Deloitte [1] has released a study, Avoiding no man’s land: Potential unintended consequences of follow-on biologics [2], that explores the debate on creating a regulatory pathway for the approval of follow-on biologics (FOBs, the biotech equivalent of generic pharmaceuticals). The study also outlines unintended effects of the Hatch-Waxman Act of 1984 and compares it with current proposed legislation.
The study notes that basic differences between the pharma industry in 1984 and the biotech industry in 2009 make it difficult to apply Hatch-Waxman as a model for FOBs legislation. According to the study, after 1984, patents protected innovators’ intellectual property and the data exclusivity period rarely came into effect.
At the heart of this debate
is one key issue: How
similar are the two
underlying industries?
In 1984, when the Hatch-Waxman generic drug legislation was enacted, the pharma industry was stable and mature. Today the biotech industry is relatively young and complex and is highly reliant on risk capital. With follow-on biologics, Congress may need to consider a different set of rules to balance cost savings, patient safety, and economic incentives for future innovation.
Still, the essential debate has two main issues — patient safety and industry economics:
Patient Safety: What will constitute threshold “biosimilarity”? Specifically, what type and length of clinical trials will be required to establish that a new FOB is sufficiently similar to a currently approved and marketed “branded” biological drug, and thus permit the FOB a relatively quick path to market? Under what circumstances would a new FOB be considered “interchangeable” with a currently approved drug?
Industry Economics: How can new regulations most appropriately encourage competition while also maintaining sufficient economic incentives to foster scientific innovation? Specifically, what should be the appropriate period of time granted to a branded biological drug for protection of its underlying intellectual property prior to the approval and entry of an FOB?
Unintended Consequences
The study outlines three of these unintended effects, and explores how this experience should be considered in current legislation:
- “Make Hay” effect: Once a drug is introduced to the market, an innovator has a short time to recoup its development costs — upwards of $1 billion over 12 years — before a competitor enters the market. Faced with patent protection of limited duration, innovator companies must maximize their revenues in the short period before generics are introduced. To do this, they generally raise prices and invest more in marketing the drug, tactics that run counter to Hatch-Waxman, the intent of which was to lower prices.
- “Blockbuster” effect: Facing increased drug development costs and a limited period of time before generics can compete, innovators typically focus only on those drugs that promise huge returns on investment. To recoup the amount of time and money an innovator spends on a new drug, experts have shown that to break even, a drug would have to achieve annual revenue of roughly $150 million, which is impossible unless a drug targets a large population, or charges a high price per treatment. This blockbuster effect has led pharma companies generally to focus development efforts on only the largest potential indications.
- “No Man’s Land” effect: As soon as a company receives a patent for a compound, the clock for commercialization begins ticking. Each year a patented drug spends in development is another year of lost revenue. If enough time elapses, there comes a point where the compound will never be able to earn sufficient return on investment. This could lead to promising compounds being dropped from development, including those for critical diseases like cancer, Parkinson’s, Alzheimer’s and others, because there is no way to fund the research once the compound has crossed into this “no man’s land.” Deloitte estimates this can occur within as little as one year of achieving a patent.
According to the study, the most serious of these unintended consequences may be the ‘no man’s land effect,’ which could substantially reduce the biotech industry’s ability to continue to develop innovative treatments for our most pressing diseases and medical conditions.
The blockbuster effect runs exactly
counter to the direction and
promise of the science of biotech.
According to the study, the economics of drug development essentially forces innovators to focus on drugs with the largest possible market potential – in this way, again, what was true for pharma innovators will be true for biotech innovators. But, this effect runs counter to the promise of biotech, which has the potential to create highly targeted therapies. In order for personalized medicine to become a reality, drug innovators will need a regulatory environment that allows a return on their investments in research and development.
Because of the structural differences between the pharmaceutical industry of 1984 and today’s biotech industry, Congress will need to act with care as it looks to create a regulatory path for FOBs.
Get the entire paper here [3].
To see if patenting DNA still has a place, see the Non-obviousness of DNA [4] at Patent Docs.