USC Price School of Public Policy

How Do Data Exclusivity Periods Affect Pharmaceutical Innovation?

Knowledge in Action:

How Do Data Exclusivity Periods Affect Pharmaceutical Innovation?

Study is first to estimate impact of extending exclusive access to clinical trial data for conventional drugs on innovation, population longevity and social welfare.

By Suzanne Wu

Dana Goldman Professor Dana Goldman, director of the Schaeffer Center for Healh Policy and Economics, was the study’s lead author.

Pharmaceutical companies and generic drug manufacturers have long been at odds over regulations about data exclusivity, the period of time before generic manufacturers can make use of valuable clinical trial data.

A new study by USC researchers – the first to calculate the financial and social costs of limiting access to trial data – found that extending the term of exclusive access will lead to higher drug costs in the short term but also to more than 200 extra drug approvals and to greater life expectancy in the next several decades. The study was published in the January 2011 issue of Health Affairs.

“Elected officials are unlikely to embrace legislation that would result in higher drug prices, but our research suggests that legislation to extend data exclusivity would spur innovation that would benefit future generations,” said Dana Goldman, the study’s lead author, director of the Schaeffer Center for Health Policy and Economics at USC and holder of the Norman Topping Chair in Medicine and Public Policy at USC.

The pharmaceutical companies that introduce new drugs are granted five years of exclusive access to the clinical trial data they submit during the approval process. New indications and formulation developments of existing drugs are granted three years of exclusivity, and a six-month extension of patent or data exclusivity is granted if a drug is approved for use in pediatric populations.

In 2007, the National Academies Committee on Science, Engineering and Public Policy called for extending the data exclusivity term to the longer period used in Europe (10 to 11 years). But generic manufacturers have argued for shorter limits so that they can bring less expensive versions of drugs to patients sooner.

“Unfortunately, the health policy literature contains no information about the effects such a policy would have on innovation, population longevity and social welfare,” said Darius Lakdawalla, research director at the Schaeffer Center at USC and associate professor at the USC School of Policy, Planning, and Development.

Addressing these issues, the researchers estimated that extending the term of data exclusivity to 12 years would increase the lifetime revenue of a drug by 5 percent, on average.

With empirical evidence that profits drive drug innovation, this longer term would lead to an additional 228 drug approvals over the next 50 years and an increase of 1.7 months in average life expectancy, according to the study.

John Romley, an economist with the Schaeffer Center at USC and research assistant professor at the USC School of Policy, Planning, and Development, acknowledged the trade-off between current and future generations: “Americans in the early 2020’s would bear the cost of increasing drug spending. However, people turning 55 in 2060 could expect increased life expectancy as a result of innovation in the interceding years — that is, new drugs brought to market because of lengthier data exclusivity.”

Jesse D. Malkin at Precision Health Economics and Tomas Philipson of the University of Chicago are other authors of the study. The research was sponsored by the National Institute on Aging through its support of the Roybal Center for Health Policy Simulation and INTERPAT, an association of research-based pharmaceutical companies.