Big Pharma or Us?

Generic drugs make up 70% of all prescriptions, and according to House Energy and Commerce Committee chairman Henry Waxman, "in the last decade alone, generic drugs have saved consumers, businesses and state and federal governments $734 billion." Despite that savings, the cost of drugs continues to escalate. In large part this is due to what is regarded as the future of health care: biotechnology drugs, or "biologics".

Simply put, biologics are protein based drugs made from living organisms - hamster ovaries, mare's urine, pig intestines, blood - grown inside living cells, as opposed to chemicals, normally showing better efficacy and safety than conventional drugs. Used to treat everything from cancer to multiple sclerosis to psoriasis, biologics currently make up about 20% of the pharmaceutical market - predicted to make up half the market by 2015 - and are the fastest-growing class of medicines, with more than $40 billion in annual sales in the United States.

However, the FDA has no authority to approve lower-cost, generic versions, biosimilars or “follow-on biologics” (“FOBs”) so, these drugs very rarely face competition from generic copies. FOBs (generic form of biologics) could save patients, insurers and our government anywhere from $67 billion to $108 billion during the first decade, and between $236 billion to $378 billion over the next two decades according to the Generic Pharmaceutical Association.

The contentious issue here is the length of time that brand names can hold a monopoly before the FDA can approve the entry of generic competitors. 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.

The provision in proposed health care legislation would allow pharmaceutical companies to extend monopolies to 12-years exclusivity once the product is licensed by the FDA. Even after 12 years, this legislation would allow a pharmaceutical company to extend market protection for its biologic by making minor modifications to the drug to effect dosing, for example.

Generic brand medications only make up for 17 percent of all profits, and generic prescription companies are more focused on the hit that consumers will take financially if longer terms of exclusivity are given to brand-names and biologics. Brand names and biologics, however, are more focused on their profits.

So, why do biologics need a 12-year instead of a 5-year monopoly?

The answer is, of course, profit, and not just a little profit...a lot of profit. According to the pharmaceutical trade association, the average research and development costs are approximately the same for biologics as they are for conventional drugs. Not only that, generics face higher than normal barriers to entering the market. The FTC recently released a report entitled, “Follow-on Biologic Drug Competition” which addressed questions that have arisen about whether the price of biologics might be reduced by competition if there were a statutory process to encourage biosimilars or FOBs to enter and compete with pioneer (brand name) biologics once a pioneer drug’s patents have expired. The FTC did not recommend biologics any years of exclusivity protection.

Based on these findings, the Report concludes that patent protection and market-based pricing will promote competition by FOBs, as well as spur biologic innovation. It states that legislation to put a process in place for the abbreviated FDA approval of FOBs is likely to be an efficient way to bring FOBs to market, because of the time and cost savings it would provide.

In addition, the Report states that the 12- to 14-year regulatory exclusivity period is too long to promote innovation by these firms, particularly since they likely will retain substantial market share after FOB entry. The Report concludes that special procedures to resolve patent issues between pioneer and FOB manufacturers before FDA approval, which are not needed,
could undermine patent incentives and harm consumers. Finally, the Report states that FOB manufacturers are unlikely to need additional incentives – such as a 180-day marketing exclusivity period – to develop interchangeable FOB products.

Links:

Act and Myth of Exclusivity Incentive

Competition Counts

Frequently Asked Questions About Therapeutic Biological Products

Emerging Health Care Competition and Consumer Issues

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.