Approval process of generic drugs: revisited

Barack Obama has announced that he encourages the use of generic drugs, including generic biologic drugs. According to the IP Finance blog, Obama’s advisors have gone on record as wishing to speed up the FDA’s approval process of generic drugs in addition to introducing a new legislative pathway for generic biologics, which I briefly touched upon in a previous blog post.

It is obvious that Obama’s announcement is related to his increased insurance coverage plans where main focus is on the well-being of society and the individuals living there by decreasing the prices they have to pay for drugs. Much to the delight of generic drug manufacturers. I think that innovative actors need to be incentivized for innovation to continue, and I think that too generous terms for generic drugs could discourage innovative actors from taking the risk of investing in discovery rather than solely develop what already exists. The latter would obviously be a dramatic loss in value for innovative actors as well as generic drug manufacturers and society as a whole. However, automatic full exclusivity would on the other hand lead to inefficient market structures (monopolies) so it will be interesting to follow the discussions about the exclusivity terms for the new US legislation.

The IP Finance blog mentions that speeding up the approval of generic drugs and biologics is likely to lead to substantial reduction in the value of patents. I agree with this in relation to the value related to effective patent terms, but I also think that an effective system for approving generic drugs/biologics is likely to lead to higher values of the same patents for the period when exclusivity is still enjoyed. An interesting scenario, in my opinion, would be that an effective second hand market would emerge where patents having competition from parallel generic production could be either sold off or license fees securitized in exchange for lump sums which could then be used to discover innovative new drugs/biologics. If the patents would be offered to generic drug manufacturers at the same time as they would have the right to manufacture generic drugs to a reasonable price, then a whole new model could be created where these actors would not have to invent around but rather produce the “real” drugs/biologics. This would probably mean that new drugs would be even more expensive during the first years of exclusivity for innovative drug manufacturers to get their ROIs in addition to a number of other game changing factors, but I still think it is an interesting thought as intuitively this could ultimately lead to an even stronger market-pull for new innovative drugs.

I don’t envy the complex work that Barack Obama has in front of him, and I really hope that he aims for long-term stability and sustainability for the whole industry when creating new structural order rather than only “putting out fires” and provide concessions to please individual voters in the short-term. Said voters need to work somewhere, so I suggest start incentivizing companies to get the economy back on its feet.

Tobias Thornblad

Biotechnology 2.0 in 2009

First of all, Intangitopia wishes everyone a Happy New Year! We started Intangitopia relatively late during 2008, but it seems as we already have attracted a number of regular readers which we are all thrilled to see.

Tobias’ blog focus for 2009
Many of my previous posts have been about open innovation in the biotech industry, which I intend to continue during this year. My opinion is that the future of the biotech market needs to be modified to create an equilibrium in the now asymmetric relationship between large pharma and the (often smaller) biotech players and one of the remedies, in my opinion, will be through gathering and utilizing collective intelligence in platform constructs. This will obviously not be my sole focus as I will try to stay up to date with current events in the biotech industry, and there will hopefully be some in-depth analysis of some business models since I will write a M.Sc. thesis about how roles, relationships and transactions are constructed in intellectualized bio-business fields during this spring. Marcus, Mathias, Johan and Fredrik will also write their M.Sc. theses during this spring so I am guessing that they will contribute with in-depth analyzes in areas that they probably will introduce themselves in upcoming posts.

Wikinomics and FDA’s Priority Review Vouchers
There has finally been some time to catch up with reading during Christmas, and I have read a book which I warmly recommend: Wikinomics (book & blog). The authors have looked at a number of platform constructs with different degrees of openness. Most of the constructs are from the IT market for the obvious reason that the most advanced platforms exist there, but some biotech platforms are also mentioned along with other types of platforms, such as constructs based on governmental data (pollution, crime, etc). The authors, among many other intersting things, stress the importance of managing incentives for platform participants which I think is one of the crucial points that the IMI platform (in my previous blog post) fails to fulfill for small biotech players. Wikonomics mentions Amazon as one of the more successful models where revenues from sales are shared with those joining the platform and contrasts this with Flickr which does not compensate or merit their ‘best’ participants in a satisfactory way (according to the authors).

It was therefore interesting to read the December issue of Nature Biotech (Vol. 26 No. 12 ) where FDA’s new strategy of offering priority vouchers for neglected-disease drugs was described. The new scheme, launched in October as part of the FDA Amendments Act, awards priority review vouchers to any company obtaining FDA approval for a product that prevents or treats a neglected disease. These vouchers can then be used to accelerate approval of any drug in any disease indication by placing a new drug application (NDA) on FDA’s Priority Review list. Undertakings such as this one incentivizes development of neglected-disease drugs by using existing market mechanisms in new ways. It does not feel like a farfetched assumption that these vouchers could become very valuable either as part of a biotech company’s value proposition to a pharma actor or on their own as rights to future value extraction or as negotiation tools. The articles mentions the possibility for larger biotech companies to repurpose their already approved drugs for diseases rife in developing countries, thereby gaining access to priority vouchers to be used for more lucrative programs. The problem however, as usually is the case, is that the incentive is somewhat skewed to favor large pharma more readily than early-stage biotech actors since the development time towards a voucher can be longer than what such actors often can afford.

The important thing, in my opinion, is to recognize that the market is getting ready for a shift into a knowledge paradigm where collectivization and collaboration will be the governing vehicle to sustainable development. However, the million-dollar-question still remains: how can incentive systems be managed to incentivize small and large actors in open biotech innovation platforms?

Tobias Thornblad