The Battle Over Biologics Begins

Drug companies have been allowed to introduce generic versions of traditional pharmaceuticals since 1984—saving the U.S. health care system an estimated $734 billion over the last ten years alone. But there currently is no regulatory pathway for creating generic versions of “biologics”. Unlike traditional, small-molecule pharmaceuticals, biologics such as  Avastin, a drug used to treat cancer, are protein-based and include monoclonal antibodies, growth factors, immune modulators and other molecules that are derived from living matter or manufactured by cells. Currently, brand-name biologics account for approximately 15 percent of total U.S. prescription drug sales—and they are growing in importance.

Little wonder that President Obama is determined to try to bring generic biologics to market.

Why don’t we already have generic versions of these popular drugs? One reason cited for the holdup is that biologics are more complex than small-molecule drugs and that it’s virtually impossible to create an exact replica (a so-called bioequivalent) of a pioneer biologic drug. The “follow-on” version of a biologic can be very similar to the branded drug but it might be manufactured a bit differently or might have slightly different side effects in certain patients. That means the approval process for follow-on biologics will involve more testing than is normally done for generic versions of small molecule drugs like antidepressants or heart drugs.

But the real deal-breaker has been the industry’s reluctance to give up huge, potential profits. The biotech industry has spent the last few years working hard to convince regulators that passing legislation to create an abbreviated approval process for generic biologics would decimate the industry.

The main argument is that such an approval process would create an unfair advantage for companies making follow-on biologics. The reasoning is as follows:  Innovator biotech companies are reported to spend $1.2 billion on research and development before a new biologic receives FDA approval. In contrast, companies who want to sell generic competitors would only have to put out $100-$200 million to develop a biosimilar version. Once approved, they could price their drug an estimated 10-30% below the name brand, and capture a significant portion of the market. This squeeze on profits would have a chilling effect on innovation, the industry charges, which would then seriously undermine the development of promising cures for a wide range of diseases.

Now, however, the industry is beginning to relent—or so it seems. Earlier this week, when drug-makers pledged to offer $80 billion in savings on drug costs over the next decade, one of the cost-cutting strategies they mentioned was working with Congress to create a new approval pathway for generic biological drugs. Pharma had little choice.  President Obama  already had staked out his position in his first budget, declaring that, “The administration will accelerate access to make affordable  generic biologic drugs available through the establishment of a workable regulatory, scientific and legal pathway for generic versions of biologic drugs." The budget estimates that this could save $9.2 billion over a 10-year period. Currently, both the House and the Senate are looking at bills designed to create just such an approval pathway. The plan is to include this legislation in Obama’s health care reform plan.

Spiraling Prices—Growth that We Cannot Afford

For the last decade or so, the industry’s argument that competition would block innovation has prevented Congress from taking any action on generic biologics. It has also kept prices for these drugs—which are usually administered by injection in a doctor’s office—sky-high: $48,000/year for treatment with the breast cancer drug Herceptin;  $100,000 for the cancer drug Avastin, and tens of thousands spent on biologic drugs to treat rheumatoid arthritis and anemia. Meanwhile, the market for biologics has changed significantly; and so has the public’s attitude toward spiraling health care costs.

First, it is clear that some biologics are veritable blockbusters. Avastin racked up nearly $3 billion in sales for Genentech in just 2008 alone. Enbrel, Amgen’s drug for rheumatoid arthritis, increased sales by 11% in 2008 to hit $3.6 billion.

At a recent hearing on generic biologics conducted by the House Energy and Commerce Subcommittee on Health, Frank Pallone Jr., chairman of the subcommittee, noted that the biologic industry “is growing at a rate of around 20 percent annually. In a couple years, we could be spending over $100 billion dollars just on biologic drugs.”

According to data from the Centers for Medicare and Medicaid Services (CMS), just 6 biologics accounted for 43% of all Medicare Part B spending last year.

As the market grows, it will most likely be dominated not by small, biotech start-ups that take enormous risks to produce new drugs, but by established pharmaceutical giants like Roche, Johnson and Johnson, Merck and others who see start-ups with promising biologics as acquisition targets to help them enter this lucrative market. They will be raking in the profits.

A report from EvaluatePharma, a global biotech consulting firm that uses consensus industry sales forecasts to project market estimates, found that, “seven of the top10 drugs in 2014 are forecast to be biotech in origin, compared to five in 2008 and just one in 2000. In addition, recent analysis reveals that biotech drugs will account for 50% of the top 100 drugs in 2014, compared to just 28% last year and 11% in 2000.” The top selling drug in 2014, according to EvaluatePharma;  Genethech’s Avastin with projected revenues of a whopping $9.3 billion in 2014. At what point will drug giants feel that they have made sufficient profits on their block-buster biologics?

As Always, the Devil is In the Details

It’s looking increasingly likely that Congress will pass legislation creating an approval process for generic biologics. The question is; what will that legislation look like? The sticking point is how long innovator companies will be allowed to have data exclusivity. This is the time period during which manufacturers of biosimilars would be prevented from using data developed and funded by innovator firms in their own abbreviated applications to the Food and Drug Administration. Essentially, a long period of data exclusivity extends patent rights beyond their natural lifetime and prevents generic competition.

The biotech industry wants any legislation to include a 12-14 year period of data exclusivity. This period of time is needed, according to the industry, to recoup the investment in research and development and to help defray the cost of the drugs that don’t make it to market. What the industry doesn’t mention is that much of the initial research on biologics is paid for by the federal government—in the form of grants from the NIH. 

Nevertheless Henry Grabowski, a professor of economics and director of the program in pharmaceuticals and health economics at Duke University in Durham, N.C, who came up with this 12-14 year figure insists that  "data exclusivity acts as an insurance policy to ensure that there is adequate incentive" to produce the drugs in the first place.

The Federal Trade Commission, in a report entitled “Emerging Health Care Issues: Follow-on Biologic Drug Competition” released this month, takes issue with Grabowski’s findings, saying that a 12-14 year exclusivity period “is unnecessary to promote innovation by pioneer biologic drug manufacturers.”

“[P]ioneer biologic drug manufacturers are very likely to continue to earn substantial revenues even after the entry of FOBs (follow-on-biologics). Indeed, projections are that branded biologic drugs are likely to maintain their first-mover advantages by retaining 70 to 90 percent of their market share years after FOB entry.”

 In fact, the FTC report says that such incentives could cause firms to “direct scarce R&D dollars toward developing low-risk clinical and safety data for drug products with proven mechanisms of action rather than toward new inventions to address unmet medical needs.”

So far three bills have been introduced into Congress that would create an approval pathway for generic biologics. (In the last session there were five.) Rep. Henry Waxman (D-CA), one of the authors of the original generic drug legislation in 1984, has proposed a House bill that would offer only five years of data exclusivity to innovator companies—similar to the five years of market exclusivity granted to small-molecule drugs. Waxman has noted that in 1984 drug companies tried to claim that innovation “would come to an end” if they couldn’t have a decade or more of market exclusivity. Senator Charles Schumer (D-NY) has proposed a companion Senate bill that offers a similar period of exclusivity. A separate bill introduced into the House by Rep. Anna Eshoo (D-CA) would give companies 14 years of exclusivity.

Where does Obama stand on the issue? Yesterday, Bloomberg reported that the Obama administration had written a letter to Waxman, expressing the view that biologic drugs should be subject to generic competition in the U.S. after seven years. The Obama administration called it a “generous compromise;” between the 12 to 14 years of exclusivity championed by the biotech industry and Waxman’s five. Let the wrangling begin.