08-0048 1.7

Published Online First on April 14, 2008 as 10.1158/1940-6207.CAPR-08-0048
Impact of Economic, Regulatory, and Patent Policies on Innovationin Cancer Chemoprevention Chemoprevention agents are an emerging new scientific area that holds out the promise of delaying or avoiding a number of common cancers. These new agents facesignificant scientific, regulatory, and economic barriers, however, which have limited in-vestment in their research and development (R&D). These barriers include above-averageclinical trial scales, lengthy time frames between discovery and Food and Drug Admin-istration approval, liability risks (because they are given to healthy individuals), and agrowing funding gap for early-stage candidates. The longer time frames and risks asso-ciated with chemoprevention also cause exclusivity time on core patents to be limited orsubject to significant uncertainties. We conclude that chemoprevention uniquely chal-lenges the structure of incentives embodied in the economic, regulatory, and patent po-licies for the biopharmaceutical industry. Many of these policy issues are illustrated bythe recently Food and Drug Administration–approved preventive agents Gardasil® andraloxifene. Our recommendations to increase R&D investment in chemoprevention agentsinclude (a) increased data exclusivity times on new biological and chemical drugs tocompensate for longer gestation periods and increasing R&D costs; chemopreventionis at the far end of the distribution in this regard; (b) policies such as early-stage researchgrants and clinical development tax credits targeted specifically to chemopreventionagents (these are policies that have been very successful in increasing R&D investmentfor orphan drugs); and (c) a no-fault liability insurance program like that currently in placefor children's vaccines.
The significant progress over recent years in oncology has tions are adding new indications for use in cancer chemo- mainly been in developing new therapeutics to treat patients prevention or “risk reduction” For example, tamoxifen with established cancers (1). Although chemoprevention was a standard breast cancer therapy drug before it was ex- agents and cancer vaccines offer great promise, research and tensively tested in, and approved by the U.S. Food and development (R&D) investment in these therapies has been re- Drug Administration (FDA) for, breast cancer risk reduction latively limited. Preventive agents face a number of scientific, (4, 5); Evista® (raloxifene) was a standard osteoporosis regulatory, and economic barriers that have kept R&D invest- prevention and treatment drug before it also was thor- ment low despite the promise of important medical benefits oughly tested and FDA approved for breast cancer risk “Chemoprevention” entered the cancer research lexicon in Investment in basic research and clinical trials has increased 1976 through the work of Michael Sporn, M.D., (3) and has for medicines specifically developed for cancer prevention and advanced into U.S. and global markets through new pro- for re-purposing existing medicines for preventive purposes.
ducts such as Gardasil® [a quadrivalent human papilloma- However, these new preventive therapies are difficult to bring virus (types 6, 11, 16, and 18) recombinant vaccine]. Some to commercialization when subjected to existing policies de- existing agents for cancer therapy or other standard applica- signed to build an armamentarium of chronic and acute treat-ments and diagnostics.
This article will review and analyze how various policy actions would lessen or exacerbate the barriers to R&Dinvestment in cancer chemoprevention. Given that under- Authors' Affiliation: Department of Economics and the Fuqua School ofBusiness, Duke University, Durham, North Carolina investment in chemopreventive agents is associated with Received 01/14/2008; accepted 03/06/2008.
the unrealized promise of sizeable social benefits, it is appro- Grant support: C-Change, a nonprofit organization.
priate to consider policy options that would be applicable to Note: Supplementary data for this article are available at Cancer Prevention pharmaceuticals in general and to class-specific drugs in par- Research Online (http://cancerprevres.aacrjournals.org/).
ticular. The former options would include changes in patent Requests for reprints: Henry G. Grabowski, Duke University, Box 90097, and market exclusivity policies; the latter could involve spe- Durham, NC 27708. E-mail: grabow@econ.duke.edu.
2008 American Association for Cancer Research.
cial R&D tax credits like those used for orphan drugs. These received FDA approval for additional labeling for breastcancer risk reduction in postmenopausal women with osteo- porosis and in postmenopausal women at a high risk of breast cancer. The approval was based on clinical results from trials Pharmaceutical R&D is a complex, costly, risky, and time- involving ∼37,000 women and spanning ∼10 years.
consuming process involving numerous successive stages, From an economic perspective, chemoprevention agents usually over the course of 10 or more years, with each stage share a number of characteristics with the development of having its own unique set of risk factors. Failure can occur at new vaccines for infectious diseases (9). Because they would each step of the process for a myriad of reasons, including, but be used by a relatively healthy population with no known not limited to, toxicity, carcinogenicity, manufacturing difficul- evidence of cancer, these agents are developed in clinical trials ties, inconvenient dosing characteristics, inadequate efficacy, that tend to be longer in duration, larger in scope, and more and economic and competitive factors.
complex to perform for regulatory approval (versus cancer Drug development costs, which can involve up-front invest- therapy trials; ref. 2). These logistics increase the costs and ments of several hundred million dollars, are high for a num- ber of reasons (6). For example, the size and complexity ofclinical trials have been growing significantly over time.
Furthermore, there is still a high level of uncertainty in the Because, as with vaccines, chemoprevention drugs would R&D process. Drugs that do manage to make it to market vary be given to healthy individuals at a significant risk (generally) greatly in the revenues they generate for manufacturers (7), for a major disease, it is instructive to consider the case of the adding to the risks of drug development.
U.S. vaccine industry. Historically, this industry has been sub- Oncology drugs carry specialized risks and development ject to above-average liability claims and risks. This increased delays that could be offset by priority and speeded review risk was one of the primary factors leading to the exit of many policies for treatments that satisfy unmet needs and provide firms from the industry in the 1960s and 1970s (10). Other promising treatments of patients with terminal illnesses. How- reasons cited for this decline in vaccine makers included the ever, these shorter review times are offset by greater difficul- smaller expected market sales for many vaccines compared ties in recruiting patients and the extended time required to with that of other drug therapies, the higher costs of manufac- fully achieve trial end points for assessing efficacy, especially turing and regulatory compliance, and the unfavorable gov- in cancer chemoprevention trials. As a result, U.S. clinical ernment purchasing policies for childhood vaccines. All of trials for oncologic agents were, on average, 1.5 years longer these concerns resulted in the number of vaccine manufac- than trials of nononcologic agents (1). These obstacles can in- turers decreasing from 26 in 1967 to 17 in 1980 and to 5 in crease considerably when considering only cancer chemopre- Recognizing the important barrier that liability concerns Even after a product is approved for marketing, extensive could pose for traditional pediatric vaccines, the government R&D expenditures are frequently undertaken for new indica- established the National Vaccine Injury Compensation Pro- tions and improved formulations. Studies to establish new gram (VICP), funded by an excise tax on each dose of vaccine.
indications typically involve expenditures of well over $100 This no-fault insurance program mitigated some of the liabili- million but can be substantially greater when a large number ty risk and helped stabilize the environment for childhood of trial subjects is required, as would be the case for chemopre- vaccines. It is not applicable, however, to vaccines for adult vention (6). Testing the cancer chemoprevention potential of a patients. Adults are covered for no-fault liability if the product drug approved by the FDA for another indication requires is also indicated for children and is recommended through trial designs that differ substantially from and usually cost the Advisory Committee on Immunization Practices (which substantially more than the original trials.
functions under Health and Human Services in the Centers The lengthy and costly R&D process for a new cancer for Disease Control and Prevention) for routine administra- prevention indication is exemplified by the history of Evista tion. The chemoprevention vaccine Gardasil is recommended (raloxifene). Raloxifene received its first FDA approval, which for women as old as 26 and for girls as young as 9 and so is was for osteoporosis prevention, on December 9, 1997. The covered under VICP for adults and children. It is reasonable to trials supporting this indication produced secondary data sug- assume, however, that most future chemoprevention agents, gesting that breast cancer risk reduction also was a possible like other agents, will not fall under the protection of this pro- use for the product. Published in 1999 (8), the 2-year Multiple gram. Therefore, a manufacturer of an adult chemoprevention Outcomes for Raloxifene Evaluation study (which primarily agent would weigh the liability risks against the size of the evaluated raloxifene effects on fractures in postmenopausal expected sales. If the expected sales volume is small, known osteoporosis patients) showed a secondary end point reduc- and unforeseeable liability risks could substantially reduce tion in breast cancers. Additional trials on breast cancer risk the attraction to investing in a chemoprevention agent.
reduction were also positive but raised some concerns about The cyclooxygenase-2–selective agents Celebrex® (celecoxib) cardiovascular safety. Then, raloxifene was compared with and Vioxx® (rofecoxib) have been tested for chemoprevention tamoxifen in the pivotal Study of Tamoxifen and Raloxifene against many cancers (29). Rofecoxib was in clinical trials for involving more than 19,000 women with an elevated 5-year colorectal cancer chemoprevention when excessive cardiovas- breast cancer risk (based on the Gail model). Study of Tamox- cular risks were identified, and the manufacturer, Merck, ifen and Raloxifene showed rough equivalency between ralox- withdrew the product from the market. The Vioxx experience ifene and tamoxifen in invasive breast cancer risk reduction, suggests that some chemoprevention therapies introduce and raloxifene showed a better safety profile (5). In 2007, Evista a very complex benefit/risk calculus, making it difficult to ascertain whether the benefit of delaying or avoiding cancer of innovation has important external benefits to society, as in (and perhaps secondary, other benefits) outweighs the risk of the case of new medicine and new indications for existing serious adverse effects. (Additional product-specific examples medicines, this also supports a longer exclusivity period are discussed in the extended version of this article included in (15). Chemoprevention has demand and supply-side charac- teristics that are consistent with these criteria.
Biomedical funding gap for early-stage R&D A growing gap has emerged in recent years in biomedical In designing a patent system or set of intellectual property funding for early-stage preclinical R&D. This gap involves rights, the key policy challenge is setting the balance between technology transfer from universities because early-stage the incentives for drug innovation and the imitative price “proof of concept” studies (which provide early evidence that competition from generics. In the United States, the 1984 a molecule may feasibly be developed for a particular use) are Hatch-Waxman Act was passed with these dual objectives in beyond the basic research questions typically investigated by mind. In particular, Title I established an Abbreviated New university researchers. At the same time, many venture capital Drug Application process to facilitate generic entry and price and private equity firms have pulled away from funding very competition after patents expire. Under the Abbreviated New early-stage discovery companies and focused instead on com- Drug Application procedure, generic firms must only demon- panies with compounds in clinical trials (11). This pulling strate that their drug is bioequivalent to the innovator's pro- away reflects the fact that new molecular entities can take duct. Title II of the Act was directed to R&D investment a decade or more to achieve significant milestones, which incentives. Because of the long clinical trial time and regula- is beyond the life of most venture capital funds.
tory review period, much of the nominal patent life of 20 years This emerging funding gap potentially affects many promis- is lost prior to FDA approval. Title II provided for partial re- ing academic programs, even those with strong intellectual storation of some of the patent time lost during the clinical property assets for licensing to start-ups and pharmaceutical firms. It is a particularly relevant issue for chemoprevention A recent article by Grabowski and Kyle (16) has examined agents because many are at the earliest stages of development actual market exclusivity periods under the Hatch-Waxman and are expected to have lengthy development timelines.
Act. Market exclusivity periods are defined in their study as Furthermore, they will require very large-scale clinical trials the period between the introduction of the new drug and to gain FDA approval. Some potential solutions to this fund- the entry of the first generic. They examined market exclusiv- ing gap issue in the case of chemoprevention are discussed ity periods for all new molecular entities that experienced first later in “Policies Targeted Specifically to Chemoprevention.” generic entry between 1995 and 2005. The average marketexclusivity period for drugs with sales in excess of $100 mil- lion was ∼11 years, with a large variance around this value.
Another key finding is that generic competition has inten- sified over the period from 1995 to 2005. For drugs with sig- The importance of patents in pharmaceutical R&D nificant market sales at the time of patent expiration, the Patents serve a number of functions in the complex R&D innovator's brand typically loses more than 90% of its market ecosystem for new medicines (12). First, they provide a re- within a few months' time (16). Generics now account for ward for invention and innovation in terms of a market exclu- more than 50% of all U.S. prescriptions. Since 2001, the growth sivity period. This is especially important in an industry in total prescriptions for generic products has significantly characterized by very risky and costly R&D that is subject to exceeded that for branded products (17).
easy imitation after a product is approved by the regulatoryauthorities. Second, patents serve a disclosure function so that knowledge can be publicly disseminated and built upon by In addition to the patent restoration provisions of the subsequent inventors. Beyond these traditional rationales, Hatch-Waxman Act, there is a new chemical entity, or data patents facilitate the emerging market exchange in new tech- exclusivity, for a period of 5 years for innovators. In particular, nologies. Economists refer to these latter roles as signaling and a generic firm cannot rely on the innovator's data on safety transactional functions. In particular, a patent is a critical asset or efficacy through the Abbreviated New Drug Application that signals a firm's innovative capacity. It facilitates the move- process until 5 years have elapsed from the date of the original ment of capital for new technologies in the most productive Abbreviated New Drug Application approval. Data exclu- directions (13). Without patents, it is difficult to see how this sivity and patents are complementary forms of intellectual market for new technologies could function in an effective property for new pharmaceuticals and biologics. Innovators generally apply for patents on compounds in the preclinical Beginning with the pioneering work of William Nordhaus or early clinical phase of the development process. In the in 1969 (14), economists have developed conceptual models period after a patent is granted but before a product can be to determine the factors that affect the socially optimal exclu- marketed, innovators must generally perform a long, risky, sivity time. The basic tradeoff is between incentives for new and costly investment process to demonstrate the safety and product development and more intensive price competition after exclusivity expires. Industries where the R&D process Data exclusivity recognizes the substantial investment that is costly and risky need longer exclusivity periods to realize innovators have to make in the data which demonstrate safety innovation benefits, compared with those industries where and efficacy to gain FDA regulatory approval. It provides a innovation is easier and less costly. Similarly, when the output floor level of exclusivity before imitation from generics that is especially important for compounds with uncertain or market approvals, and the growth of patent challenges by limited patent protection. Ideally, data exclusivity would generic firms as a core business strategy.
delay abbreviated filings and patent challenges until innova- Early-stage development in biopharmaceuticals is concen- tors have had an opportunity to cover their lengthy and costly trated in start-ups and private firms supported by venture R&D investment and earn a positive return on new therapeu- capital firms. Venture capital firms specialize in high risk/high return ventures. Intellectual property is a key dimension ofthe decision to invest in life science companies that have little Patent challenges under the Hatch-Waxman Act other tangible or intangible assets and a lengthy period of The Hatch-Waxman Act also includes a market exclusivity clinical trials prior to marketing approval. Patents and data provision for generic firms that rewards the successful chal- exclusivity are critical to the raising of capital from venture lenge of the patents of an approved product. In particular, capital firms as well as from public market offerings and the payoff for the first generic entrant filing an Abbreviated New Drug Application and successfully challenging the Success in the biopharmaceutical area is ultimately predi- patent is a 180-day exclusivity period. Even if the odds of cated on the fact that when firms develop novel and useful winning are low, the payoff of successfully challenging a therapies for diseases with unmet needs, they will be able to patent is large. There have been an increasing number of earn significant profits over a significant product life that patent challenges undertaken by generic firms early in the in- justifies their lengthy and costly R&D investments. Whereas novator's product life cycle (18). This is contributing to a short- many projects are terminated at a loss, a few highly successful ening in the average time that innovators have to recoup their projects can yield a significant return to the overall portfolio to justify investments in these risky enterprises (24). If these A patent can be challenged on the grounds of obviousness, profits are endangered by uncertainty about the prospect of prior art, or double patenting. A court may determine, for generic entry, through patent challenges early in the product example, that a drug invention was “obvious,” allowing the life cycle, it will lead to a shift in venture capital portfolios generic challenger to enter if the 5-year data exclusivity period has expired. The issue of patent type is also relevant from apolicy standpoint. Process, method of use, and formulation Implications for funding of chemoprevention patents have less breadth than product patents and may be Intellectual property and data exclusivity issues are of par- more vulnerable to challenge, although each situation must ticular relevance to chemoprevention. Core patents on existing be evaluated on a case-by-case basis. It is worth noting that agents that have shown efficacy as chemoprevention agents many important drug products, such as the first AIDS ther- may have limited time remaining before expiry. It will be apy, AZT (zidovudine), relied on formulation or method of difficult to justify additional costly investments in R&D for es- use patents because their product patents had already expired.
tablished firms and even more so for small firms, individuals, This could also be the case for many chemoprevention agents.
and universities where patent expiry has occurred or is immi- Litigation of chemoprevention agent patents can be ex- nent. The uncertainty surrounding early patent challenges also pected to be particularly costly due to the complex nature of may tilt the risk-return against otherwise economically viable the matter, processes, and the highly specialized and scarce number of experts and legal firms experienced in this emer- If an agent has adequate patent life, seeking new chemopre- ging field (19, 20). Small firms and individuals, and in some vention indications may increase the attractiveness of a patent instances universities, may be disproportionately affected by challenge. Patent owners will therefore need the resources and high litigation costs and therefore under-resourced to defend resolve to protect their patents. The potential for high-cost patent litigation coupled with the likelihood that many exist-ing agents will be near exhausting or have already exhausted Enactment of abbreviated pathway for follow-on their patent life may create a significant barrier for additional investment in existing agents to be tested and approved as Congress is currently considering legislation that would create an abbreviated regulatory pathway for follow-on biolo-gicals, which are sometimes referred to as “biosimilars” or “biogenerics.” Most biologicals are regulated through the Data at the initial osteoporosis launch of Evista suggested Public Health Services Act, which does not presently contain that this agent was effective as a breast cancer chemopreven- a mechanism for an abbreviated application such as that tion agent. These early cancer prevention signals were second- which exists for chemical drugs under the Hatch-Waxman ary effects within the target population, female osteoporosis Act. Biologicals raise scientific, legal, and regulatory issues patients with a comorbid risk or history of breast cancer. As that make the follow-on approval process different than for discussed earlier, the trials to support the cancer prevention indication were lengthy, required thousands of patients, and Data exclusivity is a particular focus of attention in legisla- consequently were quite costly. Lilly's patent on the composi- tive proposals under consideration. Legislative proposals vary tion of Evista (composition-of-matter patent) has already significantly on the issue of data exclusivity with competing expired. Its current exclusivity relies primarily on a method- bills having provisions ranging from zero to 14 years of data of-use patent for inhibiting bone loss, which expires in 2014, exclusivity. Data exclusivity has become a very important and this patent is under challenge by generics. The scant issue to innovators. This reflects the entrepreneurial structure 7 years of use-patent protection remaining when Evista re- of R&D process in biopharmaceuticals, the long timelines to ceived its cancer prevention indication in 2007, coupled with a relatively small, incremental market for breast cancer risk deterred until innovative firms have an opportunity to earn a reduction (beyond the osteoporosis market), make it proble- risk-adjusted return on their R&D investments. This is an matic that the firm will recoup its multimillion dollar invest- especially important issue to R&D investment in areas like ment in the additional indication. However, the indication for chemoprevention that are at the far end of the development breast cancer risk reduction for osteoporosis patients can spectrum in terms of costs and risks.
provide some long-term competitive strategic advantages In the European Union, both new drugs and new biological for Lilly and its next-generation product in the osteoporosis entities receiving approval by the European Agency for the Evaluation of Medicinal Products, or by individual EU coun- Considerations beyond investment returns may have tries, receive a 10-year data exclusivity period. In particular, played an important role in the development of Evista for generic firms can file an abridged market application after its cancer prevention indication. Once committed to and be- 8 years from the date of first EU authorization and begin the gun, the continued study of a drug for another indication, process of development and license application. However, the which began in 1997 for Evista, can be difficult to reduce or license may not be effective until 10 years of exclusivity from cease based on purely economic grounds, even if the size licensing has expired. This is commonly called the “eight plus and scope of the trials needed to gain FDA approval turn two” policy (26). Moreover, there is an additional year of data out to be greater than originally expected. As in the case of exclusivity granted for entities with significant new indica- Evista, the early data can be highly favorable and the desir- tions that are approved within the first 8 years after their ability of filling an unmet need creates its own expectations among oncologists and patients in spite of the projected uncer-tain return on investment. Had the data on the cancer preven- tion potential of Evista been weak or identified later in the As discussed in Section III, data exclusivity is an important patent life, it would have been difficult for the manufacturer issue under consideration by Congress in connection with to justify the further investment for cancer prevention, espe- establishing an abbreviated pathway for biological entities.
cially when considering opportunity costs and a finite pool Without endorsing any particular legislation currently in dis- cussion, we believe there are ample grounds to support a data There are, however, long-term strategic considerations that exclusivity period toward the upper end of the spectrum also could have been important in the decision to continue the being considered by legislators. One consideration is the fact trials of Evista for breast cancer prevention, particularly con- that a 10-year data exclusivity period, with added time for siderations involving the status of Evista as the only osteo- new indications, would harmonize U.S. policies with Europe.
porosis drug with this additional indication. Lilly has a A second point is that a recent analysis of economic data for second-generation product, arzoxifene, which is in late-stage new pharmaceuticals and biologicals introduced into the Uni- clinical testing. With the knowledge and experience gained ted States indicates that a 13- to 15-year period would work to from raloxifene, clinical trials for arzoxifene have been de- closely align the data exclusivity with the time necessary for a signed to simultaneously show efficacy in osteoporosis pre- representative new molecule to earn a positive return on large, vention and treatment and in breast cancer risk reduction. If up-front R&D investment now required for FDA approval arzoxifene shows an improvement in potency and other attri- butes compared with raloxifene and other osteoporosis agents, It is also appropriate to consider a longer exclusivity time it could be positioned as the treatment of choice for all these for new drugs as well as biologicals. This would be a reason- indications in postmenopausal women.
able reform for policymakers to consider in the face of the in-creasing R&D costs for innovators and the explosion in patent Policy Recommendations on Data Exclusivity for challenges that has occurred in recent years. These challenges have led to higher litigation expenses and potential disincen-tives for R&D investments in new drugs and new indications Data exclusivity in the United States and Europe for recently launched drugs. As such, a longer exclusivity per- The 5-year new chemical entity data exclusivity period was iod would help sustain a vigorous innovative process invol- put into the Hatch-Waxman Act to incentivize innovators ving universities, start-up firms, and R&D partnerships. All faced with few remaining years or uncertain patent exclusivity parties could be given an opportunity to obtain a positive time. However, the length of this exclusivity period now needs return on their up-front investments, with lessened concern to be reconsidered in light of industry experiences over the over early litigation and generic entry.
past two decades. Since the 1984 Act was passed, R&D costs In a longer discussion available online (Supplementary have more than doubled in real terms (6). At the same time, data), we describe various patent reform legislations pending generic competition has become more intense. As discussed, before the 110th Congress and their implications for chemo- generic patent challenges are occurring very early in the pro- The new chemical entity data exclusivity affords branded Policies Targeted Specifically to Chemoprevention products a floor of effective exclusivity of 5 to 7 years, depend-ing on how long courts take to resolve patent suits. This is insufficient time for most new drugs to recoup the up-front A longer market exclusivity period is an example of a “pull” R&D costs and earn a positive return on this investment strategy that rewards research outputs. Other alternatives to (25). Whereas the right to challenge a patent is an integral part increase R&D investments could involve “push” strategies of the U.S. intellectual property regime, challenges should be that would subsidize research inputs or lower R&D costs specifically targeted to be chemoprevention agents. Push the clinical trial data would seem appropriate options to con- strategies like government grants and R&D subsidies can be sider for chemoprevention agents and cancer-preventing vac- particularly effective in addressing the funding gap barrier cines, given their relative underinvestment and substantial present in the early-stage development activities discussed above. As discussed, this funding gap can be particularlyburdensome in the case of chemoprevention entities with their Liability mitigation using the VICP model long time frames and above average clinical trial require- The VICP is restricted to vaccines that are indicated for ments. (Additional information on gaps in funding by the children. Coverage expands if the vaccine is also indicated National Cancer Institute is discussed in the extended version for adults. These vaccines must also be included in recom- mendations for general administration by the AdvisoryCommittee on Immunization Practices (functioning within the Centers for Disease Control and Prevention). Vaccines One successful policy measure involving push and pull for chemoprevention in specific populations would not be mechanisms is the Orphan Drug Act of 1983. It was designed included under the current scope of work of the Advisory to increase R&D investment incentives for rare diseases and Committee on Immunization Practices and therefore would illnesses. These are defined as illnesses or conditions in the not meet the current criteria for no-fault insurance. Addi- United States with a prevalence of less than 200,000 patients.
tionally, if a chemoprevention vaccine is for adults only, it Orphan Drug legislation was also enacted in Japan in 1993 would not qualify for the VICP program under its current and in the European Union in 1999, incorporating many pro- structure. Furthermore, many chemoprevention agents cur- rently in clinical trials for cancer risk reduction testing are The Act recognizes limited incentives to undertake R&D on rare diseases given the high costs of gaining FDA approval A program modeled after VICP could be created, which and more limited prospects of positive returns. The Orphan provides no-fault coverage and reduces the liability risks asso- Drug Act contains three provisions to lower R&D costs.
ciated with these products. A mechanism such as the role of First, the Orphan Drug Act establishes a 50% tax credit on Advisory Committee on Immunization Practices would also clinical trials for orphan drug indications. Second, it includes need to be created to advise which agents are eligible for cov- a modest clinical research grant program targeted to the ear- erage. An advisory group could be housed within the Na- lier stages of development. Third, it requires FDA advice and tional Cancer Institute. Funding for liability insurance or for counseling to sponsors in acceptable research protocols for the administration of the program could be provided, in part, orphan drug development. These R&D push provisions are through contributions from chemoprevention agent sales as a combined with one pull incentive—a guaranteed 7-year mar- ket exclusivity for orphan drug indications that runs concur-rently with any patent exclusivity terms.
The primary incentive of the Orphan Drug Act of a 50% tax Chemoprevention agents are an emerging new area of credit is designed to moderate problems of adverse selection scientific promise that can lead to significant new therapies associated with an overly centralized decision process. The to patients at risk of developing debilitating and life-threa- program operates in a decentralized market fashion rather tening cancers. However, the development of these therapies than relying on a centralized funding approach where govern- currently faces significant scientific, regulatory, and econom- ment officials pick the winners and losers. In particular, the ic hurdles that have adversely affected R&D investment in developers of designated orphan drugs still have to put up these agents. It is important that policymakers address these 50% of the funds for the clinical trials.
barriers with proactive policies to stimulate new R&D in- There is evidence that the Orphan Drug Act has been very vestment. Our recommendations include sufficient data ex- successful in increasing the number of new drug approvals clusivity for new drugs and biologicals to allow payback in for rare illnesses. In particular, the FDA states that “more than high-risk, lengthy R&D investments like chemoprevention.
200 drugs and biological products for rare diseases have been We also recommend consideration of targeted policies that brought to market since 1983. In contrast, the decade prior to have successfully enhanced other socially beneficial areas 1983 saw fewer than 10 such products come to market.” As of such as the tax credits and early-stage research grants for December 2004, the FDA had granted 1,432 orphan drug orphan drugs and the VICP no-fault insurance approach designations to pharmaceutical compounds, making the clin- for children's vaccines. (Additional information to support ical trials for these orphan indications eligible for tax credits these recommendations is provided in the extended version and other benefits. In addition, there have been 265 orphan drug approvals (28). Almost half of these approvals have been There are a number of promising products that are currently for new molecular entities or new biopharmaceuticals.
being investigated as chemoprevention agents (a listing of An analysis of data from several orphan drug approvals these agents can be found in the extended version of this arti- also indicates that a much smaller number of subjects are cle in Supplementary data). Many of these projects are at the typically needed for FDA approval than in the case of non-or- earlier stages of clinical investigation. A firm contemplating phan drugs. It is probably infeasible to approve chemopreven- annually investing tens of millions of dollars over a long tion agents or cancer vaccines on the basis of smaller clinical time span for a new chemoprevention agent or vaccine must trial populations, given their likely administration to large make these decisions on expectations about future returns.
populations after approval. However R&D tax credits, FDA Companies will undertake these development risks for the counseling on acceptable protocols, and priority review of opportunity to obtain a commercially successful product that addresses unmet medical needs. From an economic subject to potentially rapid generic competition or entities standpoint, however, there must be expectations of signifi- fraught with large litigation uncertainties, development be- cant market sales, a period of exclusivity before low-cost gen- comes very problematic. The policies recommended in this eric entry, and some protection against mass tort liability article are designed to moderate the economic barriers to in- claims (all of which were part of the case of Gardasil). On novation for chemoprevention candidates so that more of the other hand, for medicines that target rarer types of can- them are given the opportunity to advance through the var- cers with more limited market potential, or those that are ious stages to FDA review and market approval.
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