a)    The number of actual generic competitors for FOB drugs is likely to be limited, due the "substantial costs" of FDA approval and the costs of developing manufacturing capacity to make FOBs — estimated to be $100-200M; conventional generic drugs cost $1-5M in comparison.

b)    These costs in turn will require "large companies with substantial resources" to enter the FOB space.  In addition, the report speculates that only "2 or 3" companies will attempt to produce FOBs (compared with 10+ generic entrants for small molecule generic drugs), and only for biologic drugs with sales "in excess of $250 million."

c)    Acquisition of market share for FOBs will be inhibited by the lack of "automatic substitution" for pioneer biologic drugs, in contrast to the rapid increase in market share, and reduced drug prices, seen with small molecule drugs.  FOBs will not be designated as "therapeutically equivalent" (due presumably to the scientific differences noted earlier in the report), and thus will not be automatically substituted by pharmacies.  This will require FOB manufacturers "to market their products and negotiate individual contracts with purchasers."

d)    The report also anticipates that physicians and patients will have a stronger resistance to substituting FOBs than they have shown for generic drugs, due again to the differences in equivalencies.  The report speculates that this may initially restrict the FOB market to newly-diagnosed patients.

e)    The nature of the diseases for which biologic drugs are prescribed may also be a factor, according to the report.  Patients treated with biologic drugs frequently are suffering from "severe, chronic diseases and sometimes fatal conditions."  Biologic drugs are frequently infused or injected, and involve special medical services or devices that require specialty training to be administered properly.  This drug delivery route, which the report characterizes as involving "clinics, hospitals, doctor's offices or other medically supervised setting[s]" would require inventory restocking and personnel retraining to adopt an FOB, and thus would present additional costs rather than immediate cost savings.

f)    With regard to reimbursement, the current regime does not incentivize FOB use.  Rather than being available directly to patients, biologics drugs are "typically delivered to patients by healthcare providers as part of medical treatments" such as dialysis or chemotherapy, and thus are reimbursed as part of the medical treatment rather than as a pharmaceutical benefit.  This eliminates many of the incentives (such as differential co-pay requirements) that have been used successfully to incentivize patients, physicians, and pharmacists to adopt lower-cost generic drugs.  The report also notes the influence of the reimbursement methodologies used by the Centers for Medicaid and Medicare Services (CMS) as influencing these considerations.

g)    The report provides the following scenario for FOB competition with a pioneer biologic drug:

Indeed, any decision to adopt special legislative incentives that restrict competition may harm consumers.  The Commission is mindful that the benefits of suppressing rivalry by either pioneer or FOB manufacturers are realized by a comparatively small number of firms who fully understand the importance of restricting competition.  By contrast, the costs of restricting competition tend to be spread broadly across a large number of consumers, each of whom suffers a comparatively modest penalty compared to the relatively substantial gain realized by incumbent producers.  The phenomenon of highly focused benefits and broadly distributed costs gives firms a greater incentive to organize political resources to restrict competition.

a)    The 12-14 year data exclusivity period shown by previous economic studies (the report specifically cited the Grabowski study in Nature) to be necessary to promote innovation by pioneer biologics companies is not necessary.  This conclusion is intimately wrapped up in the conclusion that innovator biologics companies will continue to command significant portions of the market (70-90% market share) after FOB entry.  This is due in part from the fact that FOB producers will not be able to discount FOB prices more than 10-30% of innovator biologics.  The report also asserts that patent protection may be sufficient (a position contradicted by several experts in presentations made during the recent BIO convention), particularly because biologic drugs "are covered by more and varied patents compared with conventional small molecule drugs."  The report opines that data exclusivity would be in addition to the incentives provided by patent protection and market-based pricing, and thus data exclusivity would provide no additional incentives to developing biologics drugs.  The report identifies as a potential harm posed by the proposed data exclusivity period the risk that R&D resources will be directed to developing "low-risk clinical and safety data for drug products with proven mechanisms of action rather than toward new inventions to address unmet medical needs."  With regard to prior economic analyses to the contrary, the report characterizes them as having "numerous methodological and conceptual weaknesses that render [their] results too imprecise and non-robust to inform discussions about the ideal length of any branded exclusivity period.  A model that balances the benefits of FOB competition (i.e., lower prices and an increased pace and scope of innovation) with the costs of potentially forsaking marginal branded drug development projects would be more informative."  The report does concede that data exclusivity might be necessary "to the extent that there are new biologic molecules that cannot obtain patent protection," but sees no evidence for such an eventuality.

b)    The report also sees no need for any ANDA-like mechanisms to resolve patent disputes between pioneer biologic drug manufacturers and FOB producers prior to FDA approval of FOBs.  The report contends that patent infringement litigation, or the threat thereof, will be a sufficient disincentive to inhibit FOB companies from entering the market prior to patent expiry, even if they have obtained FDA approval.  The reasoning behind this conclusion resides in the Commission's belief that the Hatch-Waxman ANDA scheme has resulted in "extensive litigation, unintended consequences and delayed generic entry."  The report also bases this conclusion on the need for the ANDA provisions (particularly the 30-month stay of FDA approval) to protect innovator drug companies from "judgment-proof" generics companies, because the market share (and revenues) lost by the innovator would be impossible to recover from a generic infringer even if the innovator prevailed in litigation.  The report's conclusion that only established biologics drug manufacturers will be able to enter the FOB space renders these considerations moot, and hence the report concludes there is no need for protection over and above the threat of patent infringement liability.  The report's resistance to extending the pre-approval provisions of Hatch-Waxman to FOBs is also grounded in the Commission's disillusionment over their implementation in the small molecule arena, including reverse payment schemes.

c)    The report also opines that FOB manufacturers are "unlikely to need additional incentives to develop interchangeable FOB products" beyond market-based pricing.  As with the ANDA provisions, the report finds that the 180-day market exclusivity provisions of Hatch-Waxman are also unnecessary in the FOB context.  For small molecules, the expected precipitous drop in drug prices that attends market entry by several generic manufacturers would preclude the first ANDA filer from recouping its development and litigation costs, and thus disincentive a generic company from being the first to challenge innovator patents.  This provides the justification for the 180-day exclusivity period, according to the report.  No such considerations are associated with FOBs, the report asserts, because it is unlikely that there will be the precipitous drop in biologics drug pricing upon FOB market entry (due to the limitations on interchangeability, etc. as discussed above).