Investors care about even small financial distortions.

CONCLUSION The findings in this Article have significant policy implications. The two most significant results are as follows. First, in every regression, the length of the proxy-preclinical period and the length of the clinical period had negative explanatory power. As these periods got longer, the final effective patent life (after patent term restoration) consistently got shorter. The irony for inventors of new drugs is that drugs requiring more premarket investment (more years of research) may enjoy less patent life, in essence a distortion of the patent term. Second, with a handful of exceptions, therapeutic categories were generally not correlated with final effective patent life (that is, after restoration). It is convention in innovation policy to work by therapeutic category, but when focusing on the effect of research and development challenges and regulatory requirements, it may be more appropriate to focus on pharmacologic class instead. Longer clinical programs lead to shorter effective patent life, even after patent term restoration has been awarded. Although the impact is small, even a modest impact could be financially significant for an innovator. This finding contributes to a growing body of literature asking whether the U.S. legal system may be systematically skewing drug research incentives away from research programs that require a substantial investment of time. The decision to limit recovery to 50% of the days in clinical trials and, perhaps more importantly, to cap recovery at five years, may warrant reexamination. Other policy implications relate to the changes made to the patent term in 1994. Lawmakers in 1984 made a conscious choice to permit restoration of continuation patents so that drug companies could achieve fourteen years of effective patent life under section 156. The ability to choose a later-issued child patent helped mitigate the distorting effect of the premarket regulatory regime. This was possible because the patent term was calculated from patent issuance. Lawmakers in 1994 changed how the patent term was calculated, and now a child patent is less likely to reach fourteen years. The decision to unravel the choice made in 1984²if a conscious decision was even made²was not vetted publicly. The consequences could be profound. Under the changes made in 1994, a drug company may need to select a later-issued original patent to achieve the same result: fourteen years of effective patent life. This patent is unlikely to cover the drug’s active ingredient; instead, it may cover another aspect of the drug such as its formulation. These patents may be inherently less valuable to the drug’s inventor because it may be possible for generic and biosimilar applicants to develop copies that satisfy regulatory requirements for copies and yet do not infringe the patent. If these patents do not have the same value, the fourteen years of effective patent life is illusory. Policymakers effectively nullified the decision from 1984 without meaningful public discussion of the implications for drug innovation²discussion that is therefore overdue. If instead these patents do preclude approval of generic and biosimilar applications, their use in this fashion is fully consistent with the intent of Congress in 1984, and public rhetoric about the insidious nature of later-issued drug patents should be recalibrated.