FTC Issues Highly Anticipated Report on Follow-On Biologics; Report Concludes that Special Legislative Exclusivity Incentives are Largely Unwarranted for Innovators and Generics

By Kurt R. Karst –      

On June 10th, the Federal Trade Commission (“FTC”) announced the release of its highly anticipated report on Follow-On Biologics (“FOBs”).  The 120-page report, titled “Emerging Health Care Issues: Follow-On Biologic Drug Competition” is the product of an FTC Roundtable held in November 2008 (see our previous post here) and public comment on competitive issues involving FOBs.  The report comes at a time when Congress is poised to consider FOB legislation (see our previous posts here and here)  with varying periods of market exclusivity and patent resolution processes.  (Another FOB bill is expected soon from Senator Ted Kennedy (D-MA).)  Earlier this week, Representative Henry Waxman (D-CA), who is the sponsor of one FOB bill, sent a letter to President Obama praising the President for his support of FOBs in the FY 2010 Budget, and urging him “to consider what steps can be taken under current law to prepare and even begin to approve safe and effective generic biologics, in advance of legislation.”  On June 11th, the Subcommittee on Health of the House Energy and Commerce Committee will hold a hearing on FOB competition issues that will specifically focus on the FTC report. 

Below are some of the general conclusions taken from the FTC report. 

1.    Competition Between a Biologic Drug and an FOB is Much More Likely to Resemble Brand-to-Brand Competition than the Dynamics of Brand-Generic Competition under Hatch-Waxman.

• The substantial costs to obtain FDA approval, plus the substantial fixed costs to develop manufacturing capacity, will likely limit the number of competitors that undertake entry with FOB products. 

• Given these high entry costs, FOB entrants are likely to be large companies with substantial resources, and it is likely that only two to three FOB entrants will seek approval to compete with a particular pioneer biologic drug.

• The lack of automatic substitution between an FOB product and a pioneer biologic drug will slow the rate at which an FOB product can acquire market share and thereby increase its revenues.

• An FOB drug also may have difficulty gaining market share due to concerns about safety and efficacy differences between a pioneer biologic drug and the competing FOB.

• The specialty pharmaceutical characteristics of FOBs also are likely to constrain the ability of an FOB entrant to obtain market share.

• Biologic drugs currently are not reimbursed pursuant to strategies that payors often use to incentivize the use of lower-priced drugs; this, too, may limit market share acquisition by FOBs.

• As a result of these factors, FOB competition against a pioneer biologic drug is likely to develop as follows:  FOB entry is likely in biologic drug markets of greater than $250 million. Only two or three FOB manufacturers are likely to attempt entry for a given pioneer drug product. These FOB entrants are unlikely to introduce their FOB products at price discounts any larger than between 10 and 30 percent of the pioneer products’ price.  Although not as steep a discount as small-molecule generic drugs, a 10 to 30 percent discount on a $48,000 drug product represents substantial consumer savings. Pioneer manufacturers are expected to respond and offer competitive discounts to maintain market share. This price competition is likely to lead to an expanded market and greater consumer access.  Nonetheless, the lack of automatic substitution will slow significant market share acquisition by FOB products. As a result, pioneer manufacturers are likely to retain 70 to 90 percent of their market share and, therefore, will likely continue to reap substantial profits years after entry by FOB drugs.

2.    Existing Incentives that Support Brand-to-Brand Competition Among Biologic Drugs – Patent Protection and Market-Based Pricing – Are Likely to be Sufficient to Support FOB Competition and Biologic Innovation.

• A Twelve- to Fourteen-Year Exclusivity Period is Unnecessary to Promote Innovation by Pioneer Biologic Drug Manufacturers.

• Special Procedures to Resolve Patent Issues Between Pioneer and FOB Drug Manufacturers Prior to FDA Approval Are Unnecessary and They Could Undermine Patent Incentives and Harm Consumers.

• FOB Drug Manufacturers Are Unlikely to Need Additional Incentives to Develop Interchangeable FOB Products.