Evolving Industry Structures in Biosimilar Development

By Rachel Sachs

Yesterday, I had the privilege to moderate a fantastic event here at the Petrie-Flom Center on Assessing the Viability of FDA’s Biosimilars Pathway.  Bringing together expert panelists from legal practice (Donald R. Ware, Partner, Foley Hoag LLP), industry (Konstantinos Andrikopoulos, Lead IP Counsel, Manufacturing, Biogen, Inc.), and academia (W. Nicholson Price II, Assistant Professor of Law, University of New Hampshire School of Law), the event explored different aspects of the biosimilars issue, considering the guidances issued (and still to be issued) by the FDA, the role of the “patent dance” in biosimilar litigation, and whether Europe’s experience with biosimilars has helpful lessons for our own situation.  For those who weren’t able to make it, video of the event will be posted on the Petrie-Flom Center’s website soon.

But I wanted to write here about one of the very last questions we explored during the panel, because its implications are more far-reaching than we had the time to consider.  The situation is as follows:  In the decades after the Hatch-Waxman Act created a generic pathway for small-molecule drugs, companies typically specialized in developing either innovator or generic drugs, but not both.  And although generic drug companies had great capacity for innovating in manufacturing, they were not research companies in the way that we think about innovator companies.  The situation has changed somewhat over the years, as generic companies began to invest in innovative products, and as innovator companies put out authorized generics, but in general this broad division within industry has persisted.

In the biologic context, by contrast, the biosimilar applications being filed with the FDA are more typically being filed by innovator companies themselves or by subsidiaries thereof.  For instance, the only biologic approved in the United States thus far is marketed by Sandoz, which is part of the innovator company Novartis.  Instead of a situation in which innovators battle generic companies for access to the market, now innovator companies are battling themselves.  There are a host of reasons for this development, most notably including the complex manufacturing processes involved in the biologics space and the need for the development of expertise there.

What are the effects of this difference in industry structures?  One of our panelists, Don Ware, was deeply involved in the development of the Biologics Price Competition and Innovation Act.  He suggested that this change is already creating problems for law firms, particularly as they must police their conflicts of interest with other clients.  Previously, firms often specialized in representing either innovator or generic companies in Hatch-Waxman patent litigation.  Yet as Don noted, firms that represent biotech companies now find themselves on both sides of the issue and may find themselves at odds with other clients, possibly posing concerns for companies seeking to find experienced counsel who are not conflicted out of a particular matter.

Here, I want to consider briefly two other issues raised by this change, although there are surely many others.  The first is that the set of interest groups associated with the relevant laws and regulations may change.  Instead of lawmakers and regulators needing to contend with separate entities on both sides of the issue (generic versus innovator companies), they may now only contend with a single group of companies.  Although this single group may now have more complex preferences, it may become comparatively easier for the group to create legislation or regulation in this area.  This may or may not be a salutary development.  It may be concerning, from a political economy perspective, if there is no voice to counter that of the regulated industry.

The history of the Hatch-Waxman Act of 1984 may be instructive here.  The Act is likely best known for its creation of a generic approval pathway for small-molecule drugs, but critical to innovator companies was its simultaneous restoration of the patent terms on their drugs for time lost to FDA review.  And in 1981 and 1982, Congress had tried and failed to pass bills which would have only restored patent terms, but which would have avoided addressing the generic drug pathway.  Congressional hearings conducted by those in support of the patent term restoration bills were counterbalanced by hearings sponsored by (among others) Representative Henry Waxman.  It was only when branded and generic companies compromised did Hatch-Waxman come to be.  Had there been no generic companies to oppose the passage of the laws simply restoring patent terms, it is difficult to say when a generic drug pathway would have been created.

The second issue is about the growth of specialized knowledge in terms of manufacturing.  One of our panelists, Professor W. Nicholson Price II, has written with Professor Arti Rai about the scientific difficulties involved in manufacturing biosimilars.  Their writing details the ways in which manufacturers use trade secrecy to protect the details of their manufacturing processes and create high barriers to entry for companies seeking to produce follow-on biosimilars.  The fact that new entrants seem scarce in the biosimilar space (unlike the small-molecule generic space) and that the key proponents of new biosimilars are related to the innovator companies themselves would seem to support this argument.

However, the valence of this observation is not immediately obvious.  To the extent that innovator companies enter the biosimilar space with a wealth of knowledge about biologic manufacturing processes, the barriers to entry for these firms may now be relatively lower than envisioned, suggesting that biosimilar approval may be relatively more robust than otherwise anticipated.  On the other hand, concerns about collusion or other antitrust concerns in the pharmaceutical industry (most notably considered over the years by scholars like Michael Carrier in the small-molecule context) may now become more prominent, as the universe of potentially adverse firms shrinks.

The FDA’s biosimilar approval pathway raises many issues of interest to scholars, policymakers, journalists, and health care professionals from a wide range of backgrounds.  In this post, I’ve barely scratched the surface of just one of the dozen or so questions to be raised at our panel yesterday.  But it’s one that I’ll be paying attention to going forward, and regulators ought to be mindful of it as well.

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