Emerging Health Care Issues: Follow-on Biologic Drug Competition

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matter or manufactured in living cells using recombinant DNA biotechnologies. The therapeutic proteins that form the basis of these biologic drugs are far more complex and much larger than the chemically synthesized, small molecules that form the basis of most pharmaceutical products. Biologic drug innovations, however, are expensive. As examples, annual treatment for breast cancer with the biologic drug Herceptin can cost $48,000 and the annual treatment for rheumatoid arthritis with Remicade can cost approximately $20,000. Indeed, in 2007, Americans spent $286.5 billion for prescription drugs, $40.3 billion of which was for biologic drugs. 1 Questions have arisen whether the price of biologics might be reduced by competition if there were a statutory process to encourage cfollow-on biologics d ( cFOBs d) to enter and compete with pioneer biologics once a pioneer drug 9s patents have expired. The obvious model for such a statute is the Hatch-Waxman Act, which Congress enacted in 1984 to allow the Food and Drug Administration ( cFDA d) to approve the sale of generic versions of branded drugs, among other things. 2 The Hatch-Waxman Act does not apply to biologics, which the FDA approves pursuant to the Public Health Safety ( cPHS d) Act. Rather, Hatch-Waxman applies only to drugs regulated under the Federal Food Drug and Cosmetic Act ( cFD&C Act d); these drugs are generally chemically synthesized, small-molecule products, not biologics. Under Hatch-Waxman, competition from generic drugs has substantially reduced prescription drug prices and overall prescription drug expenditures, increased access to therapeutic drugs for more Americans, and hastened the pace of innovation. 3 In recent years, however, several court decisions have permitted cpay-for-delay settlements d that have reduced the procompetitive aspects of the Hatch-Waxman Act. The Commission supports legislation to prohibit these types of settlements in which the branded manufacturer pays the would-be generic 1 These sales figures are based on wholesale prices reported in the IMS Top Line Industry Data. Press Release, IMS Health, IMS Health Reports U.S. Prescription Sales Jump 3.8 Percent in 2007, to $286.5 Billion (March 12, 2008), available at http://www.imshealth.com (follow cPress Room d hyperlink; then follow cIMS Health Care Reports News Release d hyperlink). 2 See The Federal Food, Drug, and Cosmetic Act, 21 U.S.C.A. § 301 et seq . (2009), as amended by the Drug Price Competition and Patent Term Restoration Act of 1984 (the cHatch-Waxman Act d or cHatch-Waxman d) and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 21 U.S.C.A. § 355(j) (2009) and 35 U.S.C.A. § 271(e) (2009) [United States Code Annotated]. 3 See generally Jennifer S. Haas, et al., Potential Savings from Substituting Generic Drugs for Brand-Name Drugs: Medical Expenditure Panel Survey, 1997-2000 , 142 A NNALS I NTERNAL M ED . 891 (June 2005); Wendy H. Schacht and John R. Thomas, Congressional Research Service (CRS), Library of Congress, Report for Congress, Follow-On Biologics: Intellectual Property and Innovation Issues, at 4 & 18 , 110th Cong. (Jan. 17, 2008), available at http://www.biosimilars.com/CRS_FOBs.pdf . i entrant to abandon its patent challenge and delay entering the market with a lower cost, generic product. 4 Hatch-Waxman does not require generic applicants to duplicate the clinical testing of drugs already proven safe and effective. Duplication of safety and efficacy information is costly, an inefficient use of scarce resources, and, as the FDA has explained, raises ethical concerns associated with unnecessary human testing. To be approved under Hatch-Waxman, the applicant must show that its generic drug product is cbioequivalent d to (basically, the same as) the branded drug product. A bioequivalence showing is much less expensive than the clinical testing required for a branded drug product. Because the generic drug is cbioequivalent d to the branded drug, it can be safely substituted for the branded drug and expected to be as effective as the branded drug. To take advantage of generic competition, states have laws that allow pharmacists automatically to substitute a generic for a branded drug, unless a doctor has indicated otherwise. The scientific differences between biologic and small-molecule drug products, however, complicate efforts to devise an approval process for FOB drugs based on bioequivalence. Biologic products are more complex and immunogenic than small-molecule drugs. 5 Current technology does not yet allow for the creation of an exact replica of a pioneer biologic drug product, according to the FDA. In addition, technology is not yet robust enough to determine whether an FOB product is cinterchangeable d with the pioneer product such that a patient would be able to switch between the two products without the risk of an adverse effect. In light of these complexities, current legislative proposals permit FDA approval of an FOB drug that is sufficiently similar to, but not an exact replica of, the pioneer biologic product. 6 A showing of similarity is likely to save FOB manufacturers some clinical testing expenses but would require substantially more expense than a showing of bioequivalence for small-molecule generic drugs. Whether competition between a pioneer biologic and an FOB is likely to be similar to competition between a branded and a generic drug is crucial to determining whether legislation to foster FOB competition should follow the same model as the Hatch-Waxman Act. Basic questions include whether the same issues that prompted provisions of the Hatch-Waxman Act that restrict entry by generic competitors are likely to be present in the context of FOB competition. To answer these questions, the Commission studied how competition between 4 See How Pay-for-Delay Settlements Make Consumers and the Federal Government Pay More for Much Needed Drugs: Hearing Before the H. Subcomm. on Commerce, Trade, and Consumer Protection, Comm. on Energy and Commerce , 111th Cong. (2009) (Prepared Statement of the Federal Trade Commission), available at http://www.ftc.gov/os/2009/03/P859910payfordelay.pdf . 5 Immunogenicity raises safety and effectiveness concerns because of a biologic drug 9s ability to stimulate an immune response. See Letter from Frank M. Torti, Principal Deputy Comm 9r and Chief Scientist, FDA, to Frank Pallone, Jr., Chmn., H. Subcomm. on Health, (Sept. 18, 2008) at 1, available at http://energycommerce.house.gov/Press_110/fdabiosimilarrespons20080918.pdf . 6 See H.R. 1427, 111th Cong. § 3(a) (2009); H.R. 1548, 111th Cong. § 101 (2009). ii pioneer biologics and FOBs is likely to develop to determine whether similar entry restrictions would benefit consumers. The Commission brings substantial expertise to examining likely models of competition and likely competitive effects from particular regulatory schemes. 7 To assist in its study of the issues, the Commission solicited two rounds of public comments, conducted a public roundtable discussion on November 21, 2008, and accepted additional analysis and comments through May 2009. This report analyzes and synthesizes the Roundtable discussion, the comments received, and relevant economic literature to assess these issues. The Commission 9s findings and recommendations follow. 1. Competition Between a Biologic Drug and an FOB is Much More Likely to Resemble Brand-to-Brand Competition than the Dynamics of Brand-Generic Competition under Hatch-Waxman. Pioneer manufacturers, potential FOB manufacturers, and payors were virtually unanimous in their predictions that competition from FOB drug entry is likely to resemble brand- to-brand competition, rather than brand-to-generic drug competition. Experience to date for two markets with both pioneer biologic and FOB competitors (in Europe and the U.S.) confirms that, unlike generic drug entry, FOB entry has not resulted in steep price discounting, or rapid acquisition of market share, by FOB manufacturers. 8 This finding is true for a number of reasons: The substantial costs to obtain FDA approval, plus the substantial fixed costs to develop manufacturing capacity, will likely limit the number of competitors that undertake entry with FOB products. FOB products are likely to take eight to ten years to develop, and their development will likely cost between $100 and $200 million. These amounts differ substantially from the product development costs for small-molecule generic drugs, which typically take three to five years to develop and cost between $1 and $5 million. Given these high entry costs, FOB entrants are likely to be large companies with substantial resources, and it is likely that only two to three FOB entrants will seek 7 The Commission has reviewed pharmaceutical and biotechnology mergers for over 30 years, and has conducted numerous investigations and enforcement actions involving the conduct of branded and generic small-molecule drug manufacturers arising in the context of the Hatch-Waxman Act. See http://www.ftc.gov/be/0608rxupdate.pdf . The Commission also conducted a detailed empirical study of the experience during the 1993-2001 under the Hatch- Waxman Act 9s procedures designed to facilitate entry of generic drugs. Federal Trade Commission, Generic Drug Entry Prior to Patent Expiration: An FTC Study (July 2002). Since 2004, FTC staff has reviewed every drug company patent settlement filed under Hatch-Waxman, and issued annual reports on the types of patent settlements being undertaken. The reports are available at http://www.ftc.gov/be/healthcare/drug/index.htm . 8 Historically, some biologic protein products have been regulated as drugs under the FD&C Act, including insulin, and human growth hormones. The FDA has approved six follow-on protein products under the FD&C Act. See Assessing the Impact of a Safe and Equitable Biosimilar Policy in the United States Hearing Before H. Subcomm. on Health and the H. Comm. on Energy and Commerce, 110th Cong . (2007) (statement of Janet Woodcock, Deputy Comm 9r, Chief Medical Officer, FDA), available at http://energycommerce.house.gov/cmte_mtgs/110-he-hrg.050207.Woodcock-testimony.pdf . iii approval to compete with a particular pioneer biologic drug. Current pioneer biologic drug manufacturers are likely to become FOB competitors in those markets in which they do not currently compete. Moreover, high entry costs are likely to limit FOB drug entry to markets with sales in excess of $250 million per year. The small number of likely FOB entrants contrasts significantly with the 10 or more generic entrants seen in many markets for small-molecule drugs. The lack of automatic substitution between an FOB product and a pioneer biologic drug will slow the rate at which an FOB product can acquire market share and thereby increase its revenues. In small-molecule drug markets, automatic substitution erodes a branded manufacturers 9 market share quickly once the first generic product enters the market. This situation is unlikely to occur in FOB markets. Unlike small-molecule generic drugs, FOB products will not be designated as ctherapeutically equivalent d with the pioneer biologic drug product. The lack of therapeutic equivalence means that, like pioneer manufacturers, FOB manufacturers will have to market their products and negotiate individual contracts with purchasers. An FOB drug also may have difficulty gaining market share due to concerns about safety and efficacy differences between a pioneer biologic drug and the competing FOB. Physicians and their patients who have been taking a pioneer biologic drug may be reluctant to switch to an FOB due to a risk that the patients will react differently to the FOB than to the pioneer drug. Concerns such as these may limit FOB market opportunities to newly diagnosed patients. The specialty pharmaceutical characteristics of FOBs also are likely to constrain the ability of an FOB entrant to obtain market share. Specialty drugs, including biologic drugs, are commonly used to treat patients with severe, chronic diseases and sometimes fatal conditions. These drugs, which are primarily injected or infused, are combined with ancillary medical services and products that require specialty training for proper handling and administration. Because most biologic products are delivered to patients in clinics, hospitals, doctor 9s offices, or other medically supervised settings, shifting to another biologic product is typically more costly because it requires restocking of inventory and retraining of nurses and healthcare providers. Biologic drugs currently are not reimbursed pursuant to strategies that payors often use to incentivize the use of lower-priced drugs; this, too, may limit market share acquisition by FOBs. Biologic drug products are typically delivered to patients by healthcare providers as part of medical treatments ( e.g. , dialysis treatments or oncology treatments) and reimbursed by health insurers as part of patients 9 medical benefits rather than pharmacy benefits. Consequently, traditional payor strategies to incentivize utilization of lower-priced drugs, including the use of co-pays and tiered formularies, are unlikely to apply to drive up the market share of FOBs. FOB pricing and market shares also are likely to be affected by the reimbursement methodologies used by Centers for Medicare and Medicaid Services ( cCMS d) for infused and injected drugs, which may not effectively drive share to lower-priced drugs. iv As a result of these factors, FOB competition against a pioneer biologic drug is likely to develop as follows : FOB entry is likely in biologic drug markets of greater than $250 million. Only two or three FOB manufacturers are likely to attempt entry for a given pioneer drug product. These FOB entrants are unlikely to introduce their FOB products at price discounts any larger than between 10 and 30 percent of the pioneer products 9 price. Although not as steep a discount as small-molecule generic drugs, a 10 to 30 percent discount on a $48,000 drug product represents substantial consumer savings. Pioneer manufacturers are expected to respond and offer competitive discounts to maintain market share. This price competition is likely to lead to an expanded market and greater consumer access. Nonetheless, the lack of automatic substitution will slow significant market share acquisition by FOB products. As a result, pioneer manufacturers are likely to retain 70 to 90 percent of their market share and, therefore, will likely continue to reap substantial profits years after entry by FOB drugs. 2. Existing Incentives that Support Brand-to-Brand Competition Among Biologic Drugs 3 Patent Protection and Market-Based Pricing 3 Are Likely to be Sufficient to Support FOB Competition and Biologic Innovation. A legislative process for an abbreviated FDA approval of an FOB is likely to be an efficient way to bring FOBs to market because of the time and cost savings it provides. Given that FOB competition with a pioneer biologic drug is likely to resemble brand-to-brand competition among biologics, the question arises whether provisions that delay FOB entry and restrict competition are necessary to benefit consumers. No economic arguments suggest that such provisions are necessary to foster pioneer drug innovation or entry of interchangeable FOBs. Brand-to-brand competition among biologics has developed without any special legislative incentives, but rather through reliance on the patent system and market-based pricing. Patent protection enables biotechnology firms to increase their expected profits from investments in R&D, thus fostering innovation that would not occur without patents 9 exclusionary rights. 9 Market-based pricing allows biologic drug firms to charge prices that reflect the value of the drugs to consumers and thus assists firms not only in recouping their substantial investments in biologic drugs, but also in receiving accurate market signals about the value of developing particular biologic drugs. Market experience shows that pioneer pharmaceutical and biologic products already compete against other branded pharmaceutical and biologic entrants, and this competition benefits consumers. Currently, pioneer or first-in-class branded products engage in a race with other branded competitors to bring products to market. 10 It is likely that FOB competition similarly will develop without any special legislative incentives. 9 F.M. Scherer & David Ross, I NDUSTRIAL M ARKET S TRUCTURE AND E CONOMIC P ERFORMANCE , 3d Ed. 621 (1990). 10 See Joseph DiMasi & Cherie Paquette, The Economics of Follow-on Drug Research and Development , 22 PHARMACOECONOMICS Supp 2:1-14 , 10 (2004 ). Although this study examined pharmaceutical products primarily, it included several biologic drugs as well. v Indeed, any decision to adopt special legislative incentives that restrict competition may harm consumers. The Commission is mindful that the benefits of suppressing rivalry by either pioneer or FOB manufacturers are realized by a comparatively small number of firms who fully understand the importance of restricting competition. By contrast, the costs of restricting competition tend to be spread broadly across a large number of consumers, each of whom suffers a comparatively modest penalty compared to the relatively substantial gain realized by incumbent producers. 11 The phenomenon of highly focused benefits and broadly distributed costs gives firms a greater incentive to organize political resources to restrict competition. a. A Twelve- to Fourteen-Year Exclusivity Period is Unnecessary to Promote Innovation by Pioneer Biologic Drug Manufacturers. As explained earlier, pioneer biologic drug manufacturers are very likely to continue to earn substantial revenues even after the entry of FOBs. FOBs are unlikely to introduce their products at price discounts beyond 10 to 30 percent. Moreover, FOBs are likely to have difficulty rapidly growing their market shares as compared to generic small-molecule drug products. 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 addition, there is very little data to suggest that biologic drugs under development are likely to be unpatentable. Pioneer biologic drugs are covered by more and varied patents, including manufacturing and technology platform patents, than small-molecule branded products. Moreover, there is no evidence that patents claiming a biologic drug product have been designed around more frequently than those claiming small-molecule products. Pioneer biologic manufacturers nevertheless have suggested that Congress institute a period of 12 to14 years of branded exclusivity that would begin once a pioneer biologic was approved by the FDA. 12 During this period, the FDA would be prohibited from approving an FOB product that would compete with the pioneer biologic drug. This branded exclusivity would be in addition to, and would run concurrent with, a biologic drug 9s existing patent protection. The economic model put forth by pioneer drug manufacturers to justify this period is 11 See Organization for Economic Co-operation and Development, Challenges Obstacles Faced by Competition Authorities in Achieving Greater Economic Development Through the Promotion of Competition, Contribution from the United States (Feb. 5, 2004), available at http://www.scribd.com/doc/1170395/US-Federal-Trade-Commission- 2004Challenges20Obstacles20aced20by20Competition . 12 This report uses the term cbranded exclusivity d rather than cdata exclusivity d because current legislative proposals permit an FOB applicant to rely on FDA 9s finding or conclusion that an approved pioneer drug is safe and effective. This reliance does not involve disclosure to the FOB applicant, or to the public, of the data in the pioneer manufacturers 9 application. See Letter from Director Steven K. Glason, Center for Evaluation and Research ( cCDER d), FDA to Petitioners (May 30, 2006) at 6, available at http://www.fda.gov/ohrms/dockets/dockets/04P0231/04P-0231-pdn0001.pdf . The term cdata exclusivity d suggests a use of the information that is inconsistent with FDA 9s longstanding interpretation of its approval process. vi based on the average time required to recoup the investment to develop and commercialize a typical biologic drug (referred to as the cNature model d). 13 Congress has implemented exclusivity provisions in the past to encourage the development of new and innovative drug products when the drug molecule is in the public domain, and therefore not patentable. The Hatch-Waxman Act provides a five-year exclusivity period to incentivize the development of new chemical entities and it provides a three-year exclusivity period for new clinical investigations of small-molecule drugs. In other instances, Congress has implemented an exclusivity period when market-based pricing has not provided sufficient incentive to develop drug products for children or small patient populations. Central to each of these exclusivities is a public policy trade-off: a restriction on competition is provided in return for the development of a new drug product or new use of an existing product. A 12- to 14-year exclusivity period departs sharply from this basic trade-off, because it does not spur the creation of a new biologic drug or indication. The drug has already been incentivized through patent protection and market-based pricing. The potential harm posed by such a period is that firms will 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. Thus, a new 12- to 14-year exclusivity period imperils the efficiency benefits of a FOB approval process in the first place, and it risks over-investment in well-tilled areas. The Nature model as currently structured contains numerous methodological and conceptual weaknesses that render its results too imprecise and non-robust to inform discussions about the ideal length of any branded exclusivity period. A model that balances the benefits of FOB competition ( i.e. , lower prices and an increased pace and scope of innovation) with the costs of potentially forsaking marginal branded drug development projects would be more informative than the Nature model 9s approach. Moreover, to the extent that there are new biologic molecules that cannot obtain patent protection, an exclusivity period may be warranted. Because there is no evidence about the lack of patentability of new biologic products, nor that market forces have been insufficient to incentivize their development, the Commission has not recommended a specific length for an exclusivity period. b. Special Procedures to Resolve Patent Issues Between Pioneer and FOB Drug Manufacturers Prior to FDA Approval Are Unnecessary and They Could Undermine Patent Incentives and Harm Consumers. Once a pioneer biologic drug manufacturer receives FDA approval and is about to market its product, it faces the risk of patent infringement litigation. FOB manufacturers are likely to face the same risk. If they believe the patent situation justifies their decisions to launch prior to 13 Henry C. Grabowski , Follow-on Biologics: Data Exclusivity and the Balance Between Innovation and Competition , 7 N ATURE R EVIEWS D RUG D ISCOVERY 479, 483 (June 2008). vii resolution of any patent infringement litigation, they will enter once they have received FDA approval. If not, they will wait for the patents to expire and then launch their product. Special procedures, providing an early start to resolving patent disputes between pioneer and FOB manufacturers prior to FDA FOB approval, are not necessary to encourage FOB entry that otherwise would not have occurred. Hatch-Waxman 9s special procedures for small-molecule drugs provide for an early start of patent litigation. Hatch-Waxman procedures have been the subject of extensive litigation, unintended consequences, and delayed generic entry. These procedures were designed in 1984 to address the issue of cjudgment proof d generic defendants. In small-molecule drug competition, the profits of the alleged infringer (the generic entrant) are substantially less than the loss of profits by the branded product manufacturer, because of the substantial price differences between branded and generic products. Consequently, especially at the beginning of the generic industry in 1984, concerns existed that generic entrants in small-molecule drug markets might be unable to satisfy a potential treble damage award for infringing the branded manufacturer 9s patents. FOB entrants will not be similarly judgment proof. FOB drug manufacturers are likely to be many of the same companies that have pioneered biologic drugs; thus, they will have the expertise and resources necessary to assess whether to launch their product before any patent infringement litigation is resolved, just as they do with a launch of a pioneer branded drug. Moreover, FOB manufacturers are highly unlikely to offer steep discounts that could jeopardize their ability to pay patent damages. Special procedures are unlikely to be successful in providing patent certainty to the parties, because pioneer biologic drugs are covered by more and varied patents than small- molecule drugs. A special pre-approval patent resolution process is unlikely to succeed in raising and resolving all pertinent patent issues prior to FDA approval. Patents claiming the pioneer product may issue after a pre-approval process has begun and/or after FDA approval. The FOB manufacturer 9s application and product also may change during the approval process such that starting patent litigation prior to FDA approval would not ensure earlier resolution. Moreover, without a mechanism to enforce the rules of a pre-approval resolution process, there is no guarantee that litigation started prior to FDA approval will end earlier. In essence, early start does not guarantee early resolution. Special procedures also could undermine the innovation incentives that patent protection affords pioneer biologic manufacturers. Although special procedures govern patent litigation between branded and generic competitors over small-molecule drug products, these procedures are the exception, not the norm. Finally, based on the experience under Hatch-Waxman, a pre-approval patent resolution process also is likely to lead to consumer harm, including the facilitation of anticompetitive conduct that defeats the purpose of starting the patent litigation early. In the Hatch-Waxman context, branded manufacturers have used the pre-approval patent regulations to delay generic entry. In addition, generic and branded competitors have entered into cpay-for-delay d patent settlements that delay entry, not encourage it. It is likely that a pre-approval patent resolution viii process in the FOB context could facilitate collusive agreements and/or provide the pioneer biologic drug manufacturer with competitively sensitive information about a significant potential competitor to which it otherwise would not have access. c. FOB Drug Manufacturers Are Unlikely to Need Additional Incentives to Develop Interchangeable FOB Products. The question arises whether an FOB manufacturer needs an incentive beyond market- based pricing to develop an interchangeable FOB drug, such as a limit on when subsequent interchangeable FOB drug entry can occur. This limitation would allow the first interchangeable FOB manufacturer to recoup its development expenses. Because the market dynamics of FOB entry are likely to resemble competition among branded biologic drugs, provisions modeled after the Hatch-Waxman Act 9s 180-day marketing exclusivity are unlikely to be necessary and, indeed, could harm consumers. The Hatch-Waxman Act provides a 180-day marketing exclusivity period to the first generic drug applicant that seeks FDA approval prior to the expiration of patents relating to the branded drug product. No other generic manufacturer may obtain FDA approval to market its product until the first generic has sold its product for 180 days or has forfeited its exclusivity period. The 180-day exclusivity period incentivizes generic manufacturers to challenge the patents claiming a pioneer small-molecule drug product. A court finding of patent invalidity benefits not only the challenger, but also subsequent generic applicants whose entry is no longer blocked by the patent. Thus, the 180-day marketing exclusivity period prevents immediate free- riding by subsequent generic applicants on a favorable outcome that results from a generic applicant 9s patent challenge. As subsequent generic firms enter, generic prices can drop to 80 percent off the branded price, depending upon the number of entrants. 14 The exclusivity period is supposed to permit the first generic entrant to recoup its patent litigation costs before the substantial price drop caused by multiple generic entrants. The competitive dynamics that justified the 180-day exclusivity period for small- molecule generic drugs are unlikely to be present here, because the entry of a subsequent interchangeable FOB is unlikely to cause a substantial price drop due to the high costs of developing and manufacturing and FOB. The first interchangeable FOB to enter will continue to earn sufficient profits even after entry of subsequent interchangeable products. Thus, market opportunities are likely to be sufficient to incentive development of interchangeable FOBs. Not only do market dynamics counsel against an FOB exclusivity period, but the anticompetitive delay in entry evidenced in small-molecule generic drug markets is likely to 14 See David Reiffen & Michael Ward , cBranded Generics d As A Strategy To Limit Cannibalization of Pharmaceutical Markets, 28 M ANAGERIAL AND D ECISION E CONOMICS , 251-265, 264 (2005), available at http://ftc.gov/be/healthcare/wp/12_Reiffen_BrandedGenericsAsAStrategy.pdf . ix x repeat if an exclusivity provision for interchangeable FOBs is implemented. 15 The current 180- day exclusivity period exacerbates the problem of cpay-for-delay d settlement that prevents generic entry. 16 Awarding an FOB exclusivity period on a cfirst-to-approve d rather than a cfirst-to-file d basis does not lessen the potential harm. These anticompetitive consequences are likely to result if the period can be extended, the period does not run immediately upon its award, or if a firm has the ability to delay triggering the running of the period through, for example, a patent settlement, acquisition, merger, or agreement. 15 See FDA, Center for Drug Evaluation and Research, 180-Day Generic Drug Exclusivity (2001), available at http://www.fda.gov/cder/about/smallbiz/generic_exclusivity.htm#COURT ( cThis 180-day exclusivity provision has been the subject of considerable litigation and administrative review in recent years& d). 16 See How Pay-for-Delay Settlements Make Consumers and the Federal Government Pay More for Much Needed Drugs: Hearing Before the H. Subcomm. on Commerce, Trade, and Consumer Protection, Comm. on Energy and Commerce , 111th Cong. (2009) (Prepared Statement of the Federal Trade Commission), available at http://www.ftc.gov/os/2009/03/P859910payfordelay.pdf . TABLE OF CONTENTS EXECUTIVE SUMMARY &&&&&&&&&&&&&&&&&&&&&&&&...&....i INTRODUCTION &&&&&&&&&&&&&&&&&&&&&&&&&&&&&.....1 CHAPTER 1 BACKGROUND AND LIKELY MARKET IMPACT OF FOLLOW-ON BIOLOGIC COMPETITION &&&&&&...&..3 I. BACKGROUND&&&&....&&&&&&&&&&&&&&&&&&..&...3 II. THE NEW DRUG AND GENERIC DRUG APPROVAL PROCESS &..&&...6 A. New Drug Approval Processes Under the FD&C Act and the PHS Act&6 B. Generic Drug Approval Under the FD&C Act&&&&&&&&..&&..7 C. Issues in Translating the Generic Drug Approval Process to Biologic Drugs Under the PHS Act&&&&&&&&&.&&&&&&&&.......8 III. PHARMACEUTICAL PRICING, MARKET DYNAMICS, AND THE LIKELY COMPETITIVE IMPACT OF FOLLOW-ON BIOLOGICS....&&&10 A. Pharmaceutical Pricing and the Effect of Generic Drug Entry...&&&...11 B. Likely Market Effects of Biosimilar Entry&&...&&&&&&&&.....13 1. Fewer FOB Competitors Due to High Barriers to Entry&&.......14 2. Lack of Interchangeability&&&&&&&&&&&&&&.....16 3. Specialty Pharmaceutical Characteristics...&&&..&&&&.....17 4. Fewer Payor Strategies to Incentivize Rapid Uptake of FOBs&..17 C. Market Experience with Biosimilar Entry&&&&&&&&&&&.....19 1. EPO Market Experience in the European Union&&&&&&...20 2. HGH Market Experience in the European Union and the United States&&&&&&..&&&&&&&&&&&&&....21 D. Likely Pricing Effect of Interchangeable FOBs&&&&&&&&&.... 22 E. Conclusions about the Likely Market Impact of FOB Entry.....................23 xi CHAPTER 2 PATENT PROTECTION AND MARKET INCENTIVES ARE LIKELY TO CONTINUE TO PROVIDE ROBUST INNOVATION INCENTIVES AFTER ENTRY OF FOLLOW-ON BIOLOGIC DRUGS &&&&&&&&&&&&&&&&&&..&&&&&..&.25 I. INTRODUCTION&&&&&&&&&&&&&&&&&&&&&&&.&25 II. THE IMPORTANCE OF PATENT PROTECTION TO THE NEW DRUG RESEARCH AND DEVELOPMENT PROCESS&&.&&.&&&&&&......28 A. New Drug Research and Development Process&&&&&&&&..&..28 B. The Importance of Patent Protection Incentives for Innovation&&&&30 C. Patent Protection in the Biotechnology Industry&&&..&&&&&.....32 1. Panelists 9 and Commenters 9 Arguments that Patents Are Unlikely to Incentivize Innovation in Light of FOB Competition&&&&&&&&&&&&&&&&&..&&&..32 2. Panelists 9 and Commenters 9 Arguments that Patent Protection Provides Ample Incentives for Innovation&&&&&&..&&..34 D. Patent Protection is Likely to Continue to Provide Strong Incentives for Innovation after Introduction of Follow-On Drug Competition&&&&35 III. OTHER CONSIDERATIONS DO NOT SUPPORT A 12- TO 14-YEAR BRANDED EXCLUSIVITY PERIOD&&&&&&&&&&&&&&&.....39 A. Panelists' and Commenters' Views on the Likely Effects of a Branded Exclusivity Period&&&&&&&&&&&&&&&&&&&.....&.39 B. Panelists' and Commenters' Views on the Need for Branded Exclusivity to Incentivize Incremental Innovation&&&&&&&&&&&&.......41 C. Likely Competition Effects of a Branded Exclusivity Period&&&&...42 1. The Innovation Benefits of FOB Competition.&&&&&&&.42 2. Actual Pioneer Drug Manufacturer Exclusivity Can Inform the Length of a Branded Exclusivity Period&&&&&&&&&...42 xii 3. FOB Entry is Unlikely to Occur Immediately Upon Expiration of a Limited Period of Branded Exclusivity&&&&&&&.&.43 4. Exclusivity Periods Have Been Used When Patent Protection Has Been Insufficient to Incentivize and Reward Innovation&&&&&&&&&&&..&&&&&&&&&... 44 D. The Nature Model Fails to Inform Reliably the Length of a Branded Exclusivity Period&&&&&&&&&&&&&&&.....................&.45 CHAPTER 3 COMPETITIVE EFFECTS OF A PRE-APPROVAL PATENT RESOLUTION PROCESS &&&&&&&&&&&&&&&&.....47 I. INTRODUCTION&&&&&&&&&&&&&&&&&&&&&&&&.47 II. THE LIKELY EFFECTS OF AN FOB PRE-APPROVAL PATENT RESOLUTION PROCESS&&&&&&&&&&&&&&&&.&&&&...49 A. Background on the Hatch-Waxman Pre-Approval Patent Resolution Process&&&&&&&&&&&&&&&&&&&&&.49 B. Commenters' and Panelists' Views on the Likely Effects of an FOB Pre-Approval Patent Resolution Process&&&&&&&&&&&&...50 C. Analysis of the Likely Effects of a Pre-Approval Patent Resolution Process&&&&&&&&&&&&&&&&&&&&&.52 1. The Likely Market Impact of FOB Drug Entry Does Not Warrant a Special Pre-Approval Patent Resolution Process&......52 2. A Pre-Approval Patent Resolution Process is Unlikely to Provide Certainty and is Likely to Disrupt Innovation Incentives&&&&&&&&&&&&&&&&&&&&&...54 3. A Pre-Approval Process is Unlikely to be Workable and is Likely to Cause Harm&&&&&&&&&&&&&&&&&55 a. Notice Provisions are Unnecessary and Could Raise Anticompetitive Concerns&&&....&&&&&.56 (1). Patents Claiming the Pioneer Drug Product are Publically Available&&&&&&..&&&..56 xiii xiv (2). Notice of the FOB 9s Application Raises Competitive Concerns&&&&&..&&&&&..57 b. Identification of a Subset of Patents to Resolve During the Pre-Approval Patent Resolution Process Defeats the Purpose of a Pre-Approval Resolution Process&&&&.59 c. Enforcement Provisions May Harm Innovation and Competition&&&&&&.&&&&&&&&&....60 CHAPTER 4 LIKELY COMPETITIVE EFFECTS OF A MARKET EXCLUSIVITY PERIOD FOR FOLLOW-ON BIOLOGICS &&.....................................................................................65 I. NECESSITY OF AN EXCLUSIVITY PERIOD TO ENCOURAGE DEVELOPMENT OF FOLLOW-ON BIOLOGICS&&&&&&&&&&&.66 II. MARKETING EXCLUSIVITY LIMITED TO INTERCHANGEABLE FOLLOW-ON BIOLOGICS&&&&&&&&&&&&&&&&&&&&.68 III. ANALYSIS OF LIKELY COMPETITVE EFFECTS OF AN FOB EXCLUSIVITY PERIOD&&&&&&&&&&&&&&&&&&&&&..69 APPENDIX A APPENDIX B APPENDIX C APPENDIX D INTRODUCTION The Commission initiated this inquiry because decisions of regulatory bodies such as the Food and Drug Administration substantially shape business rivalry. 1 This inquiry is very mindful of how innovation in the biotechnology industry is highly dependent on patent protection. 2 Biotechnology innovation is costly and unpredictable, requiring significant amounts of investment to test and commercialize new drug products. By preventing rival firms from free riding on discoveries, patents allow firms to recoup the substantial capital investments made to discover, test, and obtain regulatory approval of new drug products. Patents also are necessary to attract the capital to fund high-risk investment in the biotechnology industry. 3 Thus, this report approaches this problem by examining the likely competitive effects of a new regulatory scheme in the highly risky, costly and time-consuming process of bringing new biologic drugs to the market. Chapter 1 of this report examines the likely market impact of FOB entry and contrasts it to the market impact of small-molecule generic drugs. The Commission is mindful that the likely competitive effects of FOB entry are based on the available knowledge of existing external market conditions. For example, the likely competitive effects of FOB competition could change if technology breakthroughs occur, biosimilar safety issues arise, health insurance coverage expands, or payor and reimbursement strategies change, among others. In sophisticated industries such as biotechnology, external conditions can and do change and often alter expectations of profit-maximizing firms. 4 This industry, however, has shown significant ability to adapt and thrive under new market conditions. 5 The Commission expects the robust and dynamic market conditions of the biologic drug industry to continue with the entry of FOB drug products. Chapter 2 examines whether in addition to patent protection and market-based pricing, pioneer biologic drug products need a branded exclusivity period to promote innovation in biologic drug markets. Chapter 3 examines whether special procedures are necessary to resolve 1 The Commission outlined its preliminary views on the likely effects of an abbreviated regulatory approval pathway for biologic drug products in May 2008. See Letter of the Federal Trade Commission to the Honorable Frank Pallone, Jr., Chairman, Subcommittee on Health, Committee on Energy and Commerce, House of Representatives (May 2, 2008), available at : http://energycommerce.house.gov/Press_110/110-ltr.050208.respto040308.FTC.pdf . 2 It is beyond the scope of this report to determine whether a 20-year patent life is the optimal period to incentivize innovation in this and other industries that rely on patent protection. 3 See F EDERAL T RADE C OMM 9 N , T O P ROMOTE I NNOVATION : T HE P ROPER B ALANCE OF C OMPETITION AND P ATENT L AW AND P OLICY (2003), Ch. 3 at 1, available at http://www.ftc.gov/os/2003/10/innovationrpt.pdf. 4 See Charles E. Phelps, Managing the Market: Regulation and Technical Change in Health Care , H EALTH E CONOMICS , at 498-546 (3 rd ed. 2003). 5 See Iain M. Cockburn, The Changing Structure of the Pharmaceutical Industry , 23 H EALTH A FFAIRS 1:10-22, 14 (2004). 1 2 potential patent disputes between pioneer and FOB manufacturers prior to FDA approval of an FOB drug product. Chapter 4 examines whether market profits are insufficient to incentivize the development of interchangeable FOB products. The FTC appreciates the 29 comment filers and 30 panelists who contributed time, effort, and thoughtful analysis to these issues before, during, and after the public roundtable discussion. We also are grateful for the intellectual property and economic experts proffered by the biotechnology and pharmaceutical manufacturers. CHAPTER 1 BACKGROUND AND LIKELY MARKET IMPACT OF FOLLOW-ON BIOLOGIC COMPETITION I. BACKGROUND Innovations in biotechnology have improved medical treatments, reduced suffering, and saved the lives of millions of Americans. The lure of patent protection, coupled with the ability to price at market rates, has spurred pioneer drug manufacturers to develop new therapeutic drugs known as biologics. 1 The Food and Drug Administration ( cFDA d) approves biologic drugs under the Public Health Safety Act ( cPHS Act d). These innovations, however, are expensive. As examples, annual treatment for breast cancer with the biologic drug Herceptin can cost $48,000 and the annual treatment for rheumatoid arthritis with Remicade can cost approximately $20,000. Indeed, in 2007, Americans spent $286.5 billion for prescription drugs, $40.3 billion of which was for biologic drugs. 2 In 1984, Congress enacted the Hatch-Waxman Act to allow the FDA to approve the sale of generic or follow-on versions of off-patent branded drugs. 3 This process applies to drugs regulated only under the Federal Food Drug and Cosmetic Act ( cFD&C Act d), which are generally chemically-synthesized, small-molecule products. It does not apply to drugs approved under the PHS Act. Under Hatch-Waxman, generic applicants are not required to duplicate the clinical testing of drugs already proven safe and effective. Rather, to be approved, the applicant must show that its generic drug product is the same as the branded drug product. A bioequivalence showing is much less expensive than the clinical testing required for a pioneer branded drug product and thus, is an efficient way to leverage scarce research and development ( cR&D d) funds to target innovative drug development. 1 Biologic drugs are derived from living matter or manufactured in living cells using recombinant DNA biotechnologies. See FDA Center for Biologic Drug Evaluation and Research (CBER), Frequently Asked Questions About Therapeutic Biologic Drug Products, available at http://www.fda.gov/cder/biologics/qa.htm . 2 These sales figures are based on wholesale prices reported in the IMS Top Line Industry Data. Press Release, IMS Health, IMS Health Reports U.S. Prescription Sales Jump 3.8 Percent in 2007, to $286.5 Billion (March 12, 2008), available at http://www.imshealth.com (follow cPress Room d hyperlink; then follow cIMS Health Care Reports News Release d hyperlink); see also C ONG . B UDGET O FFICE ( cCBO d) 110 TH Cong., B UDGET O PTIONS V OL .1: H EALTH C ARE at 126-28 (2008), available at http://cbo.gov/ftpdocs/99xx/doc9925/12-18-HealthOptions.pdf [hereinafter, cB UDGET O PTIONS d]. 3 See The Federal Food, Drug, and Cosmetic Act, 21 U.S.C.A. § 301, et seq . (2009), as amended by The Drug Price Competition and Patent Term Restoration Act of 1984 [hereinafter, the cHatch-Waxman Act d or cHatch-Waxman d] and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 21U.S.C.A. § 355(j) (2009) and 35 U.S.C.A. § 271(e) (2009). See Appendix B for a description of the new and abbreviated drug approval processes. 3 Competition provided by the generic drug industry has reduced prescription drug prices, increased access for more Americans, and hastened the pace of innovation. 4 There is no similar approval process for biologic drugs. 5 Rather, once a biologic drug product 9s patents expire, the follow-on applicant must duplicate the clinical testing of the pioneer biologic drug. This duplication of safety and efficacy information is costly, an inefficient use of scarce resources, and, as the FDA has explained, raises ethical concerns associated with unnecessary human testing. The desire to avoid these consequences by creating an approval process for follow-on biologic ( cFOB d) drugs takes on urgency in light of the significant number of biologic drugs that go off-patent within the next several years. Figure 1-1 shows the 27 top selling biologic drug products, many of which go off patent by 2015. 6 The drugs listed comprise approximately 87 percent of the total global value of the biologics industry of $112 billion. 4 See generally Jennifer S. Haas et al ., Potential Savings from Substituting Generic Drugs for Brand-Name Drugs: Medical Expenditure Panel Survey, 1997-2000 , 142 A NNALS I NTERNAL M ED . 891 (June 2005); Wendy H. Schacht & John R. Thomas, Congressional Research Service (CRS), Library of Congress, Report for Congress, Follow-On Biologics: Intellectual Property and Innovation Issues, at 4 & 18 , 110th Cong. (Jan. 17, 2008), available at http://www.biosimilars.com/CRS_FOBs.pdf . 5 See Assessing the Impact of a Safe and Equitable Biosimilar Policy in the United States Hearing Before H. Subcomm. on Health and the H. Comm. on Energy and Commerce, 110th Cong . (2007) (statement of Janet Woodcock, Deputy Comm 9r, Chief Medical Officer, FDA), available at http://energycommerce.house.gov/cmte_mtgs/110-he-hrg.050207.Woodcock-testimony.pdf [hereinafter, cWoodcock Statement d]. Historically, some biologic protein products have been regulated as drugs under the FD&C Act. The FDA has approved six follow-on protein products under the FD&C Act, including Hylenex (hyaluronidase recombinant human), Hydase (hyaluronidase), Fortical (calcitonin salmon recombinant) Nasal Spray, Amphadase (hyaluronidase), GlucaGen (glucagon recombinant for injection), and Omnitrope (somatropin [rDNA origin]). Id . 6 See Bernstein Research Comment (9/29/08) at 2; Biotechnology Industry Organization ( cBIO d), Health Overview, available at http://www.bio.org/healthcare (last accessed June 8, 2009); CBO, B UDGET O PTIONS at 126; Hospira (Wilkie Farr) Comment (12/22/08) at 5 and Attachment 1. Patent expiration information was obtained from SEC form 10-K filings. FDA maintains a searchable catalog of approved drug products including drug approval history. See , Drugs@FDA, available at http://www.accessdata.fda.gov/Scripts/cder/DrugsatFDA. 4 Figure 1-1: Top-Selling Biologic Products (estimates of peak sales in billions) Drug 2008 Sales Year Approved Drug 2008 Sales Year Approved Drug 2008 Sales Year Approved Avastin $9.2 2004 Novolog $3.7 2000 Rebif $1.7 2002 Enbrel $8.0 1998 Erbitux $3.6 2004 Cerezyme $1.5 1994 Remicade $7.9 1998 Aranesp $3.2 2001 Tysabri $1.4 2004 Humira $7.3 2002 Recombinate $2.9 1998 NovoSeven $1.4 1999 Rituxan $7.3 1997 Lucentis $2.7 2006 Synagis $1.3 1998 Herceptin $5.7 1998 Avonex $2.6 1996 Neupogen $1.3 1991 Lantus $5.1 2000 Novolin $2.5 1991 Betaseron $1.2 1993 Epogen/ Procrit $5.1 1989 Humalog $2.2 1996 Humulin $1.1 1992 Neulasta $4.2 2002 PEGASYS $2.0 2002 Kogenate FS $1.1 1993 The scientific differences between biologic and small-molecule drug products, however, complicate efforts to devise an approval process for FOB drugs. Biologic products are more complex and immunogenic than small-molecule drugs. 7 Current technology does not yet allow for the creation of an exact replica of a pioneer biologic drug product, according to the FDA. 8 In addition, technology is not yet robust enough to determine whether an FOB product is cinterchangeable d with the pioneer product such that a patient would be able to switch between the two products without an adverse effect. In light of these complexities, current legislative proposals permit FDA approval of an FOB drug that is sufficiently similar to, but not an exact replica of, the referenced branded biologic product. 9 A showing of similarity is likely to save clinical testing expenses but would require substantially more expense than a showing of bioequivalence for small-molecule generic drugs. Unlike small-molecule drugs, FOB products would not be designated as ctherapeutically equivalent d with the referenced product. The lack of therapeutic equivalence means that a pharmacist may not substitute prescriptions for a pioneer product to an FOB product without physician consent. As technology and scientific understanding develops, however, the approval process could provide a means by which an FOB applicant could show that its product is interchangeable with the pioneer product. 7 Immunogenicity raises safety concerns because of a biologic drug 9s ability to stimulate an immune response. An immune response to a therapeutic protein can range from development of detectable but not clinically significant antibodies to an immune response with significant impact on safety or effectiveness, including the potential to decrease or block the clinical effect of the therapeutic protein. See Letter from Frank M. Torti, Principal Deputy Comm 9r and Chief Scientist, FDA, to Frank Pallone, Jr., Chmn., H. Subcomm. on Health, (Sept. 18, 2008) at 1, available at http://energycommerce.house.gov/Press_110/fdabiosimilarrespons20080918.pdf . 8 Id . at 4; Woodcock Statement at 1 ( c[T]he idea of sameness , as the term is used in the generic drug approval process under the [FD&C] Act and applied to small-molecules, will not usually be appropriate for more structurally complex molecules of the type generally licensed as biological products under the [PHS] Act. d). 9 See H.R. 1427, 111th Cong. § 3(a) (2009); H.R. 1548, 111th Cong. § 101 (2009). 5 In the current legislative debate, questions have arise over whether the same issues that prompted provisions of the Hatch-Waxman Act that restrict entry by generic competitors are likely to be present in the context of FOB competition. To answer these questions, the Commission initiated a public inquiry, including a public workshop and a series of public comments, to examine how FOB competition is likely to develop to determine whether similar entry restrictions would benefit consumers. 10 This chapter describes the regulatory background necessary to understand how an FOB approval process could be used by FOB manufacturers. It then describes the likely market impact of FOB entry and contrasts it to the market impact of small-molecule generic drugs. This analysis sets the stage for the discussion in Chapters 2 through 4 of specific issues regarding how to foster FOB competition to benefit consumers. II. THE NEW DRUG AND GENERIC APPROVAL PROCESSES A. New Drug Approval Processes Under the FD&C Act and the PHS Act To obtain FDA approval of a new small-molecule drug under the FD&C Act or a biologic product under the PHS Act, the manufacturer must prove that the product is safe and effective. Manufacturers must submit the following information to the FDA for approval: (a) pre-clinical analytical tests, pre-clinical studies and formulation studies; (b) an Investigational New Drug Application ( cIND d) to initiate human clinical testing; (c) adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for its intended use; (d) approval and validation of commercial scale manufacturing facilities used in production of the product; (e) drug manufacture and analytical methods; and (f) proposed product packaging and labeling. 11 The pre-clinical phase of any new drug development typically identifies compounds (either small-molecule or protein-based) that target a particular disease or are therapeutically beneficial. Once a lead compound is isolated, the manufacturer conducts pre-clinical safety trials, as well as trials in predictive animal models to determine if the compound works as expected. This pre-clinical phase typically takes one to five years. 12 10 See Notice of Public Workshops and Roundtables and Opportunity for Comment, Emerging Health Care Competition and Consumer Issues, 73 Fed. Reg. 51479-51482 (Sept. 3, 2008), available at http://www.ftc.gov/bc/workshops/hcbio/index.shtml . 11 See 42 U.S.C.A. § 262; 21 U.S.C.A. § 321, et seq . (2009). 12 See, e.g. , Ernst R. Berndt et al., Opportunities for Improving the Drug Development Process: Results from a Survey of Industry and the FDA (Nat 9l Bureau of Econ. Research, Working Paper No. W11425, 2005). 6 After pre-clinical tests are completed, a drug sponsor submits these results in an IND to the FDA before human clinical trials may commence. 13 Clinical trials typically consist of three phases. In Phase I, a small group of patients is given the drug to determine if the drug is safe in humans. In Phase II, a small sample of the intended patient population is given doses of the drug to provide a preliminary assessment of the efficacy of the drug for a specific clinical indication, find dose tolerance, and find the optimal dose range. Phase III studies are initiated if Phase I and Phase II studies indicate the drug is safe and has some efficacy in the targeted patient population. Phase III studies are designed to gather sufficient data in a broad target population in order to establish safety and efficacy for a particular indication. The time to conduct these trials varies based on factors such as indication, availability of reliable ways to measure efficacy, size of patient populations in the clinical trials, ease of patient accrual, as well as a host of other factors. Despite these variances, Phase I takes approximately one year, Phase II (including dose ranging studies) takes approximately two years, and Phase III takes approximately three years. 14 B. Generic Drug Approval Under the FD&C Act Rather than requiring a generic manufacturer to repeat the costly and time- consuming new drug approval process, the Hatch-Waxman Act permits generic drug applicants to file an Abbreviated New Drug Application ( cANDA d). The object of the ANDA process is to demonstrate that the generic drug product has the same active ingredient, route of administration, dosage form, strength, and proposed labeling as the branded drug. The ANDA also must contain sufficient information to demonstrate that the generic drug is cbioequivalent d to the relevant branded product. 15 As a result of providing this information, the generic applicant may rely on the FDA 9s previous findings of safety and effectiveness for the branded drug, and the applicant, therefore, does not have to perform its own clinical studies. This reliance allows generic applicants to save substantial time and development costs. 16 The FDA will deem a generic drug product therapeutically equivalent to the branded product. This designation allows the generic drug to be automatically substituted by a pharmacist for the branded product. 13 42 U.S.C.A. § 262; 21 U.S.C.A. § 321, et seq .; 21 C.F.R. 601.2; 21 C.F.R. 312 (2009). 14 See Henry Grabowski et al ., The Effect on Federal Spending of Legislation Creating a Regulatory Framework for Public Health Service Act Follow-on Biologics: Key Issues and Assumptions, White Paper (July 1, 2007) at 8, 25, 27-28, 33 (unpublished paper on file with Analysis Group, Inc.), available at http://www.analysisgroup.com/analysisgroup/News_Study-Effects-Federal-Spending-Follow-On- Biologics-Legislation.aspx [hereinafter cWhite Paper d]. 15 21 U.S.C.A. § 355(j)(2)(A)(iv)(2009). Bioequivalence means that the rate and extent of absorption of the generic drug is not significantly different from the rate and extent of absorption of the reference listed drug when administered at the same dosage. 16 CBO, How Increased Competition from Generic Drugs Has Affected Prices and Returns in the Pharmaceutical Industr, at ix (1998), available at http://www.cbo.gov/ftpdocs/6xx/doc655/pharm.pdf [hereinafter, c Increased Competition from Generic Drugs d]. 7 C. Issues in Translating the Generic Drug Approval Process to Biologic Drugs Under the PHS Act The scientific differences between biologic and small-molecule drugs complicate efforts to devise an approval process for FOB drugs based on bioequivalence. 17 Figure 1- 2 shows the size differences between a typical small-molecule drug and a biologic protein and lists some of the complexities surrounding protein drugs. These differences include a ten to hundred-fold difference in size. A small-molecule drug, such as a statin ( e.g., Lipitor, Mevacor), is small (only 400 Daltons) and simple in contrast to a biologic drug. A biologic drug is significantly larger (5,000-300,000 Daltons) and has a complex structure with three-dimensional folding which performs complex binding, unlike small- molecules. Any deviation in a biologic protein's structure can result in aggregation, incorrect folding and structural anomalies ( e.g. , truncation, proteolysis and amino acid modifications) that can have unexpected effects on efficacy and safety. 18 Source: Behrman Presentation at 6 x * Therapeutic protein ~5,000 - 300,000 Da Statin ~400 Da Proteins have expected: " Size, charge, hydrophobicity " Correct folding (S-S bonds) " Subunits " Glycosylation " Bioactivity & Unexpected: " Aggregation (side effects) " Incorrect folding " Amino acid modifications - ox, deam, cyc " Truncation, roteol sis Figure 1-2: Structure of Small-Molecule vs. Protein Drugs 17 Testimony of Rachel Berhman, Associate Comm 9r for Clinical Programs, Director of the Office of Critical Path Programs, FDA, at FTC Roundtable: Emerging Healthcare Competition and Consumer Issues (Nov. 21, 2008) at 10-20, available at http://www.ftc.gov/bc/workshops/hcbio/transcripts/081121biologic- transcript.pdf [hereinafter transcript cites are referenced as [last name] at [page]]; Woodcock Statement at 8-9. 18 Behrman at 10-20; Rachel Behrman, Follow-on Biologics: A Brief Overview at FTC Roundtable: Emerging Healthcare Competition and Consumer Issues (Nov. 21, 2008) at 6 [hereinafter cBehrman Presentation d]. 8 Current limitations in analytical methods make it difficult to characterize and compare large molecules to determine their level of sameness. Manufacturing a consistent biologic drug product presents additional difficulties. 19 In light of these challenges, it is unlikely that FOB manufacturers could only use analytic methods to show that their FOB products have the same active ingredient as the pioneer biologic product, as generic small-molecule drug applicants do pursuant to the Hatch-Waxman Act. 20 In light of these complexities, current legislative proposals permit FDA approval of an FOB drug that is sufficiently similar to , but not an exact replica of, the pioneer product. 21 A showing of similarity is likely to save clinical testing expenses but would require substantially more expense than a showing of bioequivalence for small-molecule generic drugs. The amount of savings, however, may vary depending upon the complexity of the pioneer product to ensure that the FOB product is safe, pure and potent. 22 Although abbreviated compared to a full development program, FOB applicants are likely to perform Phase I and Phase III studies, but with fewer patie FOB manufacturers also must seek approval and validation of their commercial-s manufacturing facilities at or before initiation of clinical trials. nts. cale 23 For each additional indication for which they seek labeling, FOB manufacturers are likely to be required to perform Phase I 3 Phase III clinical testing. 24 19 See Woodcock Statement at 8 ( cBecause of the variability and complexity of protein molecules, current limitations of analytical methods, and the difficulties in manufacturing a consistent product, it is unlikely that, for most proteins, a manufacturer of a follow-on protein product could demonstrate that its product is identical to an already approved product. d); Behrman Presentation at 6; Behrman at 13-20. 20 See Behrman at 12-13 ( c[P]roteins [biologics] . . . are chains of amino acids . . .they can range from very simple to extremely complex, and when they're very complex, they are folded; they have things stuck on them; they can unfold again; and then they can aggregate. d); see also Norman at 153 ( c[T]he chemical [small-molecule] compound itself is something that always looks like chicken wire, so it's got a methyl on one end and maybe an ethyl on the other, but it's going to look like methyl ethyl chicken wire, and every follow-on ge

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