A recent deal by the British specialty-pharmaceutical company Shire Pharmaceuticals to buy the Boston-based biotechnology firm Transkaryotic Therapies at a rich 22% premium to the biotech firm's market price may be another example of Wall Street getting the jump on Washington.
Along with another recent deal by the big generic-drug maker Barr Laboratories to marry up with a little-known Croatian biotech knockoff outfit named Pliva, the drug industry seems to be positioning itself for an inevitable showdown in Washington over the creation of follow-on, or "generic," versions of biologic drugs.
Biologic drugs are the kinds of medicines produced by companies such as Genentech, Amgen and Biogen Idec. The easiest way to distinguish them is that they often come as liquids in bags rather than pills in bottles. The scientific way to differentiate them is that they are grown up out of organic processes, often fermented out of natural compounds in big vats. It's a lot like making beer, but more difficult and far more profitable.
Making a copy of a pill is relatively straightforward. Making a copy of a monoclonal antibody like Genentech's breast cancer drug Herceptin isn't so easy. And that's been the rub in Washington: How do you create an abbreviated regulatory process that allows for the fast and inexpensive approval of follow-on versions of these biotech drugs after their original patents have expired?
The recent deals on Wall Street may accelerate this discussion. Up until now, the debate has been pushed by generic-drug companies with little real capital at stake, and resisted by biotech firms that may stand to lose. Now the generic-drug makers, and even some specialty pharma companies, are investing in technology to bring these follow-on biologics to market, and so they are likely to become more forceful advocates for a change in the law.
Patents on some older biotech medicines, such as Human Growth Hormone--produced by a number of companies, including Pfizer--and insulin produced by Eli Lilly, have already expired, making follow-on versions of these medicines a near-term opportunity.
There are challenges, however, and they aren't all political. Biotech companies make some good arguments that the proprietary craft involved in production of these biologic drugs is in the manufacturing process as much as the molecule's profile. There have been some recent scares, including one involving the drug Epogen, which proved that the way that these biologics are made can have a big impact on their safety and effectiveness.
It's not always easy to guard against the changes that take place in these organic molecules as you move from one production process to another. Sometimes the original manufacturer has the lock on a secret recipe that enables production of these complicated drugs to go just right. Sometimes the original company doesn't even know all of the elements in that recipe that make it go so smoothly. Welcome to the world of cutting-edge science.
For these reasons, any abbreviated pathway for approving follow on biologics is still likely to include more testing than simply proving structural equivalence as generic drug companies must do when they make copies of pills, at least for anything but the simplest biological drugs like peptides and short proteins.
Nonetheless, with Europe moving forward with its own policies for approving follow-on versions of these drugs, and the patents on one of the biggest biotech drugs of them all, Epogen, set to soon expire in Europe, it is unlikely that legislators in the United States are going to resist treading on the biotech turf for long--especially when Epogen ranks as one of Medicare's biggest drug expenses.
In fact, the lack of major patent expirations may make this the right time to seek the legislation. If they wait too long, Congress is going to get a stronger whiff of the potential savings it can extract from such a scheme and be more tempted to do something more far reaching and anti-innovation.
Opening up biotech drugs to the prospect of generic competition after patents expire may even spark innovation--forcing biotech companies to come up with improved versions of existing drugs that perhaps require less-frequent dosing, have fewer side effects or hang around the body longer, making them more effective. Let's hope the political establishment recognizes these kinds of innovations for the value they bring to patients, rather than deride them as "me-too" biologics.
Because when it comes to medicine, Washington has a hard time finding where the value is. That's a cautionary tale for this debate. Too much of the policymaking that's getting done in the drug debate seems to have left the patient out of the equation, and to have been focused only on the political calculus of how angry politicians can take a bite out of the industry's hide.
Scott Gottlieb is a resident fellow at AEI and a practicing physician.