Healthcare Reform Gave Biotech Everything It Wanted, and More


Xconomy National — 

And so we embark on a new era of healthcare—one that may take many years to fully reach its potential for good or ill. But there are two small bits in the Patient Protection and Affordable Care Act that are immediately relevant and timely for the biotechnology industry. One provides tax breaks for smaller biotechnology companies, while the other simplifies some aspects of the regulatory landscape and adds some complicated wrinkles.

The Therapeutic Discovery Project Credit provides “an amount equal to 50 percent of the qualified investment for such taxable year with respect to any qualifying therapeutic discovery project,” permitting some of the costs for pre-clinical research, clinical trials and other research protocols to be reduced. It appears that it will be limited to organizations with fewer than 250 employees. The total amount of the credit is $1 billion.

A billion dollars is not chump change but could disappear pretty rapidly when clinical trials are included. This credit will be helpful for the right companies but it seems to be a one-time shot in the arm.

The noteworthy part of the legislation, Approval Pathway For Biosimilar Biological Products, provides real clarity on an important regulatory issue. This section permits biologics—the complex therapeutics produced by most biotechnology companies—to maintain 12 years of market exclusivity after FDA approval of the product.

The biotechnology industry breathed a sigh of relief with this section’s passage because this clearly delineated time frame could have been much different.

The Federal Trade Commission had felt that no additional period of exclusivity was required. The Generic Pharmaceutical Association (GPhA) wanted only a five year period. President Obama wanted seven years. The Biotechnology Industry Organization (BIO) wanted at least 12 years. In the end, BIO got exactly what it wanted.

This uncertainty has been eliminated. Biotechnology companies now have a known period of market exclusivity post-approval, one that is independent of patent time frames. This will provide investors with the predictability they crave when they project product sales far into the future for biotech drugs in development.

The generic companies may be happier with another part of this section, though. As the title suggests, it describes the approval process for follow-on biologics—biological copycat molecules that have similar activities to innovative therapeutics already on the market. Until this legislation, there was no practical way for a generic company to make a “biosimilar” drug without incurring many of the same costs as the original innovative biologic. This new route to the market could be very helpful to the generic makers, but only if they can navigate the treacherous pathway known as the FDA approval process.

Regular generic drugs, which are copies of synthetic chemical compounds, are often much cheaper than the original brand names. Development costs are substantially lower and there are few marketing costs for these generics. That will seldom be the case for follow-on biologic drugs, whose complexities present novel difficulties. Generic companies will have to navigate several of the normal aspects of FDA approval, such as pre-clinical data and large clinical trials. Since they are often produced in living cells, manufacturing and production processes for follow-on biologics will also present challenges, increasing development costs. It seems likely that follow-ons will also require marketing expenses not seen with normal generics.

These barriers will limit the entry of large numbers of follow-on biologics into the marketplace. However, there is one more worrisome hurdle that this legislation places in front of anybody who wants to make a follow-on biologic that could compete with an innovator’s product.

Upon application for FDA approval, the company developing the follow-on biologic has to turn over all the relevant documents to the company that owns the original reference therapeutic. Not upon approval, but upon application. To its direct competitor.

That means lawyers at multiple organizations now get to examine all the confidential data and determine whether there are any patent infringements. This seems to be much greater disclosure of confidential information than what is seen today with generic drugs.

As a former VP at a biotechnology company, I would be concerned handing all the information and data required for approval of a product over to my direct competitor before I even have it on the market. All the information is supposed to remain confidential. However, even with legal remedies, lots of damage could potentially be done. Is it worth the risk?

Perhaps I might be misreading the relevant paragraphs. If so, maybe someone could assuage my concerns.

Biotechnology companies developing reference therapeutics should be ecstatic with the legislation. They get 12 years of exclusivity for their products and a first look at any competitor who might produce a follow-on biologic.

On the flip side, companies interested in developing a follow-on biologic may be much less sanguine. They must spend a lot of money generating data for a product that cannot be sold while any market exclusivity still remains – data their direct competitor gets to examine before the follow-on biologic is even approved.

They might ask themselves, “Why not just develop an innovative biologic instead?” The costs will not be much greater, there are 12 years of exclusivity and no one but the FDA gets the data.

I guess time will tell if this legislation really produces a lot of follow-on biologics that help lower the price of drugs. But it certainly helps biotechnology companies.

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38 responses to “Healthcare Reform Gave Biotech Everything It Wanted, and More”

  1. Near-term I believe biotech got what it wanted. But, as long as proprietary biologics remain expensive you can not underestimate the financial incentives for encouraging and helping follow-on biologics gain market approval. Hatch-Waxman demonstrated this and the ability for Congress to change its mind, like when the costs of healthcare reform become a reality 5 or so years from now.

  2. Richard—one thing I forgot to ask yesterday. What kind of impact will biotech feel from having millions of more Americans with health insurance? Doesn’t this mean that the potential customer base for expensive brand-name biologic drugs just got a lot bigger?

  3. Mark,

    I think the complexity of the legislation makes it hard to know just what will happen with drug pricing so, as a possible patient, I hope you are right and that follow-on biologics will drive the price of biotech drugs down.

    It is likely that the complexity of developing these drugs, and then manufacturing them, will make it difficult to offer them for a substantial savings.

    Some projections have them only being able to come in with a 20-30% reduction in the price of the biosimilar. This may not be enough of a price difference for most drugs to provide much of a competitive advantage.

    A biosimilar may not then have enough of a price break to effectively compete with a biologic that has been on the market for 12 years.

    Of course, it is not outside the realm of possibility that Congress will attack the problem of high drug costs with future legislation.

    That will be another, possibly less optimistic, story.

  4. Luke,

    Having millions of new people who might get access to the drugs is an obvious gain.

    A nagging question with all of this is whether there will be any change in the prescription rates for their drugs.

    For example, I have a friend with RA. The insurance company will only pay for her to get Enbrel if she fails in a response to methotrexate.

    My understanding is that there is no real medical reason for this but it is purely economic. Methotrexate costs pennies while Enbrel costs thousands.

    I don’t think Healthcare Reform is going to alter that equation.

    If it could, there would be a revolutionary change in the fortunes of many biotech companies.

    I think the effect the current legislation has on the prescription rates for biotechs will be more evolutionary rather than revolutionary.

  5. If the “public option” had been signed into law, you can bet there would have been howls of protest from the biotech industry. That would have given the federal government significantly more bulk-purchasing power than it already has, allowing it to negotiate for even steeper discounts.

  6. The Congress has been very careful to prevent the government from being able to set prices that way. The Medicare drug benefit passed during the Bush Adminstration made sure the US could not really negotiate lower prices.

    I just do not ever see that happening without some real changes in drug pricing worldwide.

    What I have always heard is that the US really subsidizes the lower prices in many countries by paying more. If we want to lower the prices significantly in the US, it might be necessary for new higher prices to be negotiated worldwide.

    Then you will hear some real howls ;-)

  7. Tom Degan says:

    The commentators keep reminding us that Theodore Roosevelt was the first president who tried to bring universal health care to the American people. That’s not quite true. He never really expressed the idea while he was in office. In 1912 Roosevelt had been out of office for four years when he attempted to reclaim the presidency from William Howard Taft, the man he had picked to succeed him. Once in office, Taft began to dismantle most of the progressive reforms that Teddy had put into place. When he sought the nomination once again, his campaign slogan was “a square deal for every man and every woman in the United States.” Part of the “Square Deal” was health care for all. He arrived at the convention that summer with all the delegates he needed (and then some) to seize the mantle of standard bearer. It was not to be. His party would betray the people by giving the nomination to Taft in spite of his victory. They had had enough of Theodore Roosevelt and his progressive reforms. 1912 was the year that the progressive wing of the Republican party died. He was the last great Republican president – the very last.

    A generation later TR’s distant cousin Franklin attempted to pick up the torch of universal health care. In his 1944 State of the Union address, he told the American people that his major goal for the post war world was national health insurance. Unfortunately for you and I, FDR did not live to see the war’s end. A film of that speech can be viewed in Michael Moore’s film, Capitalism: A Love Story. It’s is now out on DVD and is essential viewing.

    The new health care bill is not perfect – far from it – but as the old Chinese saying goes, “The journey of a thousand miles begins with the first step.” There will be improvements made on it down the years – there absolutely needs to be – but this is a fairly good first step. We’re on our way! The Conservatives will whine, but that’s what they do best. They’ll whine just as they whined when Lyndon Johnson signed into law the Voting Rights Act of 1965, or the Civil Rights Act of 1964. Just as they whined when Harry Truman desegregated the army in 1947, or when Franklin D. Roosevelt brought Social Security into being in 1935. They’ll whine just like they did when Woodrow Wilson tried to form the League of Nations in 1919 – or when Abraham Lincoln ended the institution of slavery in 1863! They whine a lot. Did you ever notice that?

    Tom Degan

  8. DylanE says:


    Do you know if the new biosimilars legislation applies equally to biologics already on the market as it will to newly approved biologics? I can’t seem to find any mention of this and am trying to figure out what the first biologic to use the new abbreviated pathway will be.

    I’d appreciate your thoughts on the matter.


  9. Dylan,

    I wondered about that also. I think that it applies to any biologic that has been approved by the FDA, even ones in the past. They each get a total of 12 years of market exclusivity from the date of approval. Thus the ones on the market today will have less than 12 more years.

    I believe that the EU has had a pathway for follow-on biologics. As I recall, some of the first were recombinant insulin therapeutics. Maybe we will see the same here.

  10. DylanE says:

    Thanks Richard for the response. That was what I was thinking as well, but had trouble following the language in the bill. I think that generic epo was one of the first products approved in Europe as a biosimilar, I had thought that the recombinant insulins had used a different regulatory pathway…but that’s not really my area so I could certainly be wrong.

  11. No one here seems to be familiar with “Medicaid”, the form of health insurance which Obamacare will be patterned after.

    Before you spend too much time with those dollar signs in your eyes, you had better inform yourselves as to just what is going to happen.

    There is no excuse for uninformed expectations with so much riding on the outcome.

  12. The new health care reform law also includes another provision likely of interest to early stage companies — the CURES Accelerator Network. The new law creates a $500 million fund to support research and product development activities for “high need cures”, defined as diseases or conditions for which there is little commercial incentive to develop products. The program will be operated by the NIH. Eligible grantees include research institutions, medical schools, biotechnology/pharmaceutical companies, and others.

    • A provision to speed the translation and application of promising new treatments for diseases from the laboratory bench to a patient’s bedside.

    • The provision was championed by U.S. Senator Arlen Specter (D-Pa.).

    • CAN, as authorized, would award grants through the National Institutes of Health (NIH) to biotech companies, universities, and patient advocacy groups to bridge the chasm between a basic scientific discovery and its application as a new health treatment.

    • CAN grants of up to $15 million will be used to fund clinical trials and hasten the approvals process. Many groups for lack of adequate funding have eliminated or postponed clinical trials to treat such diseases as melanoma, cervical cancer, lupus, multiple sclerosis, diabetes, atherosclerosis, and non-Hodgkin’s lymphoma.

    The law establishes CAN within the Office of the Director of NIH and authorizes grants. CAN will be overseen by a Board of diverse membership and expertise, including key stakeholders, patient advocacy organizations, and agencies outside of NIH. The bill also includes the Food and Drug Administration in the work that CAN will undertake, providing another important link between NIH and the drug approval process

  13. Al Kahal says:

    How misleading. The “credit” of up to $1-billion does not apply to rent, labor, insurance, maintenance, or services. It seems to only cover 50% of NEW equipment that isn’t amortized. Good luck hitting the limit on that! Besides, you have to spend the money up front to qualify, which most companies doing revolutionary technology can’t afford now thanks to the flight of capital to Asia.
    The 12-year market exclusivity rewards big Pharma for their donations/support but will further squeeze out the revolutionary little guys that are developing technologies that will actually lower costs. Net result: the little guys get screwed once again as the cost of health care goes up and political corruption continues.
    Spare change anybody?

  14. Subha Srinivasan says:

    Dear Richard,

    Thanks for sharing these details. It does appear that biotechnology companies got a sweet deal. However, all we have so far demonstrated with the Health Care Reform is that it is not an untouchable bill. In my opinion, none of what is in there has been well thought-out and can be taken too seriously. Furthermore, I seriously doubt, if innovative companies can benefit at the cost of biosimilars especially in the bill passed by the, too liberal, Obama administration.
    The only solace is that I have been proven wrong before. Let us keep our fingers croseed. Also, if one could not patent genes in future, as is emerging from the recent lawsuit against Myriad, then all these benefits would become irrelevant. Right?


  15. Subha,

    Health Care Reform has become so politicized that I was afraid that whatever was going to pass would not be anywhere near the optimal solution. That has been borne out.

    But I’m an optimist (a necessary trait for any scientist). So I’m taking the current approach to innovation – get started, identify weaknesses quickly, make adjustments and reboot. America has done that in the past and I hope we can do it again.

    Perhaps by whacking at this mess we can get something resembling real health care reform. Of course, we have little choice now ;-)

    I agree that the courts may have much greater effects on the industry in the short term than the bill that just passed may ever have.

    But, as always seems to happen, the market is really great at opening up new opportunities when something like this happens. Like the Internet, it will find a way to route around this ‘damage.’

  16. karun says:

    I think the new law requiring generic products to disclose information to the brand company relates only to patents. This has been enacted to reduce expensive patent litigations. In this process, the FOB company has to disclose all patents to the brand company and then both companies have to decide which if any of the claims are being infringed or invalidated. Then this would be adjudicated.

  17. great post but i wouldn’t trust anything that the FDA approves after they aprroved aspartame