When President Barack Obama spoke to the American Medical Assn. on June 15, he tossed out some pretty impressive numbers for savings that would be achieved by implementing various health reform ideas. Limiting tax deductions for the wealthiest Americans would save $300 billion over 10 years, he said, and allowing competitive pricing in Medicare Advantage programs would save $177 billion. But when it came to the idea of allowing generic biotech drugs onto the market, Obama couldn't quite quantify the impact.
"These drugs are used to treat illnesses like anemia," the President said, taking a direct shot at Amgen's (AMGN) blockbuster drugs Aranesp and Epogen, and Johnson & Johnson's (JNJ) Procrit. "But right now, there is no pathway at the FDA for approving generic versions of these drugs. Creating such a pathway will save us billions of dollars."
How many billions? And how fast would those savings be achieved? The answers provided by the drug industry and the government differ vastly. Several government agencies are calling for legislation that would allow the Food & Drug Administration to speed generics, or "follow-on biologics," to market. Creating FOBs is a delicate task, however: Unlike standard drugs, which are made of simple chemicals, biologics are complex proteins that are cloned and then grown in expensive cellular systems.
An Alarmed Biotech Industry
Taking the simplest view of the generic landscape has produced some very rosy scenarios for FOBs. A June report by the Medicare Payment Advisory Commission (MedPAC) said biotech drugs cost Medicare $13 billion a year and that the expenditures would drop dramatically if the FDA could approve cheaper versions of those drugs. And on June 10, the Federal Trade Commission issued a report suggesting that the government make it easier for companies to market FOBs by abbreviating the FDA approval process. Furthermore, the report concluded, there would be no need for special procedures to resolve patent disputes between the drug's inventor and the generic drugmaker prior to the FDA's approval. On June 11, members of the House Energy and Commerce subcommittee debated the issue, with some suggesting companies that pioneer biotech drugs should not continue to reap huge profits for years on end at the expense of needy patients.
The $60-billion-a-year biotechnology industry—fearing an end to the unlimited pricing freedom it has enjoyed throughout its three-decade history—has emerged as the biggest opponent of Obama's generic plan. The Biotechnology Industry Organization dashed out a hostile response to the FTC's suggestions, issuing a statement that faulted the agency for "an exceedingly narrow policy perspective."
The industry fears that limiting patent protections and market exclusivity would crush profits, which would in turn make it difficult for companies to invent new drugs. The average innovation takes $1.2 billion to bring to fruition, the industry group says. The FTC, it adds, "appears to minimize greatly the impact on innovation that would occur under a new paradigm in which biosimilar competitors would be able to take a free ride off the massive [research and development] investment made by the initial innovators."
Herceptin vs. Tykerb? "Nobody knows"
Industry experts predict that technical challenges involved in making biotech drugs will be a hurdle for generic manufacturers. Dr. Lee Newcomer, senior vice-president for oncology at UnitedHealthcare (UNH), uses the examples of cancer drugs Herceptin and Tykerb to illustrate just how little is understood about biotech drugs—even after they're introduced to the market. Herceptin, made by Roche's Genentech unit, and Tykerb, from GlaxoSmithKline (GSK), are essentially the same drug except for a small difference in the way the molecules are built. Some patients respond well to Tykerb, but not to Herceptin.
"Why is that? Nobody knows," Newcomer said in an interview earlier this year. "If this is the active part of the molecule, why does changing this other part make a difference? I think it will be a long time before we see follow-on biologics, because we just don't know enough."
Amgen executives have been speaking out against the idea of a streamlined FDA approval process for follow-on biologics. Roger Perlmutter, executive vice-president for research and development, believes the only way to guarantee patient safety is to scrutinize each FOB as if it's a brand-new invention. "What you have to demand of any follow-on biological is that you do the kinds of studies that establish it has the same benefit/risk profile associated with it as did the pioneer molecule," he says. "A certain amount of clinical experience will be required."
Amgen has more to lose in this fight than any other company: Its biotech drugs to treat anemia, rheumatoid arthritis, and other diseases brought the company $4.2 billion in profits last year, on $15 billion in sales. While the President was making his case for generic biotech drugs before the AMA, Amgen's stock dropped nearly 2%, to 49.45, before recovering.