Washington Editor

WASHINGTON - The capability of obtaining numerous and varied patents plus competitive pricing in the U.S., especially during the period of exclusivity granted by the patent system itself, provide sufficient protection and strong incentives for innovation of biologic drugs, according to a new report from the Federal Trade Commission (FTC).

Therefore, said FTC Commissioner Pamela Jones Harbour, no additional period of branded exclusivity is needed to spur the development of new biologic products.

Competition between pioneer biologics and follow-on biologics (FOBs) is more likely to resemble that of branded competitors for drugs that treat the same medical condition, such as Amgen Inc.'s Enbrel (etanercept) and Centocor Ortho Biotech Inc.'s Remicade (infliximab) in treating arthritis, than it currently is between branded and generic versions of small molecules, Harbour told lawmakers Thursday during a hearing of the Energy and Commerce Subcommittee on Health.

The extraordinary cost and time necessary to develop a FOB, which will sharply limit the number of competitors who can afford to enter the market, will limit the discounts the FOB can offer in relation to the pioneer price, she noted.

While small-molecule generic drugs typically take three to five years to develop, with costs for drugmakers ranging from $1 million to $5 million, FOBs are likely to take eight to 10 years, with development costs reaching up to $200 million, Harbour said, noting that it could cost an additional $1 billion to build a FOBs manufacturing plant.

Therefore, she said, the entrance of FOBs into the marketplace is likely to offer price discounts of only about 10 percent to 30 percent of the innovator biologic product's price.

"Although this discount is not as steep as with small-molecule generic drugs, it does represent millions of dollars in consumer savings for these very expensive products," Harbour said. Therefore, she said, pioneer manufacturers are expected to respond by offering competitive discounts to maintain their market share.

"This price competition likely will increase consumer access and further expand the market," Harbour said.

The pharmaceutical characteristics of biologics also are likely to further constrain a FOBs ability to gain market share compared with generic versions of small molecules, she noted. For instance, Harbour said, biologic products often are injectable products or must be infused at special clinics, making a switch more complex, whereas, many generic drugs are oral tablets or capsules, which often can be easily switched.

With the smaller discount price, added to the lack of interchangeability with FOBs and branded biologics and no automatic substitutions, FOBs are unlikely to erode the innovator biologic's market share, Harbour said.

The FTC estimated that innovator manufacturers are likely to retain 70 percent to 90 percent of their market share, she noted.

Because of those dynamics, the commission concluded that the 12 to 14 years of exclusivity protection sought by the Biotechnology Industry Organization (BIO) is unwarranted, stating that such a long period imperils the efficiency benefits of a FOB approval process and "risks over-investment in well-tilled areas."

While BIO said the market dynamic of FOBs are likely to be more akin to that of brand-to-brand competition, the trade group argued that the FTC has ignored the issue that brand biologic competitors must engage in lengthy and costly R&D processes, while FOBs manufacturers will be given a shortcut.

"There is a huge difference between the $1.2 billion that is invested on average to produce true innovation," vs. the $100 million to $200 million, or less, invested by FOBs makers, BIO contended.

"In no other industry outside of pharmaceuticals do we affirmatively permit, let alone encourage, such 'free riding,'" the trade group asserted. To suggest that such a "fact is essentially meaningless in terms of economic incentives for future innovation is baffling," BIO added.

The trade group also took issue with the FTC's conclusion that it is unnecessary to implement special procedures to resolve patent issues between pioneer and FOB drug manufacturers.

The commission had argued that while the Hatch-Waxman procedures to trigger an early start of patent litigation made sense in the generic drug context, where there was a concern that generics would not be able to pay post-entry patent infringement damages, given the cost and complexity of bringing FOBs to market makes it likely that only well-funded firms will seek entry into the marketplace.

Such an outcome, Harbour said, would mitigate concerns about the enforceability of patent infringement judgments.

Moreover, she said, special procedures are unlikely to succeed in raising and resolving all pertinent patent issues prior to FDA approval, and may create competitive problems.

Without a mechanism to resolve patent disputes early, before FDA approval, FOBs would systematically have to enter the market under a "cloud of patent uncertainty," BIO argued.

"Once on the market, patent disputes over such products would have to play out in high-stakes litigation, causing confusion for patients, physicians and insurers about the long-term availability of certain products," the trade group contended.

Several lawmakers during Thursday's hearing raised concerns about ensuring that patents for biologic innovators and incentives to pursue development of new biologics be protected.

"Congress must be certain a balanced approach is established, which encourages new innovation in view of biopharmaceuticals while providing affordable options for the American people," said Nathan Deal (R-Ga.), the subcommittee's ranking member.

Steve Buyer (R-Ind.) questioned the motives of the FTC pursuing its study, noting that Congress had not sought it.

Harbour defended the commission's report, noting that the agency often undertakes such studies on its own initiatives.