[Ip-health] NEJM: Regulation of Follow-On Biologics

[Mike Palmedo]

http://content.nejm.org/cgi/content/full/357/9/841

Regulation of Follow-on Biologics

Richard G. Frank, Ph.D.
New England Journal of Medicine
Volume 357:841-843, Number 9
August 30, 2007

Biopharmaceutical products, with U.S. sales in 2006 amounting to about
$40.3 billion, are increasingly central to the treatment of major health
problems affecting Americans.1 Since modern biopharmaceuticals date back
to the 1980s, the first generation of such drugs has begun to lose
patent protection (see table). In other parts of the world, governments
have crafted regulations defining the terms of competition from
"imitator," or generic, products. Many analysts have expressed concern
that without new U.S. regulations, patent expirations may not be
accompanied by the introduction of competing, lower-cost biologic agents
=97 or that imitator products might be approved without sufficient proof
of efficacy and safety, posing threats to public health. Although some
biopharmaceutical products are nearly as simple as traditional
small-molecule drugs, the vastly increased complexity of others means
that it will be more difficult to ensure that an imitator product is
biologically and functionally equivalent to the original. Because it may
not be possible to create "true" generic versions of biopharmaceuticals,
the term "follow-on biologic" is often used to refer to a new version of
an existing biopharmaceutical that uses the same mechanism of action and
treats the same clinical indications as the original.

The Drug Price Competition and Patent Term Restoration Act of 1984 (the
Hatch=96Waxman Act) offers a starting point for considering regulation of
the use of follow-on biopharmaceuticals (see box). This law, which is
widely considered a success, governs the use of traditional generic
medications. It establishes a low-cost path to market for generic
imitators and requires their manufacturers to demonstrate bioequivalence
but not to repeat human trials demonstrating efficacy and safety. The
law also establishes minimum periods of market exclusivity for
brand-name products.

It took a number of years for the Hatch=96Waxman Act to exert its full
effect on prescription-drug prices. At first, many physicians were
reluctant to view generic drugs as fully interchangeable with brand-name
products. During the late 1980s, a brand-name drug generally lost about
15 to 30% of its sales volume in the first 2 years after its patent
expired.2 In contrast, when Eli Lilly lost patent protection for the
antidepressant drug Prozac (fluoxetine) in 2001, generic competitors
garnered more than 70% of Prozac's market within 2 months.3 Today,
brand-name drugs that face generic competition rapidly lose market
share, and prices of generic products generally fall to 25 to 50% of the
original brand-name prices.4 Although intense price competition reduces
the financial returns for brand-name drugs, the patent period provides
important protections, and the investment of U.S. drug companies in
research and development has grown rapidly =97 from $26 billion in 2000 to
about $43 billion in 2006.5

It was possible to achieve the benefits of the Hatch=96Waxman Act because
the Food and Drug Administration (FDA) could review data establishing
bioequivalence and be confident that data on the safety and efficacy of
the original drug would apply to generic versions as well.
Biopharmaceuticals are frequently much more complex than small-molecule
drugs, and their manufacture often entails the use of live cells and
complicated biologic processes that are difficult to replicate. Indeed,
the manufacturing process can be a trade secret. Thus, obtaining
evidence that a drug is similar to and will have the same effects as the
original is more complicated for biopharmaceuticals.

The European Union is ahead of the United States in dealing with these
issues, although the FDA has begun to address them in an ad hoc fashion.
Any U.S. policy in this arena will no doubt share some basic features
with the one established in Europe. This means that a multistage process
will probably be developed and that the FDA will be given a great deal
of discretion in deciding how much data and testing are enough to
establish attainment of the key standards of safety and efficacy =97
similarity and interchangeability =97 for follow-on biologics. Having such
discretionary powers will also permit the FDA to incorporate rapidly
changing technology into measurement and testing procedures.

The differences between follow-on biologics and generic pharmaceuticals
suggest that market competition may also be very different. Bringing a
product to market will be less certain and more costly for follow-on
biologics than it is for generic drugs. The fixed costs of establishing
a manufacturing plant are higher, and the variable manufacturing costs
will be higher as well. In addition, biopharmaceutical production
facilities must be scrutinized more closely than generic-drug
manufacturing facilities. The uncertainty and costs of developing
manufacturing capability and addressing the requirements of the
regulatory process may reduce the number of firms seeking to produce
follow-on biologics. An open question is whether there will be enough
sellers to generate active price competition: economic research has
generally shown that most of the benefits of price competition are not
obtained until four or five firms enter a market. The expected
profitability of developing a follow-on biologic will be paramount. The
speed of entry will also depend on how much information about their
manufacturing processes the makers of original biopharmaceuticals will
be required to report. Analysts predict that more complicated molecules
will have less competition from follow-on products, which will enter the
market more slowly than traditional generic pharmaceuticals.

Finally, the returns to research and development for biopharmaceuticals
are unclear. Suppose, as has been suggested, that regulations governing
the approval of follow-on biologics guarantee 12 years of exclusivity
for brand-name biopharmaceuticals and that the technological and
economic environment dampens potential competition. These factors would
create a favorable climate for investment in research and development,
weakening the case for special provisions. On the other hand, it appears
that the costs and risks associated with developing biopharmaceuticals
exceed those for small-molecule drugs. So the net effect on expected
returns on investment remains an open question. The years of exclusivity
granted to brand-name products will probably be an important driver of
these returns and pose a barrier to competition from follow-ons. It is
premature to assume that 12 years of exclusivity will be needed to
preserve innovation in the biopharmaceutical arena =97 and putting off
price competition is risky because of pressures on public budgets and
the expanded role of the Medicare program in purchasing biopharmaceuticals.

The prospect of the loss of patent protection for tens of billions of
dollars' worth of biopharmaceuticals increases the urgency of the need
for a regulatory policy that promotes price competition and preserves
the safety and efficacy standards that Americans expect from
prescription drugs. In my opinion, the Hatch=96Waxman framework is not
sufficient to cover both relatively simple biopharmaceuticals and very
large and complex molecules =97 a new regulatory framework is needed.
Because of the need for complex, situation-specific judgments, the FDA
should be granted a great deal of discretion. The conflicting goals of
bolstering price competition in biopharmaceutical markets and preserving
the incentives for innovation call for a nuanced policy that must be
based on the best current science and key features of the economics of
biopharmaceutical markets =97 not on the impassioned claims of the
interested parties.


Source Information

Dr. Frank is a professor of health economics at Harvard Medical School,
Boston.

An interview with Senator Orrin Hatch (R-UT) can be heard at www.nejm.org.

References

1. IMS Health. IMS reports U.S. prescription sales jump 8.3 percent in
2006, to $274.9 billion. (Accessed August 9, 2007, at
http://www.imshealth.com/ims/portal/front/articleC/0,2777,6599_3665_8041546=
5,00.html.)


2. Office of Technology Assessment. Pharmaceutical R&D: costs, risks,
and rewards. Washington, DC: Government Printing Office, February 1993.

3. Carey S. Lilly reports 22% decline in net as generics hurt sales of
Prozac. Wall Street Journal. April 30, 2002.

4. Reiffen D, Ward MR. Generic drug industry dynamics. Rev Econ Stat
2005;87:37-49. [CrossRef][ISI]

5. Pharmaceutical Research and Manufacturers of America. Pharmaceutical
indus-try profile 2007. Washington DC: PhRMA, 2007.

--
Mike Palmedo
Research Coordinator
Program on Information Justice and Intellectual Property
American University, Washington College of Law
4910 Massachutsetts Ave., NW Washington, DC 20016
T - 202-274-4442 | F 202-274-0659
mpalmedo@wcl.american.edu