The Eleventh Annual Honorable Helen Wilson Nies Memorial Lecture in intellectual property; rethinking the role of clinical trial data in international intellectual property law: the case for a public goods approach.

AuthorReichman, Jerome H.
PositionIndustry overview

INTRODUCTION I. EXPORTING CLINICAL TRIAL DATA EXCLUSIVITY REGIMES FROM DEVELOPED TO DEVELOPING COUNTRIES A. The Egregiously High Costs and Risks of Clinical Trials B. The Domestic Response C. The Drive for Global Protection of Clinical Trial Data 1. From NAFTA (1992) to TRIPS (1994) a. The NAFTA Provisions b. The Softer TRIPS Provisions 2. The Posterior Free Trade Agreements a. Expanding Protection for Clinical Trial Data in Developing Countries b. Recent Constraints on USTR's Negotiating Mandate D. A Missed Opportunity: The Cost-Sharing Alternative 1. An Early U.S. Proposal Envisioned a Liability Rule 2. Implementing a Compensatory Liability Regime II. RETHINKING THE ROLE OF CLINICAL TRIAL DATA REGIMES A. The Flawed Logic of Marketing Exclusivity 1. Evaluating the Incentive Rationale 2. Why a Sui Generis Exclusive Property Right? B. From Private to Public Goods: The Most Logical Reform 1. Public Disclosure: Only the First Step in a Broader Reform 2. The Case for Treating Clinical Trials as a Public Good a. The Drug Companies' Costs Would Decline with Government Funding of Clinical Trials b. Lower Drug Company Costs Would Benefit Consumers in the Short Run c. Long Run Efficiencies in Drug Discovery and Development (1) Stimulating More Investment in Innovative R&D with Lower Costs and Better Information (2) A Secondary Market for Remedial Improvers 3. Implementing a Public Testing Program a. Awarding Clinical Tests to the Most Qualified Scientists b. Revenue Neutral Financing with Cost Sharing and Social Funding Criteria c. Phased Implementation d. Globalization of the Public Good Concept CONCLUSION INTRODUCTION

News about clinical trial data is constantly before our eyes lately, and little of it is good. Again and again we learn that some major drug has produced deleterious side effects. (1) Internal memos emerge showing that the pharmaceutical companies knew or should have known about negative results from the clinical data, but that they overlooked or deliberately suppressed them. (2) In the recent case of Zetia, for example, the manufacturers reportedly ignored test results indicating that the cholesterol-lowering drug combination of Zetia and Zocor was ineffective and potentially dangerous as well. (3)

On reflection, one might begin to ask why this trend seems so surprising. Clinical trials cost vast sums of money, and, as will be shown later, these costs are rising so fast that they may become unsustainable over time. (4) A negative outcome will sink an entire research project, which, from the lab to the trial, may entail a loss of hundreds of millions of dollars. (5) The costs of such failures must then be made up from the few products that do succeed, which, according to some estimates, means that the aggregate breakeven costs of clinical trials for any successful new chemical entity may reach one billion dollars. (6) So one may suspect that there is a moral hazard here because if the pharmaceutical companies pay for the tests, they have a perverse incentive to paint the end results in the rosiest possible light. (7)

The pharmaceutical companies have also lobbied successfully for regulatory relief from the burden of recouping the cumulative costs of clinical trial data in the form of a backdoor intellectual property right known in the United States as "marketing exclusivity" (8) and in the European Union as "data exclusivity." (9) By these means, originator pharmaceutical companies obtain a period of time, ranging from three to ten years, during which would-be generic producers of existing drugs cannot themselves obtain regulatory approval for a competing drug if they rely--directly or indirectly--on the results of the originator's own undisclosed test data, which will have been provided to governments under strict conditions of trade secrecy. (10)

Of course, the would-be competitor could not market a generic drug anyway until the originator's patent had expired, and the former would in principle remain free to conduct its own clinical trials. But the cost-benefit ratio makes the latter option illusory in practice, because--apart from the loss of time--the generic competitor, who by definition lacks a patent, could not readily charge consumers enough to recoup the enormous costs of such trials. (11) Moreover, repeating a pre-existing trial for such a reason raises ethical questions, because it would deny some patients access to medicines known to be effective purely for commercial purposes. (12) Because the generic competitor must rely indirectly on the originator's successful clinical test outcomes by showing that its generic product is the bioequivalent of an approved product, and therefore exempt from the need for further testing, (13) a period of data exclusivity potentially becomes a means of keeping the generic producer off the market regardless of the status of that originator's own patent. (14)

In other words, even if the originator's patent had expired, or was otherwise invalidated, the data exclusivity regime may provide a de facto alternative exclusive right by blocking the competitor's entry into the market for as long as the period of such protection lasts. (15) Data exclusivity regimes have thus become "increasingly dominant as an additional intellectual property layer of protection," (16) which blocks generic competition even with respect to second indications and other variations that are "not innovative enough to gain patent protection." (17)

The lay observer might well express surprise to learn how deeply rooted these alternative sui generis data exclusivity regimes have become in both the United States and the European Union. After all, a consumer advocate might object, originator companies had been given a twenty-year patent monopoly for just this purpose. (18) The relative strength of patents in the pharmaceutical sector is often justified by the need for consumers to cover the "risk premium," that is, the losses accruing from failed pharmaceutical research projects, especially failed clinical trials, over and above the specific Research and Development ("R&D") costs associated with any given successful drug. (19)

Later in this Article, I will critically examine the various rationales, and particularly the incentive rationale, that supporters of these regimes have put forward over time. (20) Suffice it to say, the pharmaceutical industry has quietly but successfully pursued this alternative intellectual property right in the results of clinical trials, independent of and cumulative with the patent rights that everyone takes for granted. Besides entrenching and expanding these regimes in the domestic laws of the United States (21) and the European Union, (22) industry representatives have mounted a campaign to establish similar regimes at the multilateral, regional, and bilateral levels. (23) After a regional success in the North American Free Trade Agreement ("NAFTA"), this drive scored only a more modest victory in the Agreement on Trade-Related Aspects of Intellectual Property Rights of 1994 ("TRIPS"). (24) When efforts to improve on the TRIPS compromise failed, the U.S. Trade Representative ("USTR") began pressing other governments with demands for more far-reaching codified enactments of this form of protection for clinical trial results in the course of regional and bilateral Free Trade Agreements ("FTAs"). (25)

Restrictions on the use of clinical data under FTAs can effectively empower originator pharmaceutical companies to negate a foreign state's ability to authorize marketing approval of equivalent generic drugs for a period of five to fifteen years, even when these companies could not invoke patents to prevent the use of the drugs as such. (26) If developing countries reject clauses seeking to establish these alternative forms of protection for clinical trial results, they may forfeit advantageous trade concessions, especially in negotiations with the United States and possibly in trade negotiations with the European Union. Few governments have been willing to run this risk.

On the contrary, with each new success, (27) the pharmaceutical companies' demands have become more audacious, to the point where some of the pending FTAs with Latin American countries--for example, Colombia and Peru--seemed so to exceed limits of reasonableness, that they elicited some restraining intervention from Congress. (28) Meanwhile, the proliferation of data exclusivity provisions in FTAs, with their Most Favored Nation ("MFN") repercussions under Article 4 of the TRIPS Agreement, (29) establishes facts on the ground that have growing implications for the future. (30) If nothing intervenes, this powerful new intellectual property regime will become an ever more likely candidate for permanent recognition at the multilateral level. (31)

This Article will track these developments and critically examine their deeper implications. Part I surveys the soaring costs of clinical trials in developed countries, a phenomenon that must be kept in mind when assessing the protectionist pressures brought to bear at the international level. Following a brief summary of the domestic responses to this and related problems in the United States and European Union, this part will describe and analyze the specific efforts that have been made to establish data exclusivity in multilateral, regional, and bilateral agreements.

Part II evaluates this trend as a whole. It first asks what legal and economic logic justifies this form of intellectual property protection. To the extent that an incentive rationale can be mustered to justify a sui generis regime of clinical data exclusivity at all, it questions the validity of adopting a patent-like regime to support mere investment as such, without obtaining any given level of creative achievement in return.

The final segment of Part II will contend that the technical debate surrounding the treatment of clinical data as a subcategory of intellectual property...

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