Duration of Patent Protection and Market Exclusivity for New Drugs

When pharmaceutical companies develop new drugs, they create intellectual property. This information is protected by patents and market exclusivity laws for a certain period, during which the company can expect to be the sole manufacturer and seller of the drug. How can we calculate the duration of protection for new medicines?

Patent protection lasts 20 years from the application date, but can be extended to 28 years. Market exclusivity begins on the drug’s approval date and lasts 5 years, but this duration can be extended up to 12.5 years, based on the drug type and other extension factors.

Drug Type	Market Exclusivity Period	Pediatric Extension	Infectious Disease Extension	Patent Holder 30-Month Stay	Maximum Exclusivity Period
Small Molecule (NCE)	5 years	0.5 years	5 years	2.5 years (7.5 years from approval)	10.5 years
Biologics	12 years	0.5 years	NA	NA	12.5 years
Orphan Drugs	7 years	0.5 years	5 years	0.5 years (7.5 years from approval)	12.5 years
Me-Too Drugs	3 years	0.5 years	5 years	NA	8.5 years
Generic Drugs	0.5 years	NA	NA	NA	0.5 years

Pharmaceutical Intellectual Property (IP) Protection

Patent Protection Vs. Market Exclusivity

In the context of pharmaceutical drug development, intellectual property (IP) is protected by two independent terms. The U.S. Patent and Trademark Office (USPTO) grants patents, while the Food and Drug Administration (FDA) grants market exclusivity.

Generally, pharmaceutical companies will file for multiple patents that cover different areas of the drug (chemical structure, manufacture, uses, etc.). On the other hand, market exclusivity only begins once the drug has been approved by the FDA, encompassing the whole drug product.

Patent protection and market exclusivity prevents other companies from manufacturing and selling the drug product until both expire, which gives the patent holder (the original innovator) time on the market to profit from the invention.

As seen in the sales curve of a typical drug product above, sales generally peak 12 years after approval. A slow decline turns into a sharp drop in revenue once IP protection expires and generics are approved, usually around 15 years after the product enters the market.

What’s the Point of IP Protection?

The purpose of having patent protection and market exclusivity for drugs is to reward the company or institution that invested time and effort toward developing the drug. Based on 2022 numbers, a drug costs US$2 billion and takes 14 years of research and development, on average, before it is approved.

If such protections didn’t exist, others would be able to profit off the knowledge of the patent holder, which is detrimental to innovation. By offering intellectual property protection, regulatory agencies and governments incentivize investment into developing new, novel therapies.

However, this comes at a cost to the patient. Because pharmaceutical companies must recoup the cost of research and development, patent holders tend to price their drugs higher. Once patent protection and market exclusivity expire, other manufacturers can produce generic versions of the drug that are more cheaply available to the public.

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Patent Protection (20 to 28 Years)

Importance of Early Filing

Patent protection in the U.S. and many other countries lasts 20 years from the application date. The company can request up to 3 years of administration extension (caused by delays in filing the patent) and another 5 years of regulatory extension (caused by delays in FDA review), up to 28 years in total.

Pharmaceutical companies tend to apply for patent protection as early as possible to protect their drug candidates early in the development stage, continuing to file for more patents that cover different areas of manufacture, formulation and application if it continues to show promise.

In general, the earlier a company receives patent approval, the broader protection it will receive, as any subsequent developments based on the invention by others will be more likely to be considered IP infringement.

Filing for patent protection early in development also acts as insurance, ensuring the drug can be commercialized if it becomes successful. Drug candidates that fail to receive patent approval are often dropped.

The downside to early filing is that by the time the drug is approved, the initial 20 years of patent protection for the drug molecule is often close to expiry. Hence, market exclusivity is usually more relevant at this stage, as it only begins once the drug has gotten FDA approval.

Manipulation of IP Protection

Although the length of patent protection is 20 years by default, certain legal complexities change this from drug to drug. Companies can form ‘patent walls’, making small patentable changes to the drug product (such as changing a tablet shape or a drug’s packaging material), extending their patent protection period with each modification.

For example, Abbvie’s Humira is currently the world’s best-selling drug, with sales of US$21 billion in 2019. Approved in 2002, its market exclusivity period should have ended sometime in 2014. However, Abbvie will continue to enjoy exclusivity until 2034, thanks to a patent extension strategy that has resulted in 130 patents awarded over the years.

While patents and exclusivities are just rewards for developing a successful drug, they must eventually make way for generic versions that can offer the drug at a fraction of the cost. By ensuring IP protections come to an end, we also encourage patent holders to continue innovating in other areas instead of trying to prolong their monopoly over the market.

Market Exclusivity (0.5 to 12.5 Years)

New Drug Application (NDA) Exclusivity Periods

After a drug is proven safe and effective through clinical trials, pharmaceutical companies can submit a New Drug Application (NDA) to the FDA. After the FDA approves the NDA, the company can start marketing the drug.

The approval also comes with a market exclusivity period, during which they hold the rights to be the sole manufacturer and supplier of the drug. A new chemical entity (NCE) that the FDA has not previously approved is granted a 5 year exclusivity period by default.

Biologic drugs or biologics are therapies manufactured by biological processes instead of synthetic chemistry, fall under a different application, and approval comes with 12 years of market exclusivity.

NCEs that treat orphan diseases (less than 200,000 patients or potentially unprofitable drugs) get a bonus of 7 years of market exclusivity. It is a unique form of exclusivity that blocks applications for generics and follow-on drugs, designed to incentivize research into rare diseases. Approved orphan drugs also award the applicant with an FDA priority review voucher.

Follow-on drugs or me-too drugs fall under a separate approval. These drugs are structurally similar to those existing ones on the market and are used to treat the same diseases. Because they only offer slight improvements to existing drugs, they only come with 3 years of market exclusivity.

To encourage manufacturers to create generics, the FDA also offers them a market exclusivity period. The first generic to apply blocks subsequent applications for generics of the same drug. Upon approval, the company manufacturing the generic drug is granted a further 180 days of market exclusivity.

Pediatric Extension

Since 1997, the FDA has awarded companies a 6-month extension to their market exclusivity period if they conduct pediatric trials. The FDA requests these trials to test the suitability of the drug for child patients.

A successful outcome is not a requirement for the pediatric extension, only that the pharmaceutical company performs these clinical trials and submits the results. This extension does not run concurrently with the others, which gives it enormous financial value and can equal billions of dollars of revenue.

Infectious Disease Extension

The FDA maintains a list of pathogens they deem a serious public health threat. Pharmaceutical companies that submit a drug to treat one of these qualifying pathogens can enjoy an extra 5 years of market exclusivity through the GAIN (Generating Antibiotic Incentives Now) program.

While it might seem excessive, this incentive helps combat the worrying lack of new antibiotic treatments in recent years. Pharmaceutical companies view antibiotics research as unprofitable and have been pulling out of such projects in recent years.

However, as bacterial strains develop resistance to multiple types of antibiotic drugs, we will need constant innovation in this space to maintain the upper hand in this evolutionary arms race.

30-Month ANDA Stay

Generic manufacturers often apply to produce therapies as their market exclusivity period is ending through an abbreviated NDA (ANDA). The patent holders can then request a 30-month stay that prevents the FDA from reviewing this application, effectively acting as an exclusivity extension.

However, this 30-month stay only applies to NCEs; it does not apply to biologics, me-too drugs and generics. The stay also only applies up to 7.5 years after the approval date, which means for orphan drugs (with an initial exclusivity period of 7 years), the stay is only valid for a further 6 months. Pediatric and infectious disease extensions also reduce the actual stay period.

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Total Market Exclusivity Period Based on Drug Type

The table below shows the breakdown of market exclusivities and extensions for each class of drug, along with the maximum possible exclusivity period from its date of approval. However, this is often extended further through further drug product modifications and patent strategies.

Drug Type	Market Exclusivity Period	Pediatric Extension	Infectious Disease Extension	Patent Holder 30-Month Stay	Maximum Exclusivity Period
Small Molecule (NCE)	5 years	0.5 years	5 years	2.5 years (7.5 years from approval)	10.5 years
Biologics	12 years	0.5 years	NA	NA	12.5 years
Orphan Drugs	7 years	0.5 years	5 years	0.5 years (7.5 years from approval)	12.5 years
Me-Too Drugs	3 years	0.5 years	5 years	NA	8.5 years
Generic Drugs	0.5 years	NA	NA	NA	0.5 years

Outside the U.S.

In the E.U., market exclusivity periods are generally longer—up to 10 years for NCEs before the approval of generic versions. For every new indication discovered from the approval date, the pharmaceutical company gets an additional 1 year of exclusivity. This incentivizes ongoing research even after the drug receives approval.