1. Emerging Health Care Issues: The U.S. FTC Report on Follow-on Biologic Drug Competition Sue H. Kim Foreign Attorney Yoon & Yang LLC

2. Topics for Discussion 1.Background on Biologics A.Definition B.High Cost of Biologics C.Patent Landscape for Biologics D.Current Food & Drug Administration Regulation of Biologics 2.Competitive Implications of Follow-on Biologic A.Likely Competition between Biologic and Follow-on Biologic Drugs B.Legislation for an Abbreviated FDA Approval Process of Follow-on Biologic Drugs

3. 1. Background on Biologics A.Definition Biologics are drugs created from living cells, tissues, or organisms – e.g. vaccines and blood products. Biologics are known as “large molecule” drugs, which means they typically are very complex in structure. Many of biologic drugs are used to treat cancer, immune disorders, and metabolic diseases. Biologics require extremely sophisticated manufacturing techniques compared to small-molecule chemical drugs. In contrast, traditional pharmaceutical drugs are “small molecule” compounds that are chemically synthesized, consisting of pure chemical substances – easier to manufacture and to analyze.

4. Structure of Small-Molecule Drug v. Biologic Figure Source: The U.S. FTC Report on Follow-on Biologics

5. B.High Cost of Biologics Biologics are among the most expensive drug products –Sales of biologics were $40.3 billion in 2006 – 15% of total U.S. prescription drug sales of almost $275 billion. –Treatment with Avastin, a colon cancer drug, costs $100,000 per year per patient. –Treatment with Ceredase, a lifesaving drug used to treat Gaucher Disease, a rare generic disorder, costs over $300,000 per year per patient. Most biologic drugs treat chronic conditions that require life-long treatment Takes at least 8-10 years just to develop these drugs The cost for development of pioneer biologic drugs was estimated by the Tufts Center for the Study of Drug Development to be on average $1.2 billion per product in 2006.

6. C.Patent Landscapes for Biologics Biologics typically are covered by multiple patents, including on many of the basic research tools used to develop the drugs “Process patents and technology platform patents are often more important for biologic drugs than for small-molecule drugs because the ‘processes by which biologics are made are highly specific, complex, and determine many of the biologic’s functional and structural characteristics…[that] can often be expected to affect the product’s safety, purity, and efficacy profile, and thus are integral to the approval of the product itself.’” (drug development process = drug product) Thus, it is extremely difficult (or impossible) to exactly replicate. With current technology, it cannot produce “generic biologic” but only a follow-on biologic, “biosimilar” to an existing pioneer biologic drug.

7. D.Current FDA Regulation of Biologics FDA approves a new biologic product pursuant to a Biologics Licensing Application (BLA) under the Public Health Service Act 1.Pre-clinical analytical test, studies and formulation studies; 2.An investigational New Drug Application to initiate human clinical testing, consisting of Phase I, II and III; 3.Adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug for its intended use; 4.Approval and validation of commercial scale manufacturing facilities used in production of the product 5.Drug manufacture and analytical method; and 6.Proposed product packaging and labeling No Follow-on Biologic (FOB) FDA Approval Process similar to Abbreviated New Drug Application (ANDA) for small-molecule generic drugs: difficult to characterize and compare large-molecule biologics to determine their level of sameness.

8. 2.Competitive Implications of FOB In response to current legislative proposal for the abbreviated approval pathway for FOBs, the FTC Report examines likely competition between FOBs and pioneer biologic drugs and suggests the abbreviated approval pathway for FOBs A.Compares potential entry and competition by FOBs with entry and competition by small-molecule pharmaceuticals 1.In 1984, to encourage generic competition in the small molecule drug market, Congress passed the Hatch-Waxman Act. 180-day marketing exclusivity period for the first-filing generic drug manufacturer Patent litigation and 30-month stay for generic approval “Pay-for-delay” patent settlement problems - gaming the Hatch- Waxman system

9. 2.Competition by FOBs is unlikely to be similar to branded- generic drug competition because: The substantial costs to obtain FDA approval, plus the substantial costs to develop manufacturing capacity, will limit the number of FOB competitors and price discounts; “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.“ The lack of automatic substitution between an FOB drug and a pioneer biologic drug will slow the rate at which FOBs can acquire market share; An FOB drug also may have difficulty gaining market share due to concerns about safety and efficacy differences with the pioneer biologic drug;

10. B.The Design of an Abbreviated Approval Pathway for FOB 1.Legislation creating an abbreviated FDA approval process of FOBs is likely to be an efficient way to bring them to market. 2.Patent protection and market-based pricing will promote competition by FOBs, as well as spur biologic innovation. 3.Extended 12- to 14-year regulatory exclusivity period for pioneer biologics is unnecessary to promote innovation. 4.Special procedures to resolve patent issues between pioneer and FOB manufacturers before FDA approval are not needed. 5.FOB manufacturers are unlikely to need additional incentives such as a 180-day marketing exclusivity period.

11. 1.Legislation creating an abbreviated FDA approval process of FOBs is likely to be an efficient way to bring them to market, because of the time and cost savings it would provide. The report acknowledges that an abbreviated "FOB pathway" under FDA administration is "likely" to provide an efficient means for bringing FOBs to market, in view of the time and cost savings in the presently-contemplated schemes. However, the FTC concludes that current legislation provisions including a period of patent exclusivity would be unnecessary because it would restrain competition by delaying FOB market entry.

12. 2.Patent protection and market-based pricing will promote competition by FOBs, as well as spur biologic innovation. The biologic process and manufacturing patents add an extra layer to biologic patent portfolios because the processes by which a biologic is made — unlike in the case of small-molecule drugs — usually determine the structural and functional characteristics of the drug, and hence, its safety, purity, and efficacy profiles. FOB entrants are unlikely to introduce their FOB products at price discounts any larger than between 10 and 30 percent of the pioneer products' price; however, a 10 to 30 percent discount on a $50,000 drug product represents substantial consumer savings. Therefore, pioneer manufacturers are expected to respond and offer competitive discounts to maintain market share, and this price competition is likely to lead to an expanded market and greater consumer access.

13. 3.12- to 14-year regulatory exclusivity period beyond patent protection for pioneer biologics is unnecessary to promote innovation by these firms, particularly since they likely will retain substantial market share after FOB entry. FOBs are unlikely to be sold at steep discounts. Pioneer 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, particularly because biologic drugs "are covered by more and varied patents compared with conventional small molecule drugs."

14. 4.Special procedures to resolve patent issues between pioneer and FOB manufacturers before FDA approval are not needed and could undermine patent incentives and harm consumers. Similar protections of the Hatch-Waxman amendments to resolve patent infringement litigation regarding generic drugs unnecessary in the biologics context, since FOB manufacturers are likely to be many of the same big pharmaceutical companies that manufacture pioneer biologics, "they will have the expertise and resources necessary to assess whether to launch their product before any patent infringement litigation is resolved, just as they do with a branded pioneer drug." No need for the similar ANDA provisions of small-molecule drugs (particularly the 30-month stay of FDA approval) to protect brand drug companies from "judgment-proof" generics companies, because the market share (and revenues) lost by the brand would be impossible to recover from a generic infringer even if the innovator prevailed in litigation.

15. 5.FOB manufacturers are unlikely to need additional incentives such as a 180-day marketing exclusivity period – to develop interchangeable FOB products. For small-molecule drugs, 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 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).

16. Conclusion The Current State of FDA Abbreviated Approval Pathway for FOBs (Biosimilars) South Korea Emerge as Global Leader in Biosimilar South Korea has a long history in manufacturing biologics and a regulatory pathway for biosimilars was introduced in South Korea in 2009. Shortly after the regulatory pathway for biosimilars was established, Samsung announced that it would invest US$389 million in biosimilars over the next five years, and in early 2011 it announced that it had formed a joint venture with Quintiles to build a biopharmaceutical production facility.