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OCTOBER 10, 2013


To encourage competition, the health care law directs the FDA to develop an accelerated approval pathway for follow-on versions of original biologic products.

What's The Issue?

The Affordable Care Act includes several provisions--collectively referred to as the Biologics Price Competition and Innovation Act (BPCIA)--which are designed to encourage competition in the market for biologic drugs.

The term biologic refers to any therapeutic product derived from a biological source, including vaccines, antitoxins, blood products, proteins, and monoclonal antibodies. These drugs account for a substantial and an increasing share of the pharmaceutical market and a growing share of health systems costs.

A key provision of the BPCIA authorizes the Food and Drug Administration (FDA) to develop an accelerated approval pathway for what are known as "biosimilar" products. Biosimilars are subsequent versions of an original biologic product that have the same mechanism of action in the body and are used for the same clinical indication but are not identical to the original product (variously referred to as the reference, pioneer, or innovator product).

Because of the high cost of biologics, interest in developing an accelerated biosimilar approval process is high for patients, third-party payers, and some in the biopharmaceutical industry looking to contain costs.

In February 2012 the FDA released draft guidance on this accelerated approval process, but to, date no biosimilar products have been reviewed or licensed in the United States. Numerous scientific, legal, and regulatory issues remain unresolved, and it is not yet clear how the biosimilar market will develop, nor if it will lead to substantially lower drug prices or better access to biologic drugs.

What's The Background?

Although they vary widely in terms of their molecular components and characteristics, biologics are typically larger and more structurally complex than traditional drugs (also known as "small-molecule" drugs).

Small changes in the manufacturing process can lead to variations in the final product, which can in turn affect safety and clinical effectiveness. Even biologics produced in the same manufacturing facility will have some variation between lots.

Thus, establishing "biosimilarity" to a reference product requires more preclinical and clinical testing than is usually necessary for generic small-molecule drugs, most of which can be chemically synthesized using well-established processes that produce consistent results.

These differences--in combination with the fact that biologics are driven by relatively new science--are part of the reason that biologics are not regulated in the same way as small-molecule drugs and that biosimilars are not regulated the same way as small-molecule generics.

Since the Drug Price Competition and Patent Term Restoration Act of 1984 (also known as the Hatch-Waxman Act), generic versions of small-molecule drugs approved under the Food, Drug, and Cosmetic Act can undergo an accelerated review known as an Abbreviated New Drug Application. In this process, the generic sponsor must demonstrate that its product is "bioequivalent"--that is, essentially identical--to the original drug. Usually this can be established on the basis of pharmacodynamic testing, and no additional clinical trials are required.

The 1984 law also established a range of additional incentives to encourage generic drug competition after the end of the brand-name drug's market exclusivity. Health insurance companies and other third-party payers have since made generic substitution and tiered drug pricing a central part of their cost-savings strategy.

Generic drugs generally cost 30-80 percent of the brand-name product. By 2012 generic drugs accounted for 84 percent of all US prescriptions and had saved consumers an estimated $1 trillion since 2002 alone.

Hatch-Waxman is generally considered to be the legislative foundation of the modern generic drug industry. However, it did not apply to biologics, so there was no pathway for biosimilar development for the US market.

The global biologics market has also expanded rapidly over the past decade. In 2011 spending on biologics grew 7 percent (compared to just 1.2 percent growth in the traditional pharmaceutical market), and by 2016 the total market is projected to be $200-$210 billion.

Biologics are also among the most expensive drugs on the market, with average costs about 22 times that of nonbiologic drugs. An annual course of the breast-cancer biologic trastuzumab (Herceptin), for example, can cost up to $50,000.

In 2010, spending on the top seven biologics alone represented about 43 percent of Medicare Part B's total drug budget. Thus, there is substantial interest in promoting market competition through an accelerated biosimilar approval pathway.

Several analyses have attempted to model the price effects and potential savings of biosimilar competition, with estimates of price discounts ranging from 10 percent to 51 percent of reference product prices.

An analysis conducted by the Congressional Budget Office estimated that competition from biosimilars would reduce drug spending by roughly $25 billion over 10 years, saving the federal government nearly $6 billion.

Regardless, savings are likely to be less substantial than in the generic small-molecule market. Biologics are substantially more expensive to develop, manufacture, and monitor, and the technical know-how and testing required to bring a biosimilar to market would be greater than for a typical generic, even under an accelerated approval process.

The European Medicines Agency has had an approval pathway for biosimilars since 2005. In an October 2013 Health Affairs article, Francis Megerlin and colleagues write that early evidence from Europe suggests that biosimilars may be able to gain substantial market share over time.

Although only 14 biosimilars are currently approved in the European Union, total sales during 2009-10 were estimated at $200 million. The average price discount on these products is about 25 percent, and by 2020 the overall cost savings in the European Union are projected to total $16-$43 billion.

However, the degree of biosimilar market penetration varies substantially across the European Union, owing to differences in payer systems and policies, laws related to drug substitution, and the overall size of the generics market within each country. Similarly, US federal and state regulatory, pricing, and reimbursement policies will play a key role in determining future cost savings.

What's In The Law?

As part of the new regulatory review process, the BPCIA authorizes the FDA to establish two levels of biosimilarity. At the first level, the products must be "highly similar," such that "there are no clinically meaningful differences between the biological product and the reference product in terms, purity, and potency." At the second and more stringent level, the two biologics are judged to be similar enough to be considered interchangeable, to the extent that the biosimilar may be automatically substituted without the intervention of the prescriber.

The legislation also includes a range of market incentives for both pioneer biologic and biosimilar product development. For example, pioneer biologics are granted 12 years of market exclusivity, plus an additional 6 months for drugs approved for pediatric use.

During this period, the FDA may not approve a biosimilar application that relies on that pioneer biologic's clinical trial data. By contrast, small-molecule drugs that are new chemical entities receive five years of data exclusivity.

As an incentive to biosimilar development, the BPCIA grants one year of exclusivity to the first product deemed interchangeable with its reference product, which will prevent the FDA from approving any other biosimilar version of that biologic for treatment of the same condition during that time.

The BPCIA also contains provisions designed to prevent "evergreening" by patent holders, which is the practice of prolonging market exclusivity by patenting peripheral features of the product or making marginal improvements to a drug, and sets any future reimbursement for biosimilars under Medicare Part B at the sum of the average selling price for that biosimilar, plus 6 percent of the average selling price for the original biologic.

The law also introduces a patent dispute resolution process that differs in several important respects from the one established under Hatch-Waxman. Under Hatch-Waxman, a generic drug manufacturer pursuing accelerated approval must certify in its application that its product will not infringe on any existing patents, either because the relevant patents are expired or because they are invalid. The original patent holder can respond by suing to gain a 30-month stay on the generic's application. But if the brand-name company loses its suit, the generic company receives 180 days of market exclusivity following FDA approval.

For biosimilars, the process established under the BPCIA would work differently. The biosimilar sponsor must disclose information about its product to the relevant patent holder. The original patent holder must then provide the biosimilar sponsor with a list of the patents that may be infringed. The two companies are then expected to negotiate which patents will and will not be litigated within a statutorily defined time frame. Subsequent litigation must be filed within 30 days, and no exclusivity provisions are granted to either side.

What's The Debate?

A number of issues remain in the implementation of the BPCIA. The 12-year period of exclusivity has been a source of much debate, both prior to the approval of the Affordable Care Act and in the years since its passage.

The Obama administration has proposed reducing it to seven years on a few occasions, most recently in its fiscal year 2014 budget proposal. However, this kind of change would require legislative action. Given the current political climate, it is unlikely that the exclusivity period will be reduced in the near term.

The BPCIA's patent dispute process has also attracted criticism, particularly regarding the potential for patent holders to use tactics, such as "reverse payment" settlements, which are sometimes employed in Hatch-Waxman patent disputes.

In these settlements, a generic company pursuing an Abbreviated New Drug Application receives payment from the patent holder in exchange for delaying market entry, and therefore potential competition. It's called a reverse payment because payments for patent licenses typically flow from licensee to patent holder.

However, unlike with Hatch-Waxman patent disputes, the BPCIA does not require companies to report such settlements to the Federal Trade Commission (FTC). A recent Supreme Court ruling determined that Hatch-Waxman settlements involving reverse payments may be subject to antitrust litigation by the FTC.

This ruling may influence the legal analysis of any future BPCIA patent disputes and may also affect industry decisions to pursue the biosimilar pathway--as the possibility of an FTC suit creates additional legal uncertainty for both pioneer and follow-on biologics manufacturers.

Finally, although the FDA issued draft Guidance for Industry in February 2012, several key aspects of the biosimilar regulatory framework remain undefined. For example, the guidance does not provide product-specific standards for the amount and type of clinical trials that will be required to demonstrate biosimilarity. Those determinations will be made instead on a case-by-case basis, and sponsors are expected to meet frequently with the FDA to negotiate these issues.

The FDA also did not release guidance on the standards for interchangeability, which likely carry the most substantial implications for potential cost savings. Generic small-molecule drug substitution can be done by a pharmacist without prescriber intervention and is the key mechanism underlying widespread generic uptake. If a biosimilar cannot be deemed interchangeable with its reference drug, then it will require intense marketing campaigns to encourage its prescription, entailing further costs to the manufacturer.

However, interchangeability is a substantially higher bar than biosimilarity. Although establishing a safe and workable interchangeability standard for some newer and more complex biologics may not be possible at this time, interchangeability should be possible for older, well-characterized molecules. Biosimilar manufacturers need clear statements from the FDA regarding which products, and under which circumstances, interchangeability will be permitted.

It is also unclear whether interchangeable biosimilars will be entitled to the same official (that is, nontrademarked) name as their reference product, which will impact the extent to which these products will be substituted for their reference product.

Brand-name companies have argued that biosimilars should have unique names, which will make it easier to track those products and identify adverse events. Biosimilar manufacturers and pharmacist associations counter that unique names would be an unnecessary barrier to automatic substitution, creating confusion and possibly leading to duplicative prescribing of highly similar products.

In the meantime, the debate has already shifted to the states, which govern laws related to pharmaceutical substitution. In anticipation of FDA standards on biosimilar interchangeability, more than twenty states are drafting, are considering, or have already voted on legislation related to biosimilar substitution--prompted by substantial lobbying efforts by the biotechnology industry. Most new laws would require that pharmacists notify physicians within a defined time frame when a substitution has been made, and that they retain a record of this substitution for a certain number of years.

Supporters argue that these requirements will ensure better safety monitoring, while opponents maintain that they are an unnecessary barrier to substitution. To this point, such bills have passed in only five states; three include sunset provisions and are likely to expire before the first biosimilar is approved by the FDA, and one has yet to be signed into law.

What's Next?

The greater the expense in developing and marketing a biosimilar, the less likely it is that a substantial number of companies will be willing or able to pursue it, at least in the short term. Uncertainty over the regulatory requirements adds to this reluctance. Indeed, some potential biosimilar manufacturers have given up on the BPCIA biosimilar pathway and are instead pursuing their products under original Biologics Licensing Applications.

However, several major drug companies have invested heavily in biosimilar development over the past few years, with substantial success in Europe, yet the US pharmaceutical market is still the largest in the world. Although the time line is unclear, biosimilars will eventually enter the market.

As they do, payers will need to make decisions regarding criteria for adding biosimilars to formularies or preferred drug lists--as well as how they will define their pharmaceutical benefit plans and pricing structures. Even in the absence of interchangeable status, private and public insurers may employ a range of policy strategies to encourage either the prescribing of biosimilars or their substitution for the biologics that preceded them.

These developments will take time, and their cost-saving benefits are likely years away. However, the potential is clear. The FDA will need to continue developing and refining its guidance to manufacturers if it wants to maximize that potential.


Congressional Budget Office, "Cost Estimate S. 1695: Biologics Price Competition and Innovation Act of 2007," June 25, 2008.

Davis C, "Take Two and Call Congress in the Morning: How the Biologics Price Competitions and Innovation Act May Fail to Prevent Systemic Abuses in the Follow-on Biologics Approval Process," George Washington Law Review 81, no. 4 (2013): 1-36.

Federal Trade Commission, "Emerging Health Care Issues: Follow-on Biologic Drug Competition," June 2009.

Food and Drug Administration, "Guidance for Industry: Biosimilars: Questions and Answers Regarding Implementation of the Biologics Price Competition and Innovation Act of 2009," February 2012.

Food and Drug Administration, "Guidance for Industry: Quality Considerations in Demonstrating Biosimilarity to a Reference Protein Product," February 2012.

Food and Drug Administration, "Guidance for Industry: Scientific Considerations in Demonstrating Biosimilarity to a Reference Product," February 2012.

Frank RG, "Regulation of Follow-on Biologics," New England Journal of Medicine 357, no. 9 (2007): 841-3.

Grabowski H, Long G, Mortimer R, "Implementation of the Biosimilar Pathway: Economic and Policy Issues," Seton Hall Law Review 41, no. 2 (2011): 511-57.

Medicare Payment Advisory Commission, "Report to the Congress: Improving Incentives in the Medicare Program: Chapter 5: Medicare Payment Systems and Follow-on Biologics," June 2009.

Megerlin F, Lopert R, Taymor K, Trouvin JH, "Biosimilars and the European Union Experience: Implications for the United States," Health Affairs 32, no. 10 (2013): 1803-10.

Paradise J, "The Devil Is in the Details: Health-Care Reform, Biosimilars, and Implementation Challenges for the Food and Drug Administration," Jurimetrics 51 (2011): 279-92.

Patient Protection and Affordable Care Act, Pub. L. No. 111-148; 2010. Sec 7001-03, 124 Stat. 119, 804-21.

About Health Policy Briefs

Written by
Elizabeth Richardson
Research Associate
Urban Institute

Editorial review by
Aaron S. Kesselheim
Assistant Professor of Medicine
Director, Program On Regulation, Therapeutics, And Law (PORTAL)
Harvard Medical School
Brigham and Women's Hospital

Jordan Paradise
Associate Professor of Law
Seton Hall University School of Law

Jonathan Bor
Senior Editor
Health Affairs

Rob Lott
Deputy Editor
Health Affairs

Health Policy Briefs are produced under a partnership of Health Affairs and the Robert Wood Johnson Foundation.

Cite as: "Biosimilars," Health Affairs, October 10, 2013.

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