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Featured Health Business Daily Story Aug. 20, 2009

The Biosimilars Data-Exclusivity Debate Rests More on Dollars and Politics and Less on Science

Reprinted from SPECIALTY PHARMACY NEWS, a monthly newsletter designed to help health plans, PBMs, providers and employers manage costs more aggressively and deliver biotechs, infusibles and injectables more effectively.

By Renee Frojo, Assistant Editor, (rfrojo@aispub.com)

Intellectual property protection may be the most contentious issue in the ongoing debate over biosimilars. But industry experts interviewed by SPN say that setting the data-exclusivity period has more to do with money and politics than it does with science. And even should a short exclusivity period win out — an unlikely scenario — it could take a decade before biosimilars make an economic dent in the market.

While nothing is certain when it comes to health reform, it seems the biotechnology industry and its supporters are gaining the upper hand in Congress. In the most recent blow to biosimilar supporters, the House Energy and Commerce Committee voted 47 to 11 on July 31 to attach a provision to its broader health reform bill that would grant 12 years of data exclusivity to biologic drugs.

The amendment, put forward by Rep. Anna Eshoo (D-Calif.), trumped a five-year exclusivity provision introduced by the committee’s chairman, Rep. Henry Waxman (D-Calif.), and was approved despite calls from President Obama for a compromise of seven years’ protection. The move follows a similar vote on July 13 by the Senate Health, Education, Labor and Pensions (HELP) Committee, which also rejected a shorter exclusivity period.

Eshoo’s amendment is now tacked onto H.R. 3200, the America’s Affordable Health Choices Act, and it incorporates the principles of H.R. 1548, the Pathway for Biosimilars Act. With 142 co-sponsors, Eshoo’s bill had garnered far more supporters than Waxman’s 14 co-sponsor-backed proposal.

The promise of biosimilars to help reduce drug-treatment costs stirred Congress earlier this year to draft legislation that would guide an approval pathway for the drugs. But while much action has been taken on the proposals, lawmakers are still caught up in a numbers debate. And stakeholders agree that whether either of these provisions will become law is anybody’s guess. “It’s becoming very difficult to predict what’s coming up,” David Fox, a partner at law firm Hogan & Hartson LLP, tells SPN.

At issue is when and how to allow less expensive, copycat versions of biologic drugs to go through the FDA’s approval process and enter the market. The FDA currently cannot approve biosimilars because of highly debated safety concerns and fears that allowing copycats on the market too soon will hinder innovation. Because biologics are created from living organisms and are not as simple to replicate as traditional, chemical-based drugs, proponents on both sides of the argument are able to make a strong case, Fox says.

Advocates for a strong exclusivity period argue that it’s necessary to drive continued innovation by providing companies with protection to undertake risks. On the other hand, consumer groups such as AARP as well as the Generic Pharmaceutical Association say that five to seven years of exclusivity would give biotech companies plenty of time to recoup their investments, especially with the additional security of patent protection. AARP’s major concern is that the price of biologics, which can range from $10,000 to more than $200,000 for a year’s supply, won’t go down without competition. And any exclusivity period longer than five years would diminish any potential savings arising from market competition.

A Federal Trade Commission (FTC) report released June 10 supports this stance, saying patents for innovator biologics are strong enough that no added exclusivity period is necessary. This is because biologics require a much more complicated manufacturing process than do conventional drugs. And unlike the market for chemical-based drugs — in which the entrance of a generic competitor significantly cuts into the profits of a brand-name innovator — the slight differences between biologic drugs mean that pioneer biologics will retain a large market share even when biosimilars are introduced. As a result, innovators have a lengthy period of time to recoup their investment, the FTC says.

Seven to 10 Years Is Likely Scenario

The Biotechnology Industry Organization (BIO) contends that because biologics are large and complex molecules, it is possible for generic companies to “engineer around” an innovator’s patent. BIO argues that companies could claim that their biosimilar is sufficiently similar to the original that the FDA could approve it using clinical data accumulated by the innovator, while also arguing that it’s different enough that it does not infringe on the innovator’s patent.

While data exclusivity is the most contentious issue in the competing legislation, Steven Grossman, president of HPS Group, says there is no objectively correct number — just differing opinions on how much time is needed to ensure that the growth of a biosimilars market does not reduce incentives for innovation or compromise safety. “Ultimately, it rests on economic and political arguments, not scientific ones,” Grossman tells SPN, adding that the endgame will probably be “between those who will accept seven years and those who will insist on at least 10 years.”

On the other hand, Fox says, exclusivity does matter for investors looking to take part in the market. “When you have patents and exclusivity running concurrently, it gives the investment community much better predictability in order to assess the first-generation life span of an innovative product,” he explains. “A patent requires much greater diligence and requires a sliding-scale risk assessment on the part of investors and business decision makers. Regular exclusivity, on the other hand, is a binary proposition — you either have it or you don’t.”

Fox adds that there is one more side of the argument that is being missed: what role the FDA will play. “It’s one thing to create a legal pathway and quite another to see how the FDA implements [the pathway]” he says, adding that a follow-on biologics program will represent one of most difficult sameness problems the agency has seen.

As for cost savings, both sides seem to agree the introduction of follow-on biologics to the market will not have as much of an impact on prices as generics had on conventional drugs. The FTC estimates there will only be a 10% to 30% discount in drug prices, while the Congressional Budget Office estimates that biosimilars might save only about $10 billion in the next 10 years.

Look to EU for Lessons Learned

Brian Harvey, vice president of regulatory policy at sanofi-aventis, recommends that the U.S. take a lesson from the European Medicines Agency (EMEA), which has already approved biosimilars for three biologic drugs. These biosimilars are priced at about 20% to 30% lower than the originals and, in some countries, have captured about 30% of the market. “The EMEA has a well-thought out, science-based pathway for follow-on biologic review,” Harvey tells SPN, adding that science should also drive U.S. efforts on the issue.

While some industry experts argue that the number of data-exclusivity years may be irrelevant, most agree that the debate in Congress will not hold back major players already gearing up to enter what analysts say is a billion-dollar global market, and a market Kalorama Information says could reach $45 million in the U.S. by 2015.

“Most of these companies will be on both sides [of the issue] — wanting longer data exclusivity for the products they own [and] short data exclusivity for the ones where they are taking the follow-on pathway,” Grossman says. “It would seem like you can’t have both. But I am sure there are company strategies aimed at achieving market advantage under all legal and market conditions.”

The biotechnology market is one of the fastest-growing sectors of the life sciences industry, according to IMS Health, a market research firm. Because of this, companies that are already large players “will compete in the U.S. regardless of the provisions of the new law,” Grossman says. “The others will be watching the ground rules on interchangeability, direct substitution, allowable product claims, intellectual property, the length of data exclusivity,” among other issues.

The global biologics market looks “highly promising” and is expected to attain a market size of approximately $9 billion by 2011, growing at an annual rate of nearly 15%, according to Sumanth Kambhammettu, a Frost & Sullivan pharmaceutical and biotech analyst. The U.S. accounts for more than 56% of the global biologics market and “is undoubtedly the most attractive region,” Kambhammettu tells SPN. Western Europe is also highly promising, with an expected growth rate of almost 11%, while Asia-Pacific is expected to be the fastest-growing region at nearly 21%. Lower-cost biosimilars, he says, will play an integral role in the market’s future development.

Teva Is Already Making a Move

In light of this, several large drug companies and generics manufacturers have been positioning themselves to compete in the biosimilars market. For example, Teva Pharmaceutical Industries, an Israel-based company, expanded its biotech manufacturing reach last year by buying Barr Pharmaceuticals, a direct competitor. And Teva CEO Shlomo Yanai has told investors that he’s looking for more opportunities to boost the company’s biotech presence.

However, Kambhammettu says that the U.S. is lagging behind the European Union primarily because of Congress’ delay in creating an efficient and clear regulatory pathway for bringing biosimilars to market. “Overall, there is a strong potential for biosimilars in the U.S, but everything depends on how the regulatory situation plays out,” he says. “There are a number of players waiting at the doorstep, but the innovator lobby in the U.S. is very powerful.” Still, he adds, “Congress is also under a lot of pressure because of spiraling health care expenditures and an ever-increasing need for affordable biologics, not to mention growing public awareness.”

Multiple Players Will Enter Market

Grossman contends that there has been a lot of “fuzzy thinking” about what types of companies will be players in the biosimiliars market and how they will position themselves. He predicts there will be multiple entrants vying for market share and, in turn, creating price competition. Teva and Sandoz, Inc. will be in the biosimilars market from the beginning, he says, while Pfizer Inc., Amgen, Inc., Merck & Co., Inc. and Johnson & Johnson are positioning themselves to enter the market within a few years. “All are well-financed and have experience competing in crowded markets,” he says.

However, some analysts worry that several factors, such as high risks and soaring costs, will keep many companies from competing in the biosimilars market. According to Kambhammettu, the current industry average cost of bringing a biosimilar to market is around $100 million to $200 million — far greater than the costs associated with bringing a small-molecule generic drug to market. In addition, development costs are expected to increase in the long term because of the current state of the pharmaceutical industry. “Increasingly, several biopharmaceutical companies are likely to find themselves in a quandary, having to choose between the development of a new product or a biosimilar,” he says.

Fox expects a hybrid industry to emerge, in which companies positioned outside of the traditional pioneer versus generic framework will bring innovative improvements to already-developed protein structures. “The predictions are that there will be fewer follow-on biologics manufacturers that resemble generics makers,” he says. “And we may see innovators who have been pure innovators trying to expand their suite by adding ‘me-too’ biologics, resulting in greater competition.” The key, Fox believes, will be to find out if data-exclusivity protection and the patent structure “continue to spur true innovation in the field.”

Grossman maintains that only a handful of products are likely to have competing biosimilars in the next five to eight years, adding that “it could easily take a decade before market forces can make a dent.” One possible scenario: Low-cost versions of Amgen’s Neupogen and Epogen could hit the market within five to six years since their patents are due to expire soon.

Yet over time, he says, innovation will bring production costs down, and competition will bring drug prices down. However, “most analyses assume that the cost and production side will be largely static ‘because you can’t do it any cheaper,’” he says. “But that’s today. Biopharma companies will find ways over the next 10 years to bring costs down because that is an essential part of maximizing return on investment.”

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