of much debate in Congress and among stakeholders. Data exclusivity is necessary to assure an adequate, riskadjusted return on investment for the branded compound and to provide security for VC investors in the emerging biotech company. Too brief an exclusivity period could serve as a serious deterrent for VC investors if they believe the risk of early market entry of a biosimilar...