Since Summer 2018, the US, Canada, and Mexico have been negotiating a successor to NAFTA, which has been in effect since 1994. Called USMCA, the new trade agree encompasses a broad range of industries as far-reaching as dairy, automobiles, and labor. Just as was the case with the Trans-Pacific Partnership (TPP), which the US ultimately did not sign over intellectual property (IP) concerns, the IP provisions in USMCA have drawn considerable attention from the biopharmaceutical industry. This week, the IP provisions around biologics exclusivity were removed during congressional negotiations.

The Debate on Exclusivity in the US

Under US law, the Biologics Price Competition and Innovation Act (BPCIA) provides 2 concurrent periods of reference product regulatory exclusivity for originator products, which run in parallel with patent exclusivity. Biosimilar or interchangeable biologic sponsors cannot submit a 351(k) application to the U.S. Food & Drug Administration (FDA) until 4 years after the licensure of the reference product under 351(a) of the Public Health Services Act. Also, the FDA cannot approve a biosimilar or interchangeable biologic until 12 years after the licensure of the reference product. The information on the reference products are made available in the FDA’s Purple Book (akin to the FDA’s Orange Book for small molecule drugs).

The 12-year US exclusivity for biologics is the longest in the world. Most countries have the same exclusivity for drugs and biologics; for example, Europe has 10 years for both, with the option of an extra year for a new indication that entailed clinical studies.  The Obama administration had proposed 7 years of market exclusivity for biologics. Since enactment of the BPCIA in 2010, several legislative proposals have been introduced in Congress, as recently as June 2019, to lower the period of market exclusivity to 5 years. A reduction in the period of market exclusivity is intended to encourage earlier market entry for biosimilar and interchangeable products and, therefore, greater competition. In practice, however, it may have a limited impact because the patents, rather than exclusivity, are the primary determinants of market entry.

Finally, the biosimilar pathway created through the BPCIA comprises Title VII of the Affordable Care Act (ACA), which remains under deliberation by the 5th Circuit Court of Appeals in Texas v. US. In 2018, the Northern District of Texas held that the individual mandate was unconstitutional and inseverable from the rest of the ACA. If higher courts uphold this decision, the ACA—and thus the biosimilar pathway—could be invalidated. In this instance, Congress would need to re-authorize the BPCIA, which would likely reignite the debate on biologic exclusivity, among other issues such as the “patent dance” within that statute.

Earlier Drafts of the USMCA

Earlier drafts of the USMCA contained provisions that would require at least 10 years of effective market protection for originator biologics approved in the signatory countries (i.e., the US, Canada, and Mexico). Because the US has a 12-year period of market exclusivity under the BPCIA, it would have already satisfied the requirement under the USMCA. Canada, which has an 8-year period of market exclusivity, would have needed to raise this threshold under Canadian law. Mexico, which currently provides a 5-year period of market exclusivity for new chemical entities (i.e., drugs, not biologics)—as required under NAFTA—would have needed to both extend this threshold and expand it to cover biological products.

Potential Implications of the Renegotiated Draft

The absence of provisions on market exclusivity in the renegotiated draft of the USMCA has several implications. First, without the provisions, market exclusivity in the US, Canada, and Mexico would remain status quo, as established by the countries’ existing respective domestic laws.

Second, the process for winding down an existing FTA, like NAFTA, can be complex. NAFTA will terminate after USMCA enters into force. At that time, because Mexico’s 5-year period of market exclusivity for new chemical entities is not specified in Mexican law but is instead enforced by a governmental agency to ensure compliance with NAFTA and other international treaties, Mexico may no longer need to provide any period of market exclusivity.

Third, an investor, which could include a pharmaceutical company with so-called legacy investments under NAFTA, defined to include IP rights, may still submit disputes under NAFTA’s dispute settlement mechanism for a 3-year period after the USMCA enters into force. This may be relevant for companies seeking to resolve disputes with signatory countries concerning market entry, especially because the dispute settlement mechanism under USMCA is considerably different from NAFTA. These considerations would still have been relevant if the market exclusivity provisions had remained in USMCA.

Looking Ahead: Potential Effects on Market Entry Remain Uncertain

In the US, market exclusivity has to date not affected biosimilar launch timelines. Instead, patent disputes have more often been the determining factor. We expect this to continue to be the case for the short- to medium-term future, which is likely to result in a gating and bunching effect for new biosimilars to each reference product as patent protection expires. This will not change as a result of USMCA, although if rules around importation were to change, then the products available from Canada, especially, may impact the US market.

Although biologics’ regulatory exclusivity provisions have been removed from USMCA, we expect continued efforts at regulatory harmonization across highly regulated countries, including those in North America and Europe. In addition, we anticipate continued focus on the competitive biologic market from policymakers at both the legislative and regulatory level as the market evolves and further structural incentives are considered.

We expect the international competitive biologic market to continue to evolve over the next several years, with ongoing European leadership on biosimilars, new therapeutic area product launches in the US, and increasing access in other emerging markets, such as Mexico, Eastern Europe, and Asia. With this market evolution will come a dynamic policy arena as stakeholders address new and ongoing issues, including IP protection that support innovation and competition.

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