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Perspective august 30, 2007

Regulation of Follow-on Biologics

Richard G. Frank, Ph.D.

B iopharmaceutical products, with U.S. sales in and Patent Term Restoration Act
of 1984 (the Hatch–Waxman Act)
2006 amounting to about $40.3 billion, are in- offers a starting point for con-
creasingly central to the treatment of major health sidering regulation of the use of
problems affecting Americans.1 Since modern bio- follow-on biopharmaceuticals (see
box). This law, which is widely
pharmaceuticals date back to the some biopharmaceutical products considered a success, governs the
1980s, the first generation of such are nearly as simple as tradition- use of traditional generic medi-
drugs has begun to lose patent al small-molecule drugs, the vast­ cations. It establishes a low-cost
protection (see table). In other ly increased complexity of others path to market for generic imi-
parts of the world, governments means that it will be more dif- tators and requires their manu-
have crafted regulations defining ficult to ensure that an imitator facturers to demonstrate bioequiv-
the terms of competition from product is biologically and func- alence but not to repeat human
“imitator,” or generic, products. tionally equivalent to the original. trials demonstrating efficacy and
Many analysts have expressed Because it may not be possible safety. The law also establishes
concern that without new U.S. to create “true” generic versions minimum periods of market ex-
regulations, patent expirations of biopharmaceuticals, the term clusivity for brand-name products.
may not be accompanied by the “follow-on biologic” is often used It took a number of years for
introduction of competing, lower- to refer to a new version of an the Hatch–Waxman Act to exert
cost biologic agents — or that existing biopharmaceutical that its full effect on prescription-
imitator products might be ap- uses the same mechanism of ac- drug prices. At first, many physi-
proved without sufficient proof tion and treats the same clinical cians were reluctant to view gener­
of efficacy and safety, posing indications as the original. ic drugs as fully interchangeable
threats to public health. Although The Drug Price Competition with brand-name products. Dur-

n engl j med 357;9  august 30, 2007 841

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PERSPE C T I V E regulation of follow-on biologics

Top-Selling Biopharmaceuticals Approved before 1993.*

Drug Indication Approval Date 2003 Sales

$ (millions)
Humulin (human insulin) Diabetes October 1982 1,060
Intron A (interferon alfa-2b) Cancer, infection June 1986 1,851
Humatrope (somatropin) Growth failure March 1987 371
Infanrix (diphtheria–tetanus–pertussis vaccine) Immunization against diphtheria, March 1987 551
pertussis, and tetanus
Epogen (epoetin alfa) Anemia June 1989 2,435
Engerix-B (hepatitis B vaccine) Immunization against hepatitis B August 1989 684
Botox (botulinum toxin type A) Cervical dystonia December 1989 564
Epogin (epoetin beta) Anemia April 1990 551
Procrit (epoetin alfa) Anemia December 1990 3,984
Neupogen (filgrastim) Neutropenia January 1991 1,267
Cerezyme (imiglucerase) Gaucher’s disease April 1991 739
NovoSeven (recombinant factor VII) Hemophilia April 1992 589

* The patents on these products expire after 20 years; most patents are applied for during the drug-development stage. Data
are from MedAdNews, “Top 200 World’s Best Selling Medicines” (2004;23(5):60-4).

ing the late 1980s, a brand-name 25 to 50% of the original brand- Administration (FDA) could re-
drug generally lost about 15 to name prices.4 Although intense view data establishing bioequiva-
30% of its sales volume in the price competition reduces the fi- lence and be confident that data
first 2 years after its patent ex- nancial returns for brand-name on the safety and efficacy of the
pired.2 In contrast, when Eli Lilly drugs, the patent period provides original drug would apply to ge-
lost patent protection for the anti- important protections, and the in­ neric versions as well. Biopharma-
depressant drug Prozac (fluoxe- vestment of U.S. drug companies ceuticals are frequently much
tine) in 2001, generic competi- in research and development has more complex than small-mole-
tors garnered more than 70% of grown rapidly — from $26 billion cule drugs, and their manufac-
Prozac’s market within 2 months.3 in 2000 to about $43 billion in ture often entails the use of live
Today, brand-name drugs that 2006.5 cells and complicated biologic
face generic competition rapidly It was possible to achieve the processes that are difficult to
lose market share, and prices of benefits of the Hatch–Waxman replicate. Indeed, the manufactur­
generic products generally fall to Act because the Food and Drug ing process can be a trade secret.
Thus, obtaining evidence that a
drug is similar to and will have
Key Provisions of the Hatch–Waxman Act.
the same effects as the original is
Creates an abbreviated approval process for generic pharmaceuticals more complicated for biopharma­
Requires the manufacturers of generic drugs to demonstrate bioequivalence to brand- ceuticals.
name products but allows them to rely on originators’ clinical trials to establish The European Union is ahead
safety and efficacy of the United States in dealing
Allows testing before the originators’ patents expire with these issues, although the
Creates an incentive for generic-drug manufacturers to challenge originators’ patents FDA has begun to address them
Sets forth a process for handling patent disputes in an ad hoc fashion. Any U.S.
Defines the conditions for patent extensions policy in this arena will no doubt
share some basic features with

842 n engl j med 357;9  august 30, 2007

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PERSPECTIVE regulation of follow-on biologics

the one established in Europe. on how much information about lions of dollars’ worth of bio-
This means that a multistage pro- their manufacturing processes the pharmaceuticals increases the ur-
cess will probably be developed makers of original biopharmaceu- gency of the need for a regulatory
and that the FDA will be given a ticals will be required to report. policy that promotes price com-
great deal of discretion in decid- Analysts predict that more com- petition and preserves the safety
ing how much data and testing plicated molecules will have less and efficacy standards that Amer-
are enough to establish attainment competition from follow-on prod- icans expect from prescription
of the key standards of safety ucts, which will enter the market drugs. In my opinion, the Hatch–
and efficacy — similarity and in- more slowly than traditional ge- Waxman framework is not suffi-
terchangeability — for follow-on neric pharmaceuticals. cient to cover both relatively sim-
biologics. Having such discretion­ Finally, the returns to research ple biopharmaceuticals and very
ary powers will also permit the and development for biopharma- large and complex molecules —
FDA to incorporate rapidly chang­ ceuticals are unclear. Suppose, as a new regulatory framework is
ing technology into measurement has been suggested, that regula- needed. Because of the need for
and testing procedures. tions governing the approval of complex, situation-specific judg-
The differences between follow- follow-on biologics guarantee 12 ments, the FDA should be grant-
on biologics and generic pharma- years of exclusivity for brand- ed a great deal of discretion. The
ceuticals suggest that market name biopharmaceuticals and conflicting goals of bolstering
competition may also be very that the technological and eco- price competition in biopharma-
different. Bringing a product to nomic environment dampens po- ceutical markets and preserving
market will be less certain and tential competition. These factors the incentives for innovation call
more costly for follow-on biolog- would create a favorable climate for a nuanced policy that must
ics than it is for generic drugs. for investment in research and be based on the best current
The fixed costs of establishing a development, weakening the case ­science and key features of the
manufacturing plant are higher, for special provisions. On the oth- economics of biopharmaceuti-
and the variable manufacturing er hand, it appears that the costs cal markets — not on the im-
costs will be higher as well. In and risks associated with devel- passioned claims of the interest-
addition, biopharmaceutical pro- oping biopharmaceuticals exceed ed parties.
duction facilities must be scruti- those for small-molecule drugs.
nized more closely than generic- So the net effect on expected re- Dr. Frank is a professor of health economics
drug manufacturing facilities. The turns on investment remains an at Harvard Medical School, Boston.

uncertainty and costs of devel- open question. The years of ex-

oping manufacturing capability clusivity granted to brand-name 1. IMS Health. IMS reports U.S. prescrip-
tion sales jump 8.3 percent in 2006, to $274.9
and addressing the requirements products will probably be an im- billion. (Accessed August 9, 2007, at www.
of the regulatory process may re- portant driver of these returns
duce the number of firms seek- and pose a barrier to competition 0,2777,6599_3665_80415465,00.html.)
2. Office of Technology Assessment. Phar-
ing to produce follow-on biolog- from follow-ons. It is premature maceutical R&D: costs, risks, and rewards.
ics. An open question is whether to assume that 12 years of exclu- Washington, DC: Government Printing Of-
there will be enough sellers to sivity will be needed to preserve fice, February 1993.
3. Carey S. Lilly reports 22% decline in net as
generate active price competition: innovation in the biopharmaceu- generics hurt sales of Prozac. Wall Street
economic research has generally tical arena — and putting off Journal. April 30, 2002.
shown that most of the benefits price competition is risky because 4. Reiffen D, Ward MR. Generic drug in­
dustry dynamics. Rev Econ Stat 2005;87:37-
of price competition are not ob- of pressures on public budgets 49.
tained until four or five firms en- and the expanded role of the 5. Pharmaceutical Research and Manufac-
ter a market. The expected prof- Medicare program in purchasing turers of America. Pharmaceutical indus-
try profile 2007. Washington DC: PhRMA,
itability of developing a follow-on biopharmaceuticals. 2007.
biologic will be paramount. The The prospect of the loss of Copyright © 2007 Massachusetts Medical Society.

speed of entry will also depend patent protection for tens of bil-

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Copyright © 2007 Massachusetts Medical Society. All rights reserved.