Biologics differ from small-molecule drugs along multiple axes. They are more expensive, costing hundreds of millions of dollars to develop. They also cannot be precisely replicated. As a result, they are likely to present different challenges than chemical generics. This article develops an antitrust framework for the problematic conducts most likely to arise.
Part I provides a primer on biologics, offering a brief history before focusing on the relevant science and markets. In a nutshell, the pharmaceutical industry consists of small-molecule drugs and biologics. A biologic is a large, complex molecule derived from a living organism, most commonly a protein. Through an intricate manufacturing process, biologics are harvested in genetically modified cell lines and purified through complex, lengthy procedures.
For most of the twentieth century, innovation resulted in small-molecule therapies in the form of compounds produced through chemical synthesis, up until the development of techniques to manipulate DNA in living cells in 1976. The science underlying biologics and small-molecule drugs is profoundly different. Small molecules are created through a series of chemical reactions known as chemical synthesis. This process is relatively predictable, allowing generics to imitate brand drugs at low cost. In biologics, “the product is the process” and the use of living cells to create biologics is inherently sensitive. This unpredictability has dramatic effects, determining whether a drug confers therapeutic or toxic effects.
If variability in biologic development and immunogenicity is a concern for the biologic manufacturer in making its own product, a follow-on maker will confront even higher hurdles. While these entities can rely on patent disclosures and other materials in the public domain, they will lack access to critical information that the biologic manufacturer protects as a trade secret. Because biologics are “so closely defined by their manufacturing process,” this secrecy blocks competition. Furthermore, developing biosimilars is much more expensive than chemical generics – while launching a generic costs on average roughly $2 million, biosimilar development, which involves more intensive and uncertain research and development, costs as much as $200 million. This explains why, despite clear market opportunities, biosimilar introduction has been relatively slow.
Part II then introduces the federal and state regulations addressing small-molecule drugs and biologics. The paper – which focuses on the US – begins by comparing the Hatch-Waxman Act (which regulates generics) and BPIAC (which regulates biosimilars).
This is likely to be of reduced interest, so I will not review it here (some elements may be mentioned in the next section). It is worth mentioning, however, that the benefits of obtaining follow-on approval under the BPCIA differ from those under the Hatch-Waxman scheme. A small-molecule generic is eligible for a 180-day period of exclusivity, while the first-to-file biosimilar does not benefit from such protection. Rather, exclusivity is granted only to the first biosimilar found to be interchangeable. To attain this status, the applicant must show that the follow-on version (i) is biosimilar to the reference product and (ii) can be expected to produce the same clinical result as the reference product in any given patient. Up until now, no biosimilar has applied for interchangeability status.
Part III is the heart of the Article. It identifies seven conducts have been subject to antitrust scrutiny in the pharmaceutical industry in the small-molecule context. It provides an overview of such conducts and their antitrust treatment. It then assesses how likely they are to apply to biologics:
- Reverse-payment Settlements – The authors find that this conduct is less likely to occur in the biosimilar setting. First, biologic manufacturers do not face losses as drastic from biosimilar entry as brands face from generic entry. In contrast, given high development costs and a more finite universe of potential biosimilar entrants, the price likely will not fall as significantly upon biosimilar entry, which may reduce biologics’ urgency to enter into settlements. These modest effects are compounded by biologic manufacturers’ lasting first-mover advantage, which arises from reduced substitutability of biosimilars when compared to chemical generics.
Regarding the appropriate antitrust treatment, given the relative similarity of the applicable regulatory frameworks, the authors think that the rule-of-reason test developed in Actavis should be adopted.
- Product Hopping – Product hopping occurs when a manufacturer switches from one version of a drug (say, capsule) to another (say, tablet). Many switches do not raise anticompetitive concern because they offer legitimate benefits and the manufacturer continues to promote the original version. Sometimes, however, the manufacturer undertakes activity like switching its prescription base from a profitable drug to a modestly changed version that only makes sense if it delays a follow-on’s entry.
The authors argue that “biologics’ differing science, markets, and regulations suggest a reduced frequency of product hopping but still require robust antitrust analysis”. The reduced frequency can be attributed to three main reasons: (i) in contrast to the straightforward reformulations that characterize small-molecule drugs, biologics are larger and more complex, which reduces the frequency of reformulations; (ii) the structural variability and complexity inherent in biologic development cause follow-on versions to strive only for similarity, and the less-pronounced price reductions in biologics compared to generics reduce incentives for originators to engage in product-hopping; (iii) the regulatory structure, which reduces the benefits of engaging in product-hopping.
Regarding antitrust assessments: “courts are less likely to confront the antitrust implications of the conduct. But when they do, they can apply an improved version of the antitrust analysis they have developed in the small-molecule setting, evaluating a “no economic sense” test and timing-based safe harbor that incorporates the realities of the pharmaceutical industry.”
- Regulatory Abuse – This is a bit of a catch-all category that allows antitrust enforcement when sectoral regulation (and regulators) are unable to bite. It includes, to a certain extent, reverse settlements (above) and denial of samples (below), but also the manipulation of rules to streamline patent litigation (which provide in certain contexts for a stay on FDA approvals) and the fraudulent listing of patents.
The authors conclude that regulatory abuse is more likely for biosimilars than for generics because: “in the world of biologics, abuse of the patent provisions may cause delay years after a biosimilar application has been submitted and millions of dollars invested in a dispute”. This could be compounded by biologic’s originators assertion of late or hidden patents (i.e. by obtaining patents during periods which regulation sets out as being devoted to good faith negotiation and invoking them late in that process; or by assigning patents to third-parties and then being re-assigned such patents at a time of their convenience).
As above, the courts should conduct antitrust assessments based on a no economic sense test.
- Denials of Samples – The paper is here very similar to the more extensive discussion contained in the paper immediately above. As with generics, biosimilar must have access to samples to access the market. Given that biologics are more complex than small molecules, undergo changes during the product’s maturation, and do not allow the analysis of protein structure, which make it more difficult to predict how they will operate: “the FDA will (at a minimum) be as likely to impose REMS programs on biologics as on small-molecule drugs.”
It is noted that sample refusals blatantly contradicts the goals for which the relevant statutes have been enacted, and often have no reasonable goal other than to prevent market entry: “For that reason, antitrust has a crucial role to play in addressing the denial of biologic samples.”
- “Citizen Petitions” – In theory, citizen petitions filed with the FDA are designed to raise concerns that a drug is unsafe. Citizen petitions are a means by which any “interested person” can request that the FDA “issue, amend, or revoke a regulation or order” or “take or refrain from taking any other form of administrative action.” Some citizen petitions may raise valid safety concerns, but in many cases, they offer little value and the FDA is forced to spend considerable time responding to them.
Thus,“ in practice, [citizen petitions] bear a dangerous potential to extend brands’ monopolies by delaying approval of generics at a potential cost of millions of dollars per day. (…) [In the small-generics context] brands have used the process as a last-ditch effort to prolong their monopoly power.”
Regarding biologics, the authors foresee that there will be more petitions filed in the biologic setting than in the small-molecule context. However, they expect that: “the proportion of frivolous, anticompetitive (…) petitions will decrease while those raising legitimate scientific concerns will increase. (…) [B]iologics are complex and unpredictable, implicating legitimate safety and efficacy concerns. These characteristics are magnified because biosimilars will, at most, be similar (rather than identical) to the biologic. In addition, many biologic makers have also taken on the role of biosimilar manufacturers.”
Regarding antitrust assessment, the nub of the matter will usually be whether the (higher) threshold set out in the Noerr-Pennington doctrine (which grants antitrust immunity to those petitioning the government, subject to an exception related to sham petitions) is met. “In the biologics setting, the inherent complexity of the medicines and safety issues arising from follow-on products not identical to reference products will make it harder to prove that a petition is a sham.”
- Disparagement – Courts have recognized that disparagement can give rise to a cognizable antitrust claim. Such behavior can be uniquely effective in erecting barriers to competition.
However, given the nature of competition between brands and generics, there have been few antitrust cases challenging disparagement. On the other hand, since “promotion, marketing, and the education of stakeholders will be crucial to the coming biosimilar wave,[this] could implicate disparagement and require courts to address novel antitrust theories. (…) Unlike the relationship between brands and generics, competition between biologics and biosimilars will require marketing and advertising to differentiate products, which increases the likelihood of disparagement. In the small-molecule setting, the products are nearly identical, which reduces the need for brand advertising campaigns against generics. (…) [Instead, biologics] may seek to influence, or even intimidate, prescribers by exaggerating the differences with biosimilars and highlighting potential tort liability, and sales representatives could communicate false information against biosimilars.”
Regarding the applicable antitrust framework: “disparagement will present challenges that have not been confronted in the small-molecule setting. Analysis should consider the science and markets of biologics and biosimilars and significant competitive effects of false statements.”
- Price Collusion – unlike the conducts reviewed above, little nuance is required in the antitrust analysis of price collusion. Yet: “compared to the small-molecule setting, characteristics of the biologics market point in the direction of increased collusion. The likelihood of collusion is higher because of (1) the smaller number of biologics and biosimilars, which makes it easier to coordinate, (2) an inelastic demand for the products because consumers lack effective substitutes, and (3) a more private negotiation process between the parties. On the other hand, the heterogeneity of the products makes it more difficult to coordinate on price.”
In short, the authors conclude that: “because of the importance of marketing and the difference with follow-on products, we believe biologic manufacturers will more frequently disparage biosimilars. We also predict that increased complexity will result in more citizen petitions. And we anticipate that the private nature of patent litigation and notice will lead to more collusion and (at least in the short term) regulatory abuse.(…) At the same time, biologics’ complexity will tend to reduce the incidence of product hopping, and the smaller losses from generic entry and increased use of inter partes review (“IPR”)3 should reduce the number of reverse-payment settlements.”
I would seriously recommend that anyone interested in pharma reads this paper. Not only does it contain the best discussion of the difference between chemical and biological medicines (and generics and biosimilars) I have read, it also contains a detailed overview of anticompetitive practices in the pharma sector. I can’t really say whether the author’s prognosis regarding antitrust issues for biosimilars will prove correct, but even on that front the paper provides a potentially useful roadmap.