Data Exclusivity Period Length and Federal Government Savings from Enactment of the Biologics Price Competition and Innovation Act of 2007

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Senate Bill S.1695, the Biologics Price Competition and Innovation Act of 2007 would establish an abbreviated regulatory procedure for the Food and Drug Administration (FDA) to license follow-on biological (FOB) drugs. The motivation for the bill is to save money for the Federal government and other purchasers of biologics. The Congressional Budget Office estimates Federal savings of $5.8 billion over the ten year scoring window covering 2009-2018. The length of data exclusivity to be awarded to innovator biologics upon FDA approval also is under debate. We show that by setting the data exclusivity period below 14 years, the government saves at most an additional $1.4 billion over ten years which represents only 0.11 percent of expected Federal drug spending, and 0.012 percent of Federal healthcare spending over the scoring window. Furthermore, we show that adopting a data exclusivity period of less than 14 years will have significant impacts on research and development (R&D) spending and thus, fewer, innovative biologics used to treat patients will be brought to market. This is because innovative biotechnology firms will lose a significant portion of their sales to copycat FOB firms. The average biologic does not cover its costs until 17 years after it starts selling the product. Because firms rely heavily on cash flow from sales to fund their R&D, fewer sales imply less R&D spending. We show that biotechnology R&D is likely to fall by at least $41 billion. The long-run effect is likely to be much larger due in part because the high-cost, high-sales breakthrough biologics will face greater FOB competition. Innovator firms may fund more lower-cost, less-innovative biologics because they will face fewer FOBs, allowing them to retain a greater proportion of sales.