The 3 Lines of Defense at the Disposal of Brand Name Biological Drug Companies

On Tuesday, the lead article on the front page of The New York Times was titled “Battle Over Generics of Biotech Drugs”. The word 'battle' is apt. There is a war at hand, and it is raging at both a Federal and State government level. Billions of dollars, and the United States deficit is at stake.

To understand this drug war, we first have to go back to basics...

Chemical drugs are made by the mixing of chemicals. This is a controlled process, making it simple for generic drug companies to create generics which are identical to the existing brand name chemical drugs. In contrast, biological drugs (generally proteins) are made by living cells that are kept alive in vats of nutrient medium. The cell line used and the composition of the nutrient medium might each affect the resultant biological drug. Thus, generally generic drug companies cannot create biological drugs which are identical to existing brand name biological drugs. The best the generic drug companies can do is create biosimilar drugs, namely biological drugs which comprise the same clinically active components as existing brand name biological drugs, but differ slightly in regards to one or more of the clinically inactive components.

Due to this difference in the clinically inactive components, biosimilar drugs have not been covered by the Hatch-Waxman Act legislation that allows generic drug companies to obtain expedited FDA approval of generic drugs. That is, generic drug companies have been required to independently establish the safety, purity, and potency of biosimilar drugs. The cost and time associated with this has been prohibitive. Consequently, even when the patents for lucrative biological drugs have expired, generic drug companies have not been able to get biosimilar drugs approved by the FDA. In this way, brand name drug companies have been enjoying a monopoly over the biological drugs market.This state of affairs is, however, about to change. In 2014, the Patient Protection and Affordable Care Act will come into place, providing a simplified pathway for generic drug companies to gain FDA approval of biosimilar drugs, in which the generic drug company may use the brand name drug company's data in order to forgo conducting its own clinical trials. This new pathway will make it feasible for generic drug companies to get FDA approval for biosimilars, and to compete against the brand name drug companies in the lucrative biological drugs market.

Not keen to lose any of their market share, and with the 2014 deadline looming, the brand name drug companies are mounting their defenses.

The brand name drug companies basically have three lines defense at their disposal, namely:

1) patent rights;

2) exclusivity rights; and

3) the right to prevent the substitution of biosimilars for brand name biological drugs.

PATENT RIGHTS

As the clinically active components of biosimilar drugs are identical, biosimilar drugs infringe valid biological drug patents. Thus, brand name drug companies in possession of valid biological drug patents can stop the manufacture and sale of biosimilar drugs for the life of the patent.

The life of a patent is normally 20 years. However, under the Hatch-Waxman Act, patents for biological drugs are eligible for an extension of time of up to 5 years, provided that the patent life does not extend beyond 14 years from the date of FDA approval of the biological drugs. The extension of time is meant to compensate for time lost due to clinical trials and regulatory review, which delay commercialization of the biological drugs. Thus, effectively, valid biological drug patents grant brand name drug companies a marketplace monopoly for at least 14 years.

However, this monopoly only acts as a defense where the biological drug patent is upheld. If the generic drug company can invalidate or circumvent the patent, it provides no protection at all. There is some cause for speculation that most existing biological drug patents may be vulnerable to invalidation. One of the requirements of a valid biological drug patent is that subsequent parties should be able to reliably reproduce the biological drug by following the information disclosed in the patent. However, most existing biological drug patents do not disclose specific details about the manufacturing process for the biological drug, such as the source of the cell line or the composition of the nutrient medium. This information is retained by the brand name drug company as a trade secret. Without providing access to this trade secret information, biological drug patents are not enabling and may be held to be invalid. If this is the case, the first line of defense is useless and brand name drug companies will be forced to turn to the second line of defense.

EXCLUSIVITY RIGHTS

Exclusivity rights prevent a generic drug company from applying for FDA approval to bring the biosimilar drug to the market for a set period of time after the brand name drug company receives FDA approval for the brand name biological drug. Without FDA approval, the generic drug company cannot release the biosimilar into the market, thereby giving the brand name drug company a market monopoly for the duration of the exclusivity period.

Exclusivity rights are intended to protect the brand name drug company in the event that the brand name drug patent is unexpectedly invalid, circumvented or challenged, or that the brand name drug is insufficiently novel and/or inventive to qualify for patent protection. In other words, it is a second line of defense, in case the first line of defense fails. If the patent rights are strong, exclusivity rights are somewhat superfluous. But, if the patent rights fail, exclusivity rights are crucial. These rights, which cannot be challenged, provide a solid back-up.

Because these rights are so powerful, they have become the subject of hot debate.

The 2010 Federal Health Care legislation proposed a 12 year period of market exclusivity for brand name biological drugs. This 12 year exclusivity period, coupled with the 2 years it generally takes for the FDA to grant approval once an application has been filed, gives an effective exclusivity period of 14 years, which is aligned with the effective monopoly period of a patented drug. That is, even if there is no valid patent, the second line of defense provides a virtually equivalent level of protection.

This length of market exclusivity grants brand name biological drugs 2 to 3 times the protection granted for brand name chemical drugs (which have long been granted market exclusivity for periods ranging from 3 to 7 years under the Hatch-Waxman Act). The question is then whether biological drugs should be granted a greater degree of protection than chemical drugs. The arguments in favor of a longer period of market exclusivity for biological drugs include that:

1) the cost of developing biological drugs is greater;

2) the time required to develop biological drugs is greater; and

3) biological drug patents are weaker (and thus more likely to be circumvented or held invalid, thus necessitating reliance on the second line of defense: market exclusivity).

Despite these arguments, the current deficit reduction plan proposes to reduce the market exclusivity period for biological drugs to 7 years (giving an effective exclusivity period of 9 years).

Because of the expense in creating a biosimilar drug, it is expected that these biosimilar drugs will only be about 10% to 20% cheaper than the actual brand name biological drug (whereas the generic versions of brand name chemical drugs are commonly 90% to 95% cheaper than the actual brand name chemical drug). Still, according to IMS Health, a market research firm, biological drugs accounted for $46 billion, or 16%, of total prescription drug sales in the United States last year. Thus, a 10% to 20% reduction in price equates to a significant cost saving to the Federal government, of between $1 and $10 billion a year. With these types of financial incentives on the table, exclusivity rights are a crumbling defense and may soon only provide brand name drug companies with an effective monopoly period of only about 9 years.

It has been estimated that it takes between 12 and 16 years for a brand name drug company to recoup the research and development expenses of bringing a biological drug to market. Thus, with the 9 year effective monopoly period falling short of the 12 to 16 year period required for recovery of their investments, brand name drug companies are turning to the third line of defense to bolster their position in the biological drug market.

SUBSTITUTION OF BIOSIMILARS FOR BRAND NAME BIOLOGICAL DRUGS

Substitution of generics for brand name chemical drugs is legal in all States and is common practice (substituted generics account for approximately 70% of all chemical drugs sold). This is through this substitution that generic drug companies achieve their market share. Doctors prescribe the brand name pharmaceutical drug, and the pharmacists automatically (or with permission) substitute for the cheaper generic drug.

The brand name drug companies are trying to pass legislation that would prevent a similar substitution of biosimilar drugs for brand name biological drugs. In that case, pharmacists would have to use the prescribed brand name biological drug despite the fact that there might be a cheaper biosimilar drug on the market. This would prevent the biosimilar drug from gaining any market share.

The brand name drug companies are pushing for this legislation on the grounds that biosimilar drugs are not identical, and so there is an element of uncertainty in terms of their effect. Hence, there is a need to protect patient safety. A patient who has been prescribed a clinically tested and approved biological drug, should not either knowingly or unknowingly then receive an alternative biosimilar drug that differs in a way that could result in it being less effective or even harmful . This is particularly true since biologically derived drugs have a much greater potential to illicit immune responses in patients.

Bills have been introduced in 8 States so far. The Virginia House of Delegates passed a bill last week by a 91 to 6 vote. Obama has a high approval rating in Virginia and yet the State has just passed a bill that effectively undermines the attempts that Obama is making to increase competition in the biological drug market (i.e. his attempts to reduce the market exclusivity period to 7 years). Thus, if even a State that supports Obama has passed such undermining legislation, maybe it is likely that other States, some of which may be less inclined to support Obama, would also pass such legislation. On the other hand, Virginia is typically a more conservative State, which would indicate that it might be more likely than most to adopt such legislation. Thus, other States might not necessarily follow suit. If that happens, and substitution of biosimilars is not prohibited, brand name drug companies won't even have a solid third line of defense on which to rely.

CONCLUSION

With both sides bringing their considerable resources into play, this is surely set to be a vicious battle.