Pharmaceutical Market on Threshold of Biogenerics Wave

06 December 2004 00:01  [Source: ICB Americas]

With the generic drug market growing rapidly, biogenerics stand next in line to inherit a fortune. Feliza Mirasol reports.

As a number of biological therapeutics approach the end of patent exclusivity, the pharmaceutical market is readying for a wave of bio-generics to flood the market and bite into the multi-billion dollar blockbuster opportunity awaiting them. However, despite the progress of certain generic formulations of leading biologicals, bio-generics have first to come up against regulatory hurdles.

These hurdles stem primarily from uncertainty on the part of regulatory authorities that do not yet have clear guidance on how biogenerics will be established as bioequivalent versions of branded drugs. Consequently, there does not yet exist a standard way to regulate biogenerics .

Biotechnology drugs with blockbuster status are facing the same threat as their pharmaceutical peers. However, branded biologicals are expected to get hit even worse with the entrance of generic competition. Branded biologicals have generally enjoyed an unlimited lifespan. This has been due mainly to the lack of an amendment in the 1984 Waxman-Hatch Act, which does not currently account for these types of molecules.

The Waxman-Hatch Act revolutionized the generic pharmaceuticals market by setting down legislation for the widespread marketing of generic drugs. This legislation deals primarily with molecules produced by traditional chemistry, however. Biologics are comprised of much more complex molecules than chemical drugs.

“Health care spending is moving from hospitals to drugs, which are estimated to consume 14 percent of total health care spending by 2010,” noted analyst Navdeep Jaikaria with Rodman & Renshaw at the 8th Annual Healthcare Industry Conference held in New York last month by the New York Society of Security Analysts.

With pressure increasing on the current high prices of branded biologicals, biotechnology companies will have to reduce the cost of drug development. “Drug development costs used to be roughly $300 million in the 1980s. These costs have now gone past $800 million,” says Mr. Jaikaria.

Another consequence of the increasing pricing pressure is the imminent arrival of biogenerics onto the market. “Nearly $10 billion worth of biotech drugs are expected to come off patent over the next five years,” according to Mr. Jaikaria. “Overall, generics [currently on the market] represent 51 percent of the total prescriptions dispensed in the United States, but less than 8 percent of all dollars spent on prescription drugs. The FDA has approved more than 100 generics in 2003 [alone].”

“We believe that in the next two to five years there will be some small inroads in the US and EU for generic biologics, and somewhat larger strides in non-Western Europe for the generic biologics market, with larger gain in all markets in the next decade,” says Banc of America Securities analyst David Maris. “We believe that it will be a slow, tectonic landscape change, but one which cannot be stopped and one with significant implications.”

Mr. Maris notes that the Food and Drug Administration (FDA) has already begun to take action in setting down guidelines for the regulation of generic biologicals. The therapeutics most vulnerable to generic competition include those approved by the Food, Drug, and Cosmetic Act, including insulin products, human growth hormone, and certain enzyme products.

“As more and more costly biologics enter the marketplace, there has been increased pressure on the White House, Congress and the FDA to develop avenues for generic substitutes,” states Mr. Maris. “We feel that legislative and regulatory outlook for generic biologics will continue to improve. Over the next two or three years, it is possible that a regulatory pathway for generics will be created for insulin and human growth hormones. While the future for more complex biologics (such as epoetin alfa and rDNA-derived MAb) depends on numerous scientific and political factors, we believe that a regulatory pathway for generic versions of these products may develop over time, although not perhaps until well beyond 2005.”

Analysts concede that generic biologics provide a great opportunity for both generic drug and specialty pharmaceutical companies while posing a legitimate threat to biotechnology. Five biotechnology products with combined 2002 worldwide revenues of $11 billion are expected to have their US patents challenged in the next five years. These products are Eli Lilly’s Humulin (human insulin), Schering-Plough’s Intron (interferon alfa), Johnson & Johnson’s (J&J) Procrit (epoetin alfa), Amgen’s Epogen (epotein alfa), and Amgen’s Neupogen (filgrastim).

Revenues from generic versions of these five products alone could generate over $1 billion in annual revenues. “The overall generic biologic opportunity could exceed the size of the entire current generic drug industry,” says Mr. Maris. In addition to these five, other branded biologicals that may soon face generic competition include J&J’s Remicade (TNF alfa), Biogen Inc.’s Avonex (interferon beta-1a), and Schering AG’s Betaferon (interferon beta-1a).

Yet, despite the promise of significant profitability, biogenerics face a challenging, uphill battle, analysts caution. “There is no clear regulatory framework for these products in the United States [and] it may be difficult to establish ‘bioequivalence’ due to the complexity of biologics,” Mr. Maris emphasizes.

“Biogenerics are on the way,” agrees Rodman & Renshaw’s Mr. Jaikaria. “There are a number of biogenerics in development, but [they] are still awaiting regulatory clarity.”

For its part, the FDA has already begun transferring some therapeutic biological products that had been regulated by the Center for Biologics Evaluation and Research (CBER) to the Center for Drug Evaluation and Research (CDER). The CDER has traditionally been responsible for reviewing and regulating small-molecule pharmaceutical drugs and now also has regulatory responsibility over the transferred therapeutic biologicals.

The FDA initiated the change only about a year and a half ago on June 30, 2003. Most recently, the agency posted a formal announcement in early October 2004 that all therapeutic biologic submissions should be directly to the CDER.

Some in the biotechnology industry have viewed this as a start in the direction of gaining a sense of standardization in the clinical evaluation for biologics. However, others state that further clarification is needed with legislation that can regulate biologics in a comparable manner to small-molecule pharmaceutical chemistry.

“In theory, standards similar to those for generic versions of branded pharmaceutical products could be used for generic biologics. The branded pharmaceutical industry has also publicly endorsed the existing Waxman-Hatch framework, stating that the bill provides the proper balance between innovation and cost controls,” says Bank of America’s Mr. Maris.

“However, since biological products were not prevalent at the time of the Waxman-Hatch Act, they were not included in legislation. Consequently, according to recent statements made by the FDA, current law does not allow for generic versions of biological products under section 351 [of the Public Health Service Act],” he adds.

Broadening the Waxman-Hatch Act to simply include biologics is not necessarily a straightforward process, as noted by the biotechnology industry on the whole. Consequently, one of the most difficult challenges that legislative and regulatory authorities face is the issue of establishing basic bioequivalency.

Fundamentally, therapeutic biologics are more complicated molecules than pharmaceutical products, which are often referred to as small-molecule drugs.

There are clearly established methods for a generic pharmaceutical company to prove the bioequivalence of a small molecule product. However, scientists have yet to be convinced that there is a satisfactory method to demonstrate that generic biologics are safe or comparable in their therapeutic effect without these compounds undergoing the same clinical trials as the original.

Pharmaceutical drugs often comprise molecules with precise chemical and structural characteristics. In contrast, biologics, being derived from living sources, are often complex mixtures. These products exist in primary, secondary, tertiary and quaternary structures that are not easily identified or characterized.

“As a result, the Biotechnology Industry Organization (BIO) believes that all biotechnology products, including generic versions, should undergo the same scrutiny from the FDA as innovative products, like lengthy and costly clinical trials,” according to Mr. Maris.

Experts also say that, ultimately, generic biologicals will likely be subject to a battery of tests, rather than a simple bioavailability test, as is the case with small molecules. As a result, analysts expect that beyond the regulatory and clinical hurdles, cost will play a major factor in the final decision to move a generic biological candidate forward.

“The greatest obstacle [may] be the manufacturing of generic biologics, since there is widespread belief that ‘the process makes the product’,” states Mr. Maris. “The costs associated with manufacturing and the time to construct a facility are also major hurdles.”

The typical cost of building a large-scale biotechnology manufacturing plant has been estimated at between $125 million and $500 million, and it may take several years to build. Analysts note that the generic industry does not currently have the capacity to meet demand for generics biologics and would need to build.

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