Using market-exclusivity incentives to promote pharmaceutical innovation.

The number of new drugs emerging in the U.S. pharmaceutical market is at a low point. The Food and Drug Administration (FDA) approved an average of 22.6 new drugs and biologics per year from 2005 through 2009, down from 37.2 a decade earlier (1995 through 1999). Paradoxically, this decrease in production has occurred despite billions of dollars in public and private funding for research and development,1 as well as consistently high revenues reported by the pharmaceutical industry. Meanwhile, demand for innovative therapeutic alternatives has been rising in numerous fields, including antibiotics for multidrug resistant organisms2 and drugs for tropical diseases prevalent in low-income populations.3 As a result, policymakers from academia,4 industry,5 and government6 have called for federal initiatives to stimulate drug development. Most proposals target the intellectual property environment, because market-exclusivity periods, usually supported by patents, foster revenue generation in the pharmaceutical market. For example, longer market exclusivity has been recommended for “first-in-class” products7 and for newly approved drugs.8 In 2008, the FDA Amendments Act authorized the sponsor of a drug for tropical disease to earn a transferable voucher entitling the company to expedited review of a different drug application, an incentive potentially worth $300 million.9,10 The recent health care reform legislation included 12 years of market exclusivity for biologic drugs (even if the drug’s patent expired before that time); anything less, industry advocates threatened, could hinder domestic innovation.11 Such incentives are politically attractive because they offer support for drug innovation without direct allocation of taxpayer funds. Yet patients (or their insurers) bear the costs by paying higher prices for the products during marketexclusivity periods. These programs may also be subject to misuse if they are implemented in a way that permits the incentives to be earned for marginal innovations or in contexts beyond the intended scope of the legislation. Finally, hidden costs can emerge, such as the public health implications if market exclusivity makes essential drugs prohibitively expensive. This analysis critically reviews the origins and effects of five important pieces of legislation that support marketexclusivity incentive programs in pharmaceutical research and development (Table 1). The outcomes may provide important insights into the strengths and limitations of this policy strategy.