The proposed Healthcare reform for biosimilars will have a major negative impact on the pharma and biotech industry because biologics are more costly, time consuming and requires a longer lead time in commercializing a product than pharmaceutical drugs.

Generic drugs are approved on equivalent bioavailability and not efficacy since the chemistry is straightforward. The big debate is the FDA regulatory pathway for biosimilars. Some argue that "because the biologics are made from living cells, and the manufacturing processes are so complicated, new clinical trials are needed to ensure purity, potency, and safety."

The regulatory pathway for generics in the medical device industry is simpler, barriers to entry are much lower, and the resulting product is often of lower quality than brand name devices. And now, to add insult to injury, the new healthcare reform dictates four challenges that would allow generics early market entry and discourage innovation.

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Generics drugs have always been a "thorn in the side" of the pharma industry because of revenue loss and pressure to launch new products to make up for this revenue loss. Pharma companies have expanded to include biologics in their product portfolio which are more costly and time consuming than drugs.

Right now the pharma industry is in a quandary because a number of billion dollar blockbuster drugs and biologics are going off patent and there are few new products in the near future. The proposed healthcare reform on biosimilars is yet another thorn for current and pipeline products.

The EU has already decided to have two separate regulatory pathways, one for generics and one for biosimilars and each type of biosimilar will be considered separately.

Two critical pieces of the proposed US regulatory requirements will determine whether the pharma or biotech companies will be able to survive in this industry.

Is it twelve years of data or market exclusivity or both?

President Obama signed the Patient Protection and Affordability Act that granted manufacturers of brand name biologics 12 years of exclusivity before biosimilars can enter the market.

The heated debate according to the Wall Street Journal is between the healthcare payers and the drug developers on the definition of exclusivity. Payers interpret the exclusivity as 4 years of data exclusivity and 12 years of market exclusivity allowing generic companies early access to the developer's data in preparation of launch in year 12. 

Drug developers interpret the bill as 12 year data exclusivity where generic companies would not have access to their data until year 12 thereby delaying generic entry.  This would also allow developers time to recoup their R&D costs. "Congress intended data exclusivity to be an incentive for innovation," said Amgen, which makes several top-selling biologics. 

The lawmakers are split between the two parties. Three Democratic senators, Sherrod Brown of Ohio, Tom Harkin of Iowa and Charles Schumer of New York, and Republican Sen. John McCain of Arizona agree with the generic drug makers and healthcare payers.

The principal authors of the bill who were striving to "balance incentive for innovation" and agree with the drug developers, created the approval pathway for 12 year data exclusivity. "In a letter sent last month, Reps. Anna Eshoo (D-Calif.), Jay Inslee (D-Wash.), and Joe Barton (R-Texas)... "express concern that FDA officials are confused about the 12-year period of data exclusivity that was granted to manufacturers of brand biologics when President Barack Obama signed the Patient Protection and Affordable Care Act into law last year."

"Who's right? Neither side, generic drug lawyer Kurt Karst of Hyman Phelps & McNamara PC tells the WSJ."  The law doesn't specify and Congress will have to settle yet another biosimilar debate.

Will clinical trials be required to demonstrate safety and efficacy?

"What makes biologics different and more expensive?" Anna Eshoo (D-Calif), the principal author of the bill comments "Biological products are fundamentally different. A biologic is a large, complex molecule, which is 'grown' in living systems such as a microorganism, a plant or animal cell. The resulting protein is unique to the cell lines and the specific process used to produce it, and even slight differences in the manufacturing of a biologic can alter its nature. As a result, biologics are difficult, sometimes impossible to characterize, and laboratory analysis of the finished product is insufficient to ensure its safety and efficacy."

"Even if a biosimilar is proven to be safe and effective, it will likely still have different properties than the original innovative product. There may be differences in dosing, different side affects or safety profiles, and differences in effectiveness for certain diseases or patient groups," said Anna Eshoo. 

"What differentiates this market is that it's a much more expensive process to make biologics. You need bioreactors, cell banks, lots of specialized equipment," said Don Ware, the Boston-based co-chair of the life sciences division at law firm Foley Hoag LLP.

Generic companies are currently targeting blockbuster monoclonal antibodies (biologics) developed by the top biopharma companies. "But it won't be cheap. The research group Collins Stewart has estimated that developers will need to budget $100 million for the kinds of clinical trials that will be required to gain an approval. And once they hit the market, the follow-ons are expected to offer discounts of 10 to 15 percent."

How did a biosimilar get approved through the current regulatory pathway?

Momenta/Sandoz Pharmacueticals, the generic arm of Novartis have cleverly figured out a way to obtain approval for their biosimilar of Lovenox, made by Sanofi-Aventis using an alternative regulatory pathway currently in place for years. Pharma and Biotech companies are now scrambling to figure this out how they did it and how to protect themselves.

"Our advice (to companies with name-brand biologics) is to think about creating a broad patent portfolio, not only to cover the sequences of molecules, but more importantly, also protecting the method of formulation, the dosing, the delivery methods," said Jonathan Sparks, a Boston-based attorney in the life sciences practice at McCarter & English LLP. "You need to create a picket fence around the product." 

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There are three things that a company with a branded biologic can do to slow the entry of biosimilars: 1) have a broad patent that covers the sequences of molecules, but more importantly, the method of formulation, the dosing, the delivery methods according to McCarter & English LLP, 2) develop better biologics where sequence, methods of formulation, and delivery methods are difficult and cost prohibitive for generic companies to enter the market and 3) petition vigorously for 12 years of data exclusivity and clinical trials to prove efficacy and safety.

"If you can't beat them, join them" seems to be the sentiment since the US biosimilar regulatory pathway was proposed, the implementation of biosimilars in the EU, and the successful launch of a biosimilar for Lovenox by Sandoz/Momenta. Many major pharma companies have entered into the biosimilar market including, Pfizer, Merck, Spectrum, and Endo in addition to "generic" companies Teva and Watson that are not part of Big Pharma.

This allows Big Pharma with brand biologics to recoup some revenue vs. no revenue when biosimilars are purchased. It's easier for Big Pharma companies to enter the biosimilar market if they already manufacturer a branded biologic. It's another source of revenue that only requires about a tenth of the R&D budget of branded products for those entering the market.

As companies enter the biosimilar market copying branded biologics from other pharma companies, it's going to be an enormous battle for market share. The gains are short term because price is the only driver compared to name brand biologics (before generics) that offer compelling benefits. The companies that enter the US and EU market first (projected discount of at least 10-15%) will have the biggest rewards, but then they dramatically drop as each competitor enters the market. The biosimilar market looks very appealing, but I caution that the industry does not take its focus away from innovation in regards to time and money.

Biosimilars is another avenue of getting into the emerging markets as mandatory discounts are at least 40% as mentioned in my January newsletter. But the regulatory pathway will determine whether it will be a worthwhile venture. Many major pharma companies have already made significant acquisitions of local pharma and generic companies in penetrating these markets including Teva Pharmaceuticals, a generic company that is aggressively pursuing emerging markets.

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FDA 510(k) Approval Process

One of the methods the medical device industry has tried to combat generic devices is to develop new devices or improve the current device. But, one of the biggest obstacles for the medical device industry is the lengthy 510(k) approval process for new or improved devices due to the complex, cumbersome guidelines, closed communication with the FDA and being understaffed.

The FDA has proposed to implement changes to deliver "a smarter medical device program that supports innovation, keeps jobs here at home and brings important, safe and effective technologies to patients quickly," said CDRH chief Dr. Jeffrey Shuren.

On January 19, 2011, the "FDA reveals plans to implement 25 changes to its 510(k) medical device clearance program, but will hold off on any major moves until after the release of an Institute of Medicine report that is scheduled for this summer."

"The Center for Devices and Radiological Health said it would also implement changes including streamlining the "de novo" review process for lower-risk devices, clear guidelines on when medical device manufacturers must submit clinical data in a 510(k) submission and the creation of external experts who can use their knowledge and experience to help the agency address important scientific issues regarding new medical device technologies by Sept. 15."

"About half of the 55 changes the agency recommended in August 2010 are still being discussed. Among those were several of the most controversial elements, such as the ability to revoke 510(K) clearances, increased post-market surveillance, and the establishment of a new classification (Class IIB) for medical devices that would require the submission of clinical evidence."

Transparency

To bolster the safety of medical devices, the CDRH has proposed the following:

1) "Establish a public database of important device information, such as medical device photographs, labeling and summaries of the basis for the FDA's decision to clear specific devices. The database will be discussed at a public meeting taking place April 7 and 8, 2011."

These proposals that require a public database for transparency would allow competitors to copy the inventor's device and discourage innovation. It's not surprising that the medical device manufacturers are having a negative reaction to it.

"Everything you submit - your CAD, your drawings, your engineering, your indications for use, your clinical studies, all the mistakes you've learned - will be disclosed for all the world to see," (Michael) Minogue, CEO of Abiomed said. "This would really be detrimental to innovation and would really punish the smaller companies. It will slow down people investing in big bets and the learning curve will basically be cut away from the innovators. And it will likely be a great source for foreign companies to download and look at everything we have on the road map. Transparency might not be (what) they're looking for...when you really think about what it could do to innovation in the States."

Device Tax (2.3% tax) on revenue

The healthcare reform has mandated a 2.3% tax on medical devices in generating $20 billion dollars to help pay for health insurance for all Americans. This tax will have a detrimental impact on the industry leading to a loss in revenue, loss of jobs, decrease R&D budget that discourages innovation, decrease in employee benefits, and an increase in outsourcing overseas.

"MDMA is very concerned about the impact ...on patient care, innovation and small business.... Under the current structure, many companies will owe more in taxes than they generate in profits, requiring companies to layoff employees, cut R&D budgets and slow the development of new therapies that would have improved the quality of care for all Americans..." said Mark Leahey, president and CEO of the Medical Device Manufacturers Association.

On January 27, 2011, four Senate Republicans revealed a bill that would eliminate the medical device tax scheduled to go into effect in 2013. "A $20 billion tax hike on medical device manufacturers to fund Obamacare will cripple an important engine of opportunity, job growth and innovation, while hurting the advancement of technologies essential to improving patient care," Senate Finance Committee ranking member Orrin Hatch (R-Utah) said in a statement.

Decreased CMS reimbursement

The healthcare reform includes reducing the budget for CMS (Medicare/Medicaid). The 2010 fee schedule dramatically reduced payment to device manufactures in several therapeutic areas. A few examples are:

1. Cardiac device: 30-40% fee reduction
2. Pelvic CT: 48% reduction in nonhospital setting
3. Chest Spine: MRIs 46% reduction

The 2011 fee schedule updates are currently not available. But if the dramatic reduction in reimbursement continues, this will definitely discourage innovation in the US, encourage innovation to be outsourced overseas or encourage innovation for emerging markets.

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