The 12-year data exclusivity period for biologics, effectively ensuring that no biologic drug will have less than 12 years of market exclusivity after launch, along with several other incentives in healthcare reform legislation, promise to continue the R&D shift in favor of biologics. The pace and value of biologic company M&A will increase as well. Many of these benefits, however, will become meaningful only over time, and real benefits, in fact, may come from intangible forces such as a shift in management mindset.

The fact that the 12-year data exclusivity period for biologics applies retroactively could have resulted in an immediate jump in the value of major biologics already on the market. Compared to only a 5-year data exclusivity for small molecules in the U.S., this long-term assurance is a strong vote in favor of biologics already on the market. Our analysis, however, shows that companies stand to gain little in the near term as most biologics already on the market sport strong patent protection that will continue for at least 12 years from their launch date.

Even the biologics in the pipeline may not benefit from this 12-year post-launch protection depending on how efficiently the FDA approves future biologics, as well as on how effective and practical a framework for biosimilar competition is enacted over the next several years.

Regardless, 12 years of market protection is invaluable. Time has a substantial value, and a patent buys 20 years of it—enough to obtain a healthy return on investment. A lot of this time, however, is spent in development. As a result, companies often take shortcuts or rush through the regulatory process or the design and execution of clinical studies to save as much time as possible.

It is not uncommon for these choices to come back to haunt firms—such shortcuts are the most common reason for late-stage product failures. The 12-year market exclusivity that assures that product development can no longer cost more than eight years of patent life should result in proper execution of a development path more frequently, which means a higher probability of success and return on investment.

Similarly, the mindset focused on extending product life with incremental changes or me-too agents—which often is the only option when the remaining post-launch patent window is short—should also give way to true innovations for unmet needs as a result of the new legislation. Such positive incentives may dovetail nicely with the continuing maturation of “new science” and many more exciting and proven targets that promise more predictable productivity from R&D investments.

Some have criticized this 12-year data exclusivity period as a giveaway to the biopharma industry, but our analysis should reassure everyone that it is far from that; most of the benefits may be more intangible and accrue over a matter of decades, not years.

Another significant issue, healthcare cost inflation, is beyond the scope of this article. Suffice it to say that the intangible shifts reviewed in this article could yield critical buffers to greater government intervention. If this hoped-for goal is attained, a healthy return on investment should be possible while pricing these products in a manner that all stakeholders find to be fair. This intangible benefit, however, must wait for the promulgation of healthcare reform and the maturation of new science.


Viren Mehta ([email protected]) is managing member at Mehta Partners.

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