The Supreme Court’s decision to hear Hikma v. Amarin has put renewed attention on one of the most important but least understood features of the Hatch-Waxman framework: the “skinny label.” This policy brief examines the economic stakes of that debate, asking how the law can preserve both timely generic entry and meaningful incentives for follow-on pharmaceutical innovation. Focusing on the balance between access, competition, and continued investment in new uses for existing medicines, the brief offers a measured assessment of what is at stake for patients, innovators, generic manufacturers, and the broader healthcare system.
In a recent issue of Nature Biotechnology, Feldman et al. 1 examine the New Clinical Investigation (NCI) exclusivity by analyzing the non-patent exclusivities protecting a subset of drugs included in the 2019 Medicare Part D and 2019 Medicaid formularies. The study focuses on drugs that account for substantial federal drug spending: specifically, drugs with ten years of market time for which 2019 spending totaled at least $10 million. These conditions provide a baseline subset of 236 drugs of which 176 drugs had exclusivities that expired after the drug’s core patent and any patent-term extension. An additional subset of these 176 drugs account for 210 instances of four types of exclusivities: New Clinical Investigation (148), Pediatric (42), Orphan Drug (19) and New Chemical Entity (1). The authors calculate that the New Clinical Investigation exclusivity comprises 70.5% of exclusivities expiring after expiration of a drug’s core patent. This result is claimed to establish that New Clinical Investigation exclusivities are a substantial contributor to rising drug prices and stalled generic entry. Finally, the study notes that the potential for rampant use of NCI exclusivity provides a guide for reform, proposing a cap on the number of regulatory exclusivities that may be granted to a company or drug. High drug prices are a serious issue and efforts to address them are laudable. However, the methods employed to advocate for systemic reform are concerning. The authors’ data fall short of establishing a significant problem or substantiating the claim that the pharmaceutical industry has shifted their energy away from innovation and toward preclusion of competition.
Equitable access to medicines expands when a variety of treatment options are available, including specialized versions for vulnerable populations and affordable generics. Investments in the research and development of these treatments are incentivized by a legal ecosystem that protects innovation. Continued innovation delivers medicines that are safer, encourages treatment adherence, and facilitates access for a diversity of patients. Fundamentally, follow-on innovation enhances equitable access.
Key Takeaways:
Since 2000, the FDA has approved nearly 900 new medicines, including breakthrough therapies for cancer, hepatitis C, and rare genetic disorders. Yet developing a single drug can take 10–15 years and cost hundreds of millions—sometimes more than $4 billion—reflecting the scientific, regulatory, and clinical hurdles required to prove safety and efficacy. These demands shorten the effective life of patents and reduce expected returns. To address this gap, Congress created “regulatory exclusivities” that complement patents by shielding clinical data or delaying generic entry for a defined period. Far from windfalls, these targeted measures incentivize socially valuable but risky investments in orphan drugs, pediatric trials, antibiotics, and biologics.
For over twenty years, critics have accused pharmaceutical companies of “evergreening”—introducing slightly modified versions of existing drugs to delay generic competition. While this charge has fueled reform proposals, this chapter argues the evidence does not support the claim. Early anecdotes lacked rigor, and more recent studies rely on descriptive statistics that, while accurate in parts, are irrelevant to proving that generics are being improperly blocked. Careful reviews by scholars and the U.S. Patent and Trademark Office show that these data reflect a dynamic innovation process in which companies continue developing improvements to medicines, while generics still typically launch 12–14 years after initial FDA approval. The chapter contends that the evergreening narrative is conceptually flawed, misrepresents how patents and exclusivity intersect with drug approval frameworks, and risks misleading policymakers into enacting measures that would punish innovation to the detriment of patients.
Pharmaceutical innovation is decisively shaped by government policy, most notably the patent system, which converts otherwise non-excludable knowledge into a tradable asset. Pharmaceutical R&D is fundamentally the production of knowledge—a public good that, once created, can be freely appropriated. Without legal exclusivity, private investment in drug development would be under-incentivized. By granting temporary rights to exclude, patents allow firms to recover high R&D costs and justify future investment. Although debate continues over alternative financing models, economic principles and industry practice confirm that patent protections remain a cornerstone of the U.S. pharmaceutical innovation system.
This chapter argues that commentary on IP policy in the biopharmaceutical sector has focused disproportionately on short-term price effects and departed from core principles that should guide policy design that seeks to maximize social welfare over the long term. Patents serve a dual role: incentivizing the costly and risky process of drug development while enabling cooperative arrangements that accelerate development, testing, and production. The costs of patents must be assessed alongside benefits in the form of new therapies that improve health and productivity and, as is overlooked, can lower entry costs for startups and facilitate technology transfer from academic institutions. Unlike certain other technology sectors, evidence consistently confirms that biopharma innovation depends on legal exclusivity, narrowing the scope for dramatic policy reform without undermining investment incentives.
This chapter examines how the patent system advances three interconnected goals in biopharma: innovation, competition, and access. In particular, the chapter presents the “commercialization approach,” recognized by the marketplace but often overlooked in academic debate. That approach views patents not as absolute monopolies but limited, indirect incentives that encourage the costly and uncertain process of transforming discoveries into usable products. By motivating a diverse range of firms—large incumbents and new entrants—to invest in drug development, this framework promotes innovation while fostering competition, and ultimately ensures that new therapies move from laboratories into the hands of patients.
The biopharmaceutical innovation system rests on a public–private partnership: government agencies such as NIH fund basic science, while private firms bear the costly, risky process of commercialization, recouping investment through patents and exclusivity until generic entry. Proposals to replace this system with government-funded “prizes”—paired with immediate generic entry—deliver lower prices but would require taxpayer outlays far beyond NIH’s budget. While a patent-based system relies on price signals to value resources and direct investment, a price-based system risks under-rewarding incremental technological advances and would be exposed to political pressures that undervalue or misallocate resources. While prizes could accelerate access, they threaten the incentive structures and investment flows necessary to sustain drug innovation at scale.
The Cohen–Boyer patents on recombinant DNA, licensed in the late 1970s, marked a turning point in how universities commercialized federally funded research. Their success coincided with the Bayh–Dole Act of 1980, which shifted ownership of government-sponsored inventions to universities, enabling broad licensing while preserving safeguards such as march-in rights. The Cohen–Boyer program, which relied on non-exclusive licenses, generated more than $250 million, reached 400 firms, and legitimized biotechnology as a commercially viable sector. Bayh–Dole spurred the growth of technology transfer offices and academic patenting. Yet four decades later, significant concerns persist: licensing revenues remain concentrated, safeguards are rarely invoked, and commercialization pressures raise questions of equity and access.
Incentives for pharmaceutical innovation hinge on patents and exclusivity, yet policymakers face difficult trade-offs in calibrating them. Protections must last long enough to attract investment in new therapies but not so long that health systems are overburdened by high prices. The problem is magnified in global markets, where countries may “free ride” on others’ incentives—a reason intellectual-property provisions figure prominently in trade agreements. Even where IP protections are harmonized, as in the EU the actual duration of exclusivity often differs from what the law provides: firms may not fully enforce their rights, while in other cases competitors face barriers that effectively extend exclusivity beyond statutory limits. This paper uses empirical data to examine EU policies in the context of these dynamics, with complementary discussion of U.S.-focused research on the post–Hatch-Waxman system.
A landmark 2008 survey by the Berkeley Center for Law and Technology remains the most comprehensive study of how startups make use of the patent system. It found that patenting was especially prevalent in biotechnology and computing hardware, but less so in software. Biotech startups reported patents as being vital for attracting venture capital, angel investors, and even family financing, and for facilitating exits through acquisitions or IPOs. Yet high costs and information disclosure involved in patenting deterred many smaller firms. Overall, startups described the patent system as being more beneficial in capital-intensive fields like biotech, but less central for fast-moving sectors like software. Between 2008 and 2025, several other researchers have performed empirical studies on the role of patenting among biotech startups, largely with similar findings to the Berkeley Patent Survey.
For decades, activists and some academics have argued that patents are the primary driver of high drug costs and have pushed for compulsory licensing and other price-control measures, recently gaining traction through the Inflation Reduction Act’s “maximum fair price” provision for certain Medicare drugs. Advocates have also advanced a “price-control theory” of the Bayh-Dole Act, claiming its march-in rights authorize price caps on patented drugs, though this interpretation is inconsistent with the statute’s text. The Biden Administration considered but ultimately declined to adopt such a rule but issued guidelines requiring companies licensing NIH-owned patents to commit to affordability plans. The chapter argues that this shift reflects policy advocacy rather than legal reality: Bayh-Dole was never designed as a price-control statute, and claims that the federal government funds most drug R&D are not supported by data, since private investment drives nearly all new drug development.
This chapter examines how the federal government’s role in funding and collaborating on drug development intersects with pressure to regulate drug prices. The federal government plays a major role in basic research and in collaborations with private firms—arrangements that have produced transformative medicines but also sparked political backlash when prices are deemed too high, fueling claims that taxpayers are being forced to “pay twice.” Two recent policy levers are discussed. First, some advocates argue that the Bayh-Dole Act’s march-in rights allow federal agencies to impose price controls on drugs developed with public funding. Second, the government attempted to assert ownership of patents arising from joint clinical trials with Gilead Sciences as leverage to lower drug prices or expand access. The chapter warns that retroactive use of these tools risks deterring future collaborations between government and industry, undermining incentives for private firms to take on the costs and risks of commercialization.
Artificial intelligence is rapidly transforming pharmaceutical discovery, attracting over $10 billion in investment since 2019 and producing breakthroughs like DeepMind’s AlphaFold 2, yet it also raises unresolved challenges for patent law. Unlike earlier statistical tools, modern AI models explore the chemical space in unpredictable ways, generating results that resemble human creativity but clash with two core legal requirements: that inventors be natural persons and that patents disclose enough detail for others to reproduce the invention. Recent litigation—including the DABUS cases in the US, UK and EU—confirmed that the “AI machine” cannot be listed as an inventor, while courts have struck down patents that failed to explain how algorithm-driven outputs could be replicated. In response, drug discovery firms are adapting by documenting prompts, training data, and experimental results to satisfy enablement standards, while avoiding direct references to AI in patent filings and instead treating models as tools. Case studies show two disclosure strategies: firms using AI for discovery bolster their claims with extensive experimental validation, while those building on scientific theory focus on mechanistic explanations. Both approaches highlight a central tension: as neural networks increasingly generate novel solutions, the patent system struggles to reconcile legal rules grounded in human inventorship with innovation driven by machine learning.
Conventional biopharma IP strategy—long anchored in patents on individual drug assets—is being reshaped by three converging forces: AI-driven discovery, the looming patent cliff for blockbuster drugs, and the FDA’s expanding oversight of AI-enabled drug discovery. With drug development costs exceeding $2.6 billion and failure rates above 80%, AI may increase efficiency by reducing lab work, accelerating analysis, and compressing timelines. This disruption raises fundamental questions for firms, universities, and startups about whether to focus IP strategy on drug assets, underlying AI platforms, or hybrid models—and whether patents or trade secrets offer the stronger protection. The chapter outlines actionable strategies for navigating this evolving terrain, including how to fortify patent applications for examination and litigation, and when to prioritize secrecy over disclosure.
This chapter analyzes how patent disputes influence follow-on innovation, using CRISPR gene-editing as a case study. Prior research suggests patents can hinder or foster innovation by raising entry barriers, easing licensing, or helping startups secure capital—but typically assumes validity is settled. CRISPR, by contrast, has faced protracted interference proceedings since 2012. Using data on 4,000 global patent families and hundreds of licenses, the chapter finds innovators adapted by licensing contested rights, developing design-around portfolios, and driving applications from agriculture to medicine. The evidence suggests that while IP litigation creates uncertainty for core players, innovation can still adjust and even thrive in this litigious environment.
This chapter investigates how the strength of patent protections shapes venture-capital investment in early-stage firms. Theory has long suggested that perceptions of patent security influence financing for innovative startups, but empirical evidence has been limited. Using venture funding data from 2004–2017, the analysis finds investment systematically shifted away from patent-intensive sectors—biopharma, medical devices, hardware—during periods of perceived weakening of IP rights. Interviews with investors confirm that uncertainty over IP rights prompts capital reallocation to industries where market leadership rests on other advantages. The findings imply that underprotection of patents risks systematic underinvestment in R&D-heavy and patent-intensive sectors that are central to long-term innovation.
Biopharmaceutical innovation has significantly improved public health, saving billions of lives, enhancing quality of life, and driving economic growth. This progress depends on a symbiosis between public funding for basic research and private funding for drug development. Patents and regulatory exclusivities are essential to protect exceptionally large R&D investments, enabling the private sector to translate scientific research into drugs and treatments. This report provides a practical overview of the functions of intellectual property rights in the life sciences ecosystem, aiming to enrich and foster a balanced and factually informed debate on innovation policy in the biopharmaceutical sector.