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Follow-On Biologics: The Law and
Intellectual Property Issues
Wendy H. Schacht
Specialist in Science and Technology Policy
John R. Thomas
Visiting Scholar
October 26, 2010
Congressional Research Service
7-5700
www.crs.gov
R41483
CRS Report for Congress
P
repared for Members and Committees of Congress
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Follow-On Biologics: The Law and Intellectual Property Issues
Summary
The term “biologics” refers to a category of medical preparations derived from a living organism.
These medicines have added notable therapeutic options for many diseases and impacted fields
such as oncology and rheumatology. The biologics industry invests extensively in R&D and
contributes to a rapidly expanding market for these treatments. Biologics are often costly,
however, in part due to the sophistication of the technologies and the manufacturing techniques
needed to make them.
Some commentators have also observed that, in contrast to the generic drugs available in
traditional pharmaceutical markets, few “follow-on” biologics compete with the original, brand-
name product. The lack of competition in the biologics markets is perceived to be a consequence
of the complexity of biologics in comparison with small-molecule, chemical-based
pharmaceuticals. As a result, previously existing accelerated marketing provisions for traditional
generic drugs provided under the Federal Food, Drug, and Cosmetic Act do not comfortably
apply to biologics.
The 111th Congress turned to these concerns when it enacted the Biologics Price Competition and
Innovation Act (BPCIA) of 2009. The BPCIA was incorporated into Title VII of the Patient
Protection and Affordable Care Act. The BPCIA included three significant components. First, the
BPCIA established a licensure pathway for competing versions of previously marketed biologics.
In particular, the legislation established a regulatory regime for two sorts of follow-on biologics,
termed “biosimilar” and “interchangeable” biologics. The Food and Drug Administration (FDA)
was afforded a prominent role in determining the particular standards for biosimilarity and
interchangeability for individual products.
Second, the BPCIA created FDA-administered periods of data protection and marketing
exclusivity for certain brand-name drugs and follow-on products. Brand-name biologic products
receive 4 years of marketing exclusivity and 12 years of data protection. The BPCIA also
provides for a term of marketing exclusivity for the applicant that is the first to establish that its
product is interchangeable with the brand-name product. Finally, the BPCIA created a patent
dispute resolution procedure for use by brand-name and follow-on biologic manufacturers.
A core issue concerning the BPCIA is its ability to preserve innovation while also stimulating
competition in the biologics market. Some observers believe that due to the unique nature of
biologics and their manufacture, the follow-on biologics market may not yield the same level of
savings seen with small-molecule generic drugs. In contrast with traditional generic drugs, more
clinical trials may be required, manufacturing methods may be more difficult to replicate in
distinct facilities, and follow-on firms may be exposed to higher marketing costs. Whether
industry will make extensive use of the BPCIA’s follow-on approval pathway is also not yet
certain.
Resolution of the scientific and legal issues that the BPCIA raises will likely engage the courts
and the FDA for many years to come. It may also take some time for members of the biologics
industry to develop a working familiarity and appropriate strategies within the BPCIA
framework. As a result, marketplace availability of significant numbers of follow-on biologics
may not be a short-term proposition.
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Contents
Introduction ................................................................................................................................ 1
The Biologics Industry................................................................................................................ 3
FDA Regulation of Biologics ...................................................................................................... 4
Biosimilars............................................................................................................................ 5
Interchangeable Biologics ..................................................................................................... 5
The Role of the FDA............................................................................................................. 6
Marketing Exclusivities and Data Protection ............................................................................... 6
Brand-Name Products ........................................................................................................... 6
First Interchangeable Products .............................................................................................. 7
Patent Dispute Resolution ........................................................................................................... 8
The Potential Market for Follow-On Biologics .......................................................................... 11
Clinical Trials ..................................................................................................................... 13
Manufacturing Considerations............................................................................................. 14
Sales and Marketing............................................................................................................ 16
Potential Industry Responses..................................................................................................... 17
New Biologic License Applications (BLAs) ........................................................................ 17
Collaborative Work with Big Pharma .................................................................................. 18
Biobetters ........................................................................................................................... 18
Concluding Observations .......................................................................................................... 19
Contacts
Author Contact Information ...................................................................................................... 20
Acknowledgments .................................................................................................................... 20
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Follow-On Biologics: The Law and Intellectual Property Issues
Introduction
Congressional interest in the availability of lower-cost versions of biologic drugs (biologics) led
to the 2010 enactment of the Biologics Price Competition and Innovation Act of 2009 (BPCIA),
which was incorporated as Title VII of the Patient Protection and Affordable Care Act.1 The
BPCIA included three significant components. First, the BPCIA established an expedited
licensure pathway for competing versions of previously marketed biologics. The BPCIA also
created FDA-administered periods of data protection and marketing exclusivity for certain brand-
name drugs and follow-on products. Finally, the BPCIA created a patent dispute resolution
procedure for use by brand-name and follow-on biologic manufacturers.2
The term “biologics” refers to a category of medical treatments derived from living organisms.3
Biologics more specifically consist of “a virus, therapeutic serum, toxin, antitoxin, vaccine,
blood, blood component or derivative, allergenic product, or analogous product ... applicable to
the prevention, treatment, or cure of a disease or condition of human beings.”4 Today, 20% of the
drugs on the market are biologics5 and many more new biologics reportedly are in the pipeline
and/or in the approval process.6 In 2007, “biotechs accounted for 42% of preclinical candidates
and 26% of submissions for US marketing approval….”7 Projections are that by 2014, 50% of the
top drugs will be the result of biotechnology.8
The biologics sector is highly innovative and invests extensively in research and development
(R&D) in its effort to provide products that contribute to the health and well-being of the nation.
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. In particular, these medicines have added notable therapeutic
options for many diseases and impacted fields such as oncology and rheumatology.9
Along with their benefits, biologic drugs also have contributed to the cost of health care.
Typically, biopharmaceuticals are more expensive than traditional, chemical-based drugs and
while
prescription drug spending has been a relatively small proportion of national health care
spending (10% in 2006, compared to 31% for hospitals and 21% for physician services), it
[prescription drug spending] has been one of the fastest growing components, until recently
1 P.L. 111-148, 124 Stat. 119.
2 See James N. Czaban et al., “Panacea or Poison Pill? Making Sense of the New Biosimilars Law,” 8 BNA
Pharmaceutical Law & Industry Report (May 26, 2010), 698.
3 Robert N. Sahr, “The Biologics Price Competition and Innovation Act: Innovation Must Come Before Price
Competition,” 2009 Boston College Intellectual Property & Technology Forum (July 19, 2009), 070201.
4 42 U.S.C. §262(i).
5 Ernst & Young, Beyond Borders, Global Biotechnology Report 2008, 30.
6 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.
7 Steven Silver, Industry Surveys - Biotechnology, Standard & Poors, August 13, 2009, 9-10.
8 Ibid., 10.
9 See generally Mary Ann Liebert, Inc., “Realizing the Promise of Pharmacogenomics: Opportunities and Challenges,”
26 Biotechnology Law Report (June 2007), 261.
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growing at double-digit rates compared to single-digit rates for hospital and physician
services.10
Some biologics are particularly costly. For example, Genentech Inc. reportedly charges $4,400 for
one month’s treatment with Avastin®, a cancer drug.11 The Centers for Medicare and Medicaid
Services, which administers federal benefit programs for elderly and low-income citizens,
reportedly spends approximately $2 billion each year on Epogen®, a treatment for anemia. These
high costs are commonly attributed to the risks firms undertake in developing biologics, as well
as the sophisticated biotechnologies and manufacturing techniques needed to make them.12 But
commentators have often observed that, in contrast to the generic drugs available in traditional
pharmaceutical markets, few “follow-on” biologics compete with the original, brand-name
product.13
The lack of competition in the biologics markets is perceived to be a consequence of the distinct
technical and legal aspects from the regulation of traditional, chemically-based pharmaceuticals.
Biologics differ significantly from traditional pharmaceuticals in their complexity and method of
manufacture. Typical pharmaceutical products have a chemical origin. They consist of small-
molecules, on the order of dozens of atoms, which may be readily characterized and reproduced
through well-understood chemical processes.14
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.15 As a result, the technical challenges that a competitor faces in developing a product
that may be viewed as interchangeable with a particular brand-name biologic product may be
considerable, and in some cases perhaps even insurmountable.16 For this reason, many experts do
not describe competing biologic products as “generics,” as is the case for a small-molecule
pharmaceuticals; the terms “follow-on biologic” or “biosimilar” are commonly used instead.17
The 111th Congress accounted for these distinctions when it enacted the BPCIA.
This report reviews the BPCIA within the context of intellectual property and innovation issues.
This study first provides an introduction to the biologics industry. Next, this report introduces the
regulatory and intellectual property provisions of the BPCIA. This analysis then considers the
potential market for biosimilars and possible industry responses that may arise in the wake of this
legislation. This report closes with concluding observations.
10 Kaiser Family Foundation, Prescription Drug Trends, September 2008, available at http://www.kff.org.
11 Paula Tironi, “Pharmaceutical Pricing: A Review of Proposals to Improve Access and Affordability of Prescription
Drugs,” 19 Annals of Health Law (2010), 311.
12 Pamela Jones Harbour, Commissioner, Federal Trade Commission, The Competitive Implications of Generic
Biologics, June 14, 2007, available at http://www.ftc.gov/speeches/harbour/070614genbio.pdf.
13 Ibid.
14 A. Taylor Corbitt, “The Pharmaceutical Frontier: Extending Generic Possibilities to Biologic Therapies in the
Biologics Price Competition and Innovation Act of 2007,” 18 DePaul Journal of Art, Technology & Intellectual
Property Law (Spring 2008), 365.
15 Melissa R. Leuenberger-Fisher, “The Road to Follow On Biologics: Are We There Yet?,” Biotechnology Law
Report, August 2004, 389.
16 Dawn Willow, “The Regulation of Biologic Medicine: Innovators’ Rights and Access to Healthcare,” Chicago-Kent
Journal of Intellectual Property, 2006, 32.
17 Ibid.
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The Biologics Industry
In the United States, 2008 sales of biopharmaceuticals were estimated at $57.0 billion, according
to recent data.18 The United States provides the largest market for biotech drugs; 56% of global
sales in 2007 were generated in the United States.19 During 2007, worldwide sales of biotech
products totaled $75 billion, up 12.5% over 2006; a rate of growth almost twice that of world-
wide pharmaceutical market.20 Globally, 22 biotechnology products generated sales of over $1
billion in 2007 compared with six biologics in 2002.21
The U.S. biotechnology sector is highly research intensive. In 2008, domestic R&D expenditures
for biologic products totaled $30.4 billion, up from $26.1 billion in 2007.22 One analysis found
that “over the past 25 years, average R&D intensity (R&D spending to total firms assets) for this
industry was 38 percent ... [while] over this same period average R&D intensity for all industries
was only about 3 percent.”23 In comparison, research intensity in the small-molecule
pharmaceutical industry was 25% over the same time period.24 Innovative activities have resulted
in a situation where “for several years in a row, biotech companies have secured more product
approvals than their big pharma counterparts, even though big pharma significantly outspends the
biotechnology industry on research and development.”25 One estimate is that biotechnology
products comprise 25% of the total pharmaceutical pipeline.26
The total capitalized cost of developing a new biotechnology drug (including those that fail
testing and the development time costs) is estimated at $1.2 billion, similar to small-molecule
products.27 The time it takes to develop and obtain marketing approval for a biopharmaceutical
averages 97.7 months, compared to 90.3 months for chemical drugs.28 In addition, the success
rate for FDA approval of biotechnology products is 30.2% versus 21.5% for traditional drugs.29
Biologics tend to fail most often in Phase III trials when significant funds have been expended on
the development of the product.30
18 Ernst & Young, Beyond Borders, Global Biotechnology Report 2009, 34.
19 IMS Health, IMS Health Reports Global Biotech Sales Grew 12.5 Percent in 2007, Exceeding $75 Billion, June 17,
2008, available at http://www.imshealth.com/portal/site/imshealth/menuitem.a46c6d4df3db4b3d88f611019418c22a/?
vgnextoid=bba69e392879a110VgnVCM100000ed152ca2RCRD&cpsextcurrchannel=1.
20 Ibid.
21 Ibid.
22 Beyond Borders, Global Biotechnology Report 2009, 34.
23 Joseph H. Golec and John A. Vernon, Financial Risk in the Biotechnology Industry, National Bureau of Economic
Research, November 2007, Abstract page, available at http://www.nber.org/papers/w13604.
24 Ibid, 4.
25 Ernst & Young, Beyond Borders, Global Biotechnology Report 2007, 1.
26 IMS Health Reports Global Biotech Sales Grew 12.5 Percent in 2007, Exceeding $75 Billion.
27 Joseph A. DiMasi and Henry G. Grabowski, “The Cost of Biopharmaceutical R&D: Is Biotech Different?”
Managerial and Decision Economics, 2007, 475, available at http://www.manhattan-institute.org/projectfda/
wiley_interscience_cost_of_biopharm.pdf.
28 Henry Grabowski, “Follow-on Biologics: Data Exclusivity and the Balance Between Innovation and Competition,”
Nature Reviews/Drug Discovery, June 2008, 481.
29 Tufts Center for the study of Drug Development, Average Cost to Develop a New Biotechnology Product is $1.2
Billion, November 9, 2006, available at http://csdd.tufts.edu/NewsEvents/NewsArticle.asp?newsid=69.
30 Follow-on Biologics: Data Exclusivity and the Balance Between Innovation and Competition, 481.
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“There is no question that biotechnology is now the engine of innovation for the drug
development industry,” according to experts at Ernst & Young.31 This innovation often takes place
over the lifetime of the drug. According to a Boston Consulting Group study of 58 biological
products licensed in the United States between 1986 and 2006, 47% had at least one additional
FDA-approved indication after the initial FDA approval. Of these, “One-third of the new
indications for BLAs were approved within three years of the initial indication, while another
third of the new indications were approved more than seven years after the approval of the initial
indication.32 These additional clinical indications can be significant:
• Herceptin, originally approved for metastatic breast cancer, was later approved for
adjuvant use in early stage cancer and may prove to be even more valuable there;
• Avastin was approved originally for colorectal cancer, and subsequently for lung
cancer …;
• Some of the approved therapies for rheumatoid arthritis later proved effective
against other autoimmune conditions, from Crohn’s disease to psoriasis.33
Biologics are expensive when compared to small-molecule drugs. There are several reasons for
this including the cost of manufacturing, storage and distribution considerations, and method of
administration. Spending on pharmaceuticals comprises 10%-20% of total U.S. healthcare
spending; 20% of the spending on pharmaceuticals is for biologics.34
FDA Regulation of Biologics
The FDA for the most part regulates small-molecule drugs and biologics under two different
statutes. Traditional pharmaceuticals fall under the Federal Food, Drug and Cosmetic Act
(FFDCA). The FFDCA in turn incorporates the Drug Price Competition and Patent Term
Restoration Act of 1984, which is commonly known as the Hatch-Waxman Act.35 The Hatch-
Waxman Act established an accelerated regulatory approval pathway for generic versions of
previously approved, brand-name drugs. This approval mechanism has been described as
involving “relatively simple showings that the proposed generic version uses the same active
molecule in the same strength, dosage, form, and route of administration, and the generic version
is ‘bioequivalent’ to the original product.”36
The great majority of biologics is instead regulated under section 351 of the Public Health
Service Act (PHSA), which has been codified at 42 U.S.C. §262.37 Because the FDA licenses
31 Beyond Borders, Global Biotechnology Report 2007, 1.
32 Maya Said, Charles-Andre Brouwers, Peter Tollman, Continued Development of Approved Biological Drugs, Boston
Consulting Group, White Paper, December 2007, 3, available at http://www.bcg.com/documents/file15138.pdf.
33 Henry G. Grabowski, “Data Exclusivity for Biologics: What is the Appropriate Period of Protection?” AEI Outlook,
September 8, 2009, available at http://www.aei.org/outlook/100068.
34 Phil Galewitz, “Checking In With Patricia Danzon on the Hot Topic of ‘Biologics,’” Kaiser Health News, July 15,
2009, available at http://www.kaiserhealthnews.org/Checking-In-With/Biologics.aspx.
35 98th Congress, P.L. 98-417, 98 Stat. 1585.
36 See Czaban, et al.
37 A small number of biologics have reportedly been approved as drugs under the FFDCA, including insulin, human
growth hormone, and certain protein products. See Assessing the Impact of a Safe and Equitable Biosimilar Policy in
(continued...)
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most biologics via the PHSA, rather than the FFDCA, prior to the enactment of the BPCIA no
generally applicable abbreviated statutory pathway for follow-on versions of biologics existed.38
Further, because of the increased complexity of biologics in comparison with chemically based
drugs, many experts believed that the expedited approval process available under the Hatch-
Waxman Act could not simply be incorporated into the PHSA. In particular, some follow-on
manufacturers might not be able to show that their product is the “same” as that offered by the
brand-name firm, as the Hatch-Waxman Act requires.39
Congress intended to address these concerns with the 2010 enactment of the Biologics Price
Competition and Innovation Act (BPCIA). The BPCIA is a complex statute that principally
amends section 351 of the Public Health Service Act.40 The 2010 legislation establishes a
regulatory regime for two sorts of follow-on biologics, termed “biosimilar” and “interchangeable”
biologics respectively. The FDA is afforded a prominent role in determining the particular
standards for biosimilarity and interchangeability for individual products.
Biosimilars
A follow-on biologic is biosimilar to a brand-name product if it is deemed to be “highly similar to
the reference product notwithstanding minor differences in clinically inactive components” and
“there are no clinically meaningful differences between the [biosimilar] and the reference product
in terms of safety, purity, and potency of the product.”41 In order for a follow-on biologic to
qualifiy as a biosimilar, an applicant must demonstrate to the FDA that a number of requirements
are met. The BPCIA stipulates that 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 has been previously approved for the
reference product, (4) the route of administration, dosage form, and strength of the two products
are the same, and (5) the manufacturing process provides for a safe product.42
Interchangeable Biologics
If a follow-on biologic is judged by the FDA to be interchangeable with a brand-name product,
then “the biological product may be substituted for the reference product without the intervention
of the health care provider who prescribed the reference product.”43 A follow-on biologic is
interchangeable if (1) it can be expected to produce the same clinical result as the reference
product in any given patient and (2) the risk, in terms of safety or diminished efficacy or
(...continued)
the United States, Hearing Before H. Subcommittee on Health and the H. Comm. on Energy and Commerce, 110th
Cong. (2007) (statement of Janet Woodcock, Deputy Commissioner, Chief Medical Officer, FDA).
38 Jeremiah J. Kelly, “Follow-On Biologics: Legal, Scientific, and Policy Considerations,” 13 Journal of Health Care
Law and Policy (2010), 257.
39 21 U.S.C. §355(j)(2)(A).
40 42 U.S.C. §262.
41 42 U.S.C. §262(i)(2).
42 42 U.S.C.§ 262(k)(2).
43 42 U.S.C. §262(i)(3).
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switching between the two products, is not greater than the use of the reference product without
such alternation.44
The Role of the FDA
The BPCIA provides the FDA with the authority to issue guidelines that implement the statutory
standards of biosimilarity and interchangeability. These guidelines may be general or specific in
nature, and must be issued after the public is afforded the opportunity for comment. The FDA is
specifically allowed to indicate in a guidance document that “the science and experience” does
not currently allow a product or product class to qualify as biosimilar or interchangeable.45
Marketing Exclusivities and Data Protection
The BPCIA provides for both marketing exclusivities and data protection for brand-name
products, and also provides for marketing exclusivity for the first interchangeable follow-on
biologic. In this context, the term “marketing exclusivity” refers to an FDA-administered
proprietary right that prevents others from filing an application for approval of a follow-on
product. The concept of “data protection” is more narrow. Data protection prevents competitors
from relying upon clinical data developed by the brand-name firm in support of FDA approval of
a competing version of the product. Unlike market exclusivity, data protection does not block
competitors that wish to develop their own clinical data in support of their applications of
marketing approval. Data protection is also administered by the FDA.
It should be appreciated by policymakers that marketing exclusivities, data protection, and patent
protection are separate entitlements that are administered by different federal administrative
agencies and that depend upon distinct criteria. Firms in the biologics market will often possess
patents in addition to the marketing exclusivity and data protection provided by the BPCIA.
These three proprietary rights act independently of each other.
Brand-Name Products
In particular, the BPCIA awards four years of marketing exclusivity and 12 years of data
protection for all brand-name biologic products. Under this system, no application for a follow-on
biologic—either biosimilar or interchangeable—may be filed with the FDA for four years from
the date the reference product was licensed.46 In addition, the FDA may not approve an
application for a follow-on product—either biosimilar or interchangeable—for 12 years from the
reference product’s licensure date.47
The BPCIA stipulates some circumstances where neither marketing exclusivity nor data
protection may be awarded. Supplements to the reference product application; the identification
of new indications, routes of administration, dosing, or delivery; and modifications to the
44 42 U.S.C. §262(k)(4).
45 42 U.S.C. §262(k)(8).
46 42 U.S.C. §262(k)(7)(B).
47 42 U.S.C. §262(k)(7)(A).
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structure of the biological product that do not result in a change in safety, purity, or potency are
not eligible for these proprietary interests.48
Both the 4-year marketing exclusivity and 12-year data protection periods may be extended by 6
months. If the FDA determines that information relating to the use of a biologic in a pediatric
population may produce health benefits in that population, it may make a written request for
pediatric studies. If the applicant completes the test within a timeframe established by the FDA,
the term of marketing exclusivity is extended to 4 years, 6 months, and the term of data protection
is increased to 12 years, 6 months.49 This additional term of protection is awarded whether or not
the studies prove the product may be administered to children in a safe and effective manner.
In enacting the BPCIA, Congress recognized the possibility that a biologic may qualify as a so-
called orphan drug. This status arises under an earlier statute, the Orphan Drug Act of 1982. That
legislation provided for a seven-year period of marketing exclusivity commencing from the date
the FDA allowed the orphan drug to be marketed. The orphan drug exclusivity applies to drugs
that treat a rare disease or condition (1) affecting less than 200,000 people in the United States, or
(2) affecting more than 200,000 people in the United States, but for which there is no reasonable
expectation that the sales of the drug would recover the costs.50 Orphan drug marketing
exclusivity prevents the FDA from approving another application for marketing approval for the
indication for which the drug is approved. As a result, the FDA could approve a second
application for the same drug for a different use. The FDA cannot approve the same drug made by
another manufacturer for the same use, however, unless the original sponsor approves or the
original sponsor is unable to provide sufficient quantities of the drug to the market.51
The BPCIA stipulates that if a brand-name biologic has been designated an orphan drug, the FDA
may not approve an application for a biosimilar or interchangeable product until the later of: (1)
the 7-year period of orphan drug exclusivity described in the FFDCA; or (2) the 12-year data
protection period established by this bill.52 As a result, the Orphan Drug Act’s 7-year marketing
exclusivity period runs concurrently with the BPCIA’s 12-year data protection period.
First Interchangeable Products
The BPCIA also provides for a term of marketing exclusivity for the applicant that is the first to
establish that its product is interchangeable with the brand-name product for any condition of use.
The period of marketing exclusivity is the earlier of: (1) one year after the first commercial
marketing of the first interchangeable biologic to be approved as interchangeable with that
reference product; (2) 18 months after either a final court judgment in patent infringement
litigation under the PHS Act, as amended, or the dismissal of such litigation against the first
applicant; (3) 42 months after the approval of the first interchangeable biologic if patent litigation
under the PHS Act, as amended, remains pending; or (4) 18 months after approval of the first
48 42 U.S.C. §262(k)(7)(C).
49 42 U.S.C. §262(m).
5021 U.S.C. §360bb(a)(2).
5121 U.S.C. §360cc(b).
52 BPCIA, §7002(h).
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interchangeable biologic if the applicant has not been sued for patent infringement under the PHS
Act, as amended.53
This marketing exclusivity bars the FDA from making a determination of interchangeability with
respect to a subsequent product for a period of time. The FDA is not prevented from making a
determination of biosimilarity during this timeframe.
Patent Dispute Resolution
The BPCIA establishes specific rules for the resolution of patent disputes involving follow-on
biologics.54 These rules require the brand-name firm and the follow-on applicant to engage in a
number of interactions prior to the commencement of litigation. These interactions include: (1)
the follow-on applicant must disclose its application to the brand-name firm; (2) each party must
identify pertinent patents; (3) the parties must exchange briefings on the validity and possible
infringement of those patents; (4) the parties must negotiate which patents will be subject to
litigation; and (5) a simultaneous exchange of patents designated for litigation in the event the
parties could not reach agreement. Each of the stages of this pre-litigation process is reviewed
below. It should be appreciated from the outset that third parties cannot participate in this process,
although a representative of a patent proprietor who has exclusively licensed the brand-name firm
and retained a right to assert the patent or participate in litigation concerning the patent may have
access to the follow-on application.55
Disclosure of the Follow-On Application. The BPCIA requires that the follow-on applicant,
within 20 days after the FDA publishes a notice that its application has been accepted for review,
must disclose to the brand-name firm the existence of the application. The applicant must provide
a copy of its application along with “such other information” concerning the production of the
follow-on product.56 The applicant may also provide other information that the brand-name firm
requests.57
Identification of Pertinent Patents. Within 60 days of the date of receipt of the application and
other information from the follow-on applicant, the brand-name firm must identify patents that it
deems relevant to the follow-on product. To be capable of identification, the patents must be
owned or subject to an exclusive license by the brand-name firm. This list must include patents
that the brand-name firm “believes a claim of patent infringement could reasonably be asserted
[against someone] engaged in the making, using, offering to sell, selling or importing into the
United States of the biological product.”58 The brand-name firm must also identify any patents on
the list that it would be prepared to license to the follow-on applicant.59
53 42 U.S.C. §262(k)(6).
54 See Michael P. Dougherty, “The New Follow-On-Biologics Law: A Section by Section Analysis of the Patent
Litigation Provisions in the Biologics Price Competition and Innovation Act of 2009,” 65 Food and Drug Law Journal
(2010), no. 2 at 231.
55 42 U.S.C. §262(l)(1)(B)(iii).
56 42 U.S.C. §262(l)(2)(A).
57 42 U.S.C. §262(l)(2)(B).
58 42 U.S.C. §262(l)(3)(A)(i).
59 42 U.S.C. §262(l)(3)(A)(ii).
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Statement by the Follow-On Applicant. Following the receipt of the brand-name firm’s patent
list, the follow-on applicant must state either that it will not market its product until the relevant
patents have expired, or alternatively provide its views that the patents are invalid, unenforceable,
or would not be infringed by the proposed follow-on product.60 In addition, the follow-on
applicant may, at its option, provide the brand-name firm with a list of patents it believes the
brand-name firm could assert against the reference product.61 If the follow-on applicant does so, it
must also state either that it will not market its product until the relevant patents have expired, or
alternatively provide its views that the patents are invalid, unenforceable, or would not be
infringed by the proposed follow-on product. The BPCIA allocates the follow-on applicant 60
days to provide both the mandatory and optional information.
Statement by the Brand-Name Firm. In the event that the follow-on applicant has asserted that
the patents are invalid, unenforceable, or would not be infringed by the proposed follow-on
product, the brand-name firm must provide the follow-on applicant with a response within 60
days. The response must provide “the legal and factual basis of the opinion ... that such patent
will be infringed by the commercial marketing” of the proposed follow-on product.62
Patent Resolution Negotiations. If the brand-name firm issues a statement with its detailed views
that the proposed follow-on product would infringe valid and enforceable patents, then the parties
are required to engage in good faith negotiations. The purpose of the negotiation is to identify
which previously identified patents will be the subject of a patent infringement action.63 If the
parties agree on the patents to be litigated, the brand-name firm must bring an action for patent
infringement within 30 days.64
Simultaneous Exchange of Patents. If those negotiations do not result in an agreement within 15
days, then the follow-on applicant must notify the brand-name firm of how many patents (but not
the identity of those patents) that it wishes to litigate.65 Within five days, the parties are then
required to exchange lists identifying the patents to be litigated.66 The number of patents
identified by the brand-name firm may not exceed the number provided by the follow-on
applicant. However, if the follow-applicant previously indicated that no patents should be
litigated, then the brand-name firm may identify one patent.67
Commencement of Patent Litigation. The brand-name firm may then commence patent
infringement litigation within 30 days. That litigation will involve “each patent that is included on
such lists”—in other words, all of the patents on the brand-name firm’s list and all of the patents
on the follow-on applicant’s list.68 The follow-on applicant must then notify the FDA of the
litigation. The FDA must then publish a notice of the litigation in the Federal Register.69
60 42 U.S.C. §262(l)(3)(B)(ii).
61 42 U.S.C. §262(l)(3)(B)(i).
62 42 U.S.C. §262(l)(3)(C).
63 42 U.S.C. §262(l)(4)(A).
64 42 U.S.C. §262(l)(6)(A).
65 42 U.S.C. §262(l)(5)(A).
66 42 U.S.C. §262(l)(5)(B)(i).
67 42 U.S.C. §262(l)(5)(B)(ii).
68 42 U.S.C. §262(l)(6)(B).
69 42 U.S.C. §262(l)(6)(C).
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Notice of Commercial Marketing. The BPCIA requires the follow-on applicant to provide notice
to the brand-name firm 180 days in advance of its first commercial marketing of its proposed
follow-on biologic.70 The brand-name firm is allowed to seek a preliminary injunction blocking
such marketing based upon any patents that either party had preliminarily identified, but were not
subject to the initial phase of patent litigation.71 The litigants are required to “reasonably
cooperate to expedite such further discovery as is needed” with respect to the preliminary
injunction motion.72
The BPCIA stipulates a number of other important features of this unique patent dispute
resolution system. First, the BPCIA provides for relevant patents that are issued to the brand-
name firm, or for which the brand-name firm obtains an exclusive license, after the brand-name
firm has provided its initial list of relevant patents to the follow-on applicant.73 In such
circumstances the brand-name firm must provide the follow-on applicant with a supplement that
identifies the patent within 30 days of its issuance of licensing.74 The follow-on applicant is then
afforded 30 days to provide either (1) a detailed explanation of why the applicant believes that the
patent is invalid, unenforceable, or not infringed; or (2) a statement that the applicant does not
intend to market the product commercially until the patent expires.75 Such a patent is to the
“notice of commercial marketing” provision, in that the brand-name firm may move for a
preliminary injunction following notification that the follow-on applicant intends to market its
proposed product.76
Another notable feature is the BPCIA’s stipulation of which individuals may receive the
information that the follow-on applicant provides to the brand-name firm during the patent
dispute resolution process.77 The recipients of the follow-on application and manufacturing data
are limited to one in-house counsel employed by the brand-name firm and one or more of the
brand-name firm’s outside counsel.78 Each of these individuals must abide by a number of
confidentiality requirements stipulated by the BPCIA. In particular, the application and
manufacturing data may not be disclosed to outside individuals without the permission of the
follow-on applicant.79 Further, the application and manufacturing data are to be used for the sole
and exclusive purpose of resolving the patent dispute.80
In addition, the BPCIA places some restrictions upon the ability of both the follow-on applicant
and brand-name firm to bring an action for declaratory judgment concerning the validity,
enforceability, or infringement of a patent. If the follow-on applicant does not provide its
application and manufacturing data within 20 days after being notified that the FDA has accepted
its application for filing,81 then the brand-name firm may bring a declaratory judgment action on
70 42 U.S.C. §262(l)(8)(A).
71 42 U.S.C. §262(l)(8)(B).
72 42 U.S.C. §262(l)(8)(C).
73 The brand-name firm provides this initial list under 42 U.S.C. §262(l)(3)(A)(i).
74 42 U.S.C. §262(l)(7).
75 42 U.S.C. §262(l)(3)(B).
76 42 U.S.C. §262(l)(8)(B).
77 42 U.S.C. §262(l)(1).
78 42 U.S.C. §262(l)(1)(B)(ii).
79 42 U.S.C. §262(l)(1)(C).
80 42 U.S.C. §262(l)(1)(D).
81 42 U.S.C. §262(l)(2)(A).
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any patent that claims the biologic or its use.82 If the follow-on applicant does provide its
application and manufacturing data within the 20-day timeframe,83 then neither party may bring
an action for declaratory judgment regarding any subsequently identified patent prior to the
follow-on applicant’s notice that commercial marketing may begin in 180 days.84 Further, if the
follow-on applicant initially provides its application and manufacturing data, but subsequently
fails to provide patent-related data as stipulated by the BPCIA, the reference product sponsor may
seek a declaratory judgment based upon the patents it identified.85
Finally, the infringement remedies that brand-name firms may obtain are limited if they fail to
identify a patent or to commence patent litigation within the time limits established by the
BPCIA. If a brand-name firm does not bring a patent infringement action in the courts within the
statutory 30-day time period,86 then a court may only award a reasonable royalty as relief for
infringement of a patent named in that suit.87 If the brand-name firm does not identify in a timely
manner a patent in response to receipt of the follow-on application and manufacturing data, then
it may not assert the patent at all.88 A later-acquired patent may also not be asserted if it is not
identified within 30 days of its acquisition or exclusive licensing.
The Potential Market for Follow-On Biologics
A core issue concerning the BPCIA is its ability to preserve innovation while also stimulating
competition in the biologics market. Many experts agree that the Hatch-Waxman Act has had a
significant effect on the availability of small-molecule, generic substitutes for brand name
drugs.89 Prior to the enactment of the Hatch-Waxman Act, 35% of top-selling drugs had generic
competitors after patent expiration; now almost all do.90 Concurrently, the time to market for
these generic products has decreased substantially. According to the Congressional Budget Office
(CBO), prior to passage of the Act in 1984, the average time between the expiration of a brand
name patent and the availability of a generic was three years. Today, upon FDA approval a
generic may be introduced immediately after patents on the innovator drug expire as companies
are permitted to undertake clinical testing during the time period associated patents are in force.
“By streamlining the approval process for a generic drug form, the Hatch-Waxman Act reduced
the average delay between patent expiration and generic entry into the consumer market from
greater than three years to less than three months for top-selling drugs.”91 In cases where the
82 42 U.S.C. §262(l)(9)(C).
83 42 U.S.C. §262(l)(2)(A).
84 42 U.S.C. §262(l)(9)(A).
85 42 U.S.C. §262(l)(9)(B.
86 42 U.S.C. §262(l)(6)(A).
87 35 U.S.C. §271(e)(6)(B).
88 35 U.S.C. §271(e)(6)(C).
89 For a detailed discussion on the results of the Hatch-Waxman Act see CRS Report R41114, The Hatch-Waxman Act:
A Quarter Century Later, by Wendy H. Schacht and John R. Thomas, The Hatch-Waxman Act: A Quarter Century
Later, by Wendy H. Schacht and John R. Thomas.
90 Michael A. O’Shea and Christopher M. Mikson, “The Hatch-Waxman Act: Still Critical, Still in Flux,” The National
Law Journal, January 23, 2006.
91David A. Holdford and Bryan A. Liang, The Growing Influence of Generic Drugs: What it Means to Pharmacists and
Physicians, Power-Pak C.E., December 2006, available at http://www.centad.org/seminar/4.%20Generics/
GrowingInfluencePowewrPak2006.pdf.
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generic manufacturer is the patent holder, a substitute drug may be brought to market before the
patent expires.
In the absence of the research, development, and testing performed by the brand name
pharmaceutical companies, generic drugs as we know them today would not exist. The provisions
of the Hatch-Waxman Act permit the generic industry to rely on information generated and
financed by the brand name companies to obtain approval for their product by the FDA.
However, the pharmaceutical industry today differs from what it was in the early 1980s. The cost
of developing a drug has doubled92 to where it now takes over $1 billion to bring a new drug to
market. 93 Typically, the cost of developing a generic is between $1 and $5 million.94 The number
of clinical trials necessary to file a new drug application has doubled since 1980 and the number
of participants in these trials has tripled.95 Thus, the rate of return from investment in a new drug
has dropped by 12% over this time period.96 Concurrently, companies appear to be moving away
from the development of drugs that address large patient populations, but for which they cannot
charge high prices, toward more specialized medicines, primarily biologics, that may be used by
fewer patients, but for which high prices can be secured. In 2007, 55 blockbuster drugs were
considered specialized products, up from 12 in 2001.97
While 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 Hatch-Waxman
Act, the loss of patent protection for biologics has not and is not expected to generate similar
results. As discussed previously, biologics differ significantly from traditional pharmaceuticals in
their complexity and method of manufacture.98 The unique nature of biologics and their
manufacture may militate against the type of savings generated by small-molecule generics. It
remains uncertain whether or not there will be a significant market for follow-on biologics and
what cost-savings may or may not be generated. According to some experts:
The economics of the small-molecule generics market likely will not be transferrable to the
follow-on biologics market. High barriers to entry, high fixed costs of manufacturing, and
marketing expenses will more likely manifest themselves in a market that has a small
number of firms with relatively small price drops upon introduction of follow-on therapies. 99
While analysts argue that “The capital and expertise required to develop, scale up, and achieve
yields competitive with experienced innovators, combined with the added uncertainty around
gaining regulatory approval, may make entry of biosimilars in the markets less financially
92 The Hatch-Waxman Act: Still Critical, Still in Flux.
93 Christopher Paul Adams and Van Vu Brantner, “Spending on New Drug Development,” Health Economics,
(published online 26 Feb.2009) Epub ahead of print.
94 Federal Trade Commission, Emerging Health Care Issues: Follow-on Biologic Drug Competition, June 2009, iii,
available at http://www.ftc.gov/os/2009/06/P083901biologicsreport.pdf.
95 Gregory J. Glover, “The Influence of Market Exclusivity on Drug Availability and Medical Innovations,” The AAPS
Journal, August 3, 2007, E313.
96 The Hatch-Waxman Act: Still Critical, Still in Flux.
97 PriceWaterhouseCoopers, Pharma 2020: Marketing the Future, February 2009, 13, available at
http://www.pwc.com/pharma.
98 Ibid.
99 Ian Evans, “Follow-on Biologics: A New Play for Big Pharma,” Yale Journal of Biology and Medicine, June 2010,
available at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2892764/.
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attractive,”100 other commentators maintain that over time a competitive market will emerge and
“flourish” although the “field of play will be narrower than previously thought.”101 The producers
of follow-on biologics are expected to be led by a small group of companies including those
already in the established generic market such as Teva, Sandoz, Cangene, Biocon, and Dr.
Reddy’s.102
In Europe, where biosimilars have been approved since June 2003, there has been little
penetration of the market by follow-on biologics. Laws prohibiting automatic substitution of
follow-on drugs and safety concerns have inhibited widespread use of biosimilars.103 According
to a report by Dean & Company, “A combination of safety concerns, brand loyalty, and
aggressive pricing strategies by branded manufactures have contributed to their lack of traction in
spite of their lower price.”104 Sales of Omnitrope, the first FDA approved biosimilar, are only 1%
of the $831 million European human growth hormone market, due in part to doctors unwilling to
change products, delivery mechanism issues, and prices that are only 20%-25% below
innovator.105 In the United States, to date, there has been only “tepid demand” for Omnitrope.106
Several specific issues that may affect the market for follow-on biologics are discussed below.
Clinical Trials
Currently, there is uncertainty over the biosimilar approval process that will be required by the
FDA; however, all experts agree that, at least initially, clinical trials of the follow-on product
likely will be necessary. The scale and extent of clinical trials are expected to factor into whether
or not this industry will provide the cost savings needed to be viable.107 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.108 Innovator
and generic manufacturers appear to agree that “unlike small-molecule copycats, for biogenerics
[sic], 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.”109
100 Dean & Company, The U.S. Biosimilars Market, Threats and Opportunities, April 4, 2010, 4, available at
http://www.dean.com/expertise/biosimilars.pdf.
101 Bruce Carlson, “Biosimilar Market Fails to Meet Projections,” Genetic Engineering & Biotechnology News,
October 1, 2009, available at http://www.genengnews.com/keywordsandtools/print/1/12970/.
102 Ibid.
103 Bain & Company, Biosimilars: A Marathon, Not a Sprint, December 16, 2009, 2, available at http://www.bain.com/
bainweb/PDFs/cms/Public/2009_BB_Biosimilars.pdf.
104 The U.S. Biosimilars Market, Threats and Opportunities, 6.
105 Laura A. Carpenter, “Generic Substitution and Biopharmaceuticals: Where Are All the Follow-on Biologics: And,
How Much Money Will They Save?” The National Law Review, January 1, 2010, available at
http://www.natlawreview.com/article/generic-substitution-and-biopharmaceuticals-where-are-all-follow-bi.
106 Biosimilars: A Marathon, Not a Sprint, 3.
107 “Delay in U.S. Regulatory Approval Significantly Lowers Forecast for BioGenerics Market to $2.3 Billion,”
Business Wire, November 22, 2005.
108 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.
109 Ibid.
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The number and extent of clinical trials that may be required for approval of a biosimilar is
reflective of the general nature of biologics that has resulted in longer mean clinical development
time for these products when compared with traditional drugs.110 The number of clinical trials
necessary to file a new drug application has doubled since 1980 and the number of participants in
these trials has tripled.111 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.112 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.113
Manufacturing Considerations
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.114
Manufacture of biologics will therefore tend to be significantly more expensive than traditional
chemically synthesized drugs.115 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.”116 In addition, the cost of materials
to manufacture biologics may be 20 to 100 times more than chemical drugs.117 The production
process for biologics typically takes longer than traditional drugs and may take eight to nine
months.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,
110 The Market For Follow-On Biologics: How Will It Evolve?, 1293.
111 Gregory J. Glover, “The Influence of Market Exclusivity on Drug Availability and Medical Innovations,” The AAPS
Journal, August 3, 2007, E313.
112 IMS Health, “Biogenerics: A Difficult Birth?,” May 18, 2004 available at http://www.imshealth.com/web/content/
0,3148,64576068_63872702_70261000_71026746,00.html.
113 Ernst & Young, “Coming of Age,” Beyond Boarders, 2005, available at http://www.ey.com/beyondboarders.
114Christopher Webster et al., “Biologics: Can There Be Abbreviated Applications, Generics, or Follow-On Products?,”
International BioPharm, July 1, 2003, available at http:P//www.biopharm-
mag.com/biopharm/article/articleDetail.jsp?id=73785.
115Henry Grabowski, Iain Cockburn, and Genia Long, “The Market For Follow-On Biologics: How Will It Evolve?,”
Health Affairs, September/October 2006, 1293 and Linda Hull Felcone, “The Long and Winding Road to Biologic
Follow-ons,” Biotechnology Healthcare, May 2004, 24, available at http://www.biotechnologyhealthcare.com/journal/
fulltext/1/2/BH0102020.pdf.
116 Alison McCook, “Manufacturing on a Grand Scale,” The Scientist, February 14, 2005, available at
http://www.thescientist.com.
117 The Market For Follow-On Biologics: How Will It Evolve?, 1293.
118 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
(continued...)
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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
When the manufacturing process is altered in any way, the FDA typically requires that this
validation be repeated.121 Such manipulation may alter the nature of the product that is
produced.122 One commentator stated: “It’s hard to predict how process variations will change a
product’s safety or effectiveness.”123 This can be a result of the incidence of impurities arising
from changes in the method of production and the increased opportunity of adverse immune
reactions.124 Finding and identifying impurities in biologics may be difficult as, to date, simple
tests do not exist. Thus, additional costs may be associated with preventing impurities from
entering into the production process.125
The manner in which a follow-on biologic is made may have significant impact on the
composition of the final product and its cost. Experts maintain that the manufacturing process is
“far more difficult to perfect and replicate from one facility to another.”126 The number of firms
able to produce a biosimilar may therefore be limited,127 while making the product relatively
more expensive than a small-molecule generic pharmaceutical:
the ability of biosimilars manufacturer to increase market share through low pricing will be
dictated not only by varying up-front development requirements, but also by its relative
manufacturing costs, which are more significant for biologics compared with small-molecule
drugs. The ability of a biosimilars manufacturer to achieve a favorable cost position will be
dictated by factors such as scale, location of capacity and efficiency (i.e., yields) in protein
expression and purification.128
(...continued)
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 Ingrid Kaldre, “The Future of Generic Biologics: Should the United States ‘Follow-On’ the European Pathway?”
Duke Law and Technology Review, November 6, 2008, available at http://www.law.duke.edu/journals/dltr/articles/pdf/
2008dltr0009.pdf.
123 William Alpert, “Biotech’s Next Challenge,” SmartMoney.com, May 22, 2006, available at
http://www.smartmoney.com/barrons/index.cfm?story=20060522.
124 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.
125 Gurdeep Singh Shah, “The Current Market for Generic Biologics,” International Biopharmaceutical Association,
June 2006, available at http://www.ibpassociation.org/IBPA_articles/jun2006issue/
The_Current_Market_for_Generic_Biologics.htm.
126 Michael S. Labson and Krista Hessler Carver, “Follow-on Biologics Proposals v. Hatch-Waxman: What the FOB
Market Might Look Like,” Covington & Burling RA Focus, January 2008, 17, available at http://www.cov.com/files/
Publication/43b1a21b-04e0-4f78-bb72-035bfa1cc014/Presentation/PublicationAttachment/5f154780-4212-48dc-b0d2-
10664710e51a/Follow-on%20Biologics%20Proposals%20v.%20Hatch-Waxman%20-
%20What%20the%20FOB%20Market%20Mig.pdf.
127 Ibid., 17.
128 Biosimilars: A Marathon, Not a Sprint, 4.
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Sales and Marketing
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.129 If the follow-on biopharmaceutical cannot be termed
equivalent to the brand name drug, doctors and pharmacists may not be willing to readily
substitute the biosimilar. Therefore, it may be expected that:
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.130
Many experts argue that a strong sales and marketing force is needed to “educate” doctors and
consumers even if the price of the biosimilar is 20%-30% lower than the brand name drug.131 This
effort may require a new sales force and added investment on behalf of the company producing a
biosimilar.132 Due to the particular issues associated with follow-on biologics, successful
commercialization may “require a field sales force outside of the traditional skills of the
wholesale-driven generics industry.”133 Because providers may not be comfortable with
substitution of products that are not identical to the innovator drug, there is expected to be a steep
learning curve, less competition, and higher prices.134
The greater the number of small-molecule generic alternatives, the lower the cost. “For example,
the average price reduction for a generic that has been granted 180-day exclusivity is only 30%,
as compared to a 70% amount for multi-source generics.”135 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 prices that, while lower than the brand biologic, would be relatively higher than those
129 The Long and Winding Road to Biologic Follow-ons, 24.
130 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.
131 Cynthia Challener, “Big Pharma’s Edge in Biosimilars,” ICIS Chemical Business, February 10, 2010, available at
http://www.icis.com/Articles/2010/02/15/9333235/Follow-on-biologics-present-opportunity-to-big-pharma.html.
132 Mari Edlin, “PPACA Creates Approval Pathway for Follow-On Biologics,” Drug Topics, August 15, 2010,
available at http://license.icopyright.net/user/viewFreeUse.act?fuid=OTg5NTgyMQ%3D%3D.
133 The U.S. Biosimilars Market, Threats and Opportunities, 5.
134 Biosimilars: A Marathon, Not a Sprint, 3-4.
135 Generic Substitution and Biopharmaceuticals: Where Are All the Follow-on Biologics: And, How Much Money Will
They Save?
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charged for typical small-molecule drugs.136 In addition, “Financial and scientific barriers might
prevent the cutthroat price wars fought in the traditional generic market.”137
A study by Kalorama Information (The Market for Generic Biologics: Issues, Trends, and Market
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.138 A Merrill Lynch analysis139 estimated prices 20%-30% below the brand biologic for
the first biosimilar to be marketed while a report by Citizens Against Government Waste140
estimated savings of 10%-25% over the brand biologic price in the first year and 25%-47% by the
fifth year after introduction of a follow-on drug. The Federal Trade Commission issued a report in
June 2009 stating that follow-on companies “are likely to introduce their drug products at price
discounts between 10 and 30 percent of the pioneer products’ price to the most price-sensitive
customers.”141 Duke University Professor Henry Grabowski and his colleagues reached similar
findings.142 Additional analysis by University of North Carolina Professor John Vernon and others
found that biosimilars will generate prices between 10% and 25% less than the innovator
product.143 A study prepared for the Department of Health and Human Services states that price
discounts for follow-on products are expected to be in the 10%-20% range.144
Potential Industry Responses
New Biologic License Applications (BLAs)
Companies possess various options in bringing follow-on products to the marketplace. Several
firms, including the largest generic drug producer Teva, plan to continue using the established
biologics approval process.145 Companies may choose to make a new innovator biologic for the
136 William Alpert, “Biotech’s Next Challenge,” SmartMoney.com, May 22, 2006, available at http://smartmoney.com/
print/index.cfm?printcontent=/barrons/index.cfmstory=20060522.
137 Ibid.
138 Susan J. Ainsworth, “Biopharmaceuticals,” Chemical and Engineering News, June 6, 2005, 21-29.
139 Merrill Lynch, Biogenerics: Big Opportunities, Small Threat, September 6, 2006.
140 Everett Ehrlich and Elizabeth L. Wright, “Biogenerics: What They Are, Why They Are Important, and Their
Economic Value to Taxpayers and Consumers,” Citizens Against Government Waste, May 2, 2007.
141 Emerging Health Care Issues: Follow-on Biologic Drug Competition, 23.
142 Henry Grabowski, Iain Cockburn, Genia Long, Richard Mortimer, and Scott Johnson, The Effect on Federal
Spending of Legislation Creating a Regulatory Framework for Follow-on Biologics: Key Issues and Assumptions,
August 2007, 2, available at http://www.bio.org/healthcare/followonbkg/
Federal_Spending_of_followonbkg200709.pdf.
143 John A. Vernon, Alan Bennet, and Joseph H. Golec, “Exploration of Potential Economics of Follow-On Biologics
and Implications for Data Exclusivity Periods for Biologics,” Boston University School of Law, Journal of Science and
Technology Law, 2010, 69, available at http://www.bu.edu/law/central/jd/organizations/journals/scitech/volume161/
documents/Vernon_WEB.pdf.
144 The Lewin Goup and i3 Innovus, Economic Analysis of Availability of Follow-on Protein Products, prepared for the
Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, July 2009,
54, available at http://aspe.hhs.gov/sp/reports/2009/fopps/report.pdf.
145 Thomas Gryta, “Biosimilar Development Progresses, Without FDA Guidelines,” SmartMoney, September 14, 2010,
available at http:www.smartmoney.com/news/on/?story=on-20100816-000267 and Lewis Krauskopf, “Interview-Teva
Sees Flawed U.S. Biosimilars Process, Forexpros.com, June 23, 2010, available at http://www.forexpros.com/news/
general-news/interview-teva-sees-flawed-u.s.-biosimilars-process-144818
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same medical condition rather than a follow-on drug if the required clinical trials are parallel to
those associated with the standard approval process, a biologic license application. “Only a small
tweak in the manufacturing process for an already-marketed biologic could offer another 12 years
of exclusivity to its owner,” rather than any limited exclusivity provided by a designation of
“interchangeability.”146
Collaborative Work with Big Pharma
An accelerated approval process for follow-on biologics may facilitate cooperative efforts
between traditional, small-molecule generic drug companies and large pharmaceutical firms (“Big
Pharma”). As discussed previously, significant barriers may block the development and
commercialization of biosimilars because of the technical challenges associated with
manufacturing and the number and breadth of required clinical trials.147 Additionally, many
generic firms may not possess the marketing capabilities that may be necessary to convince
doctors and other providers to use biosimilars. Thus, these companies may partner with the large
pharmaceutical firms that have the expertise necessary to penetrate the follow-on market: “With
access to financing, well-established sales and marketing, and in some cases existing
biotechnology capabilities, these [large] companies may have a real advantage.”148 The extensive
workforce of Big Pharma, and the existing relationships with doctors and hospitals, can influence
decisions concerning follow-on products which can benefit the generic manufacturer.149
Concurrently, large pharmaceutical companies may be interested in collaborating with traditional
generic manufacturers to develop follow-on products as an alternative source of revenue. 150 As
patents on small-molecule pharmaceuticals expire and drug approvals lag despite increased R&D,
some large firms will look to joint efforts to augment the products in their pipeline.151 Follow-on
biologics may look attractive because they “… command high prices, will likely have fewer
entrants than generics due to high barriers to entry, and play to the existing strengths of big
pharma firms.”152
Biobetters
Another approach to the biologics market is the development of what are termed “biobetters,”
a drug that is in the same class as an existing biopharmaceutical but is not identical. While a
biosimilar should perform as well as the original, a bio-better is expected to have certain
advantages, such as improved safety and efficacy.153
146 PPACA Creates Approval Pathway for Follow-On Biologics.
147 Follow-on Biologics: A New Play for Big Pharma.
148 Big Pharma’s Edge in Biosimilars.
149 Follow-on Biologics: A New Play for Big Pharma.
150 Big Pharma’s Edge in Biosimilars.
151 Follow-on Biologics: A New Play for Big Pharma.
152 Ibid.
153 Brian Bormley, “A Race To Develop Better-Perfoming Biopharmaceuticals,” Wall Street Journal Blog, August 10,
2010, available at http://blogs.wsj.com/venturecapital/2010/08/10/a-race-to-develop-better-performing-
biopharmaceuticals/.
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If the cost to bring a biosimilar to the marketplace is between $100 million to $200 million
dollars,154 it may be more profitable for a firm to develop a biobetter that can compete with the
innovator product, establish market share, and obtain 12 years of data exclusivity. Companies
producing biobetters will have to use the traditional biologic approval process; however, the risk
of failure may be diminished because the innovator product already has been shown to be safe,
effective, and commercially successful.155
Generics companies have more than one option: Instead of advancing biosimilars, they can
out-compete the pioneer products, increase market share, and avoid start-up costs, building
overall profits…. A company starts with a validated drug target, established market, and a
proven clinical development approach, but incorporates a simple change in the development
process or design of the drug molecule that could drastically improve the product offering.
By modifying the pioneer product, a biobetter developer can cut the clinical development
risk associated with an entirely new molecule, and still compete with the originator’s
product.156
Similarly, innovator biologic firms may develop biobetters as a means to bring to market new
versions of their existing biopharmaceuticals or to create competing products. For example,
MedImmune (acquired by AstraZeneca in 2007) does not plan to enter the follow-on biologics
market, but instead will undertake development of biobetters.157 The intent is to improve the
original biologic and use this to achieve a market advantage.158 “Superior product will give
pharmaceutical companies the edge to offset competition from an FOB [sic] that has no distinct
advantage over the first-generation product.”159
Concluding Observations
This overview of the new legislation suggests that the BPCIA is a complex and novel statute.
Resolution of the scientific and legal issues that this legislation raises will likely engage the
courts and the FDA for many years to come. It may also take some time for members of the
biologics industry to develop a working familiarity and appropriate strategies within the BPCIA
framework. As a result, marketplace availability of significant numbers of follow-on biologics
may well be a long-term proposition.160
Notably, the BPCIA does not employ the same framework as the patent dispute resolution
proceedings that have been available under the Hatch-Waxman Act for more than a quarter
154 Emerging Health Care Issues: Follow-on Biologic Drug Competition, iii.
155 Jonathan D. Rockoff, “Merck Scraps One-Promising Follow-On Biologic for Anemia,” Wall Street Journal Health
Blog, May 11, 2010, available at http://blogs.wsj.com/health/2010/05/11/merck-scraps-once-promising-follow-on-
biologic-for-anemia/.
156 Bassil Dahiyat, “Innovation Over Imitation,” PharmExec.com, November 4, 2009, available at
http://license.icopyright.net/user/viewFreeUse.act?fuid=MTAxODg3NDg%3D.
157 Laura Bush, “MedImmune’s Greenleaf on Biopharmaceutical Innovation and Biobetters,”
BioPharmInternational.com, May 19, 2010, available at http://biopharminternational.findpharma.com/biopharm/News/
MedImmunes-Greenleaf-on-Biopharmaceutical-Innovati/ArticleStandard/Article/detail/670622.
158 David E. Szymkowski, “True Biosimilars Do Not Offer a Compelling Business Case,” PharmTech.com, August 1,
2010, available at http://pharmtech.findpharma.com/xencor.
159 Innovation Over Imitation.
160 See Czaban, supra.
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century. In particular, unlike the Hatch-Waxman Act, the BPCIA does not require brand-name
firms to identify relevant patents in advance of generic competition. Because the FDA publishes a
list of relevant patents in a publication informally known as the “Orange Book,” generic drug
companies possess some ability to assess the patent positions of brand-name pharmaceutical
firms. The lack of an Orange Book may place follow-on biologic applicants as a comparative
disadvantage.161
On the other hand, some commentators believe that follow-on applicants possess a number of
advantages over the brand-name firm. Follow-on applicants may control the number of patents to
be litigated, at least initially.162 The failure of brand-name firms to act within tight statutory
deadlines may result in substantial patent enforcement penalties.163 And, unlike the Hatch-
Waxman Act, the BPCIA does not tightly link FDA approval with patent rights. Brand-name
firms must wholly rely upon the judiciary to stay the release of follow-on biologics into the
marketplace.164
The adoption of a patent dispute resolution system that is distinct from the procedures of the
Hatch-Waxman Act may also suggest congressional dissatisfaction with that regime and a desire
to attempt new approaches. As is always the case in this field of endeavor, individuals interested
in pharmaceutical patent law would be wise to remain vigilant concerning developments to the
new law of follow-on biologics in coming years.
Author Contact Information
Wendy H. Schacht
John R. Thomas
Specialist in Science and Technology Policy
Visiting Scholar
wschacht@crs.loc.gov, 7-7066
jrthomas@crs.loc.gov, 7-0975
Acknowledgments
This report was funded in part by a grant from the John D. and Catherine T. MacArthur Foundation.
161 Ibid.
162 42 U.S.C. §262(l)(5)(A).
163 35 U.S.C. §271(e)(6)(B).
164 See Dougherty, supra.
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