Health Reform May Prevent Cheaper ‘Wonder Drugs’ From Reaching Consumers

BiologicsTime’s Karen Tumulty is surprised by President Obama’s decision to lower the biologics’ 12-year exclusivity deal to 10 years. “My sources tell me that the first inkling the industry and its allies got to the contrary came in a private meeting in recent days,” Tumulty reports. “In that session, California Congresswoman Anna Eshoo–the lead supporter of the 12-year provision in the House–asked the President to affirm that he supported it. ‘As a matter of fact,’ Obama told her, ‘I don’t.'”

This may be the first time Obama became personally involved in the specifics of reform legislation, but he didn’t go far enough in lowering the price of biologic drugs or closing the loopholes in existing patent law. After all, the 10-year exclusivity agreement for brand-name biologic drugs — a new class of ‘wonder drugs’ that contain living organisms and are incredibly expensive — could postpone any real savings far into the future:

A 2008 analysis by former Clinton Administration official Robert Shapiro, who has consulted for both biologics companies and their would-be generic competitors, suggested that generic versions of the top 12 categories of biologics whose patents have expired or will expire soon could save Americans up to $108 billion in the first 10 years and as much as $378 billion over two decades. “It’s the low-hanging fruit,” says Mark Merritt, head of the Pharmaceutical Care Management Association, the trade organization for prescription-drug-benefit managers. “If you can’t get this right on cost control, what can you get right?”

Currently, there exists no expedited pathway for approving generic versions of brand name biologic drugs. “[A]ny prospective competitor to a brand-name product would have to go through the same lengthy and expensive approval process and clinical trials as the original manufacturer. As a result, there is very little economic incentive to develop a competitive version of a successful biologic.”

Health care experts believe that biologics could some day help treat everything from cancer to Parkinson’s disease and lawmakers are seeking ways to lower costs by increasing competition, while giving brand-name manufacturers the patent protection they need to continue researching and developing new medicines. In 1984, Congress tried to strike this balance with traditional drugs by passing the Hatch-Waxman Act. The bill, which at the time excluded the very small biologics industry, established a pathway for “generic drug firms to challenge weak branded drug patents” and introduce cheaper generic drugs into the market place. But in recent years, brand-name manufacturers have started exploiting a loophole in the law and paying “competitors to keep cheaper, generic versions off the market.” These so-called pay-to-delay schemes have cost consumers “an average of $3.5 billion a year in potential savings, according to a recent report by the Federal Trade Commission.” The federal government loses money “by being forced to pay billions for higher-priced medications needed by patients covered under government health insurance programs” and the Act stifles competition by granting a 180-day exclusivity period “to the first generic manufacturer attempting to market their generic,” detracting other companies from entering the market place.

Former anti-trust enforcer and CAP Senior Fellow David Balto describes the 180-day exclusivity period “for the first generic company to challenge a patent” as “the ticket to the generic market and only one person gets that ticket, the first one that challenges it.” “The generic company could enter the market and it will make a certain amount of money for that period of time, it will do really well. Then at the end of the six-month exclusivity period the prices quickly compete down to marginal costs,” Balto told the Wonk Room. “Ten years ago generic companies figured out that there is only so much money that generic firm can make by entering the market. But, if the branded firm shares its monopoly profits with the generic firm, then both of them profit and both of them are better off,” he said. “In the pharmaceutical industry lawyers actively work to find regulatory loopholes to go and delay the entry of generic drugs.”

If health care reform is to improve the affordability of prescription drugs, reformers must close the loopholes in the current law and create a new generic pathway to reduce the costs of the next generation of biologic drugs. To address the former, a coalition of consumer advocacy groups has written a letter to House Speaker Nancy Pelosi (D-CA) and Senate Majority Leader Harry Reid (D-NV) asking them to declare pay-for-delay “per se illegal.” Rep. Bobby Rush (D-IL) included this language in the House bill, but there is no similar provision in the Senate bill. The letter also asks House and Senate negotiators to extend the 180-day exclusivity period to “subsequent successful challenges to patents.” “Expanding the exclusivity period is vitally important, since it removes the barrier to entry that has protected collusive settlements between brands and first filing generics,” the letter argues.

Limiting the exclusivity period for biological drugs would also increase competition and lower drug costs. A recent Federal Trade Commission report comparing “potential entry and competition by FOBs with entry and competition by small-molecule pharmaceuticals,” concluded that “competition by FOBs is unlikely to be similar to branded-generic drug competition [partly] because” of the substantial costs associated with obtaining FDA approval and “the lack of automatic substitution between an FOB drug and a pioneer biologic drug.” The report concluded that “the 12- to 14-year regulatory exclusivity period is too long to promote innovation by these firms, particularly since they likely will retain substantial market share after FOB entry” and recommended against establishing an exclusivity period.

During House Energy and Commerce Committee’s mark-up of the health care bill, Rep. Henry Waxman (D-CA) “had pushed to shield biologics for no more than five years — the same amount of time that traditional pharmaceuticals get under the Hatch-Waxman law,” but Rep. Anna Eshoo (D-CA)’s 12-year shield prevailed. Obama had originally suggested a 7-year exclusivity provision as a possible compromise, but has now, as Tumulty reports, increased that number to 10.

PhRMA, the lobbying arm of the pharmaceutical industry, is mobilizing against the reduction and threatening to withdraw its support for health care reform. “Mr. Waxman is pushing hard, with the support of the President, to drop our 12-year FOB period down,” PhRMA CEO Billy Touzin wrote in an email to his board. “We are all letting everyone we know hear that we could not support the bill if this happens. Please activate immediately all of your contacts.”