Wednesday, July 15, 2009 | The line from the Obama White House this week is “don’t bet against us” on health care reform. To the biotech industry in San Diego and elsewhere, that means don’t bet against a new era of generic drugs.

Generic drugs have been a part of the pharmacological landscape since 1984 when Congress passed a law that allowed copycat versions of chemical compounds to be marketed after the patents expired on the originals. But the law does not cover biologic drugs, which are medicines derived from proteins made by the body. They largely didn’t exist in 1984.

Fast-forward a quarter century and biologics are being used, or are in development, to treat a plethora of conditions and illnesses from cancer to obesity. Mainstays of San Diego’s biotech industry, including Biogen Idec and Amylin, have to varying degrees built their reputations on the strength of their biologic drugs. Biogen Idec’s biologic Rituxan, for example, is the world’s leading therapy for non-Hodgkin lymphoma, and is also used to treat rheumatoid arthritis.

Developing a biologic is a different and more complicated endeavor than the chemistry that goes into making a generic of a traditional pharmaceutical drug. A chemically based pill like Lipitor, the Pfizer drug that treats high cholesterol, is the product of a specific formula that a company can patent. But when that patent expires, others can copy the formula, and the original drug maker loses its monopoly position and the price of the drug goes down dramatically.

But to create a biologic, a laboratory has to grow living cells that in turn will produce the proteins that can be used as medicines. A drug like Rituxan is essentially a manufactured antibody that fights cancer cells, and the science hasn’t advanced to the point where you can make exact copies of large and complex antibodies like you can the chemical formula that produces a pill.

This is why the industry refers to non-branded biologics as biosimilars, or follow-on biologics — they aren’t generics in the truest sense. But they are still lower-cost versions of the originals and a lucrative business as revenues for biologics approach $100 billion annually. Biosimilars have been used in Europe and other parts of the world for years.

And because there is widespread agreement that any health care reform bill must have a strong cost-containment component if it is to make it though Congress, biosimilars are on the table to stay. But allowing them poses a threat to the biotech business model, which depends on drugs being expensive so companies can make back all the money they spend discovering the drug and getting it approved and developed.

This is one of the main reasons why Biocomm CEO Joe Panetta has made seven trips to Washington, D.C. this year, and spent last week lobbying hard for at least 12 years of exclusivity for companies that develop biologics before competitors can market biosimilars.

Revenues from biologics are on track to reach $100 billion annually by 2011, according to industry estimates. A healthy chunk of that revenue will flow to the San Diego region, home to the nation’s third-largest biotech cluster. Here about 700 companies biotech companies collectively employ nearly 44,000 workers, and have a $9 billion annual impact on the economy, according to San Diego Association of Governments estimates.

Panetta and the rest of the industry’s lobbyists argue that without 12 years or more of exclusivity, investors will avoid biotech companies with biologics, and innovation will be stifled. “There is no question that [biosimilars] will impact the level of investment in our industry,” said Panetta said.

It can take decades and hundreds of millions or even billions of dollars to get a drug from discovery stage to profitability. And, say Panetta and others, investors need to know that there will be enough time for a company to provide a return on their investment.

“Will people invest in biologics if they know that they will only get nine years before the generic companies can come out with their product?” asked Jim Greenwood, the president and CEO of Bio, the industry’s national organization. “We think the answer to that question is no, they won’t.”

Consumer groups, including the lobbying behemoth AARP, say the industry is exaggerating the time it needs to reach profitability, especially when it comes to biologics, which are extremely expensive. The estimated cost of Rituxan for a course of treatment for non-Hodgkin’s lymphoma is $22,600.

“Our population uses more drugs than any other age group, and are more likely to have the conditions that need biologic drugs,” said Jim Dau of the AARP. “We understand better than most how incredibly important these drugs can be — but the best drug on the planet means nothing if you can’t afford to take it.”

AARP says five years is plenty of time for companies to make their money back, and the White House and the Federal Trade Commission say seven years will do. Consumer groups and the FTC argue that innovation will actually be stifled if the companies’ go too long without feeling the heat of competition.

“You want the threat of a follow-on to help spur innovation,” said Michael Wroblewski, a policy advisor for the FTC, which wrote an analysis of the issue in June. “That is the beauty of a follow-on.”

The industry won an important victory on Monday when the Senate Committee on Health, Education, Labor and Pensions reported out a bill that grants the 12 years of exclusivity. But health care reform and the biosimilars argument have to make several more stops before they reach Obama’s desk. The issue is not considered one of the big deal breakers in health care reform, but will be debated each step along the way, say those who are tracking the legislation.

A bill has yet to make it through Senate Finance Committee. And in the House, Henry Waxman, D-Beverly Hills, who sides with the consumer groups and chairs House Energy and Commerce Committee, will have a big say in the final outcome.

“I’ve been saying for awhile that this issue had the makings of a good mid-summer health-care-reform air war,” Dau said. “It has an incredible impact on people and hundreds of billions of dollars at stake.”

Guns have been blazing in recent days. The Wall Street Journal on Monday detailed the ad war between the industry and the AARP, with the consumer group running full-page ads that read: “Don’t believe brand-name companies’ myths about needing exclusivity.” The industry responded with radio ads accusing seniors of wanting a “free ride” for generic makers, the newspaper reported.

The rhetoric has a lot of similarities to the war of words from 25 years ago that preceded the law covering generics of chemical compounds, which was pushed through Congress by Waxman and Utah Sen. Orrin Hatch, a Republican. Then big pharmaceutical companies, like the biotechs of today, said generics would kill innovation.

It is hard to argue that now. Big pharma companies like Merck and Pfizer have made huge profits over the last two decades despite the fact that 75 percent of all prescription drugs are generics these days. And there have been clear advances in drugs that treat a range of conditions and diseases from high cholesterol to cancer.

However, it is also clear that the new drug pipelines of the big pharma companies have decreased in recent years, and the industry could be in for hard times in the coming years as the patents expire on some of its biggest money-makers like Pfizer’s Lipitor.

And the industry argues that biologics are more vulnerable to generic competition than chemically based drugs because they can’t get patents that are as ironclad. A company can make a biosimilar that is almost identical to the original, but get around the patent with a few small tweaks, industry officials say.

Amylin CEO Daniel Bradbury said that without a long exclusivity period, the tens of millions of dollars that his company spends annually developing biologic medicines would be at risk because of weak patent protection.

“You could have a protein that is several hundred amino acids long,” Bradbury said. “And you change one amino acid you have changed the composition of the protein, and it may not be covered by the patent.”

Wroblewski, the FTC policy advisor, said the industry’s claims can be challenged on more than one front. First, he said, it is hugely expensive to compete in the world of biologics. Developing a generic of a chemical compound costs between $2 million and $5 million, but developing a follow-on biologic can cost as much as $200 million because of all the processes involved, he said.

And, Wroblewski contends, the protein that Bradbury refers to may not be able to be patented, but the company does have the ability to secure patents for all the processes that it went through to develop the protein. Those patents are very hard to get around, he said.

“It is incredulous to me that it would be difficult to draft your patent claims to cover minor changes that [biosimilars] are likely to do,” he said. “That is an untenable argument.”

Correction: The original version of this story misidentified the maker of Lipitor, a drug that treats high cholesterol. We regret the error.

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