Pediatric Exclusivity For Brand Biologics Added In Senate FOB Provision, But Generics Have $1 Bil. In Leverage From CBO Score

The roll-out of the health care reform bill now under debate in the Senate is a good news/bad news event for the generic industry.

The bad news is that the leadership bill has added pediatric exclusivity for biologics, extending the maximum possible brand exclusivity to 12.5 years, in line with the House bill. The good news is that Congressional Budget Office score of the proposal offers the generics industry its best evidence yet that the Senate version creates a more favorable pathway than the House version does.

According to CBO, the Senate bill would generate $7.1 billion in government savings from follow-on biologics over the next 10 years, while the House version would save $6.2 billion. The tallies begin to diverge in 2015, which is projected to be about the third year that FOBs would be on the market (see chart: " ¹ Fork In The Pathway: FOBs Would Produce Limited Savings, CBO Estimates, But Bills Offer Divergent Results ").

While CBO does not offer details on the reasons for the divergent scores, several factors may account for the difference, including:

The Senate bill has at least nominal language against "evergreening" - under which a product could be given a small tweak but receive another full round of exclusivity (² 'The Pink Sheet,' July 20, 2009).

The patent challenge process in the Senate bill is more favorable to generic firms (³ (Also see "Follow-On Biologics' Other Pathway: Mechanisms To Resolve Patent Disputes Vary In Legislation" - Pink Sheet, 2 Nov, 2009.)).

FDA has more flexibility in deciding how to approve FOBs under the Senate bill (⁴ (Also see "Biosimilar Interchangeability Does Not Create Substitution Under House Bills" - Pink Sheet, 23 Mar, 2009.)).

None of theses distinctions is particularly satisfying for the generic industry, which feels that even the Senate bill does not offer a robust pathway.

Indeed, if the Senate version is adopted, because of the addition of pediatric exclusivity, it will essentially be six months worse than the deal generics could have had in 2007 when a nearly identical bill cleared the HELP Committee. The new version does have language designed to address the issue of evergreening, but generic firms maintain that it is not very meaningful.

What the different scores do offer the generic camp is almost a billion ways to show that the Senate pathway is the better one, even if they still don't like it. Generics now have Washington's most reputable number cruncher on their side when they argue that the Senate version will produce more savings from FOBs.

There is one element of the House bill more favorable to generics: in a section outside of the pathway, it stipulates that interchangeable biogenerics should be reimbursed using the same Medicare code as the brand, which should drive utilization of the cheaper alternative (⁵ (Also see ""Interchangeable" Biosimilars Get Same Medicare Code As Innovators In Bill" - Pink Sheet, 2 Nov, 2009.)).

What's Even Left To Conference?

Of course, the generics industry is hoping it doesn't have to settle for the Senate pathway, and is looking to conference committee, where the Obama administration and pro-generic legislators are expected to hold more sway than they have in the process so far.

A Senate amendment during debate is also possible, but Sen. Sherrod Brown, D-Ohio, one of the generic industry's key allies, is stating only that he "plans on addressing the issue on the floor."

The Obama administration has remained an advocate of seven years of exclusivity, and the generic camp is heartened that White House Office of Management & Budget Director Peter Orszag mentioned biogenerics in a Nov. 20 ⁶ op-ed in the Washington Post discussing health care savings.

The White House's concerns about the pathway design, however, have so far not made it into the official Statements of Administration Policy on the bills, which have been completely positive if somewhat reserved about the massive health care reform effort.

Just what could change in the pathway in conference remains uncertain, especially with the length of exclusivity now aligned between the two chambers. Medco, for one, seems to feel the exclusivity fight is over. "The only issue left to debate is whether or not there's an evergreening capability tied to new tweaks to the drug," CEO David Snow said during an investor day Nov. 20.

"That is problematic because we'll actually never see a biosimilar as long as that language stays in the bill," Snow continued. "But I think that's fixable."

How much energy the generics industry's allies will be able to put towards changing follow-on biologics during a conference committee is an open question - as is the question of whether there will be a conference committee at all. One theory making the rounds of the Beltway punditry is that since the margin of victory in the Senate is likely to be closer, that version of bill will be adopted by the House without a conference round that could risk upsetting the delicate vote balance.

The Impact of the Savings

Another new part of the FOB pathway in the Senate leadership bill suggests a focus on legislative strategy. Sec. 7003, entitled "savings," states that "the Secretary of the Treasury, in consultation with the HHS Secretary, shall for each fiscal year determine the amount of savings to the Federal Government as a result of the enactment of this subtitle. Notwithstanding any other provision of this subtitle, the savings to the Federal Government generated as a result of the enactment of this subtitle shall be used for deficit reduction."

The added language could help the pathway be deemed relevant for reconciliation, should Democrats push for Senate passage through that mechanism.

The annual report called for in the new "⁷ savings" section would also likely become a touchstone for an ongoing debate about the utility of the FOB pathway once it is established. As the debate has evolved, so too have the projected savings. Those changing estimates may offer a way to gauge the impact of adding six months of pediatric exclusivity to the Senate bill.

While CBO may have changed some underlying assumptions, the basic difference in the pathway that received a savings score of $9.2 billion in an options paper from December 2008 and the $7.1 billion score on the leadership bill from November 2009 appears to be the addition of pediatric exclusivity (⁸ "The Pink Sheet," Dec. 22, 2008).

The Senate leadership bill also made orphan drug products eligible for pediatric exclusivity, but it is unclear how this would address the concerns of the National Organization for Rare Disorders. NORD is worried that the new 12-year exclusivity for biologics essentially disincentives development of orphan drugs, since even if they could receive 7.5 years of exclusivity, they would no longer have a protection advantage over biologics for more common conditions (⁹ (Also see "NORD Refines Orphan Exclusivity Position" - Pink Sheet, 13 Jul, 2009.)).

- M. Nielsen Hobbs ( ¹⁰ [email protected] )