Intellectual Property Strategy

• Follow-On Biologics
• Chapter
• The MIT Press
• pp. CS-11-CS-17
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• Additional Information

FOLLOW-ON BIOLOGICS

Most drugs fall into two categories: small and large molecules.¹ Common pharmaceuticals such as Tylenol and Lipitor are small molecules; they consist of only dozens of atoms and may be reproduced exactly through well-understood chemical processes.² Biologics comprise the latter category. Unlike traditional pharmaceuticals, biologics are complexly structured, typically made up of millions of atoms, and are produced from living cells through biological processes.³ Thus, generic versions of traditional pharmaceuticals are relatively easy to produce once the patent for the original drug expires. Biologics, however, face considerable, perhaps even insurmountable, technical challenges to the development of products that are truly equivalent to their brand-name counterparts. For this reason, these products are usually referred to not as “generic” biologics but rather as follow-on biologics or biosimilars.⁴ Apart from a description of these differences, a precise definition of the term biologic is hard to devise. The Public Health Service offers the following definition, albeit for a “biological product” rather than for biologic per se: “a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, or analogous product, or arsphenamine or derivative of arsphenamine . . . applicable to the prevention, treatment, or cure of a disease or condition of human beings.”⁵

Despite the challenges involved in the production of follow-on biologics, the industry is expected to grow significantly in the coming years. The size of the biologics market has already been estimated at fifty-two billion dollars, with a growth rate faster than any other sector of the pharmaceuticals market.⁶ Furthermore, patents on several major biologics are set to expire in the next ten years, representing a market value that could be as high as fifty billion dollars.⁷ The new regulatory authority created by the Patient Protection and Affordable Care Act (PPACA) in March of 2010 also allows the FDA to license follow-on biologics.⁸ These favorable market and regulatory trends have led many firms to consider developing new follow-on biologics.

The PPACA

For traditional pharmaceuticals, the Drug Price Competition and Patent Term Restoration Act of 1984, commonly called the Hatch-Waxman Act, governs the introduction of generic versions of off-patent brand-name drugs.⁹ The Hatch-Waxman Act allowed for expedited marketing approval for generics by eliminating the need for expensive and time-consuming clinical trials in most cases.¹⁰ Two expedited approval pathways are available: section 505(j) for generic drugs with the same active ingredient as the brand-name drug, and section 505(b)(2) for generic drugs with a sufficiently similar active ingredient as the brand-name drug.¹¹ Nevertheless, because it is nearly impossible to create biologics that are exactly the same as their brand-name counterparts, and the regulatory pathway for similar generics under 505(b)(2) still requires that the applying company submit additional data to demonstrate safety and effectiveness, many companies with follow-on biologics are unable or unwilling to take advantage of these provisions.¹²

The PPACA aims to allow for an analogous process in the case of follow-on biologics. The act requires an application to provide data from clinical studies to demonstrate the safety and potency of the follow-on biologic in situations where the brand-name drug is licensed for use.¹³ The Secretary of Health and Human Services may waive the clinical studies requirement, however, along with other required elements of the application.¹⁴ They may then designate the drug in question as either a biosimilar or “interchangeable” depending on the degree of similarity.¹⁵ The act also provides twelve years of data exclusivity, during which no application for a follow-on biologic will be approved after the brand-name drug’s licensure date.¹⁶

Yet the act does not remedy all challenges facing the development of follow-on biologics. For example, rather than developing new follow-on biologics, firms might try to create new biologics by making small modifications to the manufacturing process for existing ones, thereby receiving an additional twelve years of data exclusivity.¹⁷ Some industry leaders also see twelve years as an insufficient time period to incentivize research and development.¹⁸ Finally, the expense may bar all but the largest firms from developing follow-on biologics. According to the Federal Trade Commission, follow-on biologics are expected to take between eight to ten years to develop, and cost between one and two hundred million dollars, while small-molecule generic development typically costs between one and five million dollars.¹⁹

Merck

Merck’s plans for follow-on biologics offer a prime example of a large, established biotechnology company taking advantage of the opportunities provided by the changes in the biologics market. In 2008, Merck announced plans to launch a new unit, Merck BioVentures, dedicated to developing follow-on biologics.²⁰ Dick Clark, Merck’s CEO, believes that the company “can become the leading provider of high quality, competitively priced follow-on biologics.”²¹ At a business briefing in 2008, the company indicated that it planned to spend $1.5 billion in order to reach its goal of producing six new follow-on biologics by 2012.²² Merck’s announcement stood in contrast to that of its big pharmaceutical brethren, of which only Novartis and Teva Pharmaceuticals had created divisions aimed at follow-on biologics.²³

A key step in the advancement of Merck’s follow-on biologics program was the acquisition of Insmed for $130 million in 2009.²⁴ A developer of follow-on biologics focusing on niche markets, Insmed’s fifty-thousand-square-feet office based in Boulder, Colorado, and staff of seventy protein experts are expected to benefit Merck substantially.²⁵ Interestingly, Insmed’s acquisition was the result of a unique viral marketing campaign that saw Insmed’s scientists appear on YouTube to tout the benefits of follow-on biologics.²⁶ Merck had also boosted its follow-on biologics program in 2006 when it acquired Glycofi, a biotechnology company based in New Hampshire.²⁷

Still, Merck’s BioVentures program also suffered a setback in 2009 when it announced the cancellation of a much-publicized follow-on biologic for Amgen’s Aranesp, an antianemia drug, due to lengthy and expensive safety testing.²⁸ At the time, Merck’s head of research and development maintained that the company had two other follow-on biologics in clinical development, and expected about five to be in the final stages of testing by 2012.²⁹ Merck also gained competition in the follow-on biologics market from Pfizer, which is planning to launch two follow-on biologics in the next four or five years, and ultimately plans to have ten to fifteen available.³⁰

Merck’s foresight has situated it to be a leader in the follow-on biologics industry. Indeed, it appears that the current status of the follow-on biologics industry can be described as a “two-horse race” between Merck and Israeli pharmaceuticals giant Teva for market dominance.³¹ The competition between these two companies also demonstrates the high barriers to entry that characterize the follow-on biologics market. In the words of William Marth, president and CEO of Teva’s North American branch, “What you need to invest to get into that market [is] $100 million to $150 million per product entry, and . . . eight to 10 of them in your basket in order to come to the market with a really powerful offering.”³²