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Patent expirations are beckoning generic drug companies, but numerous hurdles remain to a profitable business

by Susan J. Ainsworth
June 6, 2005 | A version of this story appeared in Volume 83, Issue 23

Insulin is among the biopharmaceuticals that biogenerics firms are targeting for development.
Insulin is among the biopharmaceuticals that biogenerics firms are targeting for development.

In recent years, the first biopharmaceuticals, which include some of the most expensive drugs in the world, have begun coming off patent. Not surprisingly, generic drug producers have been sizing up the market for these blockbuster biologics, which include interferon, human growth hormone (HGH), and insulin. In their eyes, these patent expirations create a golden opportunity to escape intensifying competition in the small-molecule generics sector.

To capitalize on this opportunity, generics companies, along with a bevy of biotechnology firms, are aggressively positioning themselves to launch less expensive copies in hopes of carving out a profitable market niche. These generics contenders are joining forces through acquisitions or joint ventures to accelerate development, manufacture, and marketing of the most lucrative copycat biopharmaceuticals. And they are hoping that regulators, in their quest to hold down health care costs, will support their efforts.

The world market for generic biopharmaceuticals has the potential to be $5.4 billion by 2008, assuming that a favorable regulatory environment evolves for these products, according to a study conducted last year by Kalorama Information, a life sciences market research firm. The market barely existed in 2004 and is expected to be worth just $73 million this year.

But tapping into the potential for generic biopharmaceuticals--also called biogenerics or follow-on biologics--won't be easy. "The issues and trends surrounding the prescription biogeneric pharmaceutical market are staggering and in some cases seemingly insurmountable" compared with the traditional generic drug market, the Kalorama study observes. Producing generic biologics "is complex, involving many variables, with safety being the paramount issue."

Safety and other scientific issues are behind biogenerics players' biggest frustration: the failure of both the U.S. and the European Union--the largest global markets for pharmaceuticals--to open appropriate routes for approval of biogenerics.

"Certainly, there are contentious scientific issues surrounding such a system" for testing and approving biogenerics, said Rep. Henry A. Waxman (D-Calif.), the coauthor of the 1984 Hatch-Waxman Act, which paved the way to the market for generic small-molecule drugs. Speaking in April at a conference on biogenerics, Waxman added that "we must get the science right, because if the science behind approving biogenerics is not sound, many in the brand-name industry will make it their mission to destroy the credibility of those products in the eyes of physicians and patients."

Regulatory authorities in the U.S. and Europe have been caught in the crossfire between branded drug and biotechnology innovator companies, which want to block competition, and biogenerics firms, which want to profit by producing cheaper knock-offs of the original drugs without conducting all the costly R&D and clinical testing done by the innovators.

For their part, branded drug and biotech firms continue to lobby in the U.S. against shortcuts in the approval of follow-on biopharmaceuticals, arguing that the science has not progressed enough to allow generics makers to circumvent the clinical trials and other studies that innovator companies conduct to prove the safety of their biotechnology products.

The Biotechnology Industry Organization, a trade group that represents more than 1,000 biotechnology companies and institutions, has been a strong voice in this debate. BIO points out that generic biological products are harder to characterize than small-molecule drugs and thus harder to prove equivalent to the innovator entities.

"Also, due to differences in the composition of a biotechnology product or differences in how the product is manufactured, different versions of the same biotechnology product produced by companies other than the innovator will inevitably differ in certain respects from the innovator product," according to a BIO position paper. "Experience shows that even small product differences can result in significant safety or efficacy differences."

On the other side of the debate, generics firms and the Generic Pharmaceutical Association (GPhA), which represents manufacturers of generic pharmaceuticals and their suppliers, argue that an abbreviated regulatory process is within the scope of current science. "There is no reason to delay consumer access to affordable medicines when sound science supports the approval of biopharmaceuticals under a shortened and less costly pathway," says Kathleen Jaeger, president and chief executive officer of GPhA.

Generics players want the Food & Drug Administration to make use of an existing abbreviated regulatory pathway to approve certain generic biopharmaceuticals that fall within the scope of the Hatch-Waxman Act. This legislation allows a drug to gain approval without safety and efficacy trials if its active ingredient is identical to that of an innovator drug and is metabolized the same way.

Because the biological product category was just emerging in 1984, it was not considered in drafting the legislation. Most recombinant therapeutics, including erythropoietin (EPO), are regulated under the Public Health Service Act, which was not modified under the Hatch-Waxman Act.

COINCIDENTALLY, however, a limited number of biopharmaceuticals, including HGH and recombinant insulin products, are subject to approval under the Federal Food, Drug & Cosmetic Act, which falls under the Hatch-Waxman Act umbrella.

For those products, says David L. Rosen, partner and chair of the FDA practice at Washington, D.C.-based law firm Foley & Lardner, applicants have access to a pathway to drug approval known by the section number 505(b)(2). It is "a full New Drug Application," Rosen notes, but one that is based on earlier safety and effectiveness studies conducted for approval of an innovator drug.

For now, FDA has focused on sifting through the many unanswered scientific and technical issues swirling around follow-on biologics. Toward that end, the agency sponsored public science workshops in September 2004 and February 2005 intended to be a forum for discussion between innovator and generics industry representatives.

Overall, however, workshops have not been very constructive, some observers report. "You have each side taking relatively hard lines, and when one group says white and the other group says black, it is hard to get gray in the middle," observes Janice M. Reichert, senior research fellow at the Tufts Center for the Study of Drug Development, Boston.

Innovator companies may fear that if they "begin to compromise on insulin and human growth hormone, by extension they are opening up the door to [approval of] more complex products in the future," Reichert conjectures. "I think they feel that if they keep the status quo, then they won't have to worry about this problem in the future."

Indeed, GPhA's Jaeger asserts that "it is possible to permit approval and marketing of a vast array of biopharmaceuticals with relatively low to modest complexity, and expand that system in the coming years to permit the approval of more complex products."

For now, GPhA is calling on FDA to release its white paper and agency guidance on biologics, which would describe current scientific methods for comparing products and "provide timely advice to the industry," Jaeger says. FDA announced four years ago that it would be working on guidelines for insulin and HGH, but it has yet to release them, she notes. An FDA spokeswoman declines comment on this issue, except to say that "we are still working on getting the background document and the guidance completed."

Regulators in the European Union have made more progress. The EU passed legislation in 2003 that establishes a regulatory pathway for abbreviated approval of follow-on biologics and has since continued to amend it. In laying down "the requirements for the marketing authorization applications based on the demonstration of the similar nature of two biological medicinal products," European Medicines Agency (EMEA) documents state that the standard "generic approach for gaining marketing approval is not scientifically appropriate for these products."

To that end, the agency has proposed that comparability studies are needed to prove the similar nature of what it calls the "new similar biological medicinal product" and the original medicinal product. It has also stated that the requirements to demonstrate safety and efficacy are product-class specific and will require preclinical and clinical data.

Although EMEA has begun to formalize the process for approval of follow-on products, it has yet to approve one.

Despite the regulatory deadlock, an increasing number of companies are submitting applications, hoping to receive the green light to market their biogenerics in alluring Western markets. Generics maker Sandoz, for example, has applied for approval of its recombinant DNA HGH Omnitrope in both the U.S. and Europe, but has yet to win authorization in those markets.

Last September, FDA issued a letter to Sandoz stating that it was unable to reach a decision on whether to approve an application for the marketing of Omnitrope. According to the letter, the agency said it completed its review of Omnitrope and did not identify any deficiencies in the application. However, the agency stated that it had been unable to reach a final decision on the application due to uncertainty regarding scientific and legal issues.

In a press release issued at that time, Sandoz said it "appreciated the constructive consultations held with the agency" and believed it had submitted complete and thorough data to support marketing approval for Omnitrope. Currently, "we are continuing to dialogue constructively with the FDA as part of our objective to make this product available to patients in the U.S.," a Sandoz spokesman says.

Sandoz isn't being as conciliatory in Europe. In its effort to win European approval for Omnitrope, the company says it developed the product under the guidance of EMEA. Even so, the European Commission has delayed marketing authorization. "The EC did not want to proceed with the process based on the positive opinion of the Committee for Medicinal Products for Human Use, stating that there were regulatory pathway issues," the spokesman says.

IN RESPONSE, Sandoz has filed suit against the EC before the European Court of First Instance. While continuing the legal procedure, Sandoz is still in dialogue with the EC and EMEA to find a way "to get Omnitrope to market as soon as possible," according to the spokesman.

In October, Sandoz received approval from the Australian Therapeutic Goods Administration to market Omnitrope. Encouraged by that approval, some biogeneric-focused companies are sanguine about the prospect of future approvals.

"The biogenerics market is no different from the traditional pharmaceutical market in that if you conduct the appropriate trials and follow the appropriate regulatory advice, then the chances of obtaining regulatory approval are good," says Jean-Noël Treilles, CEO of the Swiss firm BioPartners. The company, which describes itself as a leader in the emerging field of competitively priced biosimilar products, has sought the advice of European and U.S. regulators since its inception in 2000, Treilles says. "And therefore, we are confident that we stand a reasonable chance of achieving success."

In October, BioPartners submitted a marketing authorization application to EMEA for an interferon product used to treat hepatitis C. In November, the firm submitted an application for Valtropin, its recombinant somatropin HGH product. Both applications are currently being evaluated by the agency, according to the company.

While they wait for approvals in Western markets, biogenerics companies are targeting countries with lower regulatory barriers and less protection of intellectual property. Israel-based generics giant Teva Pharmaceutical Industries, for example, is manufacturing HGH, interferon -2b, and granulocyte colony-stimulating factor (G-CSF) in Lithuania and selling them in countries outside the U.S. and Western Europe.

Teva technician uses a centrifuge to recover biomass after fermentation.
Teva technician uses a centrifuge to recover biomass after fermentation.

Meanwhile, Dragon Pharmaceuticals, a biopharmaceutical company headquartered in Vancouver, British Columbia, makes recombinant EPO at a plant in Nanjing, China, and markets it in nine countries: China, India, Egypt, Brazil, Peru, Ecuador, Trinidad & Tobago, the Dominican Republic, and Kosovo.

In addition, Dragon has applied for more approvals throughout Central and Eastern Europe, Asia, Latin America, the Middle East, and Africa, and says it is preparing to enter the European Union market. "It is important and encouraging that our EPO is being approved and becoming available in ever more countries around the globe. This represents a valuable confirmation of the quality and the acceptability of our EPO," Dragon President Alexander Wick says.

Companies that are actively marketing biogenerics in less regulated markets may have an advantage over wait-and-see players. These companies will be "in the favorable position of beginning to earn a return on their investment in biogenerics, while refining their capabilities ahead of entry into Europe and the U.S.," according to a study published last year by Datamonitor, a market research firm.


Experience in the many facets of the biogenerics business will be critical for companies that will have to break down a number of barriers to entry. They will need to deal with branded biotech industry advocacy for high safety standards and intellectual property protection. "The unique aspects of biotechnology patent law and its complexity compound the issue for biogenerics companies and represent fertile ground for biopharmaceutical companies to hinder development of biogenerics," the Kalorama study observes.

Specifically, "legal battles are likely to break out over the use of the 505(b)(2) regulatory pathway and the reliance by FDA and generic applicants on the review and approval of other approved New Drug Applications," notes Foley & Lardner's Rosen.

In fact, at least some biotechnology companies are already considering the ramifications of generics firms using innovator drug data in their applications. David Beier, Amgen's senior vice president for global government affairs, points out that "in addition to patent rules, current law protects the valuable trade secrets and confidential data that innovative companies must submit to FDA to gain approval of their products."

Even more menacing to biogenerics companies than latent legal wranglings is the likelihood that branded biotechnology companies will commercialize second-generation products, notes John Langstaff, CEO of Cangene, a Manitoba-based company that includes HGH and granulocyte macrophage colony-stimulating factor in its biogeneric pipeline.

If patients are switched to a next-generation version of the branded product ahead of patent expiry, the market potential for generic versions of the original product is severely limited, he notes. For example, coming out with a generic interferon product is pointless for a company today, because most patients are now prescribed PEGylated interferon , an extended-release version that is still under patent protection, Langstaff says.

"And while that may not be the case for all of the biogenerics, it appears that in the biotech industry, the technologies have been advancing so rapidly that innovators are quickly making substantive improvements in some of these products." That trend, Langstaff says, "is the biggest threat to us in our biogenerics business."

IN ADDITION to scientific hurdles, biogenerics producers must contend with manufacturing and approval cost issues. Those mounting costs threaten to take away the impetus for bringing generics to the market--to make money by reducing prices for the consumer, Reichert observes. "And it's not clear that the discount is going to translate exactly to the protein therapeutics as compared with the small molecules," she adds.

The Kalorama study, for instance, predicts that due to high manufacturing costs, biogenerics will not be priced 40-80% below the innovator drug, as small-molecule generics typically are. Instead, observers predict that biogenerics will sell for only about 10-20% less. "While that would certainly be welcome," Reichert says, the discount may not be enough to entice physicians to switch patients over to a generic.

Unlike their small-molecule counterparts, biogenerics companies operating in Western markets will likely need to conduct lengthy and expensive clinical trials to demonstrate safety and efficacy. In addition, biogenerics companies will face R&D costs, the cost of setting up manufacturing facilities, and the expense of a marketing program that promotes the products as safe and effective.

To deal with these issues, some established generics drugmakers are acquiring or partnering with biotech companies that will bring critical expertise in the development, marketing, or manufacture of biogenerics.

Acquisitions are an integral part of the biogenerics strategy of Teva, according to Amir Elstein, the company's group vice president for biogenerics. In January 2004, Teva acquired Sicor, a generic drug and active ingredient company, for $3.4 billion. Through the deal, Teva gained a complementary stable of generics as well as the capability to manufacture generic biopharmaceuticals.

In February of this year, Sandoz' parent, Novartis, announced that it would buy a controlling stake in two generic drug companies. Pending regulatory approval, Novartis will buy all of Holzkirchen, Germany-based Hexal and a 67.7% stake in Eon Labs, a sister company based in Lake Success, N.Y. (C&EN, Feb. 28, page 11).

According to Novartis, the acquisitions will combine Sandoz' global geographic presence and expertise in anti-infectives, Hexal's leadership in Germany and strong track record of successful product development, and Eon Labs' strong U.S. position in "difficult-to-make" generics. The deals will also give Novartis leadership in delivery technologies and biogenerics. "The Hexal activities are a nice fit to the Sandoz expertise," the Sandoz spokesman says. "Whereas Sandoz is backward integrated with long-term experience in fermentation, Hexal has a broad network with development partners."

In March, generics maker Barr Laboratories and two subsidiaries of Croatian generics and biotechnology company Pliva entered an agreement to develop G-CSF in the U.S. and Canada as a generic version of Amgen's Neupogen product. The drug stimulates the production of infection-fighting white blood cells that are depleted by chemotherapy.

Pliva has responsibility for developing the product, generating data necessary to support the filing of an application with regulatory authorities, and producing batches to support any studies necessary for scale-up to full commercial production. For its part, Barr will handle all regulatory activities and has the right to market the product in the U.S. and Canada following final regulatory approval.

In February, in a similar deal, Pliva entered a strategic collaboration with Mayne Pharma, an Australian hospital generics company, for the development, supply, and marketing of Pliva's two most advanced follow-on biologics, EPO and G-CSF. Under the agreement, Pliva will complete clinical development of the products, and Mayne and Pliva will split marketing and distribution rights for different regions of the world. Pliva will also be the exclusive supplier of these products to Mayne through what the companies call a mutually attractive pricing arrangement.

"Biological products are technically complex, requiring specialized expertise in development and manufacturing that would be expensive and risky for Mayne to develop internally," Mayne CEO Stuart James says. "Pliva's deep experience in developing and manufacturing biological products and advanced progress in the development of EPO and G-CSF ideally complement Mayne's international sales and marketing and regulatory strengths. By joining forces, both Pliva and Mayne are positioned to benefit from faster market access at a lower risk."

At the same time, fledgling biotechnology firms are initiating deals or seeking partners that can provide marketing and distribution support to complement the in-house biogenerics development capabilities they might already have.

BioPartners has teamed up with "reputable pharmaceutical companies on a global basis for the commercialization of its product portfolio," Treilles says. For example, Cambridge Laboratories will be responsible for commercializing BioPartners' product line in the U.K. and Ireland. In addition, the company is working with partners for manufacturing and clinical development.

"And most important," Treilles adds, "we have agreements with state-of-the-art producers for drug substances and access to the quantity needed for commercialization. This gives us a real competitive advantage."

PARTNERSHIPS may provide a solution to another potential problem for biogenerics producers: availability of bulk material. Several reliable contract biopharmaceutical producers are emerging, according to the Kalorama study, including Boehringer Ingelheim, Cambrex, and Lonza. "However, their focus has been mainly on exclusive custom manufacturing of new biologicals under development by biotech companies or pharmaceutical industry participants," the study continues.

It is not yet clear what strategy these contract biopharmaceutical producers will adopt with respect to biogenerics, the study points out. "It is quite likely that most contract biopharmaceutical companies will stick with present biopharmaceutical companies, making it difficult for biogeneric companies to access bulk materials for their products. However, the promise of additional revenues from the generic entrance may sway contract manufacturers."

The biogenerics market is attracting an increasing number of producers and suppliers. But to be truly attractive, the business needs regulatory approval routes that open the doors to Western markets.

"I think the burden is on producers of follow-on protein products to provide an appropriate data set to FDA and then force FDA to make a decision one way or another" as to whether it has the authority to approve applications for these products, Rosen says.

He says he has worked with a number of companies that want to provide full product characterization and demonstrate consistency in manufacturing controls for their follow-on protein products. On top of that, these firms are working up clinical data that show their products have the desired clinical effects as well as a side-effect profile that is consistent with what's known and what's already approved. These companies will have an edge in that they will be able to "provide information in a data set that is more convincing," Rosen adds. "This is a data-driven process. Good science is going to rule."

Companies seeking approval for follow-on protein products must prove to FDA that they meet the standards and requirements for review and approval of their products, Rosen says. "And if that does not happen within the appropriate time frames and if the reasons for denying the approval of the applications are not based on sound statutory, regulatory, or scientific issues, FDA is going to have a little fight on its hands."


At the same time, biogenerics firms need to educate congressional staffers on the science behind their products. Companies like Sandoz believe that U.S. approval of follow-on biologics will require new legislation to ensure that FDA has the proper regulatory authority.

Reichert concurs: "It appears that FDA would rather have clear definitions given to them and that their preference would be for Congress to do something so that they have solid grounding in those approvals. They are going to catch so much flak over the approval of biogenerics and they are already in the middle of so many other issues that this does not seem like one they really want to get involved in right now."

Rosen urges companies "to humanize the issues. They need to point out that their follow-on products will likely make protein therapeutics more affordable and more accessible to many people."

INDEED, public and government concern about rising health care costs will likely spur legislators to come up with a viable pathway for approving biogenerics. In his speech in April, Waxman acknowledged that "biotech products pose significant affordability questions" for patients. "And there is evidence that the price of biotech drugs is rising faster than the price of traditional drugs."

With at least 150 biotech drugs now on the market, "I believe that the time has come to design a system for testing and approving biogenerics," Waxman said. "The important thing will be to make sure that the reforms that will inevitably come are thoughtful, careful, and strike the right balance between encouraging innovation and encouraging competition."

With so many risks and challenges standing in the way of commercial success of biogenerics, it's surprising that companies are willing to enter the business. Cangene's Langstaff, for one, insists that biogenerics is "an attractive market for us." With an "established manufacturing group and relatively good expertise for biological products from a regulatory standpoint, we believe that we have overcome some of the obstacles that will continue to provide a barrier to entry to some of the other people who want to get involved."

To be sure, the promises of limited competition, heady market growth, and solid returns are keeping stalwart biogenerics contenders in the ring. "As the pharmaceutical industry has experienced in the past, the generics industry is tough, resilient, and determined. It has been riddled by adversity, scandals, and legal battles, but has managed to overcome the obstacles and prevail," the Kalorama study observes. "It is expected that with due diligence, the generics industry will not only break into the biotechnology market, but create formidable competition for branded biotech companies and reap substantial profits."



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