Health Reform and Follow-on Biologics

When FDA stakeholders discuss health reform, they usually focus on finance rather than regulation. They have strong interests in Medicaid rebates, formularies, adequate reimbursement to support innovation, and who is for/against the President's plan. None of these finance issues affects FDA, although they will certainly have an impact on FDA-regulated industries.

Less often discussed in this larger debate is that some health reform bills include provisions that would alter or expand FDA's responsibilities. The best known and most far-reaching provision would create a regulatory pathway for follow-on biologics (FOB). The fate of FOB, as well as other FDA provisions in the House Energy and Commerce and Senate HELP bills, will be determined by how health reform unfolds this fall.

This Wednesday night (September 9), the President will address Congress, hoping to create a working majority for a set of initiatives that will add up to health reform.

The President has several options. He can find a way to pull together Democratic ranks by bridging liberal and conservative demands. He can warn Democrats of the potential political consequences if they can't pass health reform. These seem to be his likely direction based on this morning's New York Times.

Alternatively or in addition, he can add in a "game-changer," a new proposal that shifts alliances. Former Senator Bill Bradley suggested one yesterday in a NY Times opinion editorial: medical malpractice and tort reform. Arguably, this would appeal to some Republicans and conservative Democrats and expand and intensify support from within the medical and hospital communities.

Finally, he can narrow the scope of health reform, accepting that some steps toward his goals are better than none. Artfully played, this can be turned into a victory rather than a defeat.

The fate of FOB legislation depends on whether President Obama chooses a successful strategy in his speech to Congress and, ultimately, can guide health care reform into law.

Without enactment of health reform, the biotech industry-backed FOB legislation must be considered dead for this year and, maybe, for this Congress. Short of an equally-compelling, must-pass health vehicle, House Energy and Commerce Committee Chairman Henry Waxman will not give Representative Anna Eshoo a second chance to offer her amendment on follow-on biologics. Any future action on FOB will require Waxman's imprimatur.

The Senate situation is likely to be much the same. If FOB is not in the final health reform bill, the likelihood of reviving the Senate FOB compromise--without Senator Ted Kennedy--must be considered slim.

The fate of FOB becomes uncertain if the President calls for narrowing the scope of health reform. Presumably, a slimmed-down health reform bill will be tailored to be in budgetary balance and to provoke minimal controversy. It might be hard to argue that the reform package requires the quite modest cost savings associated with FOB. Further, with AARP and Congressman Waxman as opponents, FOB will probably not be considered non-controversial.

If a large part of the biotechnology industry is rooting for President Obama on Wednesday night, it should be no surprise.

Steven

Prior columns on follow-on biologics (FOB):

The Best Little Chess Game in Town

August 3rd, 2009

One of the reigning champions of political chess, Representative Henry Waxman, has found himself in an endgame on follow-on biologics (FOB). His three decades of success have been built on extraordinary mastery of Congressional procedure, artful compromise and strategic alliances. His defeat seems unavoidable, but no one should assume that he can't yet win or draw this game. Read the rest of this entry »

Follow-on Biologics and the Dance of Legislation

July 5th, 2009

Political scientists love to watch the dance of legislation. FDA watchers are eager to see how thorny agency issues will be decided by Congress. Both will be fascinated by the latest moves and turns in Congressional consideration of legislation on follow-on biologics (FOB).

I can't recollect an instance in which a House chairman faced such massive bipartisan opposition. But never count House Energy and Commerce (E&C) Committee Chairman Henry Waxman out. He has made a career of not having enough votes… and winning, anyway. Read the rest of this entry »

The Follow-on Biologics Market

June 23rd, 2009

Since the debate began several years ago, the policy and politics of follow-on biologics (FOB) have been driven by assumptions and projections of the anticipated market. In my opinion, there has been a lot of fuzzy thinking about what type of companies will be players and how they will position themselves. The Federal Trade Commission report, released last week, is just the latest illustration. Read the rest of this entry »

The Best Little Chess Game in Town

One of the reigning champions of political chess, Representative Henry Waxman, has found himself in an endgame on follow-on biologics (FOB). His three decades of success have been built on extraordinary mastery of Congressional procedure, artful compromise and strategic alliances. His defeat seems unavoidable, but no one should assume that he can't yet win or draw this game.

His opponents—Representatives Eshoo and Barton, backed by former Representative Greenwood, who is head of the biotechnology trade group, BIO—have also played a masterly game. Their strategy of overwhelming numbers has made them an irresistible force, sufficient to overcome Waxman's mid-game strategy of becoming an immovable object.

The chess game is being fought over the creation of a pathway for regulatory approval of FOBs, biological "copies" that are similar to an innovator drug. While there are dozens of issues, the critical difference between the Waxman and Eshoo bills is how soon FOBs can rely on the clinical data from the innovator, rather than do expensive trials themselves. In Waxman's eyes, the innovator's data exclusivity should be 5 years, while Eshoo and Barton favor at least 12 years.

Interestingly, Waxman's position has grown weaker despite a Democratic president and larger Democratic majorities in Congress. This was not what he expected when he adjourned the game last Fall, expecting to have a stronger position in January.

Instead, Eshoo garnered a remarkable 142 bi-partisan co-sponsors this year, gained a working majority for her bill in the House Energy and Commerce Committee. In the face of this, Waxman's strategy has been to play for time---avoiding a committee vote this year, and then working for a "split the difference" compromise in conference with the Senate on health care reform.

The showdown occurred this past Friday (July 31). An Eshoo amendment was successful, 47 to 11, and FOB is now part of the health reform package in the House. With changes Representative Eshoo made in her language, the House and Senate versions are not much different, and both opt for 12 years of data exclusivity.

Chairman Waxman still has options. It is possible that FOB's will not emerge from the melding of the three different House committee versions. It is possible that the House leadership will help him keep FOBs out of the final legislation when it is considered by the House. Perhaps he and Senator Kennedy (who has wavered in his support for the 12-year exclusivity in the Senate compromise bill) will be able to appoint enough conferees who would support compromising two similar bills into one with fewer years of data exclusivity.

Given the overwhelming support in the House for Eshoo's bill, it would seem that Representative Waxman cannot prevail. However, it is not in the nature of committee chairmen to accept defeat. Henry Waxman is no exception. My advice to the biopharma industry: save any victory celebrations until the chairman has run out of options and concedes the game. It may take longer to get there than you expect.

Steven

PS. I have written twice before on follow-on biologics:

• June 23 on the nature of the FOB marketplace and the failure of the FTC's analysis to capture the market dynamics that will exist 10 years after enactment. It is at: http://www.fdamatters.com/?p=338.
  
• July 5 about the politics of FOBs and predicted a fascinating summer as legislation moved forward. It is at: http://www.fdamatters.com/?p=358.
  

Follow-on Biologics and the Dance of Legislation

Political scientists love to watch the dance of legislation. FDA watchers are eager to see how thorny agency issues will be decided by Congress. Both will be fascinated by the latest moves and turns in Congressional consideration of legislation on follow-on biologics (FOB).

I can't recollect an instance in which a House chairman faced such massive bipartisan opposition. But never count House Energy and Commerce (E&C) Committee Chairman Henry Waxman out. He has made a career of not having enough votes… and winning, anyway.

Mr. Waxman is proposing generics-friendly legislation (HR 1427). As the committee chair, he is well-positioned. Plus, he has 12 co-sponsors, including the chairman (Pallone) and ranking minority member (Deal) of the health subcommittee. Usually, this is enough to win outright or with only modest compromises.

But Waxman is in a stand-off with committee member and fellow Democrat, Representative Anna Eshoo. Her bill (HR 1548) is considered friendly to the biotechnology industry. She is joined by the ranking minority member of the full committee (Barton). Together they have amassed an extraordinary 108 bi-partisan cosponsors. This is one-fourth of the House's total membership!

Representative Eshoo has the momentum, having added 50 co-sponsors since April 15, compared to 2 for Representative Waxman. Further, Waxman is under pressure to include follow-on biologics in the health reform bill mark-up, duplicating the legislative situation in the Senate.

Chairman Waxman is reportedly resisting any effort to move legislation on follow-on biologics. He lacks the votes to prevail and must stall for enough time and leverage to work his political magic.

On the Senate side, Chairman Kennedy is sticking with a two-year old bipartisan compromise, which is much closer to the Eshoo position than to Waxman. He has put the FOB bill into the health reform legislation being considered by the Senate HELP Committee this month.

Enter the generic drug industry, Senator Schumer, and the AARP...and the Senate plot thickens.

The generic drug industry chose not to make a deal in 2008—in the reasonable belief they would do better with a Democratic Congress and President. They are hoping to retrieve the situation with Senator Schumer, who has introduced the Waxman bill in the Senate (S 726). His bill (and seven bi-partisan co-sponsors) assures that the Kennedy bill will not move forward without visible dissent. Meantime, the AARP reportedly told Senator Kennedy's staff that they will not support the HELP committee's health reform bill unless the FOB portion is modified to be more like the Waxman-Schumer bill.

The most contentious issue in both Houses is the length of time during which innovator companies can prevent a FOB from being approved based on the innovator's research. This so-called "data exclusivity" should not be confused with the far-more-desirable "market exclusivity," which is not part of any bill.

In round numbers, Waxman is proposing 5 years of data exclusivity, Eshoo 14 years and Kennedy 12 years. There is no objectively correct number—just differing beliefs in how much time is needed to make sure that the growth of an FOB market doesn't reduce incentives for innovation. An average of the three numbers suggests a compromise of about 10 years.

Enter the Federal Trade Commission and the White House…and the whole plot thickens further.

The FTC analysis—featured at a House hearing and widely covered in the media—contends that no data exclusivity is needed to preserve incentives for innovation. Now there are four numbers and the average is 7.5 years. Last week, the White House jumped in to officially advocate for 7 years.

The endgame on data exclusivity is becoming clear. It will be between those who will accept seven years and those who will insist on at least 10 years. Even knowing this, it is hard to tell whether and when the logjams will be broken in the House and Senate.

The unfolding politics of FOBs are going to make for a fun summer and may creep into football season! Someone is likely to score a touchdown (or learn to dance the tango)!

Steven

The Follow-on Biologics Market

Since the debate began several years ago, the policy and politics of follow-on biologics (FOB) have been driven by assumptions and projections of the anticipated market. In my opinion, there has been a lot of fuzzy thinking about what type of companies will be players and how they will position themselves. The Federal Trade Commission report, released last week, is just the latest illustration.

My own analysis suggests there will be multiple market entrants vying for market share and creating price competition. It will take some patience until we get there, but it will happen. In this environment, it will be important to stimulate investment in new, innovative biological products. Without reasonable time to recoup costs, new product development will slow.

I started to think about the nature of the FOB market last year when predictions about FOB's started to jar my sensibilities. The FTC's report is just a larger platform for advancing questionable analysis. There are two economic principles that are central to understanding the issues.

First concept: shadow pricing. The first generic drug is usually priced about 20% to 30% below the innovator product. The innovator doesn't compete on price because they know that the generic will be continuously re-priced to stay the same increment below the innovator's price. This is called "shadow pricing." As each new entrant joins this market, competition erodes this structure until prices fall significantly. FTC believes that there will only be one or two competitors in each segment and shadow pricing will limit price competition.

Second concept: barriers to entry. Generally speaking, the more it costs to be a part of a market, the fewer players will enter it. At this moment, generic drugs have a low barrier for entry. In contrast, the FTC believes that there will be significant barriers to entry in the generic biologics market. Only the largest biologic products will draw any competition. And only a handful of companies will develop FOB's because of the expense of putting together a safe and effective product, combined with the $250M to $1B estimate for a new facility to make these products.

There are two significant errors in the FTC analysis. First, FTC fails to recognize the generic drug market evolved into what it is today because of the way it was structured in 1984. The key Hatch-Waxman trade-off--additional patent protection for market access for generics—has worked extraordinarily well. If FTC had made the same comments in 1984, there would be neither an innovative pharmaceutical industry nor a booming generic drug industry today.

Second, FTC fails to account for the likely impact of innovation in the FOB marketplace. For example, more refined methodologies will evolve for characterizing biologics. Ways will be found to build facilities less expensively and to streamline production.

FTC states that lack of interchangeability and direct substitution will limit market penetration for FOB's. The problem with this viewpoint is that the market is already saying otherwise. Teva and Sandoz (Novartis' generic subsidiary) will be in the FOB market from the beginning. Merck, J&J, Pfizer, Amgen and others are positioning themselves to join within a few years. All are well-financed and have experience competing in crowded markets. Why would they commit billions to a market that can't be penetrated?

Over time, innovation will bring costs down. Competition will bring prices down. It seems unlikely that shadow pricing and high barriers to entry will characterize the FOB market in ten years.

My vision of a multi-player FOB market with price competition does not answer the question: how much intellectual property protection is needed for innovators? It does say the FTC is wrong to argue for none.

Steven

FTC's testimony to the House Energy and Commerce Committee is at:

http://energycommerce.house.gov/Press_111/20090611/testimony_harbour.pdf.