Importance听 Biologics approved by the US Food and Drug Administration (FDA) receive 12 years of guaranteed protection from biosimilar competition compared with 5 years of protection from generic competition for new small-molecule drugs. Under the 2022 Inflation Reduction Act, biologics are exempt from selection for Medicare price negotiation for 11 years compared with 7 years for small-molecule drugs. Congress codified these differing legal protections on the premise that biologics require more time and resources to develop and have weaker patent protection, necessitating additional protections for manufacturers to recoup their development costs and generate adequate returns on investment.

Objective听 To review empirical evidence from the US experience with biologics to analyze the assumptions underlying longer periods of market exclusivity and protection from price negotiation compared with small-molecule drugs.

Evidence Review听 Recent data on development times, clinical trial success rates, research and development costs, patent protection, market exclusivity periods, revenues, and treatment costs of biologics vs small-molecule drugs were analyzed.

Findings听 The FDA approved 599 new therapeutic agents from 2009-2023, of which 159 (27%) were biologics and 440 (73%) were small-molecule drugs. Median development times were 12.6 years (IQR, 10.6-15.3 years) for biologics vs 12.7 years (IQR, 10.2-15.5 years) for small-molecule drugs (P鈥�=鈥�.76). Biologics had higher clinical trial success rates at every phase of development. Median development costs were estimated to be $3.0 billion (IQR, $1.3 billion-$5.5 billion) for biologics and $2.1 billion (IQR, $1.3 billion-$3.7 billion) for small-molecule drugs (P鈥�=鈥�.39). Biologics were protected by a median of 14 patents (IQR, 5-24 patents) compared with 3 patents (IQR, 2-5 patents) for small-molecule drugs (P鈥�&濒迟;鈥�.001). The median time to biosimilar competition was 20.3 years (IQR, 16.9-21.7 years) compared with 12.6 years (IQR, 12.5-13.5 years) for small-molecule drugs. Biologics achieved higher median peak revenues ($1.1 billion in year 13; IQR, $0.5 billion-$2.9 billion) than small-molecule drugs ($0.5 billion in year 8; IQR, $0.1 billion-$1.2 billion; P鈥�=鈥�.01) and had higher median revenues in each year following FDA approval. The median annual cost of treatment was $92鈥�000 (IQR, $31鈥�000-$357鈥�000) for biologics and $33鈥�000 (IQR, $4000-$177鈥�000) for small-molecule drugs (P鈥�=鈥�.005).

Conclusions and Relevance听 There is little evidence to support biologics having longer periods of market exclusivity or protection from negotiation. As a result of differential treatment, US law appears to overly reward the development of biologics relative to small-molecule drugs.

The US Food and Drug Administration (FDA) regulates new pharmaceuticals as either small-molecule drugs, which are derived from chemical compounds, or biologics, which are derived from living organisms or their cells. Biologics represent 2% of prescriptions in the US¹ but tend to be more expensive and account for approximately half of total drug spending.^2,3

Manufacturers earn most of their revenue on brand-name prescription drugs during periods of market exclusivity when they face no direct generic or biosimilar competition.⁴ The US government provides these time-limited monopolies to incentivize private investment in pharmaceutical innovation via 2 types of protections: patents, which are granted by the US Patent and Trademark Office and typically last for 20 years from the time of filing, and nonpatent exclusivities (also referred to as statutory or regulatory exclusivities), which are granted by the FDA and prohibit the marketing of generic or biosimilar products for varying amounts of time (depending on the type of approval obtained).⁴ Generic and biosimilar firms must wait for these protections to expire or, in the case of patents, successfully challenge them in court or design around them before entering the US market.⁴

Because of perceived risks associated with developing biologics and concerns about their long-term profitability, Congress has provided longer periods of statutory exclusivity for biologics than for small-molecule drugs. The Hatch-Waxman Act of 1984 provides up to 5 years of statutory exclusivity for newly approved small-molecule drugs before the FDA can review applications for generic versions. By contrast, the Biologics Price Competition and Innovation Act of 2009 grants biologics 12 years of statutory exclusivity before the first biosimilar can be authorized for marketing.⁴ Proponents of a 12-year exclusivity period for biologics argued that patents on biologics would be difficult to enforce and that biosimilar competitors would therefore be able to enter the market before manufacturers could recoup development costs and generate adequate returns on investment.^5,6

In 2022, Congress enacted legislation further enshrining differential periods of protection for biologics vs small-molecule drugs. The Inflation Reduction Act, which directs Medicare to negotiate the prices of top-selling medicines, exempts biologics from negotiation for the first 11 years after FDA approval compared with the first 7 years for small-molecule drugs, with negotiated prices taking effect 2 years later for both types of products.⁷ The justification for this difference was again that biologic developers need longer protections to recoup their development costs.

Now that 15 years have passed since the enactment of the Biologics Price Competition and Innovation Act, this analysis aims to determine whether special protections for biologics remain justifiable. We systematically analyzed development times, clinical trial success rates, research and development costs, patent protection, market exclusivity periods, revenues, and treatment costs.

We used Drugs@FDA⁸ to identify all novel small-molecule drugs and biologics approved from 2009 (when the Biologics Price Competition and Innovation Act was passed) to 2023. We excluded vaccines and imaging and diagnostic agents. We adapted the study period for some analyses, as described below, when data were unavailable. eTable 1 in the Supplement summarizes cohorts and study periods used in each analysis. Institutional review board approval was not required for this study because we did not analyze patient-level data. We followed the Strengthening the Reporting of Observational Studies in Epidemiology () reporting guideline.

We calculated development times by subtracting the start of development from the date of FDA approval for each product in the cohort. We used the date of the first international patent filing as the beginning of development because developers typically file patent applications soon after a new compound or synthesis process is discovered. Consistent with a prior study,⁹ we extracted all patent numbers for new molecular entities in the US Patent and Trademark Office鈥檚 database of applications for pharmaceutical patent term extensions through 2021, the most recent year for which complete data were available.¹⁰ We then searched the European Patent Office鈥檚 international patent database (Espacenet) for each patent to identify the earliest priority date, which reflects the first international patent filing for the invention.

We used Mann-Whitney U tests to identify significant differences in median development times between biologics and small-molecule drugs. We ran 2 sensitivity analyses. First, we generated a null distribution of differences in means (5000 replications). Second, we ran a linear regression model and calculated robust standard errors to account for heteroskedasticity. The model controlled for special FDA pathways (accelerated approval, breakthrough designation, fast track, priority review, or Orphan Drug Act designation), patent filing year (as a continuous variable to account for potential changes over time), and whether a product was first-in-class (based on data published by the FDA^11,12). All tests were 2-tailed and used a type I error rate of .05.

To evaluate probabilities of success in phase 1, 2, and 3 clinical trials, we searched PubMed for all English-language articles published from 2009 to 2023 containing the following terms: clinical approval success rates, clinical phase transition, clinical trial success rates, clinical success rates, or phase transition probabilities. We also searched the websites of the 2 major US pharmaceutical trade associations鈥擯harmaceutical Research and Manufacturers of America (PhRMA) and Biotechnology Innovation Organization (BIO)鈥攆or literature on clinical trial success rates. Finally, we manually reviewed the works cited in each included article to identify additional studies that the PubMed and website searches may have missed (eFigure 1 in the Supplement). We only considered original studies that quantitatively estimated clinical trial success rates at each phase of development and that reported rates separately for small-molecule drugs and biologics.

We estimated research and development costs using information disclosed in filings by pharmaceutical firms with the US Securities and Exchange Commission for new therapeutic agents; these data were sourced from a prior study.¹³ We applied probability adjustments to reflect the likelihood of success using published clinical trial success rates for biologics and small-molecule drugs.¹⁴ As in previous studies, we applied a 10.5% discount rate to reflect the cost of capital.^13,15 We reported median research and development costs for biologics and small-molecule drugs. All values were adjusted to 2023 dollars using the Consumer Price Index (All Urban Consumers). We used a 2-tailed Mann-Whitney U test (type I error rate of .05) to identify statistically significant differences.

We used the FDA鈥檚 Purple Book to identify all publicly disclosed patents on biologics. Unlike for small-molecule drugs, patents are only linked to individual biologics and listed in the FDA鈥檚 Purple Book database when a potential biosimilar competitor makes a formal request or initiates litigation against a brand-name manufacturer.¹⁶ We then used Lex Machina, a commercial patent litigation database, to find additional patents on biologics disclosed during litigation, as well as to calculate the number of litigated patents per biologic. Patent information was only available for 13 biologics approved by the FDA from 1989 (Epogen) to 2011 (Eylea). We used the FDA鈥檚 Orange Book database to identify all patents on small-molecule drugs approved by the FDA from 1989 to 2011. We used Lex Machina to identify patents on small-molecule drugs disclosed during litigation. We used Mann-Whitney U tests to detect significant differences between small-molecule drugs and biologics.

To evaluate the relative length of market exclusivity for small-molecule drugs vs biologics, we used a 2-pronged approach. First, we determined the length of market exclusivity for all biologics that faced biosimilar competition as of December 31, 2023, using approval dates from Drugs@FDA and biosimilar entry dates reported by manufacturers to Medicaid.¹⁷ The duration of market exclusivity was calculated as the time between initial FDA approval and the date of market entry of the first biosimilar competitor.

Second, to estimate market exclusivity periods for small-molecule drugs, which have been studied extensively in the literature, we searched PubMed for all English-language articles published from 2009 to 2023 containing the following terms: exclusivity period, data exclusivity, market exclusivity, regulatory exclusivity, or statutory exclusivity (and reviewed their references). We only included original studies that quantitatively estimated market exclusivity periods for small-molecule drugs (eFigure 2 in the Supplement).

We used data from SSR Health to track drug prices and sales revenues for all new small-molecule drugs and biologics approved from 2009 to 2022; we stopped in 2022 to allow for at least 1 year of revenue data. SSR Health obtains revenue data, reported quarterly through 2023, from public disclosures by manufacturers, capturing more than 90% of revenues in the US prescription drug market. All values were adjusted to 2023 dollars using the Consumer Price Index (All Urban Consumers). We excluded products with less than 1 full year of revenue data.

We calculated median net revenues for biologics and small-molecule drugs in each year since FDA approval starting with the quarter of each product鈥檚 FDA approval. We ended our analysis in year 13, the last year for which there were more than 5 observations for both types of products. We then calculated the present value of revenues under each curve using a 10.5% discount rate, the same rate we used for estimating development costs.

We calculated the median annual cost of treatment for biologics and small-molecule drugs (rounded to the nearest $1000). SSR Health estimated annual treatment costs by multiplying net unit prices (reflecting rebates and discounts across all payers) by the number of units in a yearly regimen or course of therapy as indicated on the FDA-approved labeling.^2,18 eText 1 in the Supplement provides additional information about the methods used to calculate treatment costs. We used 2-tailed Mann-Whitney U tests (type I error rate of .05) to identify significant differences in both revenues and treatment costs.

The FDA approved 599 new therapeutic agents from 2009 to 2023, of which 159 (27%) were biologics and 440 (73%) were small-molecule drugs. The annual number of new biologics approved increased from a median of 7 in 2009-2015 to 13.5 in 2016-2023 (93% increase); the annual number of new small-molecule drugs approved increased from a median of 25 in 2009-2015 to 37 in 2016-2023 (48% increase; Figure 1).

Median development times were 12.6 years (IQR, 10.6-15.3 years) for biologics (n鈥�=鈥�100) compared with 12.7 years (IQR, 10.2-15.5 years) for small-molecule drugs (n鈥�=鈥�302; P鈥�=鈥�.76; eFigure 3 in the Supplement). No significant differences were observed in the sensitivity analyses (eText 2 in the Supplement).

Five studies reported clinical trial success rates for biologics vs small-molecule drugs.^14,19-22 All found higher success rates for biologics throughout the development process (Figure 2). For products entering phase 1 trials approved by the FDA, the median estimate across the 5 studies was 14% (range, 9%-32%) for biologics and 8% (range, 6%-13%) for small-molecule drugs. For products entering phase 2 trials, the median estimate increased to 24% (range, 17%-38%) for biologics and 15% (range, 10%-21%) for small-molecule drugs. For products entering phase 3 trials, the median estimate increased further to 57% (range, 51%-71%) for biologics and 49% (range, 38%-58%) for small-molecule drugs. eTable 2 in the Supplement provides data on the sample size of each study.

Research and development spending was publicly disclosed for 63 new therapeutic agents (16 biologics and 47 small-molecule drugs). The median development costs were $3.0 billion (IQR, $1.3 billion-$5.5 billion) for biologics and $2.1 billion (IQR, $1.3 billion-$3.7 billion) for small-molecule drugs (P鈥�=鈥�.39; Figure 3).

Patent information was publicly disclosed for 13 biologics and 565 small-molecule drugs. Biologics had a median of 14 patents (IQR, 5-24 patents) per product compared with 3 patents (IQR, 2-5 patents) per small-molecule drug (P鈥�&濒迟;鈥�.001). Among the 13 biologics and 166 small-molecule drugs with any litigation, brand-name firms claimed infringement on a median of 12 patents per biologic (IQR, 5-24 patents) compared with a median of 1 patent per small-molecule drug (IQR, 0-3 patents; P鈥�&濒迟;鈥�.001).

By the end of 2023, the FDA had approved 45 biosimilars for 14 reference biologics; for 4 of these biologics, the approved biosimilars had not yet entered the market (Table). Among these 14 biologics, there was a median of 2.5 biosimilar competitors launched in the market (IQR, 0.3-3.8 biosimilars). The median time to biosimilar market entry was 20.3 years (IQR, 16.9-21.7 years). Among 5 prior studies analyzing small-molecule drugs, the median time to generic market entry was 12.6 years (IQR, 12.5-13.5 years; eTable 3 in Supplement).^23-27

Biologics had higher median revenues every year after approval and achieved higher median peak revenues ($1.1 billion in year 13; IQR, $0.5 billion-$2.9 billion) than small-molecule drugs ($0.5 billion in year 8; IQR, $0.1 billion-$1.2 billion; P鈥�=鈥�.01; Figure 4). The discounted (present) value of cumulative median annual revenues for biologics was $3.7 billion (IQR, $1.5 billion-$10.3 billion) compared with $2.0 billion (IQR, $0.8 billion-$5.2 billion) for small-molecule drugs (P鈥�&濒迟;鈥�.001). The median annual net cost of treatment for biologics was $92鈥�000 (IQR, $31鈥�000-$357鈥�000) compared with $33鈥�000 (IQR, $4000-$177鈥�000) for small-molecule drugs (P鈥�=鈥�.005).

The differential treatment of biologics under the Biologics Price Competition and Innovation Act and the Inflation Reduction Act was based on assumptions regarding development costs, risks, and revenue potential. From a broad review of data and studies spanning the last 15 years, biologics had higher clinical trial success rates than small-molecule drugs at each phase of development and similar development times and costs. After approval, biologics had denser patent thickets, more patent infringement claims per product, and longer periods of market exclusivity than small-molecule drugs. Biologics were also more expensive and earned substantially higher revenues. These results call into question the need for policies that protect biologics from competition or price negotiation for longer periods than small-molecule drugs.

When Congress considered the Biologics Price Competition and Innovation Act, proponents of 12-year statutory exclusivity for biologics asserted that patents on biologics would not limit competition as effectively as patents on small-molecule drugs.^28-30 However, the present study found 4 times more patents per biologic than per small-molecule drug. Litigation is a key tool that brand-name manufacturers use to delay entry of competitors, and the data in this study indicate that manufacturers of biologics have claimed infringement of 12 times as many patents per litigated product as small-molecule manufacturers. Contrary to expectations when the Biologics Price Competition and Innovation Act was passed, patents on biologics may be more effective at delaying biosimilar entry than patents on small-molecule drugs are at delaying generic entry.^31-33 One strategy that biologic manufacturers have employed, for example, has been to obtain new patents just as 12-year exclusivity periods expire, thereby creating uncertainty for biosimilar firms seeking to challenge biologic patents.³⁴ Such strategies help explain why market exclusivity periods, on average, appear to be several years longer for biologics than for small-molecule drugs, based on the data analyzed in this study.

Other barriers to biosimilar entry also contribute to longer periods of market exclusivity for biologics.^35-37 For example, unlike most generic small-molecule drugs, biosimilars require large clinical trials to obtain FDA approval, increasing the time and resources needed to enter the market. Once approved, biosimilars do not benefit from automatic substitution like generic small-molecule drugs unless the FDA grants a biosimilar the rare designation of 鈥渋nterchangeable,鈥� which typically requires further studies. Even then, many states do not require substitution of interchangeable biosimilars at the pharmacy in the way that generic drugs must be dispensed when available.³⁸ Physicians have also shown greater reluctance to switch patients to biosimilars compared with generic drugs.³⁹ The result is that biosimilars have historically captured just 25% of the biologic market within 2 years of first biosimilar entry, with average price reductions on biologic reference products of less than 10%.^40,41 By contrast, generic small-molecule drugs generally capture 65%-90% of the market within a year of first generic entry, with average price reductions of 50%.^42,43 Although policies to address patent thickets are vital to facilitate timely biosimilar entry, other policies focused on FDA interchangeability requirements, state substitution laws, and physician education could help better incentivize biosimilar development. Given the evolving regulatory landscape for biosimilars, as well as changing perceptions among physicians, patients, and insurers about the substitutability of these products, exclusivity periods and revenues for originator biologics may decrease in the future.

Longer periods of market exclusivity for biologics have contributed to higher overall revenues compared with small-molecule drugs. The $3.7 billion in median revenues earned by biologics over their lifetime (discounted to reflect the net present value to companies at the time of launch) was nearly double the $2.0 billion (also discounted) in median revenues earned by small-molecule drugs. When compared with the median capitalized development cost for biologics ($3.0 billion) and small-molecule drugs ($2.1 billion), biologics appear, on average, to be more valuable assets to drug makers than small-molecule drugs. For small-molecule drugs, estimated median development costs exceeded median revenues, likely due to the heavy skewness of revenues, which followed a roughly lognormal distribution.

Concerned about the rising costs of biologics, the Obama administration pushed to reduce the statutory exclusivity period from 12 to 7 years so that it would be more aligned with small-molecule drugs.⁴⁴ That effort was unsuccessful. Instead, Congress further entrenched differential treatment with the Inflation Reduction Act of 2022, exempting biologics from Medicare price negotiation for 4 years longer than small-molecule drugs (11 years vs 7 years), even though Medicare spending is heavily concentrated on biologics.⁴⁵ Legislative efforts are currently focused on changing the timelines for price negotiation in the Inflation Reduction Act. One proposal would exempt all drugs from price negotiation for 11 years (House bill H.R. 7174: Ensuring Pathways for Innovative Cures Act), while a competing proposal would reduce the exemption period to 5 years for all products (Senate bill S 1246: Strengthening Medicare and Reducing Taxpayer Prices Act).

This study does not address the optimal duration of statutory exclusivities for pharmaceuticals nor the timing of Medicare price negotiation. However, current evidence does not support extended protection for biologics relative to small-molecule drugs. Further research is needed to better understand the types of protections that will promote private investments in drug development while also guaranteeing timely competition from biosimilar and generic drugs.

The analyses of research and development costs, patents, and revenues were limited to data in the public domain. Although there was no statistically significant difference in development costs between small-molecule drugs and biologics, this analysis was based on a small sample. It is possible that a larger study would observe a significant difference given the divergent distributions observed between the 2 groups. The development cost estimates undercounted preclinical expenditures while the analysis of development times was restricted to products with applications for patent term extensions, some of which may have been attached to secondary patents rather than primary patents.⁴⁶ However, these issues affected both types of products, reducing the potential for bias.

Data on biologic patents are only disclosed when patents are litigated, and not every patent associated with a biologic is litigated. The disparity between overall patent protection for biologics and small-molecule drugs may therefore be larger than reported in this study.

The estimate of the median and mean market exclusivity period for biologics may have been biased upward by the inclusion of older biologics. The earlier biologics in our sample were approved before the biosimilar pathway existed. After becoming law, the biosimilar pathway was slow to be implemented, but as this pathway has matured, biosimilar market entry has been occurring sooner than in the past.

Because the SSR Health dataset did not capture revenues in all years for all products (due to lack of reporting by companies), median values were used to mitigate the impact of outliers arising from year-to-year changes to the sample composition. Manufacturing costs were not examined due lack of publicly available data; existing analyses suggest that these costs are higher for biologics than for small-molecule drugs, but are trivial relative to revenue for both types of products.^47,48

Finally, although we restricted the literature reviews on clinical trial success rates and exclusivity periods to studies published since 2009, some of the included studies relied on earlier data.

There is little evidence to support biologics having extended market exclusivity or protection from negotiation. As a result of differential treatment, US law appears to overly reward the development of biologics relative to small-molecule drugs.

Accepted for Publication: August 2, 2024.

Published Online: November 25, 2024. doi:10.1001/jama.2024.16911

Corresponding Author: S. Sean Tu, JD, PhD, West Virginia University College of Law, 101 Law School Dr, Morgantown, WV 26506 (shine.tu@mail.wvu.edu).

Author Contributions: Dr Wouters had full access to all of the data in the study and takes responsibility for the integrity of the data and the accuracy of the data analysis.

Concept and design: All authors.

Acquisition, analysis, or interpretation of data: All authors.

Drafting of the manuscript: Wouters, Vogel, Beall, Tu.

Critical review of the manuscript for important intellectual content: All authors.

Statistical analysis: Wouters, Vogel, Beall.

Obtained funding: Wouters, Feldman, Kesselheim, Tu.

Administrative, technical, or material support: Wouters, Beall.

Supervision: Wouters, Feldman, Kesselheim, Tu.

Conflict of Interest Disclosures: Dr Wouters reported receiving personal fees from the World Bank and the World Health Organization outside the submitted work. Dr Feldman reported receiving personal fees from Alosa Health and for serving as an expert witness in litigation against inhaler manufacturers. Dr Kesselheim reported receiving personal fees for serving as an expert witness in litigation against Gilead relating to tenofovir-containing products. Dr Tu reported consulting for purchasers of lenalidomide-containing products outside the submitted work. No other disclosures were reported.

Funding/Support: This work was funded by Arnold Ventures (supporting the work of Drs Feldman, Kesselheim, and Tu), the Commonwealth Fund (supporting the work of Drs Feldman, Kesselheim, and Wouters), the National Institute for Health Care Management (Drs Kesselheim and Tu), and the National Institutes of Health (K08HL163246, supporting the work of Dr Feldman).

Role of the Funder/Sponsor: The funders had no role in the design and conduct of the study; collection, management, analysis, and interpretation of the data; preparation, review, or approval of the manuscript; and decision to submit the manuscript for publication.