Potential market for follow-on biologics

CBO estimates that spending on biologic-based drugs was $40 billion in 2006. During the next 10 years, 75% of the current biologics market would face competition from follow-on biologics if the regulatory pathway for follow-on biologics in the bill were approved. By 2018, roughly $70 billion in national spending on biologics would face competition from follow-on biologics, according to the CBO report (1).

According to IMS Health estimates, global prescription sales of biotechnology drugs increased 12.5% in 2007 to more than $75 billion. The United States is the largest market for biologics and holds 56% of the global market. IMS, however, is cautious about the impact of follow-on biologics.

"Biosimilars, or follow-on biologics produced by companies other than the originator, are expected to have only a modest impact on the market over the next 5–10 years," said the company in a June 2008 press release. "The introduction of biosimilar epoetin alfa in European markets in 2007, for example, has had a negligible impact in the market to date. And biosimilar 'Omnitrope,' introduced in 2006, has captured less than 1% of the somatropic human-growth-hormone market. Yet, they represent a shift in the biotech marketplace that over time will bring emerging competition from biosimilars following the loss of exclusivity of original products," said IMS.

If legislation were approved in the US, the first follow-on biologics would likely enter the market in mid-2012, according to CBO. The first entries are likely to be follow-on biologics for which the European Union have already issued guidance or granted marketing approval. These drugs include biosimilar versions of epoetin alfa and somatropic human growth hormone. The market share of follow-on biologics is projected to be roughly 10% in the first year of competition, and the sales-weighted average market share would increase to approximately 35% by the fourth year of competition, according to the CBO report. CBO expects that competition for most products would not begin until the second half of the 2009–2018 period. Certain types of more complex biologics such as monoclonal antibodies may obtain marketing approval near the end of the 2009–2018 period, according to CBO (1).

Economic impact of follow-on biologics

CBO estimates that the passage of S. 1695 would reduce total expenditures on biologics in the US by $200 million between 2009–2013 and by approximately $25 billion between 2009–2018. The $25 billion in savings during 2009–2018 would equal roughly 0.5% of national spending on prescription drugs (valued at wholesale prices) (1).

During the first year of competition, the sales-weighted market average discount on follow-on biologics relative to brand-name innovator drugs would be about 20% and reach 25% in the most competitive markets, according to COB. By the fourth year of competition, the discount would be about 40% (1).

The impact of follow-on biologics would also be significant on federal spending. If the bill were to be enacted, CBO estimates federal spending would be reduced by $52 million during 2009–2013 and by $6.6 billion during 2009–2018. These figures reflect the net effect of increases in federal direct spending and revenues. Direct spending by the federal government would decrease by $46 million during 2009–2013 and by $5.9 billion during 2009–2018. These decreases would come from reductions in direct spending for certain federal health programs (Medicare, Medicaid, the government's share of retirees' health premiums under the Federal Health Benefits program, and the Defense Department's Tricare for Life program). Federal revenues would increase by $6 million during 2009–2013 and by $800 million during 2009–2018, according to CBO estimates. These revenue gains would arise from increases in taxable compensation as a result of lower healthcare costs and lower insurance premiums. CBO estimates that the bill would reduce costs for private health insurance plans and lower insurance premiums for employers by 0.1% by 2018 and would raise taxable wages by $1 billion by 2018 (1).

Enactment of S. 1695 would further require the Secretary of the Treasury to estimate the savings to the federal government and authorize the appropriation of these amounts to the Biologics Product Savings Fund. This fund would pay for activities authorized under the Public Health Service Act. Assuming such appropriations, S. 1695 would increase federal discretionary spending by $40 million during 2009–2013 and by $6.1 billion during 2009–2018 (1).

S. 1695 also would authorize the collection of user fees from applicants for marketing approvals of follow-on biologics during a transitional period that would extend through fiscal year 2012. CBO, however, expects that these fees would cover only a portion of the total costs for FDA to implement and administer the regulatory activities authorized under the bill. Additional funding, therefore, would be required.

Comments on the COB estimates

The feedback from industry groups on the COB’s cost estimates was largely positive. "PhRMA [Pharmaceutical Research and Manufacturers of America] thinks the cost estimate released by the Congressional Budget Office (CBO) of S. 1695 shows that it is possible to deliver cost savings to patients and the government through introduction of follow-on biologics while maintaining a robust environment that sustains innovation," said Ken Johnson, PhRMA’s senior vice-president, in a press release. PhRMA represents US-based innovator-drug companies.

"The CBO report shows that developing a pathway to review and approve follow-on biologics will result in cost savings to public and private purchasers of biologic products over a 10-year period," said Jim Greenwood, president and CEO of the Biotechnology Industry Organization (BIO), in a press release. "The report finds that most of the savings will be obtained several years after a follow-on pathway is established, reinforcing the need for Congress to develop and pass a responsible pathway this year that protects patient safety and preserves innovation. We are essentially leaving money on the table the longer we wait to implement a pathway." BIO represents innovator biotechnology-drug companies

Greenwood pointed out that in addition to S. 1695, other proposed legislation comes close to striking the balance between innovation and cost-savings derived from follow-on biologics. These bills include the "Patient Protection and Innovative Biologic Medicines Act of 2007" (H.R. 1965) and the "Pathway for Biosimilars Act" (H.R. 5629).

One area about which industry groups offer mixed opinions is the exclusion of so-called "evergreening" provisions in S. 1695. Evergreening occurs when the brand-name manufacturer amasses patent protection by obtaining separate patents on multiple attributes of a single product, according to the European Generic Medicines Association. These patents can cover a myriad of issues (e.g., uses, methods of treatment, mechanism of action, packaging, delivery profiles, dosing regimens, dosing range, dosing route, drug combinations, screening methods, chemistry methods, and biological targets). When evergreening, the originator keeps adding patents to the product, essentially forcing the generic manufacturer to choose between waiting for all the patents to expire and applying for marketing authorization or running the risks of litigation and the associated costs and delays, according to EGA.

"Even greater savings would be available if Congress simply applied to biologics the Hatch–Waxman standards that are currently used to approve generics for chemical compounds, " said Mark Merritt, president and CEO of the Pharmaceutical Care Management Association (PCMA). PCMA is the national association representing America’s pharmacy benefit managers. "It would be helpful if some provisions in the bill—such as 'evergreening'—which unnecessarily delay the entry of biogenerics were reconsidered. CBO acknowledges that the ‘evergreening’ issue will present significant problems beyond the 10-year scoring window."

PhRMA, however, says the term evergreening was not appropriate for describing the activities of innovator-drug companies. "Regrettably, critics use the term 'evergreening' to mischaracterize and minimize the important and essential work that innovative pharmaceutical research and biotechnology companies do to continually improve their products and to create better second- and subsequent-generation versions," said Johnson.

Reference

1. Congressional Budget Office (CBO, "Congressional Budget Office Cost Estimate: S. 1695 Biologics Price Competition and Innovation Act of 2007," (CBO, Washington, DC, Jun. 25, 2008), http://www.cbo.gov/ftpdocs/94xx/doc9496/s1695.pdf accessed June 30, 2008.