Innsight, March 2011.
A year ago, on March 23, 2010, as part of U.S. healthcare reform, President Obama signed into law Public Law No. 111-148—better known in the healthcare industry as the Patient Protection and Affordable Care Act. A subsection of the act, the Biologics Price Competition and Innovation Act of 2009 (the "Biosimilars Act") provides a framework for the approval process of biosimilar biological products. Biological products are very large, complex proteins made in living cells that are expensive and inherently difficult to manufacture identically, hence the term "biosimilar" for a generic version of an innovator biological product that is not identical to, but rather highly similar to, a reference product.
Among other things, the Biosimilars Act provides 12 years of exclusivity for innovators—meaning that the U.S. Food and Drug Administration (FDA) will not approve any application for a biosimilar product before the expiration of a 12-year period of the reference product. In a letter to the FDA, U.S. Representatives Anna Eshoo, Jay Inslee and Joe Barton, the creators of the Biosimilars Act, clarified the term "exclusivity" as meaning data exclusivity—not market exclusivity. This essentially prohibits the FDA from allowing another manufacturer to rely on the data of an innovator to support approval of a biosimilar product.
In view of two proposals made by the Obama Administration in
February 2011, which seek to accelerate the availability of
biosimilar products, big pharmaceutical companies manufacturing
innovator biologics products could face increased competition from
biosimilar companies.
As part of his 2012 fiscal budget proposal (Fiscal Year 2012
Terminations, Reductions, and Savings, Budget of the U.S.
Government) and in alignment with an overarching goal to lower
healthcare costs, President Obama proposed giving consumers more
access to affordable pharmaceuticals by:
- " (i) reducing the exclusivity period for innovator biologics from 12 years to seven years, thereby encouraging faster development of biosimilar products; and
- (ii) giving the Federal Trade Commission (FTC) the authority to prohibit innovator and generic drug companies from entering into anticompetitive "pay-for-delay" agreements intended to keep generic products off the market.
Reducing Exclusivity Period
The Obama Administration's move to reduce the exclusivity period seemingly strikes a balance between the biosimilar companies' desire of a five-year exclusivity period and the innovator companies seeking 12 to 14 years of exclusivity for their products. Justifying the reduction of exclusivity for an innovator biologic product, the Obama Administration stated in a comment to the budget that its policy would strike "a balance between promoting affordable access to medication while at the same time encouraging innovation to develop needed therapies."
According to the 2012 budget proposal, modifying the length of exclusivity to facilitate faster development and approval of biosimilar products would save $ 80 million in 2015, and $ 2.34 billion from 2012 to 2021.
For the biotech and healthcare industry, the difference between 12 years and seven years of exclusivity could amount to billions of dollars. Mega-blockbuster biologics, such as Avastin®, Enbrel®, Humira®, Rituxan®, Lantus® and Herceptin®—used to treat a wide range of conditions from arthritis to cancer—earn $5 billion a year or more. The average cost of a biological drug treatment is about $ 72,000 a year, per patient. Thus, shortening the period of exclusivity from 12 years to 7 years is likely to have significant ramifications for all players in the healthcare industry. Perhaps not surprisingly, interest groups responded quite differently to the President Obama's proposals.
The Pharmaceutical Research and Manufacturers of America and the Biotechnology Industry Organization, representing innovator companies, responded with disappointment to President Obama's 2012 budget proposal and contended that the proposals would prevent biotechnology companies from recouping the money they spent in development and, thus, would discourage future investment in new research and hinder the growth and promotion of new medicines.
On the other side, the U.S. Generic Pharmaceutical Association, representing the generic manufacturers, applauded the Obama Administration for the proposed reduction of exclusivity, emphasizing the savings that could result from the earlier introduction of biosimilar drugs.
Banning "Pay-for-Delay"
In "pay-for-delay" settlement agreements, an innovator company may settle a patent litigation suit by paying the biosimilar (generic) company to delay its entering the market with a biosimilar (generic) product. Because biosimilar products are expected to be priced significantly less than their innovator counterparts, such pay-for-delay deals can cost consumers billions of dollars. President Obama's proposal would give the FTC the authority to prohibit such agreements in order to facilitate access to lower-cost biosimilar products.
According to the 2012 budget proposal, the benefit of banning pay-for-delay agreements would amount to savings of $540 million in 2012—and an aggregate savings of almost $8.8 billion through 2021.
While innovator and biosimilar companies diverge in their positions on reducing the exclusivity period for an innovator biological product, they are united in their disapproval of President Obama's proposal to make illegal pay-for-delay agreements, from which apparently both sides benefitted. They defend the patent settlement deals as pro-competitive, maintaining that they typically result in early introduction of generic drugs while removing the uncertainty of patent litigation.
Conclusion
It is hard to foresee how much scrutiny and challenge President Obama's proposals will receive in the divided and Republican-dominated Congress. However, these proposals appear to provide consumers a glimmer of hope for obtaining access sooner to more-affordable prescription drugs.
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