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Why Trump Ditching TPP Could Hit Drugmakers Where It Hurts

President Donald Trump’s executive order withdrawing the U.S. from a historic Pacific free trade agreement checked the box for one of his flagship campaign promises. But it leaves the biopharma industry in limbo over some key intellectual property issues.

The Trans-Pacific Partnership (TPP) would have set global standards on a host of business concerns among 12 nations that encompass 40% of the global economy. Among these concerns is “data exclusivity” for a class of a pricey, profitable drugs called “biologics” – treatments that use biological material and constitute some of the best-selling medical products in the world.

In the U.S., companies that manufacture biologics have a generous 12-year “data exclusivity” period on their therapies which shields them from competition from generic copycats called “biosimilars.” These are essentially analogues to the generic versions of conventional chemical drugs (think CVS brand acetaminophen versus Tylenol).

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Data exclusivity is a bit different from pure market exclusivity, though. Having data exclusivity means that a branded biologic drug maker’s clinical trial data remains firmly in its own hands and can’t be used by a would-be copycat as a clinical shortcut to create a cheaper biosimilar. Having access to this kind of information significantly cheapens the drug development process since biosimilar companies don’t have to do all the upfront clinical work.

The data exclusivity issues is where the TPP has been a mixed bag for biopharma. The draft agreement endorsed by the Obama administration would have set a less lenient five-to-eight year exclusivity period among the member nations (although these countries would then have to follow up by passing their own regulations to ensure enforcement of the global trade deal). That’s a far cry from the 12 years’ exclusivity branded drugmakers enjoy in the U.S. But it’s unclear whether or not the industry would want to let the perfect be the enemy of the good in this situation considering that some TPP nations didn’t have exclusivity provisions in place at all.

(I reached out to both BIO and PhRMA, the two major lobbying arms of the biopharma industry, for comment on Trump’s TPP moves, and they both declined to comment. Last year, both groups expressed disappointment with the shortened (compared with the U.S.) draft exclusivity agreement set in place under the previous administration.)

Five years’ protection may not be ideal, “but it’s more than the exclusivity period for certain TPP member states,” said Nicholas Mitrokostas, a partner who focuses on IP issues at the law firm Goodwin Procter, in an interview with Fortune. “It remains to be seen whether there’s an overall benefit for manufacturers of biological branded products.”

The U.S. was one of the strongest advocates for extending exclusivity as much as possible in the TPP in order to allow branded drugmakers more time to recoup their R&D investments. But now that it’s pulled out of the agreement, “It’s hard to tell what the overall impact is going to be on the pharmaceutical companies because we don’t know what’s going to happen at the end of the day,” said Mitrokostas.

So could the final iteration of TPP actually wind up being an even worse deal for drugmakers? “I definitely think that’s a possibility, that these member states will re-visit the exclusivity periods,” said Mitrokostas.