FTC releases follow-on biologic competition report

The Federal Trade Commission released a report on 10th June 2009 investigating the potential effects of follow-on biologic drug competition. The report concluded that developing a regulatory pathway to allow follow-on biologics would be an efficient way to bring lower-priced drugs to the market; this is not the most surprising conclusion that could be reached. However, the report did find that even with such a pathway, the competitive market between pioneer biologics and follow-on biologics would not be likely to follow the same course as the competitive market between branded and generic small molecule drugs, as fostered by the Hatch-Waxman Act. Follow-on biologics would be unlikely to enter the market for products with annual revenues less than US$250 million, and it would be likely that only two or three generic manufacturers would attempt entry for a given pioneer drug. Furthermore, given the costs involved in producing a follow-on product, drugs would be introduced with discounts no larger than between 10% and 30% of the pioneer’s product price. As a result, the pioneer could still expect to retain between 70% and 90% of market share, a far cry from the situation with traditional drugs, when generic entry can reduce market share by similar percentages as the FTC is estimating will be retained.

In that respect, the report does not seem to contain much bad news for the biologic drug industry. However, the industry’s association, BIO, responded to the report by saying that at first glance it was fundamentally flawed, and demonstrating a lack of understanding of the conditions necessary to drive biomedical innovation. This seems a somewhat surprising response to a report that suggests generic competition would not be as damaging to profits for the biologic industry as it has been for traditional medicines, with few competitors and relatively small price discounts. However, the cause of most concern may well reside in the report’s argument that a 12 to 14 year regulatory exclusivity period, as recommended in one of two bills in Congress attempting to create a regulatory pathway for follow-on biologics, would be too long to promote innovation. This appears to be a sticking point for BIO, which argues that even with the limited generic competition suggested by the report, other studies show that pioneer companies would be unable to recoup their costs without a 12 to 14 year exclusivity period. BIO claims to support the development of a regulatory pathway for follow-on biologics, and with two competing bills currently going through Congress to create a pathway, the question is more and more ‘when’ rather than ‘if’. However, as BIO’s response to this report shows, the biologic industry is determined over what form of pathway it will tolerate. The question will be how well the industry will fare in convincing Congress to agree with it.

Ian Platts - Editor, World Generic Markets