The innovation paradox: why complex drug research is not being rewarded

For many of the diseases that are becoming increasingly prevalent as populations age, there is a dearth of new, effective pharmaceutical treatments and cures. Research and development (R&D) for Alzheimer’s disease, immunological conditions and a host of neurological diseases, for example, are scientifically challenging and can take many years.

Yet the IP system presides over an innovation paradox wherein these most difficult forms of R&D are rewarded the least. Moreover, this paradox is set to be compounded by recent proposals made by the European Commission to reform supplementary protection certificates (SPCs). These proposals, if adopted, would further undermine incentives to research these diseases—a worrying prospect given the ageing of European societies.

This paradox revolves around the tension between patent term and the time taken to achieve mandatory regulatory approval. Companies that develop new medicines are highly dependent on a period of exclusive marketing after regulatory approval to fund their R&D programmes. This period is made possible by patent protection and regulatory data exclusivity.

But when a medicine R&D programme is more challenging and time-consuming, this eats into the remaining term of patent protection. Medicines with a longer R&D timeframe get less patent protection, rather than more.

Exclusivity that dwindles with each additional month of precommercialisation research would ordinarily lead innovators to be more efficient, but the added factor of the drug regulatory system leads to a different result. In this system, the length of any particular premarket programme turns largely on considerations not within the firm’s control.

The design and length of the programme is a function of variables that include the molecule and its chemical class, its mechanism of action, the disease and disease stage targeted, the outcomes that can be formally tested, the nature of other treatments on the market, and scientific obstacles and opportunities at the time.

Moreover, certain types of medicine—for example, drugs for long-term use and prevention of disease, drugs to stop progressive or degenerative diseases, and drugs for early stage cancer—are more likely to require longer R&D programmes.

This creates the paradox wherein the most challenging yet most needed forms of drug R&D—into treatments for Alzheimer’s disease and multiple sclerosis, for instance—get the least reward from the IP system.

Case study

In order to quantify this problem, I examined a range of data relating to the length of premarket programmes from 1984 to 2016 using a dataset of 570 regulatory milestones made public through the US Food and Drug Administration’s (FDA) implementation of US patent term restoration provisions( https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2948604). Having a clearer idea of the length of premarket programmes by class of drug will show whether the drug innovation paradox has substance.

The findings are significant. The time from earliest patent filing to the earliest human trials has been getting shorter. The average clinical testing period generally hovers between five and seven years, but applications submitted at the end of the time period in the dataset had longer clinical programmes than applications submitted earlier. There is an upward trend. One in ten drugs in the dataset had a clinical testing period exceeding ten years, and more than one in four had a clinical testing period exceeding seven years.

There are significant differences in the length of the average clinical testing period by therapeutic category; for instance central nervous system drugs, antipsychotics, antidepressants, anticonvulsants, and anti–Parkinson’s agents take significantly longer in clinical testing than antibiotic and antiviral drugs.

Drugs intended for acute use take less time to develop than drugs intended for chronic use, and there may be a correlation between the pharmacologic class of a drug and the length of the clinical timeline (see Figure 1, left).

Figure 1: Average clinical testing period by therapeutic category

If the average 5.61 years taken up by preclinical testing are also considered, drugs for certain therapeutic categories might lose most of the 20-year term on their first and most important patent before the drug even enters the market.

My findings have significant implications for innovation incentives: to avoid the systematic under-incentivisation of whole areas of medical research, we may need to break the paradox and ensure that longer R&D programmes do not lead to shorter periods of market exclusivity.

Although FDA approvals may be rising, it is difficult to know how many drugs would have been invented in a different incentive environment. But the data gives pause for thought.

One recent study found that firms are under-investing in the development of cancer drugs that require long-term trials ( https://economics.mit.edu/files/10363). Several research-based pharmaceutical companies abruptly terminated their neuroscience research programmes in the late 2000s, citing the higher failure rates and the longer development times than for other medicines. https://www.nature.com/polopoly_fs/1.9547!/menu/main/topColumns/topLeftColumn/pdf/480161a.pdf?origin=ppub

The problem of dwindling patent life has been an issue since the middle part of the 20th century when drug approval laws evolved to require extensive preclinical and clinical safety and effectiveness research. Legislators have taken steps to address it. In the US, the 1984 Hatch–Waxman Amendments to the drug approval law included a new section 156 of the Patent Act, allowing the USPTO to restore some of the lost time to one patent selected by the drug applicant. In the EU, SPCs perform a similar role, providing up to five extra years of exclusivity for a product after its patent has expired.

These amendments to the patent law are directed to the general problem that some patent life elapses during premarket testing. They are not, however, directed specifically to the paradox that longer programmes result in shorter effective patent life. And they do not remove the paradox. Under section 156 of the US Patent Act, the patent owner recovers none of the time spent in preclinical testing and only half of the time spent in clinical trials. Also, it cannot recover more than five years, no matter how long premarket research took, a restriction faced by innovators both in the US and the EU. As in the US, SPCs are also limited to five years.

Due to the defined time limits of patent term extension in the US and the EU, respective drug approval schemes still work at cross-purposes with patent schemes. Where the premarket study period is longer, the “effective life” of the patent—the term remaining after approval of the medicine—is shorter.

Reform discussions

There is a case for reforming these incentives to take account of longer development pathways for certain categories of medicine. Unfortunately, in the EU current policy discussion of these innovation reforms is going in the wrong direction.

The European Commission’s Single Market Strategy, adopted in October 2015, announced that it will be considering “options for reform of innovation incentives in the EU, particularly the patent system, with a focus on pharmaceuticals”. In particular, the strategy undertook to explore a recalibration of certain aspects of patent and SPC protection, and announced that this recalibration could comprise the following three elements: the creation of a European SPC title; an update of the scope of the EU patent research exemptions; and the introduction of an SPC manufacturing waiver.

In the context of the drug innovation paradox, the manufacturing waiver is particularly troubling. It would allow generic and biosimilar producers to manufacture pharmaceutical products during the SPC term for export to countries where no patent or other relevant IP rights protecting concerned products are available, or where these rights have expired.

The Commission finds attractive the argument that the waiver may boost the competitiveness of the EU generics industry and job numbers in the sector. But the manufacturing waiver would represent significant divergence from existing norms of IP protection, and the approach of current SPC regulation, which confers the “same rights” as the underlying patent.

This would move the innovation policy environment in precisely the opposite direction it needs to go. Rather than considering the longer R&D time-lines of the drug categories identified in my research, introducing an export waiver would dilute an already sub-optimal patent term extension incentive.

The likelihood is that EU originator companies would invest less in those drugs that are inherently more difficult to develop—including those medicines most needed by an increasingly ageing European population.

Rather than considering export waivers and the like, the Commission should be looking at how to make its innovation incentives more effective. The SPC incentive needs at least to be preserved in its entirety. Moving forward, the Commission should also consider how to strengthen it to support long-term research.

Erika Lietzan is associate professor of law at the University of Missouri School of Law. She can be contacted at: lietzane@missouri.edu