The Congressional Budget Office (CBO) released late last month a cost estimate for proposed legislation that would create a regulatory pathway for follow-on
biologics. The report analyzes the economic implications of "The Biologics Price Competition and Innovation Act of 2007"
(S. 1695), which was passed by the Senate Health, Education, Labor and Pensions Committee in 2007.
Proposed legislation for follow-on biologics
If approved into law, S. 1695 would establish an abbreviated regulatory procedure for licensing biological drugs by the US Food and Drug Administration. The measures would apply to so-called "follow-on biologics" or biological products that meet certain requirements and that
are highly similar to or interchangeable with products originally licensed to innovator companies under the Public Health
Service Act (1).
To allow for marketing approval of follow-on biologics, the bill would allow FDA to consider literature or the agency’s findings
about safety and effectiveness related to an innovator’s biological product that had been previously approved by FDA. The
applicant for a follow-on biologic would be able to reference certain data in the innovator's original application, and FDA
would be allowed to consider this information when reviewing the application for marketing authorization. This approach would
allow manufacturers of follow-on biologics to sell a competing version at lower prices by avoiding the costs of research and
development incurred by the innovator company, including the costs of clinical trials (1).
Key provisions of S. 1695 include the following:
Establishing standards for FDA approval of follow-on biologics, including requiring certain clinical trials to be conducted.
The bill would grant FDA the discretion to waive specified requirements.
Allowing FDA to issue guidance documents for manufacturers that identify the criteria that the agency would use to approve
biosimilar and interchangeable biological products. The absence of such guidance would not prevent the approval of a follow-on
biologic under the bill.
Permitting FDA to determine that a follow-on biologic is interchangeable with an innovator biological product, subject to
the applicant of the follow-on biologic providing certain types of clinical
evidence. FDA would award one year of market exclusivity to the first
interchangeable follow-on biologic that references a particular innovator drug, subject to certain restrictions. Market exclusivity
in this context prohibits FDA from approving a subsequent interchangeable product during that period.
Granting innovator biologics 12 years of data exclusivity beginning when the innovator biologic is first licensed by FDA.
Data exclusivity in this context would prohibit FDA from approving a follow-on biologic that uses the innovator product as
its reference product.
Creating a process to resolve patent disputes through agreement or litigation between the follow-on biologic applicant and
the brand-name company (1).
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
"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.
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),
accessed June 30, 2008.