Erika Lietzan on the Myths of Data Exclusivity

Erika Lietzan joined the Missouri Law faculty last fall after a distinguished career practicing FDA law, which included making partner at Covington & Burling and serving as Assistant General Counsel for PhRMA (the pharmaceutical lobbying organization). She thus has a wealth of knowledge about the intricacies of pharmaceutical patents and FDA approval, and scholars and reporters interested in the details of pharma news (like the Daraprim controversy) could learn a lot by contacting her.

Lietzan recently posted The Myths of Data Exclusivity. The data exclusivity period for a drug is the period during which the FDA won't allow a generic to rely on the drug's clinical trial data for approval—typically 5 years for new non-biological drugs and 12 years for biological drugs. Data exclusivity was most recently in the news as the "final sticking point" in the TPP negotiations.

Data exclusivity is typically viewed as a patent-like benefit for innovative firms that provides a market-based reward by allowing firms to charge supracompetitive prices. But Lietzan attempts to reframe data exclusivity as not a benefit for pioneer pharmaceutical firms, but rather "a period of time during which all firms are subject to the same rules governing market entry." She explains:

In 1984 [with the Hatch-Waxman Act], pioneers with non-biological drugs approved after 1962 lost something; their right to perpetual exclusive use of their research became a right to only five years of exclusive use. And in 2010 [with the Biosimilars Act], pioneers with licensed biological drugs lost something; their perpetual exclusive right was shortened to twelve years. This reframing identifies the primary beneficiary of the choice made by policymakers as follow-on applicants rather than pioneers.

I think this is an important point, though the issue of how data exclusivity periods should be viewed now (rather than as a historical matter) depends on the baseline. Given the ethical concerns with requiring new clinical trials on drugs that have already been shown to be safe and effective, it does not seem unreasonable to view generic approval based on pre-existing trial data as the default.

I'm not completely convinced, however, that the frame for data exclusivity—whether we call it a benefit for the pioneer or the absence of a benefit for generics—really has an important theoretical payoff. In either case, longer periods of data exclusivity increase the transfer from consumers to brand-name firms by making it harder (but not impossible) for generics to enter the market, and thereby increasing the period during which the patentee is likely to be able to charge supracompetitive prices. In that sense, I don't see anything wrong with saying that data exclusivity confers a patent-like reward by facilitating exclusion of competitors, as long as one remembers that the mechanisms through which they operate are quite different.

This is not to suggest that Lietzan's suggestions for improving data exclusivity laws aren't worth reading. I learned a lot from her discussion of the detailed differences between approval mechanisms. I'm also sympathetic toward her proposal to increase the base exclusivity period for non-biologic drugs; I'm not convinced that patent protection is well tailored to the social benefit from new drugs. I like Lietzan's analysis of the incentives of generics under different regimes, and it might be worth further analysis of the social benefits of data vs. market exclusivity. Exclusivity has been the subject of increased scholarly scrutiny in recent years; for example, Ben Roin has argued for exclusivity periods tailored to R&D costs, Shamnad Basheer has argued that exclusivity periods should also consider health impact, Yaniv Heled is attempting to recast these periods as regulatory competitive shelters, and Anna Laakmann calls them regulatory property. I think this area is ripe for further work, including the kind of analysis Lietzan is doing on the details of implementation and the differences between data and market exclusivity, as well as more economic analysis of how to better align drug development incentives with social benefit. I've also argued that exclusivity periods would be a great policy lever to adjust through randomized controlled trials.

Finally, I'll note that even if Lietzan's reframing of data exclusivity doesn't have an important theoretical payoff, it certainly has an important political payoff. Given how contentious data exclusivity can be when negotiating international agreements or considering changes to U.S. rules, I think it could matter a great deal if policymakers and the public came to view data exclusivity periods as merely times when all entrants face the same barrier, before generic firms are given a special benefit.