The debate over biosimilars was ratcheted up this week as members of Congress and industry responded to a Federal Trade Commission (FTC) report that examined the impact of possible incentives to promote competition for follow-on biologics (FOB). At the heart of the debate is the length of time for data exclusivity for biopharmaceuticals, with certain key members of Congress seeking reduced times and industry seeking to maintain at least the status quo. The debate raises questions not only on how to proceed in developing a regulatory pathway for biosimilars, but also addresses the larger issue of how measures may hinder or facilitate drug innovation.

FTC Chairman Jon Leibowitz was direct in giving the FTC’s view. “If Congress creates an efficient pathway to follow-on biologic drugs and, at least as important, ends ‘pay-for-delay’ pharmaceutical settlements that delay entry of traditional generic drugs, it will be taking a major step forward for both healthcare reform and affordable drugs for all Americans,” he said in prepared statement.

FTC Commissioner Pamela Jones Harbour testified before the Subcommittee on Health of the US House of Representatives Energy and Commerce Committee on June 11, 2009, to outline the report. Key findings were:
• Legislation creating an abbreviated FDA approval process of FOBs is likely to be an efficient way to bring them to market because of the time and cost savings it would provide
• Patent protection and market-based pricing will promote competition by FOBs as well as spur biologic innovation
• A 12- to 14-year regulatory exclusivity period for pioneer biologics is too long to promote innovation by these firms, particularly since they likely will retain substantial market share after FOB entry
• Special procedures to resolve patent issues between pioneer and FOB manufacturers before FDA approval are not needed and could undermine patent incentives and harm consumers
• FOB manufacturers are unlikely to need additional incentives such as a 180-day marketing exclusivity period to develop interchangeable FOB products.

As would be expected, the FTC report clearly drew the lines in the FOB sand. Henry A. Waxman (D-CA), chairman of the House Energy and Commerce Committee, issued a blow to industry’s argument that longer times have to be preserved to maintain a competitive environment for product innovation. “The report completely disposes of the drug industry’s argument that they need 12 to 14 years of exclusive marketing, indeed that they need any additional exclusivity, to sustain innovation,” said Waxman in a prepared statement.

The Biotechnology Industry Organization (BIO), which represents biotechnology companies in the US, was quick to refute the FTC report. Although BIO agreed with the FTC report that biosimilar competition would resemble brand-to-brand competition among biologics in terms of the number of entrants, price competition, and market-share erosion in the short term, it pointed to what it sees as a key difference between innovator and biosimilar manufacturers. “Biosimilar manufacturers will be given a scientific and regulatory shortcut that, while more demanding than small-molecule generic-drug entry, will be considerably shorter and cheaper than the process that the initial innovator would have to go through,” said BIO in its rebuttal.

BIO also asserted that the comparison of exclusivity of biologics with small molecules is faulty. For small molecules, the regulatory approval standard for generics and the patent system provide protection against premature generic competition for an average of 12-14 years. “The regulatory approval standard for biosimilars creates a ‘patent protection gap’ that may allow for abbreviated regulatory approval of a biosimilar [that] does not infringe an innovator’s patent,” said BIO. The association noted that proposed measures for a biosimilar pathway would require a biosimilar to be only “similar” to the corresponding innovator product. The association contends that certain proposed legislative measures (i.e., HR 1427) that although requiring a biosimilar to have the same mechanism of action, dosage form, and strength as the innovator drug, would also provide for discretionary authority to waive part or all of these requirements. BIO President and CEO Jim Greenwood and Generic Pharmaceutical Association President and CEO Kathleen Jaeger offered their associations’ respective views on various proposed legislative measures for FOBs in Pharmaceutical Technology.

No matter which side of the debate you may sit, or whether we are considering small molecules or biologics, a fundamental question should be addressed. Does reducing exclusivity truly foster drug innovation? One side would say “yes”—that without the “stick” of the loss of exclusivity and resulting generic-drug incursion, innovator-drug companies would be more passive in their efforts to develop new drugs.

But is this really true? I would argue that the current system actually reduces product innovation, given the dramatic revenue loss incurred by innovator-drug companies with the loss of exclusivity and the misallocation of resources given to generic-defense strategies, whether they be costs for legal defense and litigation or for product life-extension—resources that could be better directed toward research and development for truly innovative drugs.

Moreover, it is an oversimplification to conclude that competition in the pharmaceutical industry exists only between innovator- and generic-drugs makers. Innovator companies face competition, whether in small molecules or biologics, among other innovator-drug companies for alternative therapies or more closely for “me-too” drugs. Overall market numbers illustrate the competitive dynamics of the industry. Pfizer’s Lipitor (atorvastatin) was the top-selling prescription drug in 2008 with sales of $13.6 billion, but its market share in the global pharmaceutical market (valued at $724 billion by IMS Health) was only 1.9%. Pfizer, ranked as the number one pharmaceutical company in 2008 with revenues of $43 billion, had only a 6% market share of the global pharmaceutical market. Is this anticompetitive?

As Congress and other policymakers consider matters for biosimilars, it is important they do not seek political expediency by simply courting public opinion that takes a limited view of the true market dynamics and competitive structure of the pharmaceutical industry.