“Wildcard Exclusivity” Returns: PCAST Recommends Consideration of a Tradable Voucher to Reward Successful Antibiotic Development

September 29, 2014

By Kurt R. Karst –      

As most folks know by now, earlier this month the President’s Council of Advisors on Science and Technology (“PCAST”) released a report to the President titled “Combating Antibiotic Resistant Bacteria.”  The report is part of a broader initiative announced by The White House to address the growing challenges posed by antibiotic resistance that includes a National Strategy on Combating Antibiotic Resistant Bacteria and a Presidential Executive Order.  Of particular interest to us are the various “push” and “pull” mechanisms the PCAST report considers to incentivize the development of antibiotics – and especially the “push” mechanism described in the report as “[t]radable vouchers to extend patent life or market exclusivity of another drug.”  This is longhand for “wildcard exclusivity.”  And although it is not a new concept, there seems to be a growing chorus of support for wildcard exclusivity that may mean it will gain traction among legislators and find its way into the FDC Act. 

By way of background, traditional research and development incentives can be divided into two main types: “push” and “pull” methods.  “Push” incentives tend to focus on removing barriers to product development, and include tax credits and grants.  “Pull” incentives tend to focus on the promise of financial reward after a product has been developed, and include monetary prizes, intellectual property extensions, tradable vouchers, and non-patent marketing exclusivities. 

The FDC Act is chock-full of “pull” incentives.  Indeed, several have been created in the past decade, including a 5-year marketing exclusivity add-on pursuant to the Generating Antibiotic Incentives Now Act (“GAIN Act”) (FDC Act § 505E) for a drug product designated by FDA as a Qualified Infectious Disease Product (see our previous post here), and tradable vouchers under the Rare Pediatric Disease Priority Review Voucher (FDC Act § 529) and Tropical Disease Priority Review Voucher (FDC Act § 524) programs (see our previous posts here and here).  But existing incentives – and in particular GAIN Act exclusivity – are not enough when it comes to antibiotics, says PCAST:

[T]he GAIN Act guarantees five years of additional market exclusivity for antibiotics that target qualified pathogens.  Unfortunately, the economic impact of this provision is rather limited – because the additional 5‐year period runs concurrently with the patent protection of the drug, the average extension to market exclusivity is only 2 to 3 years and the sales during this period have little net present value as they occur almost three decades after the innovator begins the research project which produces the new drug.  Although the GAIN Act was an appropriate step by Congress for various reasons (including its requirement that FDA provide guidance on pathogen‐focused development), Government and industry experts have stated in discussions with PCAST that the GAIN Act’s economic provisions have had no significant impact on pharmaceutical companies and only modest impact on small biotechnology firms.  It is too early to measure directly its impact on new antibiotic development.

As such, the PCAST report identifies several “push” and “pull” mechanisms, including a tradable period of wildcard exclusivity, that it says could help stimulate and reward antibiotic development; though with the caveat that the various options “as well as others, should be carefully analyzed with respect to the magnitude of incentive needed to have a meaningful impact on drug development, total cost, relative economic efficiency, and political feasibility.”  According to the report:

[One] approach would be to reward a successful developer of an important antibiotic with a ‘tradable voucher’  (sometimes called a ‘wildcard voucher’) that provides a short extension to the patent life (or market exclusivity period) of any drug.  The developer could sell the voucher to another company with a blockbuster drug whose patent is soon to expire.

Such a voucher could be very valuable, providing a powerful incentive to potential innovators.  For a mature blockbuster drug with $4 billion in annual sales, a three-month extension would yield $1 billion in additional sales – corresponding to profits of $800 million, assuming margins on a mature drug of 80%.  Such an incentive might elicit considerable interest from the venture capital community in launching biotechnology companies focused on new antibiotic development. 

There are several advantages to this approach, says PCAST, including that “[i]t would leave innovation decisions up to the free market,” “would not require direct appropriation from the Federal discretionary budget,” and that “[t]he overall cost of incentivizing antibiotic development would be spread across many different drugs, with the cost of any given three-month extension being limited.”  But as the PCAST report also notes, “[t]he key issue with this approach is that it would delay the transition of other drugs to generic status.”  Such delay could raise significant opposition from an array of stakeholders, including patients, public health advocates, generic drug manufacturers.  “Public health advocates, for example, may ask why patients taking a statin drug (or their insurers) should bear the financial burden of incentivizing antibiotic development.”  Moreover, “the total social cost of this approach is likely to be larger than some other solutions because antibiotic developers will require a fraction of the value of the tradable vouchers,” says PCAST. 

The concept of wildcard exclusivity is not new.  It has cropped up from time to time over the years.  We’ve seen it discussed in reports and in the published literature generally, and specifically in the context of providing an incentive for antibiotic and cancer drug development (see here, here, here, and here).  It’s also a concept that Congress debated including in the law a decade ago in the context of bioterrorism countermeasure development (see here at pages 17-18).  That effort drew sharp criticism from the Generic Pharmaceutical Association (see here).  

Congress may once again be poised to consider wildcard exclusivity.  Indeed, the topic was discussed on Capitol Hill just a day after the release of the PCAST report when the Subcommittee on Health of the House Committee on Energy and Commerce held a hearing as part of the broader 21st Century Cures Initiative, titled “Examining Ways to Combat Antibiotic Resistance and Foster New Drug Development.”  A 21st Century Cures Initiative bill is expected to be dropped in January 2015 and may incorporate some of the “push” and “pull” incentives laid out in the PCAST report.  That bill could ultimately be wrapped into a broader FDA bill that reauthorizes and amends several of the user fee acts.