The President’s FY 2014 Budget Continues Push to Curb Patent Settlement Agreements, Shorten Biologics Exclusivity; Biologics Exclusivity Faces Opposition in TPP Talks

April 11, 2013

By Kurt R. Karst –      

Earlier this week, the Obama Administration released the President’s Budget for Fiscal Year 2014.  At first blush, FDA appears to have fared rather well, with an additional $821,453,000 in total funding.  Most of the increase, however, is due to new user fee revenue, making the increase a bit of an illusion.  (Highlights of FDA funding are available here.  FDA’s Budget Justification is available here.  A summary of the FDA budget from RAPS is available here.)  In previous budgets (see here), the Obama Administration has proposed a ban on drug patent settlement agreements (an issue that the U.S. Supreme Court is currently considering – see here), as well as shortening the 12-year period of reference product exclusivity for brand-name biological products created by the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”).  We pored over the the Fiscal Year 2014 budget proposal to see if both topics are addressed, and they are. 

According to the Obama Administration (see here at pages 40 and 198), banning drug patent settlement agreements and shaving 5 years off of reference product exclusivity (from 12 years to 7 years) will save U.S. taxpayers $14,280,000,000 between 2014 and 2023:

[B]eginning in 2014, the Budget proposes to increase the availability of generic drugs and biologics by authorizing the Federal Trade Commission to stop companies from entering into anti-competitive deals, known also as “pay for delay” agreements, intended to block consumer access to safe and effective generics.  Such deals can cost consumers billions of dollars because generic drugs are typically priced significantly less than their branded counterparts. The Administration’s proposal will generate $11 billion over 10 years in savings to Federal health programs including Medicare and Medicaid.  The Budget also proposes to accelerate access to affordable generic biologics by modifying the length of exclusivity on brand name biologics.  Beginning in 2014, this proposal would award brand biologic manufacturers seven years of exclusivity, rather than 12 years under current law, and prohibit additional periods of exclusivity for brand biologics due to minor changes in product formulations, a practice often referred to as “evergreening.”  The proposal will result in $3 billion in savings over 10 years to Federal health programs including Medicare and Medicaid.

The FTC also discussed its “vigorous enforcement” of drug patent settlement agreements in its Fiscal Year 2014 Budget Justification document (see here at pages 18 and 30).  Of course, none of the Obama Administration proposals are automatic.  They are contingent upon the enactment of authorizing legislation, which will most certainly run into opposition in Congress. 

Another area in which the issue of 12-year reference product exclusivity for biological products has come up in recent weeks is in the context of Trans-Pacific Partnership (“TPP”) agreement negotiations.  As we previously discussed, the TPP is a free trade agreement being hammered out among the United States – specifically, Acting U.S. Trade Representative (“USTR”) Demetrios Marantis – and several other partners, and is intended to further liberalize the economies of the Asia-Pacific region.  The next round of negotiations is scheduled to take place in Lima, Peru on May 15, 2013. 

The TPP includes a chapter on intellectual property rights.  Over the past few years, there has been a move to align the TPP agreement with the BPCIA’s 12-year reference product exclusivity period.  Last summer, several Members of Congress urged the Obama Administration and the USTR to protect the 12 years of exclusivity that U.S. law provides for biological products (see here, here, and here).  More recently, Senators Max Baucus (D-MT) and Orrin Hatch (R-UT) urged Ambassador Marantis in a letter to seek commitments from U.S. trading partners “that reflect the level of protection under U.S. law, for example 12 years of regulatory data protection for biologic pharmaceuticals . . . .”  That might be difficult, however. 

During a recent Senate Finance Committee hearing on the President’s 2013 Trade Agenda, Ambassador Marantis stated in written testimony that “the Administration continues to welcome diverse stakeholder input to shape the development of proposals to promote access to innovative and generic medicines,” but commented in oral testimony that there is “a lot” of opposition from participating countries to a 12-year exclusivity period for biological products.  Moreover, said Ambassador Marantis, the Obama Administration has not yet decided on whether to propose a 12-year exclusivity period.  Indeed, the President’s Fiscal Year 2014 budget proposal would seem to indicate that the Administration supports a 7-year exclusivity period that might very well bleed over into TPP negotiations.