The PRICED Act: A bold attempt to change the biologics market

Senior counsels Jason Drori and Simon Elliott of Foley & Lardner LLP examine the proposed legislation that aims to reduce the market exclusivity period for new biologics from 12 to seven years in the US

Biologics are one of the most specialised, fastest growing product segments of the pharmaceutical industry. Biological products, such as vaccines, blood and blood components, allergenics, somatic cells, and tissues, accounted for $46 billion of total global drug sales in 2002, according to IMS Institute for Healthcare Informatics, and are expected to more than quadruple to $221 billion in 2017. With biologics making up an increasing share of America’s healthcare spend, lawmakers are looking for ways to lower costs without impeding access or stifling innovation.

The Biologics Price Competition and Innovation Act (BPCIA) of 2010 established an abbreviated approval pathway for biosimilar products comparable to the Abbreviated New Drug Application (ANDA) process for generic drugs. Since the BPCIA’s enactment, only two biosimilar products (Zarxio and Inflectra) have been approved, while spending on biologic drug products has nearly doubled. In that context, lawmakers have become increasingly active. In February, US President Barack Obama’s budget for fiscal year 2017 recommended “prohibiting additional periods of exclusivity for brand biologics due to minor changes in product formulations”. On 14 June 2016, the Senate’s judiciary committee introduced the Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act, seeking to expedite regulatory approval and market entry of biosimilars by ensuring access to samples needed for comparative product testing.

The PRICED Act: a more direct threat to the biologics industry

Unlike the CREATES Act and other measures designed to ease biosimilar approval within the general framework of the BPCIA, the PRICED Act proposes a singular change: reducing by almost a half the period of market exclusivity granted to original biologics.

As introduced on 23 June 2016 by Jan Schakowsky, John McCain and Sherrod Brown in the Senate, the Price Relief, Innovation, and Competition for Essential Drugs (PRICED) Act amends the BPCIA’s ‘first licensure’ provisions to reduce the market exclusivity period for new biologics from 12 to seven years. The intended result? Earlier availability of biosimilar products and an overall reduction of the overall cost of biologics. The Office of Management and Budget estimates that increased competition resulting from the PRICED Act would save the government $21 billion over 10 years. The House of Representatives version of the bill, HR 5573, was introduced on 23 June 2016 and has been referred to the energy and commerce committee for consideration.

The PRICED Act risks upsetting a delicate balance

Trade organisations such as the Biotechnology Innovation Organization representing originator drug and biotechnology companies “strongly oppose” shortening the data and/or market exclusivity periods for original biologic products, as proposed in the PRICED Act. Doing so, they say, “would reduce research and development investment in the US,” stifle industry innovation, and ultimately “deprive patients of many new treatments and cures in the future.”

Underlying these complaints is the belief that the PRICED Act would undercut the careful balance struck by BPCIA, one similar to that created by the Drug Price Competition and Patent Term Restoration Act of 1984 (also known as the Hatch-Waxman Act).

Twenty-six years before BPCIA’s enactment, the Hatch-Waxman Act was enacted, in part, to grow the fledgling generic pharmaceutical industry by providing lower cost generic alternatives an accelerated and simplified pathway to regulatory approval. The law also accorded innovator companies extended patent protection to compensate them for regulatory delay and uncertainty and freed up government-sponsored research for commercialisation. In other words, Congress used carrots and sticks to help lower overall drug spending.

When the Hatch-Waxman Act was signed, a path for generic biologic products also was proposed. Despite the backing of the late senator Edward Kennedy, generic biologics were not authorised until 2010 for a variety of technical, regulatory and political reasons. The 2010 BPCIA was passed not as a standalone bill but as part of the Patient Protection and Affordable Care Act (ACA), also known as Obamacare.

The BPCIA’s 12-year exclusivity period for original biologic products was a controversial, intensely debated provision of BPCIA. The relatively long period and was designed to take into account the generally longer, riskier, and costlier process of developing a biologic product plus the potential inadequacy of patent protection in the face of a long product development timeline. Politically, the statutory exclusivity period likely was a necessary incentive to gain the support of pharmaceutical innovators.

Against that backdrop, the push to significantly curtail BPCIA’s exclusivity period seems to disproportionately affect originator companies as they are facing biosimilar competition. This is especially germane to Schakowsky and Brown, each of whom supported BPCIA’s passage as part of the ACA in 2010 but now are calling for scaling back one of the law’s core provisions. The PRICED Act, as drafted, may have implications beyond biologics, as it would signify an about-face with the potential to chill the willingness of industry groups and participants to negotiate and compromise with the government going forward.

PRICED complicates trade agreements

The PRICED Act also could complicate or hinder the development of biologics under the Trans-Pacific Partnership (TPP) trade agreement, pursuant to which innovator biologics are entitled to eight years of exclusivity. While consumer advocacy groups and medical aid organisations have criticised TPP’s supposed capitulation to ‘Big Pharma’, industry groups and the Obama Administration agree that an exclusivity period for original biologic products is necessary to avoid the trade-distorting effects of weak intellectual property laws in many countries.

That rationale reflects longstanding US trade policy, exemplified by the Agreement on Technical Barriers to Trade and Agreement on Trade-Related Aspects of IP Rights. Pharmaceutical research and development and the protection of IP are areas in which the US has a competitive advantage and trade surplus. That surplus, however, is highly dependent on the IP protections and regulatory policies of other nations, which vary from one another.

A foreign regulatory scheme that provides shorter periods of protection to pharmaceuticals effectively is protectionism for the foreign country’s domestic industry and a tax on US products. Accordingly, US trade policy has paired a reduction in tariffs for commodities and manufactured goods (which aids developing nations) in return for liberalisation of the service sector and reforms in IP protection (which favour the US). Attempts to revise the biologics exclusivity period could, therefore, have far-reaching ramifications on foreign trade policy.

Seeking balance

As biologics become a large share of the healthcare budget, we expect to see further legislative and regulatory attempts to reduce the cost. The failure of the BPCIA to produce a flood of new biosimilars may reflect merely the technical and regulatory difficulties in establishing the biosimilar review process. Biosimilars may also not produce the drastic price reductions seen when generic small molecule drugs replace brand name pharmaceuticals, because the manufacture of biologics is more technically difficult and expensive than small molecules. Any change in policy will have to balance multiple issues and may struggle to produce immediate cost reductions.

We will continue to follow the PRICED Act and any companion legislation or regulatory changes that may affect the pharmaceutical, biotechnology, and healthcare industries.
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