What Should Congress Do about Generic or Follow-On Biologic Drugs?
About This Event

The 1984 Hatch-Waxman Act created a streamlined path for generic drugs to reach the market after pioneer drug patents expire. The result has been the most vigorous and competitive generic drug market in the world, but the Hatch-Waxman Act does not apply to most biologics. Isolated from a variety of Listen to Audio

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natural sources (human, animal, or microorganism), biologics are produced by biotechnology methods or other cutting-edge technologies, and unlike common small-molecule pharmaceuticals, these new drugs generally have a high molecular complexity which may be sensitive to changes in the manufacturing process. Newer biotech biologics are responsible for revolutionizing the treatment of cancer and rheumatoid arthritis among many other diseases.

Because follow-on biologics--drugs that follow the original pioneering ones--are grown through biological processes rather than manufactured in the traditional sense, they pose special difficulties for approval and safe use. Panelists at this conference will discuss regulation (including in Europe, which already has a follow-on biologic pathway), manufacturing, economics, and intellectual property.

11:45 a.m.
Panel 1: Science and Regulation
Bruce L. Downey, Barr Laboratories
Scott Gottlieb, M.D., AEI
Ajaz Hussain, Novartis
Richard F. Kingham, Covington & Burling LLP
John E. Calfee, AEI
Panel 2: Economics, Research and Development, and Intellectual Property
Henry Grabowski, Duke University
Jeffrey Kushan, Sidley Austin
Dan Mendelson, Avalere Health
Audrey Phillips, Johnson & Johnson
John E. Calfee, AEI
Event Summary

June 2007

What Should Congress Do about Generic or Follow-On Biologic Drugs?

The 1984 Hatch-Waxman Act created a streamlined path for generic drugs to reach the market after pioneer drug patents expire. The result has been the most vigorous and competitive generic drug market in the world, but the Hatch-Waxman Act does not apply to most biologics. Isolated from a variety of natural sources (human, animal, or microorganism), biologics are produced by biotechnology methods or other cutting-edge technologies, and unlike common small-molecule pharmaceuticals, these new drugs generally have a high molecular complexity that may be sensitive to changes in the manufacturing process. Newer biotech biologics are responsible for revolutionizing the treatment of cancer and rheumatoid arthritis, among many other diseases.

Because follow-on biologics--drugs that follow the original pioneering ones--are grown through biological processes rather than manufactured in the traditional sense, they pose special difficulties for approval and safe use. Panelists at this conference discussed regulation (including in Europe, where a follow-on biologic pathway already exists), manufacturing, economics, and intellectual property. John E. Calfee of AEI moderated.

Panel I: Science and Regulation

Richard F. Kingham
Covington and Burling LLP

The European Medicines Agency (EMEA) is responsible for the approval of new drugs. The EMEA decided that new legislation for the approval of follow-on biologics was needed, and that such legislation needed to be distinct from existing legislation on generic drug approval for two reasons. First, there is no assurance that the active ingredients of similar biologics are the same, which is a requirement for generic approval. Second, there is no assurance that published literature on an innovative biologic is pertinent to the follow-on product.

The program created by the EMEA for biologic approval defines what it is to be a biologic and allows application for "biosimilar" approval. It requires more data (the amount of data is to be determined on a case-by-case basis) than is required for generic approval. Parliamentary legislation ratifies the approach. The EMEA also allows the Committee for Medicinal Products for Human Use to issue guidance documents for the additional data requirements of different biosimilar production through the newly created BMWP (an expert committee on similar biologic products). Specific guidance documents already exist for substances such as Erythropoietin, G-CSF, human insulin, somatropin, alpha-interferon, and low-molecular weight heparins.

Other elements of the biologic approval program are the ten- and eight-year data exclusivity programs for pre- and post-2005 reference products, respectively. Patent disputes remain independent of the drug approval process, and follow-on products are required to have extensive preclinical and clinical data on immunogenic effects. Also important, follow-on products are treated as similar products, not as direct therapeutic substitutes.

Bruce L. Downey
Barr Laboratories

The best term for the issue at hand is "generic biologics," which captures the idea we are trying to discuss. The United States' current situation can be explained by looking at the history of generic drugs. The Hatch-Waxman Act of 1984 amended the Food, Drug, and Cosmetic (FD&C) Act of 1938 and provided an abbreviated pathway for generics to reach the market. Biologics do not fall under the FD&C Act, however, but are rather covered by the Public Health Services Act, which provides no such pathway for generics. Therefore, bringing a generic biologic into the market involves starting anew the approval process of the branded biologic.

Three categories of issues emerge when we deal with generic biologics: the pathway involved in approving a biologic, intellectual property, and market/data exclusivities. Concerning the mechanics of taking a project from application to approval, the standard Food and Drug Administration (FDA) protocol should continue to apply. This involves a presentation to the FDA by a sponsor on procedures for the project, subsequent comments by the FDA, and finally an application that will be approved or rejected. This sponsor-initiated product-by-product determination is efficient as well as effective; for this reason, additional legislative requirements for clinical trials are ill-advised. The FDA is fully capable of making these decisions, as it has done for decades. In the same vein, the FDA should continue to control decisions relating to issue comparability and interchangeability.

Exclusivity provisions are of central concern. Currently, there is a five-year new chemical entity exclusivity in effect. However, this policy also prohibits newcomers from filing an application until the five years expire; given that the filing process generally takes one-and-a-half to two years, the result is effectively a six-and-a-half- to seven-year exclusivity policy. In addition, there is a seven-year exclusivity period for orphan drug products (aimed at populations of 200,000 or less), as well as patent term restoration provisions that have been granted in the biologic arena.

There are several reasons why the U.S. system of brand biologics differs (rightfully) from that of Europe. First, price controls are imposed in Europe, whether directly or indirectly. This lowers the innovators' ability to recoup investment costs through the market mechanism. European nations also employ a stricter definition of what is patentable and enforce earlier patent expiration dates. Finally, given that patent laws are much broader in the United States than in Europe, the need for market exclusivities--used to cover places where patent laws do not apply--is attenuated. In this way, the laws already in place in the pharmaceutical industry are effective.

Ajaz Hussain

Novartis is the third largest pharmaceutical company in the world, and it also operates a top pipeline for both research and development (R&D) and manufacturing. Within the company, Sandoz is responsible for generic production. Innovative drugs are important because they lead to new treatments, but as patents expire, generic products are essential for minimizing costs. Omnitrop, a growth hormone manufactured by Sandoz, was the first biosimilar product approved in Europe. It was approved in the United States as a recombinant protein product. Since Omnitrop is in some circles considered a follow-on biologic, it opened the door for debate on a regulatory pathway for follow-on biologics.

In the past few decades, there has been a convergence to a harmonized regulatory approach to biologics. In 1972, authority over biologic products was transferred from the National Institutes of Health to the FDA; in the 1980s, recombinant protein products emerged. In 1995, the FDA began reinventing regulations, including forming guidelines to establish comparability in human biological products. The old mantra of "the process is the product" was flipped around, and the new question became: how can we improve the process and innovate manufactured drugs without changing the final product? In 2003, responsibility for therapeutic biologics were transferred from the Center for Biologics Evaluation and Research to the Center for Drug Evaluation and Research. This reassignment and others like it are part of the attempt to improve the efficiency of the FDA and harmonize its regulations.

Congress must not block the FDA from making scientific decisions on rapidly advancing technology and the ensuing increasing complexity of replica therapeutics. Blocking generic production would adversely affect all divisions of the pharmaceutical sector. Balancing interchangeability as a health objective with the need to protect incentives for future innovation should be done through market exclusivity, intellectual property protection, and patent litigation modification.

Scott Gottlieb, M.D.

There is an inevitability surrounding legislation on follow-on biologics and sound public health reasons to enact such legislation. Legislation would facilitate competition, which would reduce costs, though not to the degree suggested by generic drug companies. It would also expedite the creation of fundamentally better versions of current biologics. When addressing such legislation, as is likely to be done before the 2008 election, appreciation should be given to the complexity of biologics. The trade association has done a disservice to the industry with its savings estimates--it has set back the debate on follow-on biologics and made the industry vulnerable to criticism.

Historically, Congress has not been prescriptive in the context of drug regulatory pathways. Europe's decision to promulgate product-specific guidance makes sense. Large generic companies would oppose such an approach because it would remove some of the market barriers, thus allowing smaller companies to step into the generic market. Specificity, or prescription from Congress, could ensure that all companies have equal access to the biologic regulatory pathways established, which would, in a positive way, replicate the equality of access that is given to companies on existing regulatory pathways.

On the issue of data exclusivity, the proposed numbers vary between zero and fourteen years. The compromise will fall to a reasonable period of time. This to-be-determined reasonable period will be important, as it will protect incentives for venture capital investment, a key component of research funding. Biotech is historically a high-risk, high-return industry, and in order to maintain funding, the possibility of high returns must remain intact. There has also been talk of allowing the FDA to look through trade secret data of the innovative product in order to make approval decisions. Including such a measure is likely to rouse discontent that will kill the legislation.

It must be determined if two proteins can be used interchangeably in a hospital setting. Lack of interchangeability verifications will create barriers to entry for small generic companies, as trust will be given to larger generic companies with a track record for producing good follow-on biologics. Interchangeability analysis will also ensure that different proteins will have the same clinical outcomes and pose no threat of immunogenic response from the patient or the creation of neutralizing antibodies in the patient, which can have severe repercussions.

The FDA must create a guidance document for the follow-on biologic regulatory pathway. Development of such a document should be done by scientists working alongside the FDA. There will be stalling over the guidance issue. The compromise will probably turn out such that Congress provides direction, through its legislation, for the creation of a guidance document. Additionally, there will likely be a two- to three-year period during which the FDA will draw up a guidance document. Finally, Congress will probably pass legislation using the work of the FDA to establish that document.

Panel II: Economics, Research and Development, and Intellectual Property

Audrey Phillips
Johnson & Johnson
I am here to give the bio-pharm perspective on biosimilars. We prefer the term "biosimilar" over "follow-on biologic." Whereas the latter term implies difference and improvement, the former implies similarity in structure and biological function. Biosimilars are not generics. Generics are the same as the drugs for which they are substituted. Biosimilars are just that--similar to the drugs for which they are substituted. We fully support a pathway for the approval of biosimilars in the United States, but believe two conditions must be met in the creation of that pathway: patient safety and data protection.

The European Union (EU), through the EMEA has created public and transparent guidelines for biosimilar and biologic production. It is significant that the EU's legislation distinguishes between biosimilars and generics. The legislation allows for ten to eleven years of data protection. The guidelines for testing require chemical analysis to prove molecular similarity as well as clinical and post-market testing to ensure the safety and efficacy of new biosimilar products. The Centrale Humanitaire Médico-Pharmaceutique guidelines allow for subtle differences between a biosimilar and the biologic with which it aims to compete.

Biologics are large and complicated. They have four levels of structure. They can be glycosylated in varying ways, which can create even more differences. Everything from the amino acid sequence to the primary through the quaternary structures to the glycosylation affects the efficacy and safety of a biologic. Bioligics are made from harvesting substances produced and secreted by constructed cells. Manufacturing requires the creation of a cell and establishment of a cell bank. This is proprietary information, as manufacturing differences create differences in the final drug product.

As stated before, patient safety is paramount. Biologics are inherently immunogenic. Immunogenicity occurs when the body, recognizing a foreign substance, creates an antibody to attack and neutralize that substance. The consequences range from none to severe. There are many examples of products being pulled from the market because of immunogenicity. The problems resulting from immunogenicity are apparent with the drug EPREX, used to treat anemia in patients with chronic kidney disease. A formulation change in EPREX resulted in immunogenicity, which led to pure red-cell aplasia, or the eradication of all red blood cells from the body. The problem with the formulation was subsequently rectified. This example demonstrates the potential harm that can come to patients from the inherent immunogenic effects of biologic drugs. It stresses the importance of creating guidelines for the testing of new biosimilars to ensure patient safety.

Dan Mendelson
Avalere Health

Avalere is involved in a project that has two goals: developing a scoring framework for modeling the impact of follow-on biologic entry on overall federal spending for biologics in the United States and using key scoring levers as a basis for creating a scoring model that makes assumptions based on previous research and can be modified to core legislative proposals.

The key levers in the follow-on biologic model are the biologics baseline spending estimate and projected growth rates, the timing and implementation of regulations, the FDA review time and regulatory pathway requirements, the patent and data exclusivity considerations, the likely follow-on biologic entry by product size, the market share of follow-on biologics, the pricing of follow-on biologic entrants, and the estimated federal share of all of the previously listed levers.

The biologics spending estimate was based on the IMS Health report and adjusted to account for growth attributable to new products as well as reduced to account for spending on insulin and human growth hormone, which already have follow-on biologic pathways. The model assumes that all off-patent products are fair game for a follow-on biologic. It bases the timing and implementation of legislation on timing during the passage of the Hatch-Waxman Act and approximates FDA review time from the EMEA review time for approved biosimilars.

The model assumes 10 percent of the biologics baseline to go off-patent every year, which is an estimate based on the current share of off-patent biologics in the top tier of revenue. It also assumes no additional legislative exclusivity. The model expects the likely number of follow-on biologic entrants to be three follow-on biologics per large-revenue off-patent biologic, one follow-on biologic per medium-revenue off-patent biologic, and no follow-on biologics for small-revenue off-patent biologics. The model assumes the follow-on biologic penetration to be the same as the generic penetration, but Avalere expects that this is an upper bound, as current EU follow-on biologics have a much lower market share.

Large-revenue follow-on biologics are expected to be priced at 70 percent and medium-revenue follow-on biologics at 90 percent of the branded product. It is also expected that the price of branded products will rise in the first year, then fall.
Another important assumption of the model is that follow-on biologics reach market saturation over three years. The Estimated Federal Savings of the model with the assumptions described above is $3.6 billion over ten years. These savings are modest and back-loaded.

Henry Grabowski
Duke University

Congress is going to define the structure of competition between innovators and imitators in the biologic world for decades to come. The important issue embedded in this definition is the appropriate length of data exclusivity for the innovating companies as a form of protection for innovation.

Bills currently proposed for creating a regulatory pathway for follow-on biologics allow anywhere from zero to fourteen years of data exclusivity. The previous U.S. legislation on small-molecule generic production allows five years of data exclusivity, and EU legislation on biosimilar production allows ten years of data exclusivity.

Data exclusivity must complement patent protection. Patents expire. In some cases, existing substances whose cores have expired fulfill previously unmet patient needs. Also, current legislation offers incentives in the form of market exclusivity: 180 days and one year for the successful challenge of small-molecule drugs and biologics, respectively. As a result, almost all medications are subject to premature patent challenges, which damage innovation incentives.

Innovation is important. It has spillover benefits to patients, as it satisfies previously unmet needs. R&D is time consuming, expensive, and risky, and biologic development can be even riskier than small-molecule drug investment. Investments in the drug industry tend to come from venture capitalists who are very sensitive to cost-benefit analysis. The break-even point, assuming an 11.5 percent return for a drug, is around thirteen years after product release, which is around twenty years after the initiation of research. Thus, data exclusivity is paramount.

Jeffrey Kushan
Sidley Austin

Patents can protect an innovative product that is new to the market. All patents expire after twenty years. With drugs, there is usually a four to six year period between the first patent application filing and the patent grant. By that time, the drug will have undergone some preclinical and clinical trials. The patent life will continue to expire as the drug completes clinical trials. During this time, companies are prevented from using patents on their own technology.

There is data exclusivity under the Hatch-Waxman system for small molecules, and the FDA can extend the patent life to fourteen years. The patent system works very well for small-molecule drugs, as generics are typically the same substance as the innovator product.

The world of biologics is more complicated, however. A follow-on biologic need not be an exact replica of an innovator product. Thus the patents that cover the innovator product may not apply to the follow-on product. There are also patents on the basic process technologies involved in the creation of biologics. So there are process patents, nucleic acid patents, and an array of other patents blocking the entry of follow-on products into the market.

Under Hatch-Waxman, patents can only be filed for formulation and method of use. In the biologic world, other patents dominate the follow-on product. This will have to be addressed when creating new legislation. Another issue is how much variation should exist between the follow-on product and the innovator product in biologics. There could be a 5 percent or larger sequence variation. Patents on innovator products need enough breadth to avoid variation allowance for biosimilars, and currently, patents on innovator biologics are not given this breadth. Minimal patent breadth combined with patent uncertainty makes patent challenge very appealing. This is why data exclusivity is important. It insures that, no matter what happens to the patent estate, innovative companies will be able to walk away with a reward for their endeavors.

AEI research assistant Walton Dumas prepared this summary.

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John E.
  • Economist John E. Calfee (1941-2011) studied the pharmaceutical industry and the Food and Drug Administration (FDA), along with the economics of tobacco, tort liability, and patents. He previously worked at the Federal Trade Commission's Bureau of Economics. He had also taught marketing and consumer behavior at the business schools of the University of Maryland at College Park and Boston University. While Mr. Calfee's writings are mostly on pharmaceutical markets and FDA regulation, his academic articles and opinion pieces covered a variety of topics, from patent law and tort liability to advertising and consumer information. His books include Prices, Markets, and the Pharmaceutical Revolution (AEI Press, 2000) and Biotechnology and the Patent System (AEI Press, 2007). Mr. Calfee wrote regularly for AEI's Health Policy Outlook series. He testified before Congress and federal agencies on various topics, including alcohol advertising; biodefense vaccine research; international drug prices; and FDA oversight of drug safety.


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