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Biotech bonanza lurks in healthcare reform bills

A proposal by Rep. Anna Eshoo would give developers of innovative biomedical drugs 12 years of statutory protection from generic competition, significantly extending their patent rights.

December 17, 2009|Michael Hiltzik

The debate over healthcare reform is focused on such a small number of hot issues -- should there be a public option, Medicare buy-in, government-paid mental health counseling for Sen. Lieberman? -- that dozens of other questions are cruising under the radar.

Here's one worth a lot more attention than it has been getting: Is Congress poised to make a big payoff to biotech firms and their venture backers by hindering the entry of a new class of generic drugs into the marketplace?

That's the rap on an amendment sponsored in the House reform bill by Democratic Rep. Anna G. Eshoo, whose Palo Alto district is home to bands of venture capitalists. (Matching language is in the Senate bill.)

Eshoo’s provision would give developers of innovative biomedical drugs 12 years of statutory protection from generic competition, significantly extending their patent rights. That's a lot longer than the five-year head start that federal law gives to conventional pharmaceuticals.

Introduced in 1984 as part of the Hatch-Waxman Act, the five-year standard has proved effective enough to create what is now an annual $60-billion generics market in the U.S. alone. This saves American consumers roughly $10 billion a year, manufacturers say.

The rule extends a drug's patent protection beyond the usual 20 years to make up for the lengthy government approval process; to illustrate, if your drug doesn't win approval from the Food and Drug Administration until 17 years after you patent it, you can market it, untouched by generics, for five years after approval. If you tweak the drug formula slightly to make it work better, you get three more years of exclusivity.

In certain cases Eshoo's measure would afford those tweaks an extra 12 years, on top of the original 12. That's a process condemned by the generics industry as "evergreening," which may be the first time that the stately evergreen has been co-opted for a curse word.

Eshoo says her measure will give manufacturers of innovative biologic drugs such as interferon and some advanced cancer drugs enough potential profit to keep them hunting for new products without discouraging generics makers from developing cut-rate versions.

"It's a delicate balance," she told me this week. She argued that without her measure there won't be a generics industry in biologics at all, because her bill is the first to establish a federal regulatory program in the field. (Biologics aren't subject to Hatch-Waxman.)

Indeed, the United States has fallen behind Europe on regulating the biologic drug industry. It's important that U.S. regulators catch up, because these drugs are expected to be at the center of medical science for decades.

They're also, at the moment, horrifically expensive. Biotech treatments for cancer and arthritis can cost $50,000 a year; a drug for one debilitating genetic disorder costs $200,000. Plainly, competition from generics, or "follow-on" drugs as they're known in the trade, will help lower those prices.

Backers of the industry say the high prices of some biodrugs mislead people into thinking the whole industry is awash in profits. On the contrary, they say they need special protection because biotech comprises mostly small, venture-backed firms whose rate of failure is high.

"People don't believe it when we say that biotech is barely hanging on by its fingernails from a venture capital point of view, but it's not an exaggeration," says Jack W. Lasersohn, a partner at the venture firm Vertical Group, who testified before Congress several months ago in favor of the 12-year rule. "The wrong decisions here will have a devastating impact on investment in biotech."

On the other side of the coin, Paul Bisaro, chief executive of the Corona-based generics manufacturer Watson Pharmaceuticals, told me that the biotech manufacturers are getting too much protection, especially from the evergreening provision. If that's enacted, "we'd have to ask whether there'd ever be a substitutable follow-on drug at the end of the rainbow. We wouldn't be doing generic biologics the way we do generic drugs today."

Biologic drugs differ fundamentally from conventional pharmaceuticals, which can be produced in the chemistry lab. Biologics are far more complex and typically are produced using live animal or human cells. Their R&D is generally more expensive and more likely to run into a dead end, regulatory approval is less certain, and the target markets may be smaller.

Those are all arguments in favor of giving manufacturers greater financial incentive to develop these drugs, say by raising the bar for competition from copycats.

On the other side of the coin, copying these drugs isn't as simple as manufacturing a knockoff of ibuprofen or a cholesterol medication. Given the variability of biologic manufacturing -- the drug can be affected by the strain of animal cell being used or even by the lab hardware -- no one is sure that generics can duplicate any biomedicine exactly.

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