The U.S. and 11 other Pacific nations reached a historic agreement on Monday that would liberalize trade between the participating nations. While the deal is good news for many industries, there’s a catch in the Trans-Pacific Partnership pact that would be a huge blow to one sector in particular: biotech.
The TPP trade deal, which would affect 40% of the global economy, aims to remove barriers and set common standards for everything from the price of rice to the cost of specialized drug treatments. The deal includes a provision on patent exclusivity for biologics, a type of cutting-edge treatment that uses living cells rather than chemical compounds.
The 12 countries compromised on the length of time in which new biologics can be sold exclusively by one company and the amount of time such companies can have sole access to data it collects on treatments. Under the deal, countries can decide between two biotech exclusivity options, either eight years of full exclusivity or five years of data exclusivity plus an additional three years of semi-exclusivity. The U.S. currently allows 12 years of exclusivity rights for biologics and pushed to make that the TPP standard, though other nations, like Australia, campaigned for a much shorter five-year period.
The reduced exclusivity won’t affect the current U.S. standard, but biotech companies weren’t thrilled by the news. The Biotechnology Industry Organization (BIO), the largest biotech trade association in the world, warned that such a move “has the potential to chill global investment and slow development of new breakthrough treatments.”
Proponents of shorter patent protection periods argue that life-saving medicines can be disseminated within a reasonable period at lower costs to patients, especially in low-income nations, if biosimilars (medicines that aren’t exact replicas but are highly similar to the original drugs) are more readily available. Therefore, within as little as five years, more patients could afford new biologic drugs for anything from cancer to Crohn’s disease as a result of the new TPP trade deal. (A 2009 Federal Trade Commission report said that biosimilars could be 10% to 30% less expensive than the original biologics.)
But it may not work out that easily. Biotech companies still need to recoup the cost of the investment to develop new treatments, which could lead to higher drug prices over a shorter exclusivity period—especially in the U.S. where such companies have more leeway over pricing. The five- or eight-year period could be treated like a “quick hit” success rather than extending a drug’s profitability over several more years, especially since the payback period for a biotech’s investment could take between 13 and 16 years, according to one study.
Biotech drugs also have the ability to maintain a large portion of their market even after losing exclusivity since biosimilars are not direct copies like typical generic drugs, though the presence of a decent substitute on the market would certainly help tamp down prices.
The market reaction within biotech to the final TPP deal hasn’t been rosy, though the trade agreement still has to make its way through Congress. The Nasdaq Biotechnology Index is down another 1% Monday, falling nearly 11% over the last month due to growing pressure on the industry over high drug prices and access.