OBJECTIVES: To determine what impact shortening or lengthening the data exclusivity period (DEP) for biologic drugs has on innovation.  As a part of this, the goal is to determine what effects on innovation the 12-year DEP included in healthcare reform will have. METHODS: A simulation model is developed to assess the profitability of candidate drugs under varying DEPs.  All costs and revenues are discounted.  The drugs are then grouped into 10-drug portfolios and the profitability of each portfolio is determined.  The percentage of portfolios that are profitable under each DEP length is divided by the percentage of portfolios that are profitable under a indefinite DEP to give a relative level of innovation. RESULTS: A DEP of 0 years yields a 60% decrease in the level of innovation and there are no increases in innovation for DEPs above 34 years.  For a DEP of 12 years, there is an expected 8.1% decrease in the level of innovation. CONCLUSIONS: The 12-year DEP implemented as a part of healthcare reform is likely to decrease innovation in biologic drugs.  The expected 8.1% decrease in innovation may or may not be worth the expected decrease in prices once biosimilar competitors enter.  The model also indicates that there would be no returns to innovation by increasing DEP above 34 years, and as such, it is likely that this would represent a maximum when selecting a DEP.