The Drug Innovation Paradox.

• Author: Lietzan, Erika

TABLE OF CONTENTS I. INTRODUCTION 40 II. THE THEORY OF NEW DRUG APPROVAL 46 A. The Early Decades 46 B. Premarket Testing for Effectiveness 49 C. "Adequate and Well-Controlled" Clinical Trials 51 D. New Drug Approval Theory 54 III. INCENTIVES FOR DRUG INNOVATION 56 A. Patent Exclusivity 56 B. Data Exclusivity 61 IV. DRUG INNOVATION AND PARADOX 62 A. Trial Design, Efficacy Endpoints, and Scope of Approval 63 1. Traditional Endpoints 63 2. Surrogate Endpoints 66 3. Scope of Approval 70 B. Safety Testing Requirements 75 C. Continuing Evolution in the Paradigm 77 V. PREMARKET RESEARCH FROM 1984 TO 2016 82 A. Dataset and Methodology 83 B. Preclinical Testing Period 85 C. Clinical Testing Period 88 1. Average Clinical Testing Period 88 2. Average Clinical Testing Period Over Time 93 D. Surrogate Endpoints 96 E. Other Factors Influencing Length 99 1. Therapeutic Category 99 2. Other Factors Relevant to Length of Premarket Period 102 F. Scope of These Findings 107 VI. CONCLUSION 110 I. INTRODUCTION

In medicine today, we face an innovation paradox. Companies that develop new medicines depend on a period of exclusive marketing after approval, to fund their research and development programs. This period is made possible by patent protection and regulatory data exclusivity. But when a particular premarket research and development program is more challenging and time-consuming than other programs, the period for exclusive marketing is not longer and may, in fact, be shorter. This is a paradox; the relationship between the incentive (exclusive marketing) and the behavior we seek to encourage with the incentive (research and innovation) is the opposite of what one would expect. The scheme contradicts itself. (1) This Article explores the drug innovation paradox, using scientific and historical regulatory sources and a new dataset constructed from publicly available sources. Its findings have profound implications for innovation policy. The length of the premarket period may correlate with particular drug types, disease targets, and studied outcomes, which means we may not be providing adequate incentive to develop new medicines in entire areas of need.

Federal patent law stimulates scientific and technological progress--innovation --by ensuring that innovators can enjoy a period of exclusivity in their inventions, meaning a period during which no others may manufacture and sell embodiments of their inventions. (2) Federal drug law prohibits the sale of new medicines, however, until those medicines have been approved by the U.S. Food and Drug Administration ("FDA"). (3) The tension between these two frameworks--one protecting exclusivity in an invention, the other precluding commercialization of that invention--gives rise to the paradox that is the topic of this Article.

Obtaining approval of a new drug generally entails testing the medicine in a laboratory and in animals ("preclinical" testing) and then completing several rounds of trials in humans ("clinical" trials), followed by preparation and submission of a marketing application. This process can take years and can cost in the high hundreds of millions of dollars (or more), and its outcome is uncertain. (4) After a new medicine reaches the market, it may face competition from other medicines for the same condition, but it generally enjoys a period of exclusive marketing before FDA will approve generic copies. Generic copies are usually priced at a fraction of the price of a new medicine (often known as the "brand" product) and are usually substituted by pharmacists for the brand product at the point of sale. (5) Their approval ends the brand product's exclusivity in the marketplace, and in fact, they usually take the lion's share of the market. (6)

There is a paradoxical relationship between the period for exclusive marketing and the premarket research and development performed for FDA approval. If a particular premarket research and development program is more challenging and time-consuming than other programs, the period for exclusive marketing is not longer and may, in fact, be shorter. The exclusive marketing period prior to generic market entry is largely a function of the company's patents. Certain aspects of patent law doctrine effectively require the application for a patent claiming the active ingredient of a new drug to be filed early in the research and development process. Patents last for a fixed term, which used to start when the patent issued but now starts on the date of the patent application. Either way, much of the patent term can elapse while the company is performing the research needed for approval. (7) And the more research performed, the more of the patent term elapses. The period for exclusive marketing of a medicine is also a function of the "data exclusivity" available to the innovator. During this time, generic companies may not rely on the research generated and submitted by the innovator for approval of their own drugs. (8) Data exclusivity suffers from a slightly different problem; even where the premarket study period is much longer, the length of the data exclusivity period does not change.

The problem of patent life that runs before new medicines may be launched is not new. It has been an issue since the middle part of the twentieth century, when the premarket paradigm at FDA began to evolve into today's preapproval regime. In 1984, therefore, Congress took steps to address the problem. The Hatch-Waxman Amendments to the drug approval law included a new section 156 of the Patent Act, allowing the U.S. Patent and Trademark Office ("PTO") to restore some of the lost time to one patent selected by the drug applicant. (9) This provision was directed to the general problem that some patent life elapses during premarket testing. It was not directed specifically to the paradox that longer research programs result in shorter effective patent life. And it did not remove the paradox. Under section 156, a 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. As a result, the drug approval scheme still works at cross purposes with the patent scheme. Where the premarket study period is longer, the "effective life" of the patent--the term remaining after approval of the medicine--is shorter.

This paradox is not unique to medicines. In any field of technology, research activities prior to commercialization lead to a decline in effective patent life, and the longer the research period the shorter the effective patent life. This should generally drive inventors to efficient pre-commercialization behavior. The concern with medicines, however, stems from the basic theory of our drug approval system, on the one hand, and the scientific and regulatory realities of clinical trial design, on the other hand.

There are two components to drug approval theory. First, FDA's authority derives from and revolves around the words used to describe a new drug. When it approves a new drug, it approves the new drug plus its labeling. More precisely, it approves a specific combination of active ingredient (or, in some cases, more than one active ingredient), product features (such as formulation, route of administration, dosage form, and strength), and labeling that describes the product's intended uses, its conditions of safe and effective use, and the outcomes that can be expected. Second, the company developing the product and submitting the application--the drug's "sponsor"--must perform hypothesis-testing trials designed to prove that its product achieves this outcome under the conditions of use specified. The labeling will be precise. The disease state might not be hypertension but instead severe hypertension when rapid emergency reduction is clinically indicated. The outcome might be specific: improved memory in patients with mild Alzheimer's disease, for instance, or delayed progression in patients with breast cancer. The company's trials must have established precisely what is said in the labeling.

Put another way, a new drug approved by FDA is both the tangible item administered to patients and the words that describe what the item is and does. A premarket research and development program is thus tailored to generate specific information about a drug, disease, and outcome. The theory of our drug approval system is that a new drug approved by FDA--itself both the tangible item and the words describing its uses--is the product of a research design and the data generated.

The scientific and regulatory realities of clinical trial design complete the picture. The premarket research process is highly idiosyncratic, and many aspects relevant to the length of a research program turn on considerations beyond a sponsor's control. The design and length of studies reflect not only the statutory and regulatory framework applied by FDA but also the chemical structure of the molecule, its mechanism of action, the disease and disease stage under study, the outcomes that the firm can study, current scientific capabilities and impediments, and sometimes even the nature of other products on the market. Moreover, although premarket programs are highly individual, certain types of products almost always take longer to develop than others. For instance, as both a scientific matter and a statistical matter, how one proves an antihistamine reduces itching in the eye is very different from how one proves a cytotoxic (cell-killing) compound prolongs survival in patients with early-stage colon cancer. The latter will probably require longer trials.

This means that if the post-approval reward gets shorter when research takes longer, certain types of research--and therefore certain types of drugs--will be affected more than others. Because the prospect of post-approval reward stimulates the innovation and investment in the...