In the fight to tame health-care costs, generic drugs provide a rare success story. These copies of brand-name medicines now account for 60% of all U.S. prescriptions. They shaved tens of billions of dollars off the nation's $213 billion drug bill in 2006.
But this remedy has a serious limitation: Generics are allowed only for traditional, chemical compounds whose patents have expired. You can't get them for complex biological drugs such as hormones or antibodies used in cancer treatments. Some of the world's most potent and popular medicines fall into this biotech basket, and existing federal laws prevent them from going generic.
While that's good news for biotech companies, whose drugs enjoy staggering monopoly prices, it's agony for patients and their insurers. A year's worth of Genzyme's (DNA) Cerezyme, for a rare ailment called Gaucher's disease, can top $200,000. Genentech's cancer drug Avastin costs as much as $100,000 per year. That places a huge burden on companies who cover the treatments in their health plans, and on consumers with high co-pays. "It's our single fastest-growing category of health costs," observes Sidney Banwart, human-services vice-president at equipment maker Caterpillar (CAT). "The trend is simply not sustainable."
To patients, insurers, generic drugmakers, and companies like Caterpillar, the obvious answer is to open the floodgates to generic biologics. These groups have put their weight behind a bill introduced in the Senate by Hillary Clinton (D-N.Y.) and Charles Schumer (D-N.Y.) and in the House by Henry Waxman (D-Calif.). It asks the Food & Drug Administration to establish a new process for reviewing and approving such treatments.
Even some traditional biotech and pharmaceutical companies have signed on, attracted by the fact that key patents on first-generation versions of the world's most successful biotech product have already expired. That drug is erythropoietin (Epo), an $11 billion per year worldwide anemia treatment sold by Amgen (AMGN) and Johnson & Johnson (JNJ). "Billions of dollars are at stake," says Dr. James Bianco, chief executive officer of drugmaker Cell Therapeutics, which would like to get into the generic-biologic business.
What's holding the floodgates shut, for the moment, is a set of concerns about patient safety. Companies such as Amgen and Genentech would be hit hardest by the bill, and they make a plausible case that biological medicines are too complex to mimic. Competitors would be "unable to make copies that are the same," says Walter Moore, Genentech's vice-president of government affairs. Even a relatively simple biologic drug like blood-thinner Lovenox, extracted from pigs, contains over 100 individual molecules.
Same Old Story?
One false step in manufacturing, and patients can get very sick, as Johnson & Johnson learned producing Epo under a license from Amgen. It made a small change to its manufacturing process, which involves growing the medicine in cells from the ovaries of Chinese hamsters, and introduced a stabilizer ingredient that was thought to be safe. But the stabilizer interacted with the rubber stopper on each vial, creating substances that caused the body's immune system to attack the production of blood cells. Scores of patients were hit with this severe side-effect.
Opponents of the new drug bills argue similar lapses are certain to occur if there's a wave of generic biotech products, and that a lot more people are likely to suffer.
Many experts believe such fears are overblown. Before the first generics law was passed in 1984, "We heard the same kind of stories of woe and terror," says George Barrett, CEO of Teva North America (TEVA), a maker of generic and brand-name drugs. He and many others believe it's inevitable that Congress will pass a bio-generics bill—not least because of cost concerns.
America's tab for biological drugs was about $30 billion last year. But with more than 400 new biotech medicines in clinical trials, the cost is expected to jump to $90 billion by 2009 and keep climbing. "This is throwing nitroglycerin on the fire of health-care costs," says Consumers Union analyst William Vaughan. "We've got to get an answer to this."
An Air Bag for Biotech
Any new law, however, will take generic biologics only so far. First, it would take several years after the bill is passed for the FDA to issue regulations. Then, because of safety concerns, the agency is expected to require some clinical trials before approving generic competitors, slowing their entry to the market. And it's unlikely that the copies will automatically be substituted for brand-name drugs, the way today's generics are. Instead, they will be seen just as another choice.
Such developments will be "like an air bag to protect the biotech industry," says Ira Loss, senior health analyst at Washington Analysis, an investment-research firm. "They may get a broken arm, but it won't have to be amputated." This gradual solution will also mean that generic biologics won't have a huge, immediate impact on health-care costs. An analysis by Avalere Health pegs the estimated savings for the federal government at $3.6 billion in the first 10 years after a bill passes, with equal or greater savings in the private sector. Further out, though, the savings would rise substantially.
However that shakes out, the measure can't come too soon for Kathy Ramert, 54, a single mom in Tucson, Ariz., with multiple sclerosis. Even with health insurance, the accountant pays $822 a month for her medicine. "This is what's keeping me going," she says. "Any savings would be a huge help."