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It was possible to achieve the benefits of the Hatch–Waxman Act because the Food and Drug Administration (FDA) could review data establishing bioequivalence and be confident that data on the safety and efficacy of the original drug would apply to generic versions as well. Biopharmaceuticals are frequently much more complex than small-molecule drugs, and their manufacture often entails the use of live cells and complicated biologic processes that are difficult to replicate. Indeed, the manufacturing process can be a trade secret. Thus, obtaining evidence that a drug is similar to and will have the same effects as the original is more complicated for biopharmaceuticals.
The European Union is ahead of the United States in dealing with these issues, although the FDA has begun to address them in an ad hoc fashion. Any U.S. policy in this arena will no doubt share some basic features with the one established in Europe. This means that a multistage process will probably be developed and that the FDA will be given a great deal of discretion in deciding how much data and testing are enough to establish attainment of the key standards of safety and efficacy — similarity and interchangeability — for follow-on biologics. Having such discretionary powers will also permit the FDA to incorporate rapidly changing technology into measurement and testing procedures.
The differences between follow-on biologics and generic pharmaceuticals suggest that market competition may also be very different. Bringing a product to market will be less certain and more costly for follow-on biologics than it is for generic drugs. The fixed costs of establishing a manufacturing plant are higher, and the variable manufacturing costs will be higher as well. In addition, biopharmaceutical production facilities must be scrutinized more closely than generic-drug manufacturing facilities. The uncertainty and costs of developing manufacturing capability and addressing the requirements of the regulatory process may reduce the number of firms seeking to produce follow-on biologics. An open question is whether there will be enough sellers to generate active price competition: economic research has generally shown that most of the benefits of price competition are not obtained until four or five firms enter a market. The expected profitability of developing a follow-on biologic will be paramount. The speed of entry will also depend on how much information about their manufacturing processes the makers of original biopharmaceuticals will be required to report. Analysts predict that more complicated molecules will have less competition from follow-on products, which will enter the market more slowly than traditional generic pharmaceuticals.
Finally, the returns to research and development for biopharmaceuticals are unclear. Suppose, as has been suggested, that regulations governing the approval of follow-on biologics guarantee 12 years of exclusivity for brand-name biopharmaceuticals and that the technological and economic environment dampens potential competition. These factors would create a favorable climate for investment in research and development, weakening the case for special provisions. On the other hand, it appears that the costs and risks associated with developing biopharmaceuticals exceed those for small-molecule drugs. So the net effect on expected returns on investment remains an open question. The years of exclusivity granted to brand-name products will probably be an important driver of these returns and pose a barrier to competition from follow-ons. It is premature to assume that 12 years of exclusivity will be needed to preserve innovation in the biopharmaceutical arena — and putting off price competition is risky because of pressures on public budgets and the expanded role of the Medicare program in purchasing biopharmaceuticals.
The prospect of the loss of patent protection for tens of billions of dollars' worth of biopharmaceuticals increases the urgency of the need for a regulatory policy that promotes price competition and preserves the safety and efficacy standards that Americans expect from prescription drugs. In my opinion, the Hatch–Waxman framework is not sufficient to cover both relatively simple biopharmaceuticals and very large and complex molecules — a new regulatory framework is needed. Because of the need for complex, situation-specific judgments, the FDA should be granted a great deal of discretion. The conflicting goals of bolstering price competition in biopharmaceutical markets and preserving the incentives for innovation call for a nuanced policy that must be based on the best current science and key features of the economics of biopharmaceutical markets — not on the impassioned claims of the interested parties.
Source Information
Dr. Frank is a professor of health economics at Harvard Medical School, Boston.
An interview with Senator Orrin Hatch (R-UT) can be heard at www.nejm.org.
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