Economic Analysis of Availability of Follow-on Protein Products. Background


1. US Regulation of Chemical Small Molecules vs. Biological Products

Most conventional drugs, from aspirin to beta-blockers to statins, comprise small molecules produced using a form of chemical synthesis. In contrast, biological products are usually large, complex molecules that are produced by living organisms such as yeast or mammalian cells. Examples are vaccines, blood and blood products, and insulin. Today, certain commercially bioengineered biologics such as erythropoiesis-stimulating agents and granulocyte colony stimulating factors account for billions of dollars in health care spending. US sales of biologics are expected to exceed $60 billion by 2010.[6]

Small molecules are regulated under the Federal Food, Drug, and Cosmetic Act (FDCA), passed in 1938 to establish a new approval process for drugs. The FDCA includes the 1984 Hatch-Waxman amendments, which established the prevailing drug approval scheme in the US . In brief, under this scheme, most novel drugs ("new chemical entities" [NCEs]) are approved under a New Drug Application (NDA), which pertains to safety and effectiveness as well as patents claiming the drug product and methods for using it (i.e., section 505(b)). The Hatch-Waxman Act provides five years of market exclusivity to the sponsor of an NCE, during which time applications cannot be submitted for alternate versions of the NCE. Further, sponsors can receive three more years of market exclusivity for modifications to existing products that require new clinical investigations. This extended exclusivity prevents Food and Drug Administration (FDA) approval of a generic product with the same modification or a new indication during that time. One method of permission to a generic drug sponsor to market its product is provided through FDA approval of an Abbreviated New Drug Application (ANDA) as described in section 505(j) of the FDCA. Under an ANDA, a generic drug must have the same active ingredient as the original product and the same indications of use, route of administration, dosage form, strength, and (in most instances) labeling as the original product. Having the identical active ingredients as the original product, approval of a generic as safe and effective generally relies on safety and effectiveness data submitted with the original product. An alternative method for generic approval is provided through section 505(b)(2) of the FDCA, commonly referred to as the "paper NDA." FDA has taken the position that a 505(b)(2) permits the applicant to file an NDA that does not contain full reports of clinical studies proving safety and effectiveness, and, instead, references a previously approved innovator product.[7]

Starting with the Biologics Control Act early in the last century, Congress has regulated most biologics separately from small molecules. In 1944, the Biologics Control Act was incorporated into the Public Health Service (PHS) Act, under which biologics are still regulated today. (For historical reasons, certain biologics are regulated under the FDCA, including human growth hormone (hGH), calcitonin, and hyaluronidase.) Consistent with this different regulatory status for biologics, FDA provided a different regulatory scheme for these products. As opposed to the NDA process, marketing of biologics requires FDA approval of a Biological License Application (BLA), which pertains to both the biologic product itself and the producing facility. The PHS Act does not provide an abbreviated approval scheme for products intended to be replicas or closely similar follow-on products.[8] While these products are known by various names (e.g., biosimilars, biogenerics), this report uses the term "follow-on protein products" (FoPPs).

Because of their different molecular nature and mode of production compared to small molecule drugs, producing truly identical generic versions of original biologics is regarded currently as unlikely or impossible. As more originator (or "branded") biologics approach expiration of their intellectual property, there are opportunities for sponsors to develop similar or follow-on products, if not true generic versions. However, the absence of a regulatory pathway under the PHS Act that is analogous to either the 505(j) (ANDA) or 505(b)(2) (paper NDA) pathways under the FDCA complicates the market environment for producing FoPPs that could compete with the original biologics and lower prices in the manner that generics have done for small molecule drugs.

2. Early Experience with US Regulation of FoPPs

To date, at least six FoPPs have been approved by the FDA through section 505(b)(2) of the FDCA.[9] Some examples of products approved through this mechanism to date are:  Hylenex® (hyaluronidase recombinant human, Baxter), HydaseTM (hyaluronidase, Akorn), Amphadase® (hyaluronidase, Amphastar), Fortical® (calcitonin salmon recombinant, Upsher-Smith) Nasal Spray, GlucaGen® (glucagon, Novo Nordisk), and Omnitrope® (somatropin, Sandoz).[10] While it is not the first approved FoPP, the case of the somatropin follow-on is of particular importance because it is the first instance of a human growth hormone (hGH) FoPP, i.e., a relatively more complex biologic, approved through the FDA 505(b)(2) process.

Sandoz's Omnitrope® is a biologic intended to replicate the recombinant hGH, somatropin, which is regulated under the FDCA. After several years of consultation with the FDA, Sandoz filed an abbreviated application for Omnitrope® in July 2003. The application consisted of physiochemical, pharmacokinetic, pharmacodynamic, and clinical data comparing Omnitrope® with the innovator drug, Genotropin® (Pfizer). The clinical comparative data submitted came from two controlled trials in pediatric subjects. These data, in combination with the FDA's prior finding that the innovator drug is safe and effective, were intended to support the conclusion that Omnitrope® is also safe and effective for the same indications as the innovator drug, including indications for which Omnitrope® was not studied. [11],[12],[13] Following a year of deliberation, the FDA was still unable to reach a decision whether or not to approve the drug. As a result, Sandoz filed a suit with federal courts forcing the FDA to make a decision. Ultimately, the FDA approved Omnitrope® for use in the US in May 2006, concluding that, while the active ingredient was not identical to the active ingredient of the innovator product, it was highly similar and shared the same molecular weight.[14] While still considered a FoPP to Genotropin®, Omnitrope® has not been rated by the FDA as therapeutically equivalent to Genotropin® or any previously approved hGH product.[15] Since all hGH products are approved under the FDCA, the abbreviated approval of Omnitrope® does not establish a pathway for follow-on versions of biologics regulated under the PHS Act.

3. European Biosimilars Program

While experience with regulation of FoPPs in the US is currently limited to biologics under the FDCA, Europe presents a potential model for a new regulatory pathway for FoPPs in the US . In its "biosimilars" program, Europe has taken a case-by-case approach in regulating FoPPs, requiring some clinical efficacy and safety data for market approval. As implemented by the European Medicines Agency (EMEA), this program provides 10 years of market exclusivity (which can be extended for one year for new therapeutic indications) for a reference (i.e., originator) product against generic, hybrid, or similar biological products.[16]

The first two FoPPs were approved under the biosimilars program in 2006. These were two hGH FoPPs to somatropin, which is produced as branded products Genotropin® (Pfizer) and Humatrope® (Eli Lilly). The FoPPs for these products are known as Omnitrope® (Sandoz) and Valtropin® (Biopartners), respectively. Although it is generally acknowledged that price discounts resulting from the availability of FoPPs are unlikely to reach the amounts with generic versions of regular/small molecules, early experience with Omnitrope® in Germany suggests that the discounts may still be significant.[17] The global market for hGH is about $2.47 billion.[18] In Germany , Sandoz launched Omnitrope® at a 20% discount, and Omnitrope® currently sells for approximately 25% less than Genotropin®.[19] Although these price discounts might have been expected to yield significant savings for consumers and the health system, market share to date for these products across most of Europe is only a few percent. (Undocumented reports suggest that market share in Poland may exceed 50%.[20])

Five additional FoPPs were approved by the EMEA in 2007. The approved FoPPs are based on Johnson & Johnson's erythropoiesis-stimulating agent (ESA), Eprex (marketed as Procrit® in the US ). Binocrit® (Sandoz GmbH), Epoetin alfa Hexal® (Hexal Biotech Forschungs GmbH), and Abseamed® (Medice Arzneimittel Pütter GMBH & Co.) are all epoetin alphas, while Silapo® (Stada Arzneimittel AG) and Retacrit® (Hospira Enterprises B.V.) are epoetin zetas.[21],[22] The current global market for ESAs is $11.94 billion annually, posing a considerable target for competition by biosimilars.[23] Of note in this market is that all three epoetin alphas are products of a single company (Rentschler Biotechnologie GmbH) and that the two epoetin zetas are products of a single company (Norbitec GmbH).

In 2008, six FoPPs for granulocyte colony-stimulating factors (G-CSFs) were approved by the EMEA. XM02, manufactured by Sicor Biotech UAB in Vilnius, Lithuania, has been approved for sale as Biograstim (CT Arzneimittel), Filgrastim Ratiopharm (Ratiopharm), Ratiograstim (Ratiopharm) and Tevagrastim (Teva Pharmaceuticals).[24],[25],[26],[27] Filgrastim, manufactured by Sandoz in Austria, has been approved for sale as Filgrastim Hexal (Hexal Biotech Forschungs GmbH) and Zarzio (Sandoz GmbH).[28],[29] These are biological medicinal products similar to the reference product Neupogen™ (filgrastim) authorized in the EU. The market for G-CSFs is $4.36 billion annually.[30] Similar to the ESA market, while there are six filgrastim follow-ons, only two companies actually manufacture these biologics: Biotech UAB and Sandoz.

Although the biosimilars program established a model of a regulatory pathway and has approved its first products, the data on market performance are only recently emerging. The European experience with regulation of FoPPs may differ from what may arise in the US . Consumption levels of these products tend to be lower in Europe than in the US (although lower prices for the FoPPs could increase European consumption). Reference pricing used in Europe may make the market for FoPPs less attractive by placing additional downward price pressure on the original product once FoPPs enter the market.

4. US Proposals to Establish a Regulatory Pathway for FoPPs

Members of Congress and other policymakers have put forth various proposals for establishing a regulatory pathway for FoPPs. During the 110th Congress, five bills were introduced in the House and Senate and referred to committee. While none of these bills were reported out of committee or received a vote, it is likely that similar proposals will arise in the 111th Congress. To date, two unique bills (three bills in total) have been introduced in the 111th Congress related to biosimilars, including a reintroduction of The Access to Life Saving Medicine Act, now entitled The Promoting Innovation and Access to Life Saving Medicine Act by Representative Waxman and Senator Schumer and a reintroduction of The Pathway for Biosimilars Act by Representative Eshoo. Key provisions from each bill in the 110th and 111th Congress are provided below.

111th Congress, H.R. 1548/S.726: The Promoting Innovation and Access to Life-Saving Medicine Act[31]
Reintroduction of 110th Congress, H.R. 1038/S. 623: The Access to Life-Saving Medicine Act[32])

  • Allows a company to file an abbreviated biological product application with the FDA that includes:

    • Data demonstrating that the product is comparable to or interchangeable with the innovator product
      Information to show that the conditions in the labeling proposed for the FoPP have been previously approved for the innovator product
    • Information to show that the route of administration, dosage, and strength of the FoPP are the same as the reference product

  • Allows the FoPP applicant to request FDA make a determination of the interchangeability of the FoPP and the reference product
  • Provides the innovator product five years of market exclusivity and an additional six months of market exclusivity for pediatric applications

    • The version introduced in the 110th Congress did not provide a period of market exclusivity for the innovator product
  • Provides the innovator product with a total of eight years of market exclusivity if an additional indication is approved
  • Provides a period of up to 36 months of market exclusivity for the first FoPP

111th Congress, H.R. 1548: The Pathway for Biosimilars Act[33]
(Reintroduction of 110th Congress, H.R. 5629: The Pathway for Biosimilars Act[34])

  • Requires an abbreviated biological license application to include:

    • Data from analytical studies
    • Data from animal studies
    • At least one clinical study for each condition of use for which the reference product is approved

  • Provides the innovator product with 12 years of general market exclusivity and 12 years and 6 months of market exclusivity for pediatric applications
  • Provides the innovator product with a total of 14 years of market exclusivity if an additional indication is approved in the first 8 years of market exclusivity
  • Allows for determinations of interchangeability
  • Requires labeling and packaging of each FoPP to have a unique name that distinguishes it from the innovator product
  • Provides a two-year market exclusivity period to the first interchangeable FoPP

110th Congress, H.R. 1956: The Patient Protection and Innovative Biologic Medicines Act of 2007[35]

  • Allows a company to file an abbreviated biological product application with the FDA that includes assurance that the FoPP applicant will follow good manufacturing practices
  • Allows for approval of a FoPP only for the indications for which the innovator product is approved
  • Does not allow FDA to determine therapeutic equivalence
  • Provides a period of market exclusivity for the innovator product of up to 14 years
  • Provides for final product-class specific guidance
  • Includes provisions governing the naming of FoPPs

110th Congress, S. 1505: The Affordable Biologics for Consumers Act of 2007[36]

  • Allows a company to file an abbreviated biological product application with the FDA that includes:

    • Data demonstrating that the product is similar to the innovator product based on scientific knowledge and technology capabilities at the time of submission
    • Information to show that the conditions in the labeling proposed for the FoPP have been previously approved for the innovator product
    • Information to show that the route of administration, dosage, and strength of the FoPP are the same as the reference product
    • Assurance that the FoPP applicant will follow good manufacturing practices

  • Provides for final product class-specific guidance
  • Mandates that the company producing the FoPP must provide the FDA with written documentation of differences discovered between the FoPP and the innovator for any purpose
  • Provides at least 14 years of market exclusivity for the innovator drug
  • Provides up to 16 years of market exclusivity for the innovator drug if the drug is approved for a new indication within the first 12 years after approval

110th Congress, S. 1695: The Biologics Price Competition and Innovation Act of 2007[37]

  • Requires a company to file the following information in an abbreviated biological product application with the FDA:

    • Analytical studies that show the two products are highly similar
    • Animal studies, including a toxicity assessment
    • Clinical studies, including immunogenicity and other factors
    • Demonstration that the FoPP has the same mechanism of action as the innovator product
    • Proof that the condition of use in the proposed labeling has been previously approved for the innovator product
    • Indication that the route of administration, dosage form, and strength of the FoPP is the same as the innovator product
    • Demonstration that any facility in which the biological product is manufactured or held meets good manufacturing standards

  • Allows for biosimilar and interchangeable determinations by FDA
  • Provides innovator product with 12 years of market exclusivity
  • Allows for a one-year period of exclusivity for the first interchangeable FoPP
  • Requires that FoPPs to orphan drug products be licensed only after the latter of the two expirations for the innovator product; either after the 7-year period defined in the FDCA or the 12-year period defined in the Act.

In the 110th Congress, H.R. 1038/S. 623 was favored by the generics industry, whereas H.R. 1956, H.R. 5629, and S. 1505 were favored by the innovator companies.[38] S. 1695 was regarded as a compromise position between innovator and generic companies, allowing the FDA to determine interchangeability and not requiring a unique nonproprietary name for the FoPP, while providing at least 12 years of market exclusivity to the innovator product. In the 111th Congress, H.R. 1548 (formerly H.R. 5629) is regarded as more favorable to the innovator companies due to the extended period of market exclusivity for the originator biologic.[39] However, H.R. 1427/S. 726 (formerly H.R. 1038/S. 623), now allows for five years of market exclusivity for the originator biologic in its updated form. This exclusivity period was added due to concerns that eliminating exclusivity periods would undermine innovation because companies would lack the financial incentives to conduct new research.[40] Nevertheless, these proposals remain highly controversial.[41] This controversy stems, in part, from divergent expectations about the potential impact of such a regulatory pathway on development of FoPPs, patient health, cost savings, and innovation of new biologics.

5. Estimates of Potential Cost Savings Associated with FoPPs

Given the high prices associated with biologics and the likelihood of price discounts with the introduction of FoPPs, several recent analyses have been designed to quantify the potential cost savings that could be derived from an abbreviated pathway for FoPPs. Three studies released in early 2007 generated estimates of cost savings that could result from patent expiration of branded biologics and the emergence of corresponding FoPPs. The three studies are: Avalere,[42] Engel & Novitt,[43] and Express Scripts.[44] While these analyses started with similar goals, each has generated divergent estimates. The Avalere study estimated government savings at $3.6 billion in the first 10 years with the introduction of FoPPs.[45] The Engel & Novitt study estimated $14 billion in savings in the Medicare population alone over 10 years following the introduction of FoPPs.[46] The study by Express Scripts estimated 10-year consumer savings at $71 billion and federal savings at $14 billion with the introduction of FoPPs.[47] Although all three studies made estimates for 10-year periods, their savings estimates are not directly comparable. Avalere estimated total federal savings, Engel & Novitt estimated savings from Medicare Part B biologics, and Express Scripts estimated total savings (not distinguishing between federal and private) for four therapeutic classes of biologics.

The approaches of the three studies share certain main aspects, including estimating:

  • US expenditures on the class of biologics over a 10-year period, assuming no introduction of FoPPs
  • The proportion of expenditures from this baseline in each year that will be subject to patent expiration
  • The proportion of these expenditures that will be subject to competition from the introduction of FoPPs
  • The percentage discount for these expenditures that will be subject to FoPP competition

The studies differ in the:

  • Set of "baseline" biologics included for analyses
  • Estimates of the proportion of biologics that will not be under patent protection in a given year
  • Proportion and timing of these no longer under patent protection that will be subject to FoPP competition
  • Discount percentage from the brand price

Other important observations regarding the three existing studies are as follows:

  • Only one study (Express Scripps) conducted analysis at the individual drug and therapy level. This study used actual patent expiration dates and distinguished between generic/follow-on products that were assumed to be identical molecules versus those that were assumed to be therapeutically equivalent.
  • Only one study (Avalere) included any explicit analysis of market price dynamics for the brand name drugs subject to patent expiration. However, the rationale and empirical basis for the price dynamics used in the analysis were not made clear in the study.
  • In setting price discounts for FoPPs, all of the studies relied on analogies of discounting of generic small molecules, with little consideration of how differences between factors pertaining to small molecules and those pertaining to complex FoPP molecules might affect such discounts.
  • None of the studies provided explicit price elasticities between brand biologics and FoPPs, and none of the studies provide an empirical basis for the implied elasticities other than general analogies.
  • The more substitutable products are for one another, the greater their price elasticity should be. One study (Express Scripps) made an elasticity distinction between instances of substituting same (generic) molecules and instances of substituting non-identical therapeutically-equivalent products.
  • None of the studies analyzed the potential cost differences between obtaining expedited FDA approval of a simple molecule versus the more complex biologics. However, one study (Avalere) alluded to this difference and sought to account for it by assuming greater lags in the introduction of the FoPPs than the other studies.
  • Though all of the studies alluded to a range of possible discounts and uncertainty in other parameters, exploration of the sensitivity of results to uncertainty in the underlying assumptions was limited.

Given differences in their methodologies and assumptions, taken together, these studies do not provide a clear estimate of the magnitude of cost savings resulting from the availability of FoPPs.

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