Changing small molecule exclusivity rules as a long-term drug price policy play

This piece originally appeared in the Timmerman Report

We’re entering uncharted waters in the US government. I don’t think it’s hyperbolic to say there will be new regulations, new laws that we’ve never seen before. While I don’t pretend to understand the new administration in any way, I do expect there will be more chaos at the level of policy-making than we’ve seen in decades and one thing that chaos does is it increases the likelihood of extreme outcomes.

So here is one speculative policy idea:

I think we should trade the 12-year exclusivity period from biologics to small molecule drugs.

Why would this help? Because small molecule drugs are far easier to copy and far easier to produce than biologics. Extending the exclusivity period for small molecules at the expense of biologics might provide the incentive needed to get biopharma to ramp up their chemistry departments again. And in the long term, more small molecule drugs could not only address a lot of serious illnesses, but would also mean more drugs will eventually be made available at extremely cheap prices once they become generic, rather than the more modest 20-50% discount expected for biosimilars (the generic version of biologic) drugs.

Greater exclusivity periods for small molecule drugs could lead to a short-term increase in healthcare spending on these medicines, but it would provide big savings over the long term as they eventually go generic. For this reason, I think this idea, especially when coupled with a reduced exclusivity period for biologics, could generate a broad base of support from industry, patient groups, and liberals who are ordinarily critical of the industry.

Some context: the actions of Martin Shkreli at Turing, of J. Michael Pearson at Valeant, and just this past year of Heather Bresch at Mylan, combined with numerous other reports of companies raising drug prices by substantial amounts year over year and even quarter over quarter are toxic. They insult and anger the majority of us in the industry who see the immense challenges in making drugs but also want to create real innovative value, not engage in rent-seeking behavior.

But at the same time the biopharma industry is in a challenging place. The cost of creating a new drug keeps rising. A recent report by Deloitte described how the return on biopharma R&D continues to decrease. There have been numerous success stories in drug development over the past several decades that have, ironically, made it harder to develop new drugs because new drugs have to be better in some way. There’s a phrase that Jack W. Scannell, Alex Blanckley, Helen Boldon & Brian Warrington coined a few years back that I think may resonate with the new administration: the “better than the Beatles” problem.

Not that I’m saying they’re old or anything.

The point is, for a new drug to be patented and get broad market uptake, it has to be better than what came before. We can quibble over whether Madonna or Taylor Swift are better than the Beatles (which, no and no), but they don’t have to be because the market for music doesn’t work that way. The market for new drugs does. A new drug has to be better than what came before because once an older drug loses exclusivity it faces generic competition and prices for that drug drop pretty quickly. As just one example, when Pfizer’s atorvastatin (Lipitor) went off patent, within a few years generic competition drove the price down by  80 percent. You can see how this affects biopharma based on how often biopharma lobbies for extensions to exclusivity. Most recently, biopharma successfully pushed for exclusivity for biologics, after they’ve been approved by the FDA and are in position to generate sales, to be increased to a full 12 years.

Okay, how might this proposal be vulnerable? The biggest problem is it does nothing to address drug prices today. This policy proposal takes an extremely long view. The typical development cycle for a drug can be ten years or more, and with twelve years of added exclusivity a new small molecule drug that gets developed starting today won’t see generic competition until the late 2030s. But consider the philosophical trend of effective altruism. This suggests we take a utilitarian approach to the kinds of actions we do to ensure they have the greatest good for the most people now and in the future. Efforts to combat global warming fit under this principle. That means taking a pretty broad approach in evaluating value, and value to people in the future is a part of that. I’ll also point out that anything that increases the number of small molecule drugs will make more drugs available for the developing world where, in the short and medium term, it is unlikely that biologic drugs will have much impact due to their inherent costs.

There are practical reasons to try to do this now. In the world of biopharma, small molecule approaches have been losing favor to biologics because biologics can command higher prices, are harder to copy, face less severe competition, and tend to have much longer product life cycles. Given the attractiveness of biologics from a business standpoint, the industry has curtailed its discovery efforts around small molecules.  A generation of expertise in medicinal chemistry is growing older and the few scientist replacements aren’t being trained quickly enough in all that institutional knowledge. Persuading biopharma to go back to small molecules would help stem the loss of knowledge, which would increase the odds of creating great, eventually generic small molecule drugs.

Another practical reason goes back to what this election has shown all of us: there are deep-seated feelings of resentment at the elites and special interests who so often get to craft policies that create and lock in their own advantages. The biopharma companies are feeling the heat; the incoming administration, has pledged to do something about drug prices, and at the same time it’s an administration in which clear policy ideas and directions are, shall we say, lacking. What is clear is that there’s likely to be a resistance to the kinds of solutions that have been proposed in the past, ideas such as having Medicare negotiate and also setting price controls. At the same time, the lack of administrative clarity on specific policy solutions means there’s a vacuum, and one that a policy solution like this could fill. This is cynical, but a long-term play may also be more politically palatable. Congress and the president can talk about the eventual benefit to the drug pricing milieu without actually changing much of the current status quo.

A third, speculative scientific reason is due to one of the things small molecules have been dinged for in the past: less specificity in mode of action than biologics. However, as we enter an age of precision medicine, having more options among molecules with subtly different effects on, for example, tyrosine kinases may allow better fine-tuning of therapeutic treatments in the future. Also, reduced specificity may allow more drug repurposing. Like I said, speculative.

For the standpoint of legislation, this proposal provides leeway to bargain. For example, to get more liberal lawmakers on board, it could be tied to reducing the range of actions being taken to extend exclusivity today, such as suing new generic or biosimilar producers for patent infringement. A comprehensive act could install penalties in the event a company is found to have filed a suit with no merit, as judged by final court decision. I’ve been thinking of a mechanism like what happens in the NFL today, in which a coach can challenge a call but if he’s wrong, he loses a timeout. Similarly, if a company files a patent infringement lawsuit and loses, they would lose six months of exclusivity on another drug in their patent portfolio.

As for biologic drugmakers, they’d surely complain about shortened periods of market exclusivity for their products. But it’s clear that they will be buffered by natural protections, built in by biology itself. Developing a biosimilar is simply a much more difficult technical barrier to entry than for small molecules. I think the creators of novel biologics will still have plenty of incentive to keep doing their R&D.

You might ask, why should the government even bother with new policies? Don’t we have much more important things to worry about like crowd sizes and building big, beautiful walls? I understand that but I think that would be short-sighted. Again, drug development is in a really tough place. The reason biopharma companies have as much value as they do is the expectation of profit on the part of investors. Drug development is risky. If there’s not the possibility of high profit (not a guarantee, just a chance) then people will just stop investing in biopharma companies and eventually any innovation will slow to a trickle. Maybe stop. Extending patent protection for small molecules could help reassure investors that future profit is still likely.

There are still unmet medical needs. Healthy people may lose sight of that, but these health problems aren’t going away on their own. Drugs aren’t the only possible answer, but they can be part of one. With climate change rolling forward, and all of its unanticipated and unknowable effects on, I don’t think the US can afford to let any arrow drop from its quiver of healthcare solutions. I think it’s in our best interest to keep a functioning biopharma system going.

It’s clear drug pricing as an issue will lead to action of some sort, whether by the payers, the patients, the government, industry, or all of the above. This is just one idea, and I know there will be many in Congress who are wrestling with this problem as we speak. It’s a big pivot point for biopharma; I hope a solution can be found to put the industry on a sustainable track.



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