Order Code RL33901
Follow-On Biologics:
Intellectual Property and
Innovation Issues
Updated January 17, 2008
Wendy H. Schacht
Specialist in Science and Technology
Resources, Science, and Industry Division
John R. Thomas
Visiting Scholar
Resources, Science, and Industry Division

Follow-On Biologics: Intellectual Property and
Innovation Issues
Summary
Biologics, which are sometimes termed biopharmaceutials or biotechnology
drugs, have begun to play an increasingly important role in U.S. health care. Not
only are sales of biologics growing rapidly, some experts estimate that in coming
years half of all newly approved drugs will result from biotechnology.
A number of patents pertaining to certain biological products will expire in the
near future. Some congressional concern has been voiced over the possibility that
these patent expirations may not be accompanied by the introduction of competing,
lower-cost biologics in the marketplace. With respect to traditional pharmaceuticals,
the Drug Price Competition and Patent Term Restoration Act of 1984, a statute
commonly known as the “Hatch-Waxman Act,” is widely believed to have
encouraged the availability of generic substitutes for brand-name pharmaceuticals
upon patent expiration. The Act in part permitted the Food and Drug Administration
to expedite its marketing approval proceedings with respect to generic drugs.
Some observers believe that the Hatch-Waxman Act’s accelerated marketing
approval provisions do not comfortably apply to biologics, however. Biologics differ
significantly from traditional small-molecule pharmaceuticals in their size, structural
complexity, and method of manufacture. Competitors who wish to develop follow-
on biologics may face difficult, and even insurmountable difficulties in
demonstrating that their product is equivalent to a particular brand-name biologic.
Other commentators assert that different kinds of biologics vary considerably in their
size and structure, and believe that existing Hatch-Waxman mechanisms are
appropriately applied to many biologics.
The patent system also plays a role in regulating competition in the biologics
market. Patent protection is available for biologics in many circumstances, although
the scope of protection may be limited by legal principles that restrict the availability
of proprietary rights in naturally occurring substances.
Several bills introduced in the first session of the110th Congress, including H.R.
1038, S. 623, H.R. 1956, S. 1505, and S. 1695 (ordered to be reported, with
amendments in the nature of a substitute), would create an expedited marketing
approval pathway for follow-on biologics within the Public Health Service Act. The
bills vary in important details, such as the need for the FDA to have promulgated
regulatory guidance with respect to particular product classifications prior to
receiving follow-on applications. Certain of these bills also establish specialized
patent dispute resolution proceedings with respect to follow-on biologics. A number
also create varying periods of exclusive marketing rights for biologic products, both
in favor of brand-name firms and follow-on companies.

Contents
Expedited Marketing Approval Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Expedited Marketing Approval for Pharmaceuticals . . . . . . . . . . . . . . . . . . . 4
Application to Biologics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Proposed Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Intellectual Property Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Patent Protection for Biologics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
The Hatch-Waxman Act, Intellectual Property, and Biologics . . . . . . . . . . 13
Proposed Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Innovation Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Patents and Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Role of Patents in Pharmaceutical R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Manufacturing Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Clinical Trials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Marketing Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Additional Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
This report was funded in part by a grant from the John D. and Catherine T.
MacArthur Foundation.

Follow-On Biologics: Intellectual Property
and Innovation Issues
Longstanding congressional interest in the availability and cost of
pharmaceuticals has focused attention upon the increasingly significant class of drugs
known as “biologics.”1 Observers agree that the biologics market is rapidly
expanding by any number of measures, including the quantity of approved products,
the size of the market, and the importance of these drugs to the health of U.S.
citizens. The Food and Drug Administration (FDA) issued marketing approval on
36 biotechnology drugs in 2002; it also approved 37 in the following year, 40 in
2004, and 38 in 2005.2 Many more new biologics reportedly are in the approval
process.3 Federico Polliano, head of business development at BioGeneriX, a
biotechnology company, projects that 50% of approved pharmaceuticals in 2010 will
be the result of biotechnology.4
Dramatic growth in the number of approved drugs has been accompanied by a
similar expansion in sales. IMS Health, a consulting firm, found that in 2005, the
size of the U.S. biologics market was on the order of $52 billion. According to its
analysis, the biologics market grew at a rate of 17%, greater than any other portion
of the pharmaceutical market.5 Some experts further project that the global biologics
1 The term “biologic” has been described as “poorly defined,” and its precise parameters are
themselves subject to debate. See David M. Dudzinski, “Reflections on Historical,
Scientific, and Legal Issues Relevant to Designing Approval Pathways for Generic Versions
of Recombinant Protein-Based Therapeutics and Monoclonal Antibodies,” 60 Food and
Drug Law Journal
(2005), 143. The Public Health Service defines the term “biological
product” to mean “a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood
component or derivative, allergenic product, or analogous product, or arsphenamine or
derivative of arsphenamine (or any other trivalent organic arsenic compound), applicable
to the prevention, treatment, or cure of a disease or condition of human beings.” 42 U.S.C.
§ 262(i) (2006). Biologics are also sometimes termed “biotechnology drugs” or
“biopharmaceuticals.” Dudzinski at 143.
2 Biotechnology Industry Organization, available at [http://www.bio.org].
3 Kerry A. Dolan, “Biology Rising,” Forbes.com, May 12, 2006, available at
[http://www.forbes.com/2006/05/12/merck-pfizer-amgen-cz_kd_0512biologics_print.html].
4 “Biogenerics: A Difficult Birth?” IMS Global Insights, available at [http://www.imshealth
.com].
5 Nicole Gray, “Harbingers of Change,” Pharmaceutical Executive, May 2005, available at
[http://www.imshealth.com]; Nicole Gray, “Keeping Pace with the Evolving Pharmaceutical
Business Model,” Pharmaceutical Executive, May 2006, available at [http://www
.imshealth.com].

CRS-2
market will expand to $67 billion by 2010.6 Awareness of the increasing importance
of biopharmaceuticals has been accompanied by an appreciation that patents covering
many of these products will soon expire. Andrew Forman of WR Hambrecht
concludes, for example, that $20 billion in biotech drugs worldwide will be off patent
by 2010.7
Some commentators have expressed concerns that patent expirations may not
be accompanied by the introduction of competing, lower-cost biologics in the
marketplace.8 In the traditional pharmaceutical market, generic substitutes
commonly become available to consumers as patents on brand-name drugs expire
due to the provisions of the Drug Price Competition and Patent Term Restoration Act
of 1984, a statute commonly known as the “Hatch-Waxman Act.”9 This legislation
introduced several significant changes to both the patent law and the food and drug
law. Among them were expedited marketing approval pathways that eliminated, in
whole or in part, the need for firms to conduct expensive and time-consuming clinical
trials when they bring generic equivalents of brand-name drugs to market.10 The
Hatch-Waxman amendments were designed to facilitate the rapid introduction of
lower-cost generic drugs, while at same time promoting innovation in the
pharmaceutical industry.11
Technical factors may limit the effectiveness of the Hatch-Waxman
amendments to biologics, however. Biologics differ significantly from traditional
pharmaceuticals in their complexity and method of manufacture. Typical
pharmaceutical products consist of small molecules, on the order of dozens of atoms,
that may be readily characterized and reproduced through well-understood chemical
processes. In contrast, biologics are often made up of millions of atoms, feature a
more complex structure than traditional pharmaceuticals, and are manufactured from
living cells through biological processes.12 As a result, the technical challenges that
a competitor faces in developing a product that may be viewed as equivalent to a
particular brand-name biologic product may be considerable, and in some cases
6 Ramsey Baghdadi, “Biogenerics Are Happening: Slowly, Product-By-Product,” The RPM
Report
, January 2006, available at [http://www.theRPMreport.com].
7 Aaron Smith, “Barr’s Risky $2.5 Billion Bid for Biogenerics,” CNNMoney.com, September
15, 2006. See also Research and Markets, “The Biogenerics Market Outlook: An Analysis
of Market Dynamics, Growth Drivers and Leading Players,” Business Wire, September 12,
2005, available at [http://www.findarticles.com/p/articles/mi_mOEIN/] is_2005_Sept_12/
ai_n15382946/print.
8 See Dudzinski, supra.
9 P.L. 84-417, 98 Stat. 1585 (1984).
10 See 21 U.S.C. § 355(b)(2) (2006) (with respect to § 505(b)(2) applications); id. § 355(j)(1)
(with respect to ANDAs).
11 See John R. Thomas, Pharmaceutical Patent Law (Bureau of National Affairs, 2005).
12 See Melissa R. Leuenberger-Fisher, “The Road to Follow On Biologics: Are We There
Yet?,” 23 Biotechnology Law Report (August 2004), 389.

CRS-3
perhaps even insurmountable.13 For this reason, many experts do not describe
competing biologic products as “generics,” as is the case for a small-molecule
pharmaceuticals; the term “follow-on biologic” is commonly used instead.14
Some commentators assert that these technical challenges may also mean that
the expedited approval pathways available under the Hatch-Waxman Act do not
comfortably apply to biologics. Because the complexity of biologics is an order of
magnitude greater than that associated with pharmaceuticals, they say, an expedited
marketing approval protocol would not ensure patient safety to the degree possible
with respect to traditional drugs.15 Others observe that different kinds of biologics
vary considerably in their size and structure, and believe that existing Hatch-Waxman
mechanisms provide appropriate regulatory oversight for less complex biologics.
These observers further explain that as scientific knowledge progresses,
understanding of biologics will increase, thereby allowing expanded use of current
procedures.16 Legislation was introduced in the first session of the 110th Congress
that would amend the Public Health Service Act (PHS Act)17 to provide an expedited
marketing approval pathway for follow-on biologics.18
FDA marketing approval is not the only gatekeeper to competition in the
biologics market. The patent system also has a role to play. Although patent
protection may be available for biologics in many circumstances, these patents may
be limited by legal principles that restrict the availability of proprietary rights in
naturally occurring substances.19 Further, although key patents on many biologics are
set to expire, other products may potentially remain protected by patents for many
years to come. In recognition that the public possesses an interest in prompt
challenges to drug patents that are believed to have been improvidently granted, the
Hatch-Waxman Act introduced incentives for firms to bring such challenges along
with special procedures for resolving them in the courts.20 The legislation introduced
in the 110th Congress would account for the patent implications of follow-on
biologics somewhat differently.
13 See Dawn Willow, “The Regulation of Biologic Medicine: Innovators’ Rights and Access
to Healthcare,” 6 Chicago-Kent Journal of Intellectual Property (2006), 32.
14 Id.
15 See Dudzinski, supra (noting such concerns).
16 See Narinder S. Banait, Follow-on Biological Products — Legal Issues, 2005, available
at [http://www.fenwick.com/docstore/Publications/IP/follow-on.pdf].
17 P.L. 78-410, 58 Stat. 682 (1944).
18 See H.R. 1038 and S. 623 (“Access to Life-Saving Medicine Act”); H.R. 1956 (“Patient
Protection and Innovative Biologic Medicines Act of 2007”); S. 1505 (“Affordable
Biologics for Consumers Act”) and S. 1695 (“Biologics Price Competition and Innovation
Act of 2007”).
19 See, e.g, J.E.M. Ag Supply v. Pioneer Hi-Bred Int’l, Inc., 534 U.S. 124, 130 (2001)
(explaining patent law principle that “products of nature” are not eligible for patenting, but
that patents may be available for “human-made inventions” resulting from the use of
biotechnology).
20 See Thomas, supra note 11.

CRS-4
This report reviews doctrinal and policy issues pertaining to follow-on biologics.
The report first introduces the application of federal food and drug legislation to
follow-on biologics. It next turns to the patent implications of marketing follow-on
biologics. Following this review of substantive law, the remainder of the report
introduces innovation policy issues pertaining to follow-on biologics.
Expedited Marketing Approval Issues
Efforts to speed approval of follow-on biologics have been based upon the
Hatch-Waxman Act.21 Enacted in 1984, that statute amended the Federal Food,
Drug, and Cosmetic Act (FDC Act) in part by introducing two regulatory pathways
allowing for the expedited marketing approval of generic pharmaceuticals. Many
policy and industry experts agree that the Hatch-Waxman Act has significantly
effected the availability of generic substitutes for brand name drugs. Generics are
often rapidly available after patent expiration, commonly at lower prices than the
brand-name original. Concurrently, given the increasing investment in research and
development (R&D) and the gains in research intensity of the pharmaceutical
industry, it appears that the 1984 Act has not deterred the search for, and the
development of, new drugs.22
At issue is whether the existing Hatch-Waxman Act protocols, or a similar
construct created through new legislation, could be effectively implemented for
follow-on biologics. The difficulty characterizing biologics, along with the
importance of manufacturing techniques to the final product, have created debate
around the applicability of expedited marketing approval mechanisms for these
products. This report next describes issues pertaining to the accelerated marketing
approval of follow-on biologics.
Expedited Marketing Approval for Pharmaceuticals
The FDC Act has, since 1962, prohibited the marketing of a “new drug” unless
that drug meets certain safety and efficacy standards. Sponsors of new drugs must
submit, among other documents, a New Drug Application (NDA) demonstrating that
these standards have been met in order to obtain marketing approval. A typical NDA
is a complex, lengthy document that presents clinical data; chemistry, manufacturing
and controls; nonclinical pharmacology and toxicology; safety update reports; and
other salient information.23 Brand-name drug companies commonly devote
considerable resources, over many years, to complete the studies necessary to submit
a NDA.
Prior to the introduction of the Hatch-Waxman Act, the federal food and drug
law contained no separate provisions addressing generic versions of drugs that had
21 P.L. 84-417, 98 Stat. 1585 (1984).
22 See Thomas, supra.
23 See Apotex Inc. v. FDA, 393 F.3d 210, 212 (D.C. Cir. 2004).

CRS-5
previously been approved.24 The result was that a would-be generic drug
manufacturer most often had to file its own NDA in order to market its drug.25 Some
generic manufacturers were forced to prove independently that the drugs were safe
and effective, even though their products were chemically identical to those of
previously approved drugs. Some commentators believed that the approval of a
generic drug was a needlessly costly, duplicative, and time-consuming process prior
to the Hatch-Waxman Act.26 These observers noted that although patents on
important drugs had expired, manufacturers were not moving to introduce generic
equivalents for these products due to the level of resource expenditure required to
obtain FDA marketing approval.27
In response to this concern, the Hatch-Waxman Act created two new types of
applications for marketing approval of a pharmaceutical. One is termed an
“Abbreviated New Drug Application” (ANDA).28 An ANDA may be filed, generally
speaking, if the active ingredient, route of administration, the dosage form, and the
strength of the new drug are the same as those of the approved drug. An ANDA
allows a generic drug manufacturer to rely upon the safety and efficacy data of the
original manufacturer. The availability of an ANDA typically permits a generic
manufacturer to avoid the costs and delays associated with filing a full-fledged NDA.
ANDAs also allow a generic manufacturer, in many cases, to place its FDA-approved
bioequivalent drug on the market as soon as any relevant patents expire.29
The Hatch-Waxman Act also authorized a so-called “§ 505(b)(2) application.”
A § 505(b)(2) application is one for which one or more of the investigations relied
upon by the generic applicant for approval “were not conducted by or for the
applicant and for which the applicant has not obtained a right of reference or use
from the person by or for whom the investigations were conducted....”30 A
24 See Alfred B. Engelberg, “Special Patent Provisions for Pharmaceuticals: Have They
Outlived Their Usefulness?” 39 IDEA: J. L. & TECH. 389, 396 (1999).
25 See James J. Wheaton, “Generic Competition and Pharmaceutical Innovation: The Drug
Price Competition and Patent Term Restoration Act of 1984,” 34 CATH. UNIV. L. REV. 433,
439 (1986).
26 See, e.g., Justina A. Molzon, “The Generic Drug Approval Process,” 5 J. PHARM. & L. 275,
276 (1996) (“The Act streamlined the approval process by eliminating the need for [generic
drug] sponsors to repeat duplicative, unnecessary, expensive and ethically questionable
clinical and animal research to demonstrate the safety and efficacy of the drug product.”).
27 See Jonathon M. Lave, “Responding to Patent Litigation Settlements: Does the FTC Have
It Right Yet?” 64 U. PITT. L. REV. 201, 202 (2002) (“Hatch-Waxman has also increased the
generic drug share of prescription drug volume by almost 130% since its enactment in 1984.
Indeed, nearly 100% of the top selling drugs with expired patents have generic versions
available today versus only 35% in 1983.”).
28 21 U.S.C. § 355(j)(1) (2006).
29 See, e.g., Sarah E. Eurek, “Hatch-Waxman Reform and Accelerated Entry of Generic
Drugs: Is Faster Necessarily Better?” 2003 DUKE L. & TECH. REV. 18 (August 13, 2003).
30 21 U.S.C. § 355(b)(2) (2004). The name of this application refers to its section number
within the Hatch-Waxman Act itself. This provision has been codified at 21 U.S.C.
(continued...)

CRS-6
§ 505(b)(2) application differs from an ANDA in that it includes full reports of
investigations concerning the safety and effectiveness of the proposed product.
However, a § 505(b)(2) application is distinct from an NDA in that the § 505(b)(2)
application relies upon data that the applicant did not develop.31
According to the FDA, a § 505(b)(2) applicant can rely upon two sources of
studies “not conducted by or for the applicant and for which the applicant has not
obtained a right of reference.”32 The first source consists of safety and efficacy
analysis based upon data that the applicant did not originate itself and does not enjoy
an express permission to access. This category of information typically consists of
published scientific literature. As a result, § 505(b)(2) applications are sometimes
referred to as “paper NDAs.”
With respect to the second source of appropriate information, the FDA has
declared that a § 505(b)(2) applicant may rely upon that agency’s own finding of
safety and effectiveness for an approved drug.33 The FDA’s conclusion allows
applicants that wish to market a modification of an approved drug to file a §
505(b)(2) application rather than a full NDA. For example, suppose that an approved
drug employed an active ingredient with a particular salt formulation. A generic firm
seeks to market a generic version of the approved drug with the same active moiety,
but using a different salt formulation.34 Under these circumstances, the generic firm
may be unable to file an ANDA because its proposed active ingredient is not
identical to that of the approved product.35 Due to the FDA’s view, however, the
generic firm could file a § 505(b)(2) application that relied upon the FDA’s previous
approval of the innovator drug, along with studies supporting the change in the salt
formulation from the innovator drug.36 As may be appreciated, the availability of a
§ 505(b)(2) application likely leads to a substantial reduction in the costs of the
generic firm in this case in comparison with the resources required to file a full NDA.
The FDA interpretation of § 505(b)(2) regarding this second source of
information has been criticized. Some observers believe that under a plain reading
of the Hatch-Waxman Act, a generic applicant may rely upon an innovator’s
proprietary data only when filing an ANDA application, not a § 505(b)(2)
application. Under this view, the FDA position inappropriately expands the
30 (...continued)
§ 355(b)(2), where it may be more conveniently located.
31 U.S. Department of Health and Human Services, Food and Drug Administration, Center
for Drug Evaluation and Research (CDER), Guidance for Industry: Applications Covered
by Section 505(b)(2)
at 2-3 (October 1999) [hereinafter “Section 505(b)(2) Guidance”].
32 Id.
33 Id.
34 See Pfizer, Inc. v. Dr. Reddy’s, 359 F.3d 1361, 69 USPQ2d 2016 (Fed. Cir. 2004).
35 37 C.F.R. § 314.93(b) (2004).
36 Section 505(b)(2) Guidance at 5.

CRS-7
circumstances to which a § 505(b)(2) application applies.37 Despite this critique, the
FDA has taken the position that its “approach is intended to encourage innovation in
drug development without requiring duplicative studies to demonstrate what is
already known about a drug while protecting the patent and exclusivity rights for the
approved drug.”38
Application to Biologics
The Hatch-Waxman Act, including its expedited approval pathways, may
potentially apply to biologics. This result follows because the Hatch-Waxman Act
in part amended the FDC Act, which in turn applies to “drugs.”39 The Hatch-
Waxman Act did not amend a distinct statute, the Public Health Service Act (PHS
Act),40 which applies specifically to biological products and contains no provisions
allowing expedited marketing approval for follow-on biologics. Because the
definition of “drugs” under the FDC Act is broad, however, the FDA states that
“[b]iological products subject to the PHS Act also meet the definition of drugs under
the Federal Food, Drug, and Cosmetic Act.”41 Under this interpretation, both
expedited marketing approval pathways — the ANDA and the § 505(b)(2)
application — would potentially be available for pharmaceuticals and biologics
alike.42
Many observers believe that the possibility of employing an ANDA for a
biologic is currently more theoretical than real, however, due to differences between
this class of drugs and conventional pharmaceuticals. Two of the more significant
differences are the increased complexity of biologics vis-à-vis pharmaceuticals, as
well as the importance of the particular manufacturing process employed to produce
a biologic. Food and drug lawyers have stated:
Biologics differ significantly from traditional drugs in their size, complexity,
structure, and method of manufacture. Drug products consist of small molecules,
on the order of dozens of atoms synthesized from defined components according
to a prescribed production method in an environment of manufacturing processes
and controls. Biological products are much larger than drugs, made up of
millions of atoms, and are manufactured from living cells through an elaborate
37 See Bruce N. Kuhlik, “The Assault on Pharmaceutical Intellectual Property,” 71 U. CHI.
L. REV.
93, 103-04 (2004).
38 Section 505(b)(2) Guidance at 3.
39 The FDC Act defines the term “drug” to include “articles intended for use in the
diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals....”
21 U.S.C. § 321(g)(1)(B).
40 P.L. 78-410, 58 Stat. 682 (1944).
41 U.S. Food and Drug Administration, Center for Drug Evaluation and Research,
“Frequently Asked Questions About Therapeutic Biological Products”(available at
[http://www.fda.gov/cder/biologics/qa.htm]).
42 Further discussion of this issue may be found at Willow, supra.

CRS-8
process initiated by specifically programming a cell line to produce a certain
protein in a highly controlled, sterile manufacturing environment.43
Characteristic properties of biologics include a very high molecular weight and
high structural complexity, a heterogeneous molecular make-up, varying levels
of hard-to-remove biological impurities (bacteria, viruses and the like) and a high
degree of sensitivity to environmental conditions.44
These traits of biologics make the manufacturing process critical to the final
product. It has been argued that “[t]he production process is 90 percent of the
intellectual property related to the product.”45 In contrast to traditional drugs, which
are manufactured by chemical synthesis,46 the production of biologics is more
complex:
[M]anufacturing biologics requires the nourishment and support of living host
cells transfected with genetically engineered DNA to code for the desired
biological protein that is expressed by the host cell. A master cell bank must be
established, and host cells are cultured and fermented in large-scale bioreactors
to produce commercial quantities of the desired protein.47
Not only are the characteristics of a biologic “clearly dependent on the process used
to manufacture the product,” such information is ordinarily protected via trade
secrets.48 As a result, some observers have opined that a “manufacturer would have
great difficulty producing a follow-on protein that is identical to the innovator
product.”49
The complexity of biological products and the importance of the particular
manufacturing process used to produce them may make the showing that a follow-on
product is the “same” as a previously approved biologic difficult, if not impossible.50
Former Acting FDA Commissioner Lester Crawford has explained that “because
protein drug products are large, complex molecules, derived from biological sources,
43 Gary C. Messplay and Colleen Heisey, “Follow-On Biologics: The Evolving Regulatory
Landscape,” BioExecutive International, May 2006, 43.
44 Stephen B. Judlowe and Brian P. Murphy, Proposed Legislation for Follow-On Biologic
Pharmaceuticals in the US
, Morgan, Lewis & Backius, LLP, New York available at
[http://www.buildingipvalue.com/05_NA/135_138.htm].
45 Debra Weintraub, “Next Generation of Biopharmaceuticals,” Journal of Managed Care
Medicine
, vol. 9, no. 1, 2006, available at [http://www.namcp.com/Journals
/JMCM/Articles/Next%20Generation%20of%20Biopharmaceuticals.pdf].
46 Henry Grabowski, Iain Cocburn, and Genia Long, “The Market For Follow-On Biologics:
How Will It Evolve?,” Health Affairs, September/October 2006, 1292.
47 Judlowe & Murphy, supra note 44.
48 Bruce S. Manheim Jr., Patricia Granahan, and Kenneth J. Dow, “‘Follow-On Biologics’:
Ensuring Continued Innovation In The Biotechnology Industry,” Health Affairs,
March/April 2006, 397.
49 Id.
50 See Weintraub, supra note 45.

CRS-9
generally it has not been possible to assess relative sameness with a high degree of
confidence.”51 Some observers have gone further, opining that true “generic”
biologics cannot exist because they cannot be judged to be the “same”as the brand-
name product, a requirement that the Hatch-Waxman Act imposes with respect to an
ANDA.52
Other commentators believe that scientific capabilities currently allow
manufacturers to produce follow-on biologics that are safe and effective.53 For
example, the Generic Pharmaceutical Association (GPhA)
strongly believes FDA’s current statutory structure would permit approvals and
marketing of an array of generic biopharmaceuticals (also referred to as
‘biologics’) with relatively low to moderate complexity, and to expand [sic] that
system in the coming years to permit the approval of more complex products as
the science evolves.54
Israel Makov, president and CEO of Teva, argues that biologic products can be
adequately characterized and manufacturing processes do not necessarily affect the
final drug.55 Similarly, Patrick Vink, Global Head of Biopharmaceuticals at Sandoz,
maintains both that the science is in place to assess follow-on biologics appropriately,
and that unnecessary clinical trials should not be mandatory. Instead, he advocates
that bioequivalence testing should be required on a case-by-case basis.56
In this regard, some commentators have suggested that potential manufacturers
of follow-on biologics employ § 505(b)(2) applications in appropriate cases. The
statutory requirements for § 505(b)(2) applications do not require that the follow-on
product be the “same” as the approved product. Rather, the applicant must provide
clinical data demonstrating the follow-on product to be safe and effective, but may
rely upon data generated by the brand-name firm itself, or by third parties.57 The
applicant must substantiate the “relevance and applicability” of previous findings to
the follow-on product, however, and may need to supply clinical data to describe any
relevant distinctions between the brand-name biologic and the follow-on product.58
51 Judlowe & Murphy, supra.
52 See Christopher Webster et al., “Biologics: Can There Be Abbreviated Applications,
Generics, or Follow-On Products?,” International BioPharm (July 1, 2003) (available at
[http://www.biopharm-mag.com/biopharm/article/articleDetail.jsp?id=73785]).
53 Judlowe & Murphy, supra.
54 Generic Pharmaceutical Association, Generic Biopharmaceuticals, available at
[http://www.gphaonline.org]
55 Selena Class, “Biogenerics: Waiting for the Green Light,” IMS Global Insights, October
28, 2004 (available at [http://www.imshealth.com]).
56 Id.
57 Narinder S. Banait, “Follow-on Biological Products — Legal Issues” (2005) (available
at [http://www.fenwick.com]).
58 21 U.S.C. § 355(b)(2) (2006).

CRS-10
It should be appreciated that some observers believe that § 505(b)(2)
applications are inappropriate for biologics, however. For example, the
Biotechnology Industry Organization (BIO) has asserted that:
Approval of follow-on biotechnology products must be based on the same
rigorous standards applied by the FDA for the approval of pioneer biotechnology
products.... Currently, the science does not exist to provide an alternative to a
full complement of data, including clinical evidence, to demonstrate safety and
effectiveness for follow-on biotechnology products.... Therefore, in the current
state of scientific knowledge and technique, a clinical trial remains a
fundamental principle for evaluating the safety and effectiveness of a follow-on
biotechnology product.59
Proposed Legislation
Legislation proposed in the 110th Congress would amend the Public Health
Service Act in order to provide an expedited marketing approval pathway for
biologics that are “comparable” to previously approved brand-name products. The
Access to Life-Saving Medicine Act, introduced as H.R. 1038 and S. 623, would
grant the Secretary of Health and Human Services (HHS) certain discretion to
determine, on a case-by-case basis, what studies were necessary to establish
comparability. A comparable biologic would be required to have comparable
principal structural features with the corresponding brand-name product; the same
mechanism of action, if known; and the same route of administration, dosage form,
and strength, among other factors.60
Under these bills, an applicant for a comparable biological product would be
allowed optionally to elect to establish “interchangeability” with the brand-name
product.61 If the follow-on applicant’s product was expected to produce the same
clinical result as the brand-name product, then the follow-on product could be labeled
as such.
Two other bills, H.R. 1956, the Patient Protection and Innovative Biologic
Medicines Act of 2007, and S. 1505, the Affordable Biologics for Consumers Act,
instead call for the Secretary of Health and Human Services initially to publish a
number of individual guidance documents, each relating to a particular class of
biological products. That “product-class specific guidance” would stipulate the
particular data and information required to file a marketing approval application for
products within that category. Interested parties would then be permitted to file
applications for similar biological products within that category at a certain date,
generally not less than 12 years after approval or licensing of the reference product.
An additional bill, S. 1695, is titled the Biologics Price Competition and
Innovation Act of 2007. Under S. 1695, a follow-on biologic may be designated as
59 Biotechnology Industry Organization, Follow-on Biotechnology Products (available at
[http://www.bio.org/healthcare/followon/]).
60 H.R. 1038 at § 3; S. 623 at § 3.
61 H.R. 1038 at § 3; S. 623 at § 3.

CRS-11
either a “biosimilar” or an “interchangeable” product. In general, under S. 1695 a
follow-on product is biosimilar if (1) analytical, animal, and clinical studies show
that it is highly similar to the reference product, notwithstanding minor differences
in clinically inactive components, (2) the two products have the same mechanism of
action, (3) the condition of use in the proposed product have been previously
approved for the reference product, and (4) the route of administration, dosage form,
and strength of the two products are the same. A follow-on product is
interchangeable if (1) it can be expected to product the same clinical result as the
reference product in any given patient and (2) the risk, in terms of safety or
diminished efficacy or switching between the two products, is not greater than the use
of the reference product without such alternation.62
Intellectual Property Issues
Patent Protection for Biologics
As with pharmaceuticals, biologics may be subject to patent protection provided
certain conditions are met.63 An award of marketing approval by the FDA and the
grant of a patent by the U.S. Patent and Trademark Office (USPTO) are distinct
events that depend upon different criteria. FDA procedures determine whether the
drug is sufficiently safe and effective to be marketed. In contrast, the USPTO grants
patents on inventions that fulfill requirements established by the Patent Act of 1952,
including utility, novelty, and nonobviousness.64 Because patent proprietors may be
able to block competitors during the term of the patent,65 these intellectual property
rights also play a role in the marketplace availability of follow-on biologics.
Although a complete review of the patent system exceeds the scope of this
report, its basic contours may be concisely stated. The Patent Act allows inventors
to obtain patents on processes, machines, manufactures, and compositions of matter
that are useful, novel and nonobvious.66 An invention is judged as useful if it is
minimally operable towards some practical purpose.67 To be considered novel within
the patent law, an invention must differ from existing references that disclose the
state of the art, such as publications and other patents.68 The nonobviousness
62 For additional information, see CRS Report RL34045, FDA Regulation of Follow-On
Biologics
, by Judith A. Johnson.
63 See CRS Report RL30648, An Examination of the Issues Surrounding Biotechnology
Patenting and Its Effect on Entrepreneurial Companies
.
64 See 35 U.S.C. §§ 101, 102, 103 (2006).
65 35 U.S.C. § 271(2006).
66 35 U.S.C. §§ 101, 102, 103 (2006).
67 See Brenner v. Manson, 383 U.S. 519, 86 S.Ct. 1033, 16 L.Ed.2d 69 (1966).
68 35 U.S.C. § 102 (2006).

CRS-12
requirement is met if the invention is beyond the ordinary abilities of a skilled artisan
knowledgeable in the appropriate field.69
In order to receive a patent, an inventor must file a patent application with the
USPTO.70 Patent applications must include a specification that so completely
describes the invention that skilled artisans are enabled to practice it without undue
experimentation.71 The patent application must also contain distinct, definite claims
that set out the proprietary interest asserted by the inventor.72
Trained personnel at the USPTO, known as examiners, review all applications
to ensure that the invention described and claimed in the application fulfills the
pertinent requirements of the patent law. If the USPTO believes that the application
fulfills the statutory requirements, it will allow the application to issue as a granted
patent.73 Each patent ordinarily enjoys a term of twenty years commencing from the
date the patent application was filed.74 If the patent proprietor was unable to market
its product for a period of the patent term due to lack of approval by the FDA, the
term may be extended by a portion of the regulatory review period in some
circumstances.75
Granted patents give the patentee the right to exclude others from making,
using, selling, offering to sell, or importing into the United States the patented
invention.76 Parties who engage in those acts without the permission of the patent
proprietor during the term of the patent can be held liable for infringement. The
patentee may file a civil suit in federal court in order to enjoin infringers and obtain
monetary remedies.77 Although issued patents enjoy a presumption of validity,
accused infringers may assert that the patent is invalid or unenforceable on a number
of grounds.78
A few patent law principles have particular impact upon biologics. First, the
courts have generally concluded that novel and nonobvious products and processes
of biotechnology may be patented, notwithstanding the fact that the invention derives
from the field of biochemistry or is itself a “living invention.” In Diamond v.
69 35 U.S.C. § 103(a) (2006).
70 35 U.S.C. § 111 (2006).
71 35 U.S.C. § 112 (2006).
72 35 U.S.C. § 112 (2006).
73 35 U.S.C. § 151 (2006).
74 35 U.S.C. § 154 (2006).
75 35 U.S.C. § 156 (2006).
76 35 U.S.C. § 271(a) (2006).
77 35 U.S.C. § 281 (2006).
78 35 U.S.C. § 282 (2006).

CRS-13
Chakrabarty,79 for example, the Supreme Court held a genetically modified
bacterium was patentable. The Court explained that the inventor’s “claim is not to
a hitherto unknown natural phenomenon, but to a nonnaturally occurring manufacture
or composition of matter — a product of human ingenuity ‘having a distinctive name,
character [and] use.’”80
Biotechnology firms may at times confront the longstanding patent law principle
that a naturally occurring substance may not be patented as such.81 For example, a
scientist could not obtain a patent on a previously unknown plant that she discovered
growing in the wild. A patent may be obtained once significant artificial changes are
made to that natural substance, however. For example, a biological substance that
is discovered in nature and isolated from its source may be subject to patent
protection. Amgen’s Epogen®, a genetically engineered form of erythropoietin that
combats anemia by encouraging the production of red blood cells, provides one
example of a patented biologic.82
In addition, a patent may be available for a new process used to manufacture a
known biologic.83 Suppose, for example, that a naturally occurring biological agent
and its activity are already known to the state of the art. The contribution of the
biotechnology firm is to develop a manufacturing process that allows for widespread,
commercial use of that agent. In this scenario, the biotechnology firm may obtain a
patent on the manufacturing process, but not upon the biological agent itself. It
should be appreciated that the value of such a process patent will depend upon
whether competitors will be able to employ a distinct manufacturing process in order
to create a comparable final product. Because of the potential ability of competitors
to design around process patents, some observers believe that process patents may
be of less significance in the marketplace than patents directed towards the final
product itself.84
The Hatch-Waxman Act, Intellectual Property, and Biologics
In addition to creating expedited marketing approval pathways for generic drugs,
the Hatch-Waxman Act incorporated numerous additional provisions pertaining to
79 473 U.S. 303 (1980).
80 Id. at 309-10.
81 See Diamond v. Diehr, 450 U.S. 175, 185 (1980) (“Excluded from such patent protection
are laws of nature, natural phenomena, and abstract ideas.”).
82 U.S. Patent No. 5,955,422 (claiming in part “[a] pharmaceutical composition comprising
a therapeutically effective amount of human erythropoietin and a pharmaceutically
acceptable diluent, adjuvant or carrier, wherein said erythropoietin is purified from
mammalian cells grown in culture.”). See also Amgen, Inc. v. Hoechst Marion Roussel,
Inc., 457 F.3d 1293 (Fed. Cir. 2006).
83 See Alix Weisfeld, “How Much Intellectual Property Protection Do the Newest (and
Coolest) Biotechnologies Get Internationally?,” 6 Chicago Journal of International
Law
(2006), 833.
84 See Dennis J. Karjala, “Biotech Patents and Indigenous Peoples,” 7 Minnesota Journal
of Law, Science, and Technology
(2006), 483.

CRS-14
intellectual property.85 Among these provisions are a statutory exemption from
claims of patent infringement based on acts reasonably related to seeking FDA
approval (commonly know as the “safe harbor”); patent term extension for a portion
of the time spent seeking marketing approval; special provisions for challenging the
enforceability, validity, or infringement of approved drug patents; marketing
exclusivities for brand-name firms; and a reward for challenging patent
enforceability, validity, or infringement consisting of 180 days of generic exclusivity
to the first generic applicant to file a patent challenge against any approved drug.86
The applicability of the intellectual property provisions of the Hatch-Waxman
Act to biologics presents complex issues. Some of the provisions of the Hatch-
Waxman Act plainly apply to biologics, whether they were approved under the FDC
Act or the PHS Act. In particular, the patent term extension and “safe harbor”
provisions found in Title II of the Hatch-Waxman Act were enacted as general
amendments to the Patent Act (Title 35 of the U.S. Code). The patent term extension
statute, codified at 35 U.S.C. § 156, specifically accounts for the possibility of a
“human biological product” approved under the Public Health Service Act. The
“safe harbor” provision, found at 35 U.S.C. § 271(e)(1), has been construed to apply
to biologics as well.87
Congress framed the remaining intellectual property provisions of the Hatch-
Waxman Act, including those establishing marketing exclusivities and specialized
dispute resolution proceedings, as specific amendments to the FDC Act. These
provisions would therefore apply to biologics only to the extent they were governed
by the FDC Act. To the extent that a particular biologic is approved under the
auspices of the PHS Act, however, these provisions would be inapplicable.88
Should the FDC Act apply to a particular biologic, one of its more notable
intellectual property provisions relates to so-called marketing exclusivities. The term
“marketing exclusivity” refers to a period of time during which the FDA affords an
approved drug protection from competing applications for marketing approval.
Among the marketing exclusivities is a five-year period available for drugs that
qualify as new chemical entities. Should the drug’s sponsor submit new clinical
studies in support, that sponsor may obtain a three-year period of marketing
exclusivity that applies to the use of the product that was supported by the new
clinical study.
85 P.L. 84-417, 98 Stat. 1585 (1984).
86 A more detailed discussion of the Hatch-Waxman Act is found at CRS Report RL30756,
Patent Law and Its Application to the Pharmaceutical Industry: An Examination of the Drug
Price Competition and Patent Term Restoration Act of 1984 (“The Hatch-Waxman Act”)
,
by Wendy H. Schacht and John R. Thomas.
87 See Patent Fairness Act of 1999: Hearing on H.R. 1598 Before the House Comm. on the
Judiciary, 106th Cong. 94 (1999) (statement of Hon. Henry A. Waxman, Member, House
Comm. on Government Reform) (available at [http://commdocs.house.gov/committees
/judiciary/hju62499.000/hju62499_0f.htm]).
88 See Terry Mahn and Margo Furman, The Role of Patent and Non-Patent Exclusivity
Under the Hatch-Waxman Act
(2005), 19-20 (available at [http://www.fr.com/practice/pdf/
05-16-05%20_PatentandNon-PatentExclusivity.pdf]).

CRS-15
Proposed Legislation
Certain legislation introduced in the 110th Congress would amend the Public
Health Service Act in order to provide patent dispute resolution proceedings for
biologics. The proposed regimes would act differently than the existing Hatch-
Waxman framework. Under the two bills titled the Access to Life-Saving Medicine
Act, H.R. 1038 and S. 623, follow-on or prospective follow-on applicants are
allowed to request identification of all relevant patents from the holder of the
reference product. The brand-name firm would then be required to respond to such
a request within 60 days, and may demand payment of up to $1,000 in exchange for
this service. The reference product holder would further be required to update this
list for a period of two years.89
The follow-on applicant would be able to challenge any identified patent by
providing the basis for the challenge to the patent proprietor and holder of the
reference product.90 The patent proprietor would be required to bring a patent
infringement suit within 45 days of notice of a challenge or lose the right to certain
remedies in court. Patent holders would be unable to seek declaratory judgment with
respect to patents not subject to notice by the follow-on applicant.91
Under S. 1505, the Affordable Biologics for Consumers Act, a Federal Register
notice would announce the filing of an application for a biosimilar. The sponsor of
the reference product would be permitted to request information about the biosimilar
for purposes of determining infringement issues, identifying patents that may be
infringed by the biosimilar, and indicating whether its patents are available for
licensing. The biosimilar applicant is required to provide a written explanation to the
patent owner of why the identified patents are invalid or would not be infringed by
the proposed product.92
S. 1505 renders the filing of the biosimilar applicant’s written explanation to be
an act of patent infringement that the sponsor of the reference product may pursue in
federal court.93 That bill further stipulates that a patent designated to be available for
licensing by the sponsor of the reference product may not be the subject of a
declaratory judgment action prior to the approval of the application for a biosimilar.94
89 H.R. 1038 and S. 623 at § 3(a).
90 Id.
91 Id.
92 S. 1505 at § 2(a).
93 Id. at § 2(c).
94 A declaratory judgment action is provided by a “federal or state law permitting parties to
bring an action to determine their legal rights and positions regarding a controversy not yet
ripe for adjudication . . . .” Black’s Law Dictionary (8th ed. 2004). In the context of patents,
an action for declaratory judgment potentially would allow a biosimilar applicant to “clear
the air by suing for a judgment that would settle the conflict of interests” with the owner of
(continued...)

CRS-16
Otherwise the biosimilar applicant is barred from commencing a declaratory
judgment action at a time later than 18 months of the application’s filing date, or at
a time later than 60 days of its explanation of its patent position to the reference
product sponsor provided that explanation took place within 18 months of the
application’s filing date.
The most recent legislation introduced, S. 1695, also included specialized patent
dispute resolution procedures. Under S. 1695, the follow-on applicant must provide
attorneys for the owner of the reference product with confidential information
relevant to a patent infringement determination. The parties would then exchange
lists of patents each party believes to be relevant to the proposed follow-on product.
Should the parties be unable to resolve any differences through negotiation, the
matter may proceed to litigation before the federal courts.
In addition to patent dispute resolution proceedings, several of the bills provide
for marketing exclusivities that would be awarded to brand-name firms. These
marketing exclusivities would prevent the FDA from approving a follow-on version
of the brand-name firm’s product until a certain period of time had elapsed. Under
S. 1695, a brand-name product would receive 12 years of exclusive marketing rights,
at which time the FDA would be permitted to approve a follow-on biologic. H.R.
1956 also calls for 12 years of marketing exclusivity, although this period may be
extended to 15 years if the reference product obtains further marketing approval for
a new indication and “provides a significant clinical benefit in comparison with
existing therapies.” The proposal of S. 1505 is similar to that of H.R. 1956, although
S. 1505 calls for a period of 16 (rather than 15) years in the event of approval of new
indication with a significant clinical benefit.
Several of the bills also propose the creation of a marketing exclusivity that
would be awarded to the sponsor of a particular follow-on biologic that was the first
to obtain FDA marketing approval. Under S. 1695, following the award of marketing
approval to the first interchangeable product, the FDA is prevented from approving
additional interchangeable products for the shortest of (1) one year after it is
marketed, (2) 18 months after a litigation outcome favorable to the first approved
interchangeable product applicant, (3) 18 months after marketing approval if the first
approved interchangeable product applicant is not sued for patent infringement, or
(4) 42 months after marketing approval if the first approved interchangeable product
applicant has been sued and the litigation is ongoing. In contrast, H.R. 1038 and S.
623 would allow the first interchangeable biological product to enjoy a marketing
exclusivity period equal to the shortest of (1) 180 days after it is marketed, (2) one
year after a litigation outcome favorable to the first approved interchangeable product
applicant, (3) one year after marketing approval if the first approved interchangeable
product applicant is not sued for patent infringement, or (4) 36 months after
marketing approval if the first approved interchangeable product applicant has been
sued and the litigation is ongoing.
94 (...continued)
the reference product. Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 735
(Fed. Cir. 1988).

CRS-17
Innovation Issues
Patents have been particularly significant to the pharmaceutical industry.
Creation of an expedited approval process for generic versions of traditional chemical
drugs that have come off patent has been deemed very successful in bringing lower-
cost versions of innovator products to the marketplace. However, while many
biopharmaceuticals are now poised to lose, or recently have lost, patent protection,
additional considerations not associated with typical chemical drugs may be brought
into play in determining the success of efforts to bring similar, less expensive
biotechnologies to the marketplace. Questions for policymakers remain as to
whether or not an expedited approval process for biopharmaceuticals will result in
a competitive market for these products similar to that created by the Hatch-Waxman
Act for chemical drugs. The high costs associated with manufacturing biologics, the
scale of additional clinical trials required for FDA marketing approval, and other
marketing considerations may affect the availability of lower-cost versions of these
products. The section below discusses the role of patents in innovation and the
particular situation in the pharmaceutical industry. It then explores some of the
unique issues associated with the manufacture and marketing of follow-on biologics
to provide a context within which to assess various legislative options.
Patents and Innovation
Patent ownership is perceived to be an incentive to innovation, the basis for the
technological advancement that contributes to economic growth. Article I, Section
8, Clause 8 of the U.S. Constitution states: “The Congress Shall Have Power... To
promote the Progress of Science and useful Arts, by securing for limited Times to
Authors and Inventors the exclusive Right to their respective Writings and
Discoveries....” Although not without question, patents are widely thought to
encourage innovation by simultaneously protecting the inventor and fostering
competition. They provide the inventor with a right to exclude others, temporarily,
from use of the invention without compensation. Patents generally give the owner
an exclusive right for 20 years (from date of filing) to further develop the idea,
commercialize a product or process, and potentially realize a return on the initial
investment. Concurrently, the process of obtaining a patent places the concept in the
public arena. As a disclosure system, the patent can, and often does, stimulate other
firms or individuals to invent “around” existing patents to provide for parallel
technical developments or meet similar market needs.
The grant of a patent does not necessarily provide the owner with an affirmative
right to market the patented invention. Pharmaceutical products are also subject to
marketing approval by the Food and Drug Administration. Federal laws typically
require that pharmaceutical manufacturers demonstrate that their products are safe
and effective in order to bring these drugs to the marketplace. Issuance of a patent
by the U.S. Patent and Trademark Office and FDA marketing consent are distinct
events that depend upon different criteria.

CRS-18
The patent system has dual policy goals — providing incentives for inventors
to invent and encouraging inventors to disclose technical information.95 Disclosure
requirements are factors in achieving a balance between current and future innovation
through the patent process, as are limitations on scope, novelty mandates, and
nonobviousness considerations.96 Many observers believe that patents give rise to
an environment of competitiveness with multiple sources of innovation, which is
viewed by some experts as the basis for technological progress. This may be
important because, as Professors Robert Merges and Richard Nelson found in their
studies, in a situation where only “a few organizations controlled the development
of a technology, technical advance appeared sluggish.”97
Not everyone agrees that the patent system is a particularly effective means to
stimulate innovation. Critics argue that patents provide a monopoly that induces
additional social costs. Some observers believe that the patent system encourages
industry concentration and presents a barrier to entry in some markets.98 Others
believe that the patent system too frequently attracts speculators who prefer to
acquire and enforce patents rather than engage in socially productive activity.99 Still
other commentators suggest that the patent system often converts pioneering
inventors into technological suppressors, who use their patents to block subsequent
improvements and thereby impede technological progress.100
Role of Patents in Pharmaceutical R&D
The utility of patents to companies varies among industrial sectors. Patents are
perceived by pharmaceutical companies as critical to the drug industry. That may
reflect the nature of R&D performed in this sector, where the resulting patents are
more detailed in their claims and therefore easier to defend.101 In contrast, one study
found that in the aircraft and semiconductor industries patents are not the most
successful mechanism for capturing the benefits of investments. Instead, lead time
95 Robert P. Merges, “Commercial Success and Patent Standards: Economic Perspectives
on Innovation,” California Law Review, July 1988, 876.
96 Keneth W. Dam, “The Economic Underpinnings of Patent Law,” Journal of Legal
Studies
, January 1994, 266-267. Scope is determined by the breath of the claims made in
a patent. Claims are the technical descriptions associated with the invention. In order for
an idea to receive a patent, the law requires that it be “new, useful [novel], and nonobvious
to a person of ordinary skill in the art to which the invention pertains.”
97 Robert P. Merges and Richard R. Nelson, “On the Complex Economics of Patent Scope,”
Columbia Law Review, May 1990, 908.
98 See John R. Thomas, “Collusion and Collective Action in the Patent System: A Proposal
for Patent Bounties,” University of Illinois Law Review, 2001, 305.
99 Id.
100 On the Complex Economics of Patent Scope, 839.
101 Id., 255 and 257. See also: Edwin Mansfield, “Intellectual Property Rights,
Technological Change, and Economic Growth,” in Intellectual Property Rights and Capital
Formation in the Next Decade
, eds. Charles E. Walker and Mark A. Bloomfield (New York:
University Press of American, 1988), 12 and 13.

CRS-19
and the strength of the learning curve were determined to be more important.102
Research undertaken by Professor Wesley Cohen and his colleagues demonstrated
that patents were considered the most effective method to protect inventions in the
drug industry when biotechnology is included.103
The high cost of drug development and the concomitant uncertainty associated
with clinical trials necessary for marketing approval lends significance to patents in
the pharmaceutical arena. Studies by Joseph DiMasi of Tufts University and others
published in 2003 estimated that the capitalized cost of bringing a new drug (defined
as a “new molecular entity” rather than a new formulation of an existing
pharmaceutical product) to the point of marketing approval was $802 million (2000
dollars).104 Additional research done by Federal Trade Commission analysts found
the costs to be even higher; between $839 million and $868 million (2000 dollars).105
At the same time, the total capitalized costs appear to be growing at an annual rate
of 7.4% above general price inflation.106
A large portion of new drug costs (in terms of money and time) is associated
with the size and breath of clinical trials necessary to obtain FDA marketing
approval. According to a study supported by the Federal Reserve of Boston, only
10% of potential drug candidates reach the human trial phase and only a small
portion of these actually reach the market.107 In research presented at a conference
sponsored by the Federal Reserve Bank of Dallas, Duke University’s Henry
Grabowski found that only 1% of drug compounds reach the human trial stage and
22% of those entering clinical trials receive FDA approval.108 Professor Iain
Cockburn notes that “as drug discovery became more science-intensive, ... it became
102 Richard C. Levin, Alvin K. Klevorick, Richard R. Nelson, and Sidney G. Winter.
“Appropriating the Returns for Industrial Research and Development,” Brookings Papers
on Economic Activity
, 1987, in The Economics of Technical Change, eds. Edwin Mansfield
and Elizabeth Mansfield (Vermont, Edward Elgar Publishing Co., 1993), 253.
103 Wesley M. Cohen, Richard R. Nelson, and John P. Walsh, Protecting Their Intellectual
Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not)
,
NBER Working Paper 7552, Cambridge, National Bureau of Economic Research, February
2000, available at [http://www.nber.org/papers/w7552].
104 Joseph A. DiMasi, Ronald W. Hansen, and Henry G. Grabowski. “The Price of
Innovation: New Estimates of Drug Development Costs,” 22 Journal of Health Economics,
2003. Capitalized cost includes the “time cost” associated with an investment and the cost
of testing drug products that fail.
105 Christopher P. Adams and Van V. Brantner, Estimating the Costs of New Drug
Development: Is it Really $802m?
, Federal Trade Commission, December 2004, available
at [http://media.romanvenable.net/images/drugCost.pdf].
106 The Price of Innovation: New Estimates of Drug Development Costs, 180.
107 Carrie Conway, “The Pros and Cons of Pharmaceutical Patents,” Regional Review,
Federal Reserve Bank of Boston, March, 2003, available at [http://www.findarticles.com].
108 Henry G. Grabowski, “Patents, Innovation, and Access to New Pharmaceuticals,” Journal
of International Economic Law,
2002, 851.

CRS-20
not just more expensive but also more difficult to manage.”109 Furthermore, returns
to new drug introductions vary widely and some experts have found that the median
new drug does not bring in sufficient profits to cover the costs of bringing the product
to the marketplace.110 According to research by Professors Grabowski, John Vernon,
and DiMasi, only 34% of new drugs (new chemical entities) introduced generated
profits that equaled the industry average R&D cost.111
The degree to which industry perceives patents as effective has been
characterized as “positively correlated with the increase in duplication costs and time
associated with patents.”112 In certain industries, patents significantly raise the costs
incurred by nonpatent holders wishing to use the idea or invent around the patent —
an estimated 40% in the pharmaceutical sector, 30% for major new chemical
products, and 25% for typical chemical goods — and are thus viewed as significant.
However, in other industries, patents have much smaller impact on the costs
associated with imitation (e.g., in the 7%-15% range for electronics), and may be
considered less successful in protecting resource investments.113
The significant costs of pharmaceutical R&D, coupled with the uncertainty of
the clinical trial process, lend consequence to patents in this area because “the
disparity between the investments of innovators and those of imitators is particularly
large in pharmaceuticals — almost as large as when software pirates simply copy the
diskettes of an innovator.”114 While the capitalized cost of developing a new drug to
the point of market approval is estimated at over $800 million, it takes only between
$1 million and $2 million to obtain approval for a generic version of the chemically
synthesized pharmaceutical.115 This difference is a result of the costs associated with
109 Iain Cockburn, “The Changing Structure of the Pharmaceutical Industry,” Health Affairs,
January/February 2004, 15.
110 Henry G. Grabowski, “Patents and New Product Development in the Pharmaceutical and
Biotechnology Industries,” Science and Cents: Exploring the Economics of Biotechnology,
Proceedings of a 2002 Conference, Federal Reserve Bank of Dallas, 95-96 available at
[http://www.dallasfed.org/research/pubs/science/grabowski.pdf]; and Henry Grabowski,
John Vernon, and Joseph A. DiMasi, “Returns on Research and Development for 1990s
New Drug Introductions,” 20 Pharmacoeconomics, 2002.
111 Henry Grabowski, John Vernon, and Joseph A. DiMasi, “Returns on Research and
Development for 1990s New Drug Introductions,” 20 Pharmacoeconomics, 2002, 23.
112 Appropriating the Returns for Industrial Research and Development, 269.
113 Edwin Mansfield, Mark Schwartz, and Samuel Wagner. “Imitation Costs and Patents:
An Empirical Study,” The Economic Journal, December 1981, in The Economics of
Technical Change
, 270. See also: Appropriating the Returns for Industrial Research and
Development
.
114 Federic M. Scherer, “The Economics of Human Gene Patents,” 77 Academic Medicine,
December 2002, 1352.
115 Patents, Innovation, and Access to New Pharmaceuticals, 852.

CRS-21
clinical trials needed to demonstrate the safety and efficacy of a new drug, data that
could be utilized by generic companies if not protected by a patent.116
Manufacturing Considerations
As discussed above, biotechnology drugs are characterized by their
manufacturing process such that:
The manufacturing process for each biologic defines, to a significant extent, the
product because biologics are based on living cells or organisms whose
metabolisms are inherently variable. Moreover, apparently small differences
between manufacturing processes can cause significant differences in the clinical
properties of the resulting products.117
This insures that the manufacture of biologics will tend to be significantly more
expensive than traditional chemically synthesized drugs.118 The FDA is required to
inspect the manufacturing facilities and processes involved in the production of
biologics: “Unlike small-molecule manufacturing, biomanufacturers get approval for
both the drug and the process used to make it, and that approval can take years.”119
Therefore, these facilities must be built and operational prior to the FDA approval
process. According to FDA guidelines, “Issuance of a biologics license is a
determination that the product, the manufacturing process, and the manufacturing
facilities
[emphasis added] meet applicable requirements to ensure the continued
safety, purity and potency of the product.”120
It has been estimated that each large U.S.-based biologic “manufacturing facility
costs between $200 and $400 million to build, and takes four years before gaining
approval by the US Food and Drug Administration.”121 In addition, the cost of
materials to manufacture biologics may be 20 to 100 times more than chemical
drugs.122 The production process for biologics typically takes longer than traditional
drugs and may take eight to nine months.123
116 The Economics of Human Gene Patents, 1352.
117 Biologics: Can There Be Abbreviated Applications, Generics, or Follow-On Products?
118 The Market For Follow-On Biologics: How Will It Evolve?, 1293; and The Long and
Winding Road to Biologic Follow-ons
, 24.
119 Alison McCook, “Manufacturing on a Grand Scale,” The Scientist, February 14, 2005,
available at [http://www.thescientist.com].
120 U.S. Food and Drug Administration, Frequently Asked Questions About Therapeutic
Biological Products
, July 26, 2006, available at [http://www.fda.gov/cder/biologics/qa.htm].
121 Manufacturing on a Grand Scale.
122 The Market For Follow-On Biologics: How Will It Evolve?, 1293.
123 The Long and Winding Road to Biologic Follow-ons, 24.

CRS-22
Altering the manufacturing process in any way tends to require that validation
be repeated.124 One commentator stated: “It’s hard to predict how process variations
will change a product’s safety or effectiveness.”125 This is a result of the incidence
of impurities arising from changes in the method of production and the increased
opportunity of adverse immune reactions.126 It is difficult to find and identify
impurities in biologics as, to date, simple tests do not exist. Thus, there are often
additional costs associated with preventing impurities from entering into the
production process.127 Some experts argue that there is also a need for additional
clinical (human) trials to insure that any changes to the production process do not
result in impurities that are harmful.128 However, generic manufacturers assert that
they can maintain high standards in the manufacturing process to insure similar
products that are safe and effective.129
Clinical Trials
The scale and extent of clinical trials necessary to approve follow-on biologics
is expected to factor into whether or not this industry will provide the cost savings
needed to be viable.130 The varied characteristics of individual biologic products may
make it likely that regulatory and developmental requirements for follow-on products
will need to reflect each individual situation.131 Innovator and generic manufacturers
appear to agree that “Unlike small-molecule copycats, for biogenerics, the nature and
extent of the data needed will also depend very much on the product involved:
regulatory guidelines must be defined product by product.”132
Generic biotechnology manufacturers assert that extensive new clinical trials
would not be necessary in an expedited approval process but should be considered
on a case-by-case basis, as discussed previously. Innovator companies dispute this.
The nature of biologics has resulted in longer mean clinical development time for
124 Manufacturing on a Grand Scale.
125 William Alpert, “Biotech’s Next Challenge,” SmartMoney.com, May 22, 2006, available
at [http://www.smartmoney.com/barrons/index.cfm?story=20060522].
126 Joshua W. Devine, Richard R. Cline, and Joel F. Farley, “Follow-on Biologics:
Competition in the Biopharmaceutical Marketplace,” Journal of the American Pharmacists
Association
, March/April 2006, 194.
127 Gurdeep Singh Shah, “The Current Market for Generic Biologics,” International
B i o p h a r m a c e u t i c a l A s s o c i a t i o n , J u n e 2 0 0 6 , a v a i l a b l e a t
[http://www.ibpassociation.org/IBPA_articles/jun2006issue/The_Current_Market_for_G
eneric_Biologics.htm].
128 Biologics: Can There Be Abbreviated Applications, Generics, or Follow-On Products?
129 Proposed Legislation for Follow-On Biologic Pharmaceuticals in the US.
130 “Delay in U.S. Regulatory Approval Significantly Lowers Forecast for BioGenerics
Market to $2.3 Billion,” Business Wire, November 22, 2005.
131 John Ansell, “Biogenerics Part I: Set to Make Real Inroads or Not?,” PharmaWeek,
January 26, 2006, available at [http://www.pharmaweek.com?Exclusive_Content/1_26.asp].
132 Id.

CRS-23
these products when compared with traditional drugs.133 If additional clinical trials
are necessary to demonstrate “sameness,” effectiveness, and safety, estimates are that
it may take twice the time to develop a follow-on biopharmaceutical than a chemical
generic with a cost that some expect to be 8-100 times higher than that associated
with a traditional generic product.134 Phase III trials are the most expensive of the
required trials and any additional requirements for follow-on biologics likely would
increase the cost to the public.135
Marketing Concerns
Several commentators have suggested that marketing costs associated with
follow-on biologics will be higher than with traditional generics because of the need
to convince doctors that these products generate similar results.136 If the follow-on
biopharmaceutical cannot be termed equivalent to the brand name drug, doctors and
pharmacists may not be able to readily substitute:
Marketing and patient support are more important for biosimilars, favouring
companies with significant financial resources and who have had experience in
marketing branded products. The generics market has historically used prices to
secure market share, so it is important for biosimilar developers to understand
and act on these factors. Early-stage success in the biosimilars market, however,
is more dependent on the speed to market and successful marketing strategies.137
The greater the number of generic alternatives, the less the cost. However,
biologics may not generate multiple follow-on products for the same brand name
biopharmaceutical because of the higher costs associated with bringing these drugs
to the marketplace. Price differentials associated with follow-on products may not
be as great as with other generics because of the large initial costs related to
establishing manufacturing facilities and performing any additional clinical studies
necessary for FDA approval. Therefore, the makers of follow-on products would be
expected to charge higher prices and generate more profits than the typical generic
firm.138 In addition, “Financial and scientific barriers might prevent the cutthroat
price wars fought in the traditional generic market.”139 A study by Kalorama
Information (The Market for Generic Biologics: Issues, Trends, and Market
133 The Market For Follow-On Biologics: How Will It Evolve?, 1293.
134 IMS Health, “Biogenerics: A Difficult Birth?,” May 18, 2004 available at
[http://open.imshealth.com/IMSinclude/i_article-20040518a.asp].
135 Ernst & Young, “Coming of Age,” Beyond Boarders, 2005, available at
[http://www.ey.com/beyondboarders].
136 The Long and Winding Road to Biologic Follow-ons, 24.
137 Mark J. Belsey, Laura M. Harris, Romita R. Das, and Joanna Chertkow, “Biosimilars:
Initial Excitement Gives Way to Reality,” Nature Reviews Drug Discovery, July 2006,
available at [http://www.nature.com/nrd/journal/v5/n7/full/nrd2093.html].
138 William Alpert, “Biotech’s Next Challenge,” SmartMoney.com, May 22, 2006, available
at [http://smartmoney.com/print/index.cfm?printcontent=/barrons/index.cfmstory
=20060522].
139 Id.

CRS-24
Potential, June 1, 2005) estimated that follow-on products will sell for only 10-20%
less than the brand name biologic, not the 40-80% reduction in price generally seen
with chemical drug generics.140
Additional Observations
If alternative mechanisms for accelerated approval of follow-on biologics are
legislated, many experts argue that the cost savings will not be as substantial as those
generated by typical generic drugs. High manufacturing costs, the need for additional
safety and efficacy trials to test these products, and augmented marketing efforts
directed at doctors and patients to encourage the use of similar, but not identical
drugs, are expected to add to the prices associated with the follow-on product. The
differences between biologics and other drugs
in turn lead to important differences in the economics of discovery, development,
manufacturing, and distribution for drugs and biologics. Consequently, this
could lead to different economic outcomes in terms of average prices, number of
competitors, returns on spending for research and development (R&D), and other
market measures.141
Some commentators are concerned that an expedited generic approval process
similar to that established in the Hatch-Waxman Act may raise issues associated with
the affect of patent challenges on biotechnology companies, many of which do not
make a profit. How might this impact upon innovation in this sector? It has been
argued that “[n]inety percent of biotech companies are surviving on venture capital,
do not yet have a single product on the market, and are working hard to move
products through preclinical discovery and chemistry to clinical investigation and
then through FDA approval.”142 Often, a firm’s intellectual property is its primary
asset, particularly through the drug development stage, and typically is utilized to
raise funds for additional R&D. Thus, several experts maintain that defending
patents may divert support from on-going innovation, especially in small companies
that make up a significant portion of the biotechnology sector.
Other experts argue that “[o]pening up biotech drugs to the prospect of generic
competition after [emphasis added] patents expire may even spark innovation —
forcing biotech companies to come up with improved versions of existing drugs that
perhaps require less-frequent dosing, have fewer side effects or hang around the body
longer, making them more effective.”143 However, the ability of brand name
companies to bring out improved versions of their initial biologic may dampen
140 Susan J. Ainsworth, “Biopharmaceuticals,” Chemical and Engineering News, June 6,
2005, 21-29.
141 The Market For Follow-On Biologics: How Will It Evolve?, 1292.
142 See Weintraub, supra.
1 4 3 Scott Gottlieb, Biologics Warfare, May 6, 2005, available at
[http://www.aei.org/publication22467].

CRS-25
development of follow-on products.144 Because biotechnology is advancing so
quickly, improvements in existing products may dissuade generic firms from making
follow-on products that require large investments in manufacturing plants and
clinical trials.145 Patients may just switch to the next generation brand name drug.
A question remains whether or not multiple companies will invest the time and
money necessary to develop follow-on biologics:
The scope of the requirements means that, in organizational terms, the
development of biogenerics demands a culture and mentality closer to that of
proprietary pharmaceutical developers than to that of conventional generics
firms.... If regulatory demands for biogenerics prove exacting, then [established
pharmaceutical] companies are probably better off developing entirely novel
biotech products instead. The regulatory requirements for these products are
usually much clearer, and in most cases, companies will stand to make far better
commercial returns by taking this road.146
On the other hand,
One reason generics companies are dropping out of the race is the sheer scope
of demands these projects require.... Generic companies also tend to be much less
tolerant of delays and setbacks.... Given these circumstances, most generics
companies will have a hard time coming to grips with the demands of
biogenerics.147
If fewer companies chose to make follow-on products, there would be less
competition in the marketplace resulting in reduced cost savings. This raises the
issue of whether there are other, or additional mechanisms to encourage firms to
produce lower cost follow-on biologics.
In accessing any potential legislative activity in this area, it might be important
to consider how to facilitate follow-on products after patent expiration while
continuing to encourage innovation in the brand name biopharmaceutical sector. The
Hatch-Waxman Act attempted to build just such a balance between the introduction
of widely available generic drugs with adequate incentives for investment in the
development of new pharmaceuticals. Many policy and industry experts agree that
the Hatch-Waxman Act has had a significant effect on the availability of generic
substitutes for brand name drugs while investment in the development of new
pharmaceuticals has continued. At issue is whether or not it is desirable to pursue,
and possible to achieve, a similar balance of interests in the biopharmaceutical
industry.
144 Biopharmaceuticals.
145 Id.
146 Biogenerics Part I: Set to Make Real Inroads or Not?
147 Id.