Why Biologics Are Difficult—or Even Impossible—to Copy
First things first: As you read this chapter, you’ll notice that most of the conversation revolves around biologic drugs, not traditional “small-molecule” chemical drugs. The reason is that once a small molecule drug goes generic and its chemical formula is accessible to all, formulating and manufacturing a generic version of it is a relatively straightforward process—kind of like mixing a cocktail using a recipe and mass-produced, consistent ingredients. Zestril and Lipitor are examples of traditional, small-molecule, chemical drugs that gave way to generics quickly and easily (lisinopril and atorvastatin, respectively).
Biologics are a whole other matter. These protein-based, large-molecule medicines are produced in living cells using a fermentation process akin to wine making and are like wines in that one batch is never exactly the same as another. It is extremely difficult (if not impossible) to produce generic versions of biologics that are as close to identical in composition as generic versions are of small molecule drugs. In the past, that made it difficult to get generic versions of biologics approved, which meant that many biologics couldn’t go generic and the prices stayed high.
Biosimilars—A Step in the Right Direction
To address the problem of biologics being hard to genericize, as part of the ACA Congress enabled the FDA to come up with a way of recognizing when two biologics are close enough to be called similar, even if it is impossible to prove they are the same. There are fewer companies that specialize in making these “biosimilar” biologics than companies that can make generic small molecules (just as there are fewer vineyards than bartenders), and it generally costs more to manufacture biologics. Therefore, when a branded biologic “goes biosimilar,” the price might not erode as steeply as it would in the case of generics. Only a handful of biosimilars have launched on the US market to date, though several others approved by the FDA are held up only by legal challenges or settlements, so it’s just a matter of time before they come to market and start bringing prices down.118
The European biosimilar market offers cause for optimism. Over twenty biosimilars in several drug classes, including those that treat anemia, autoimmune disorders, cancer, and arthritis, have entered the European market and several more await approval by the EMA, the EU’s FDA equivalent.119 Indeed, Europe offers a strong model for approving biosimilars in order to produce greater competition and price erosion in the biologics market.120
Fascinatingly, while biosimilar launches have triggered price drops, there is little correlation between a biosimilar’s market share and the overall price reduction in the total market.121 This means that a biosimilar need only gain a small foothold to push down the prices of branded biologics, even if the brand maintains a substantial share of the market. The entrance of a single biosimilar can reduce overall prices because it shifts the balance of negotiating power to payers, who then extract a big enough discount from the original branded biologic to keep it on their formularies. As I mentioned in Chapter 6 about me-too drugs, it’s important that payers reward biosimilars with market share and not just use them to extract discounts from the market leader. Towards this end, the FDA recently promised to increase biosimilar competition and suggested that the Centers for Medicare and Medicaid Services (CMS) could incentivize biosimilar growth by switching CMS’s payment model for many biologics away from Medicare Part B, which is somewhat less price sensitive,122 to be more like Medicare Part D, which negotiates rebates more aggressively.123
With greater competition, prices should drop to be only modestly higher than the cost of production, which is typically 5-15% of the branded drug price. This means that, with enough competition, biologic drug prices might drop by as much as 70-90%.124 Compared to small molecule drugs, the biosimilar approval process is slower and more complex, which means that it may take longer for enough competitors to reach the market to drive down prices to that extent. For example, a price drop that took less than 12 months for the cholesterol-lowering statin Lipitor might take several years for the protein-based TNF-alpha inhibitor Humira, but all signs point to biosimilars, like generics, offering society great value.125
However, existing biosimilar legislation only applies to simpler types of biologics, such as enzymes and antibodies. There is still no regulatory path by which the FDA can recognize biosimilars of complex biologics like cell therapies, for reasons I’ll explain below. However, that doesn’t mean that society can’t get out of paying branded prices for these complex biologics in the long run.
Drugs That Don’t Go Generic: Sizing the Problem
The good news is that there aren’t many drugs that don’t, won’t, or can’t go generic, and society is spending comparatively little on them at the moment. Let’s look at some numbers, using spending from the two biggest government plans as a reference point.
According to CMS, only 121 drugs account for about 68%, or almost $101 billion, of the approximately $148 billion that the government spent on prescription drugs in 2018.126 Based on how difficult it is to manufacture these 121 drugs,127 some being easier to copy than others, more than half (55%) of this sum is spent on branded drugs that are readily genericizable and therefore can be expected to eventually drop considerably in price once their patents expire.
Another 11% consists of spending on branded drugs that are administered in ways that make genericizing them challenging. For instance, the bronchodilator Advair Diskus, a specialized device that allows a patient to inhale a combination of two drugs, is only just starting to see some generic competition. In order for a generic version of this type of drug to be approved by the FDA, the maker must provide evidence that the delivery device—in addition to the drug itself—will work just as reliably as the branded drug’s device. But even these should eventually succumb to generic competition.
Another 30% of this spending is on comparatively simple biologic drugs that should face biosimilar competition. Many, like Remicade, Neupogen, and Avastin, already have approved biosimilars on the market, which has already led to price erosion or eventually will.128
Based on these data, we can conclude that 96% of the US government’s branded drug spending is on drugs that will drop in price as generics or biosimilars come to market. That means only 4%, approximately $6 billion, is spent on drugs that, based upon today’s knowledge and technology, cannot go generic (I’ll address this 4% below in more detail). That’s a small percentage, which seems good, but these drugs represent rents that will stack over time. Like a small plug of hair in the sink, this spending will grow and grow, threatening to clog the entire system sometime in the future.
There are two solutions to this small but growing problem, one of which is already in play, which I’ll call “indirect genericization,” and the other we need to bring about through an act of Congress, which I’ll call “contractual genericization.”
A Workaround: Indirect Genericization
Of that 4% we spend on drugs that probably can’t go generic, I approximate that half is spent on complex biologics that, while hard to biosimilarize,129 might actually be disrupted by other, simpler branded drugs that are themselves genericizable. For example, in hepatitis C, the standard treatment used to be a biologic treatment that required injecting pegylated interferons.130 Many patients experienced difficulties tolerating peg-interferon-based treatment, and it only cured 40% of patients after as much as a year of injections. But then came new small molecule drugs, taken orally, that increased cure rates to nearly 100%, while cutting the treatment time to as little as eight weeks. These drugs all but retired peg-interferon-based treatments. Someday, all of these drugs will likely face increased competition from their own generics—all of which obviates the need to genericize peg-interferon.
Another interesting case study is that of IVIg, which is a mixture of antibodies collected from the blood of healthy donors for infusion into patients with a variety of immune-related proble
ms. Companies that specialize in extracting proteins from blood sell their own branded versions of IVIg that physicians recognize as being largely interchangeable. Therefore, when a hospital needs to purchase IVIg, it can shop around, but due to a relative scarcity of donated blood, IVIg supplies are almost always tight, and the prices remain high. Several biotechnology companies are working to develop biologic drugs that could replace IVIg but are manufactured more conventionally (i.e., not purified from blood). Such an IVIg replacement would be expensive at first, like any branded drug, but it would reduce what we spend on IVIg, and it would address the supply problem. Eventually, the patents would expire, biosimilars would come to market, and prices would drop.
One more example. NovoSeven is a last-resort blood-clotting factor used to treat patients with hemophilia, a condition in which a patient’s blood doesn’t clot normally, turning a small cut into a life-threatening emergency. Hemophilia occurs when a person is born missing one of two clotting factors: Hemophilia A occurs when patients are missing Factor VIII and Hemophilia B occurs when patients are missing Factor IX.131 Normally, patients with Hemophilia A and B are both treated with regular infusions of the clotting factor they are missing. But sometimes patients develop antibodies that neutralize the benefits of the clotting factors, essentially rejecting the therapy and putting them back into the danger zone.132 If they get a scratch, suffer internal bleeding from an accident, or need surgery, then daily infusions of NovoSeven can save their lives by helping their blood clot. NovoSeven is very expensive to manufacture and has to be used in high amounts, so it carries a high price. While too early to be sure, the odds look good that NovoSeven will be indirectly genericized by better drugs coming down the pike, drugs that are simpler to make and more convenient to administer to patients.
It’s even possible that, in the near future, hemophilia will be cured or nearly cured with gene therapies that are too complex to genericize but impossible for other types of drugs to beat (hard to beat a single infusion that gives you your life back). Such non-genericizable, non-disruptable therapies represent the final 2% of drug spending and require a new strategy to protect the Biotech Social Contract.133
Truly Ungenericizable: The Challenge of Gene Therapies
Complex biologics, such as gene therapies, pose a challenge to the contract.134
Here’s why. Let’s say that Company A developed a gene therapy, and 15 years later, its patents have expired. Along comes Company B wanting to make a biosimilar of that gene therapy. Company B copies the manufacturing process of the original gene therapy, generates data showing that it works similarly in animal studies, and even manages to produce some clinical data from human trials. Now it’s time to submit their data to the FDA in order to have their drug approved as a biosimilar. Instead, Company B is met with a blank stare. We don’t yet have analytical tools that can determine, reliably, whether or not two gene therapies really are the same. Without these analytics, the FDA has no legal basis for granting it approval as a biosimilar. It would be like someone showing you two alien creatures and claiming they are twins. While they might look the same to your eyes, you wouldn’t even know where to begin in trying to confirm whether they are twins or not—especially knowing, as we do, that even identical human twins aren’t truly identical.135
Unfortunately for Company B, the FDA would have an ethical duty not to approve their drug as interchangeable with the original. Company B could always submit its gene therapy to the FDA as a novel drug, but that would require larger clinical trials and cost a lot of money, far more than it costs to develop a generic or biosimilar drug. If approved, Company B will have developed a “me-too” branded drug, which isn’t a bad thing (see Chapter 6), but it’s not an easy path, financially—not nearly as easy as, say, bringing a generic small-molecule to market.
Ultimately, the result is that this strategy isn’t enticing enough to encourage many companies to compete with Company A’s gene therapy—certainly not enough competitors to drive its price down by 70%, 80%, or 90% as we might expect when a drug really goes generic.
Any me-too/biosimilar gene therapy would also face significant hurdles even before it got to the FDA. For instance, consider a gene therapy for a genetic condition that can be diagnosed at birth and that works best when administered in the first few months of life. Maybe this gene therapy need only be given once to help a child live a normal or near-normal life. Now imagine that a competitor has developed its own version and needs to show how well it works in a human clinical trial.
With a miracle drug already on the market, it is hard to imagine any parent being willing to enroll their child in the clinical trial. Why take a chance on an alternate treatment, no matter how similar it seems based on animal tests, when a proven, approved treatment is available?136 Even slight differences could cause the biosimilar gene therapy to be worse, which is why the FDA requires trials like this in the first place. In this situation, it might be years before the patient begins to show symptoms or signs that the biosimilar was inferior, and by that time, the optimal window for treating the condition would have closed. What parent or doctor would take that risk?
In such a scenario, the first company to bring a gene therapy to market would have an undisruptable “natural” monopoly.137 Currently, there aren’t many gene therapy programs like this in clinical development. Those that are on the market are extremely expensive (Novartis’ gene therapy Zolgensma, which treats children with spinal muscular atrophy, costs $2 million per patient). Even at such prices, these therapies will likely stay below 10% of total drug spend for decades to come because there are so few patients with relevant diseases, but as time passes and gene therapies become more common, these “natural” monopolies will undermine the Biotech Social Contract. The solution is a regulatory one: simulate genericization after a drug’s patent has expired. But before we get into how that might work, let’s look at some numbers.
There are thousands of rare genetic disorders, many of which could potentially be addressed through gene therapy. In theory, solving one such disease might generate $350 million/year in the US for a biopharmaceutical company.138 Therefore, treating even 10% of the 6,000 genetic disorders listed in the genetics OMIM database could eventually drive societal spending above $200 billion/year. For context, that’s about 60% of what we are currently spending on all prescription drugs in the US each year. If the benefits of future therapies are anything like the gene therapies in development today, they would not feel at all discretionary to the patients and families devastated by these disorders. Clearly, until we come up with a scientifically and ethically sound way to let gene therapy biosimilars come to market, we need an alternative way to achieve the same end.
Contractual Genericization: Applying a Standard Solution to Natural Monopolies
If a drug can neither go generic nor be replaced with a better technology, it might remain a monopoly forever. The company that developed it would have the ability to charge a high price indefinitely, which violates the Biotech Social Contract, though that’s not the fault of the company. In any industry, a company will charge what the market will bear until competition or a change in supply or demand forces it to lower the price.
Given the scientific limits that prevent us from making biosimilars of complex biologics like gene therapies, how can we make them conform to the Biotech Social Contract and become inexpensive after their patents expire? The answer is actually simple. It’s the same answer that America has long had for natural monopolies: Regulate them with price controls. You might be surprised that I’m suggesting that Congress impose price controls on drugs, but what I’m advocating for is very different from the price controls that tend to get bandied about by academics and politicians. To be precise, I am suggesting that we employ price controls for drugs that appear to be immune to genericization after their patents have expired—not while they are still patent-protected and not if they are genericizable.
I’m s
uggesting that Congress enact a law that says that a company that owns a monopoly in a class of drug that shows itself to be ungenericizable must, after its patents have expired or some specified length of time, lower its price to be close to the cost of production, as if it had gone generic. In this case, price erosion will not have occurred through the process of natural competition in a free market, but through regulation, which is why I call this “contractual genericization.”
If that sounds like overreach, consider how the biodefense industry is regulated. The government negotiates contracts with certain companies that manufacture vaccines and therapies for pandemic flu, smallpox, and other biodefense-related diseases. These vaccines, while unnecessary under normal circumstances, might suddenly become necessary, so it is imperative that our country has a reliable supply of them. The government helps fund the research and offers a guarantee that, as long as the products are approved by the FDA, the government will purchase a certain number of doses every year at a pre-negotiated price.
Unlike biodefense products like pandemic vaccines, which are produced with the hope that they will never be needed, there is a ready market for most of the drugs that biopharmaceutical companies develop. As long as society is willing to pay for branded drugs, companies won’t need government subsidies or purchase guarantees to motivate them to invest in making these drugs (antibiotics being a special exception—see sidebar). But when these drugs can’t go generic, society gets a raw deal by having to pay branded prices long after a drug’s patents have expired.
So after a drug’s patents expire and if there aren’t already generics or biosimilars on the market to compete down that drug’s price, I propose that the US, either through a government agency or a contractor, enter into an agreement with the manufacturer to continue to produce it as a “contract generic.” Such an agreement would guarantee purchase of a certain amount of drug at a price that is slightly more than the cost of production.139 That guarantee would motivate the company to continue making the drug. In essence, once the patent exclusivity period is over, the production facilities of non-genericizable drugs would be regulated like public utilities—which makes sense, because their products, off-patent drugs, essentially are a public resource (i.e., the mortgage has been paid off).
The Great American Drug Deal Page 12