Follow-on Biologics: How Much Incentive Do We Need?

Drugs & MoneyAfter almost a full year of debate, a pathway for approving “follow-on biologics” or “biosimilars” continues to be a hot topic in Congress. We are all familiar with generic versions of brand-name drugs, and the federal regulatory scheme sets out well-defined shortcut procedures for approval of generics. Congress is now grappling with designing procedures for approval of generic versions of biological drugs. Although follow-on biologics are in some ways similar to generic drugs, the differences are crucial, and in fact the regulatory scheme for generic drugs does not work at all for biologics. Congress has its work cut out for it.

Biologics 101. In short, here is the problem: typical pharmaceutical drugs (“small molecule drugs”) are chemically synthesized, and once the brand-name manufacturer’s exclusive patent rights expire, generic manufacturers are free to obtain approvals under abbreviated procedures, Generic manufacturers are generally not required to submit preclinical (animal) and clinical (human) data along with these Abbreviated New Drug Applications (ANDAs), thereby avoiding the huge expenses associated with developing new pharmaceuticals. But this route is only open to the generic manufacturer if it can prove that the generic version of the drug contains an identical replica of the drug’s active ingredient. Under the Hatch-Waxman Act of 1984, the Food and Drug Administration (FDA) may approve a generic version of a drug if the generic contains the same active ingredient as the original, shows bioequivalence to the original, and is demonstrated to be manufactured according to appropriate practices. Once these are shown, the generic is allowed to piggyback on the designation of the original drug as safe and effective.

A parallel short-cut procedure for biologic follow-ons is far more problematic. Biologics are complex molecular medicines that can be composed of sugars, proteins, nucleic acids, or complex combinations of these substances. They may also be organic, living entities like cells or tissues, or they may be manufactured in living organisms. (Well-known early examples of the latter include insulin, human growth hormone, interferons, and erythropoietin produced by recombinant DNA technology.) As a result, the biological drug cannot be objectively characterized the way typical pharmaceutical drugs can be. The composition of biological products is typically dependent on distinct manufacturing processes, and may be highly sensitive to changes in those processes. As a consequence, it is extremely difficult to prove that a follow-on or generic version of a biological is identical to a brand-name version that has undergone the clinical testing necessary for FDA approval.

As our ability to produce biological drugs becomes more sophisticated, they also become more expensive. According to a recent Federal Trade Commission report, treatment with the breast cancer biologic Herceptin (trastuzumab) can cost almost $50,000 per year, and the total annual consumer bill for biologics exceeds $40 billion. But those costs are not arbitrary: a report (pdf) by the Biotechnology Industry Organization (BIO) in 2007 estimated that the biological drug development process takes eight years and costs over $1.2 billion. The field of follow-on biologics is every bit as much in need of streamlining and cost-saving as traditional pharmaceuticals, if not more.

The streamlining process raises several questions. The first is technical: is it possible to streamline the process for approving follow-on biologics to ensure safety and efficacy, even though the follow-on cannot be demonstrated to be identical to the drug it is imitating? To put it another way, does it make sense to allow a follow-on (but non-identical) biological drug to rely on the clinical trials of the original? The second is economic: can we give consumers the benefit of lower follow-on costs while also protecting the interests—and the incentives—for the innovators who develop the drugs in the first place?

Biosimilarity. On the technical question, the European Medicines Agency permits the expedited approval of biosimilars after a thorough demonstration of the “comparability” of the “similar” product (pdf) to an existing approved product. More than ten biosimilars have already been approved in Europe. Japan is developing a regulatory framework of its own and has already approved its first follow-on biologic (Somatropin, a generic version of recombinant human growth hormone produced by a Novartis subsidiary). Legislation now pending in the United States Congress contemplates a parallel approach. According to H.R. 3962, the health care reform bill recently passed by the House (see below for details) “biosimilarity” to a reference biologic means:

(A) that the biological product is highly similar to the reference product notwithstanding minor differences in clinically inactive components; and

(B) there are no clinically meaningful differences between the biological product and the reference product in terms of the safety, purity, and potency of the product.

The House bill provides for an abbreviated licensure application for biologics that demonstrates “that the biological product is highly similar to the reference product notwithstanding minor differences in clinically inactive components”; that the follow-on and reference product “utilize the same mechanism or mechanisms of action for the condition or conditions of use prescribed, recommended, or suggested”; that “the condition or conditions of use prescribed, recommended, or suggested in the labeling proposed for the biological product have been previously approved for the reference product”; that “the route of administration, the dosage form, and the strength of the biological product are the same as those of the reference product”; and that “the facility in which the biological product is manufactured, processed, packed, or held meets standards designed to assure that the biological product continues to be safe, pure, and potent.”

Most of the competing legislative proposals, including Congressman Henry Waxman’s proposal (H.R. 1427), define “biosimilarity” using similar or identical criteria.

Exclusivity. While some continue to question the ability to effectively establish biosimilarity, and the implications for patient safety, the major locus of debate surrounding the various follow-on biologics legislative proposals centers on the economic question. One way that we reward innovators is by granting patents on new, useful, and non-obvious processes, machines, manufactures, and compositions of matter. Drugs, including biologics, can fall within these categories of patentable subject matter, as can the processes used to make them. A patent confers the right to exclude others from making, using, or selling the patented invention for a period of twenty years from the application date. In the case of pharmaceuticals, the life of the patent can be extended for up to five years to account for pre-marketing regulatory approval delays, but the total term of the patent cannot exceed 14 years after regulatory approval.

Many in the pharmaceutical community believe that this is not enough of an incentive to make the massive investments that pioneer biologic drugs require. Not all biologic processes and products will meet the stringent requirements of novelty and nonobviousness. Moreover, the patent law’s written description requirements may narrow the scope of patent claims, allowing makers of follow-on biologics to use variant sequences or methods that avoid the original biologic’s patents. In addition, many significant biologic patents will expire in the next few years.

The proposed solution is a period of post-FDA-approval market exclusivity (sometimes called data exclusivity) for original biologics that will operate independent of any applicable patent protection. The FDA would be prohibited from approving a follow-on during the exclusivity period. Under Congressman Waxman’s original proposal (H.R. 1427, proposed last March and tracked by S. 726), the data exclusivity period would have been five years. A second bill (H.R. 1548) introduced by Representative Anna Eshoo of Silicon Valley set the period at twelve years. Both proposals were less than the fourteen years of exclusivity supported by BIO (pdf). Ultimately, it was the Eshoo bill that was incorporated into the health care reform package (H.R. 3962, the proposed “Affordable Health Care for America Act”) and passed by the House on November 7th. Similar wrangling has occurred in the Senate, with a bill co-sponsored by Senator Orrin Hatch, which also provides for twelve years of data exclusivity, edging out a competing proposal by Senator Sherrod Brown (providing for only five years of exclusivity) in the Senate’s own version of the health care reform bill (H.R. 3590, the proposed “Patient Protection and Affordable Care Act”).

All kinds of protagonists continue to assert widely divergent views, and Patent Docs has done an excellent job keeping an eye on the back and forth (see their two most recent roundups here and here). As one might expect, groups aligned with the interests of original biologics manufacturers, including BIO and venture capitalists, generally support the longer exclusivity period, while groups aligned with generic manufacturers, including the Generic Pharmaceutical Association, tend to support a much shorter period of exclusivity (or no exclusivity at all, the approach favored by the FTC in a report issued this summer). The reaction from patient advocacy groups and the press has been vocal but mixed, with sufficient criticism of the twelve-year period that Representative Eshoo has felt compelled to publicly defend her proposal on several occasions.

So who is right? This is a classic Three Bears problem: is a particular period too short to create development incentives, too long from the consumer perspective, or just right? Not surprisingly, there is no clear answer. For instance, Duke economist Henry Grabowski generated attention – and provided a powerful piece of data for those in favor of a longer exclusivity period – with his 2007 white paper (pdf) that claimed that the breakeven lifetime for biologics was between 12.9 and 16.2 years, suggesting that the current twelve year proposal is either just right or maybe not long enough. On the other hand, it has been pointed out that Grabowski’s research is funded by the powerful Pharmaceutical Research and Manufacturers of America (PhRMA) industry lobbying group. In a recent Wall Street Journal opinion piece, a European legislator argued that a shorter period in the U.S. would be a gift to Europe that “would mean more investment dollars, more jobs, and more research facilities on this side of the Atlantic.”

The Stakes Are High. The risk in making the exclusivity period too short, or eliminating it entirely—with apologies for mixing fairy tale metaphors—is killing the goose that lays the golden eggs, in this case the biologic innovators and those who assume the substantial financial risks associated with developing original biologics. On the other side of the coin, of course, is concern that extended exclusivity—including the possibility that current proposals would permit biologics manufacturers to receive exclusivity substantially longer than the baseline twelve years through a process known as “evergreening,” in which slight changes to existing drugs results in additional exclusivity—will dampen competition, keeping prices for biologics artificially high and drugs out of the hands of patients that need them.

Is twelve years of exclusivity the right length of time to allow companies and investors to recoup their costs? Would a shorter data exclusivity period (or even the proposed twelve year period) result in the original biologic pipeline drying up or shifting overseas? Are there less-intrusive ways of protecting consumers from exorbitant prices—government subsidies, for instance—that would not impair innovation incentives?

The marketplace for biologics is already north of $100 billion and its expected expansion, including the seemingly inevitable introduction of biosimilars, means that the stakes are high for Congress, biotechnology companies, patients and investors. A recent PricewaterhouseCoopers report—Biotech: Lifting Big Pharma’s prospects with biologics (pdf)—noted that virtually every major drug company in the U.S. and Europe is involved in some fashion with biologics and estimated that the market for biosimilars could reach $15 billion by 2013. But for that to happen—at least in the United States—Congress must first act. At the moment, it remains the Senate’s move.