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Don’t Kill Competition for High-Tech Drugs

The two of us have often been on opposite sides of important policy debates on technology and health care, but we are united today in viewing with alarm recent Congressional action involving biologic drugs and vaccines, derived from living organisms.[IMGCAP(1)]

At a time of deep concern about rising health care costs, Senate and House committees last month voted to make it difficult, if not impossible, for generic drugs to compete with biologics, even after patents have expired. If the measure becomes law, it has the potential to harm millions of sick people, in the United States and beyond.

The dangerous measure is part of the much larger package on health care that Congress has been considering. Some background is necessary.

In 1984, Congress approved the Hatch-Waxman Act, which created a mechanism to allow generic manufacturers of pharmaceutical drugs to gain swift regulatory approval by showing that a medicine was “bioequivelent— to a product that had already been OK’d by the Food and Drug Administration. The streamlined procedures lowered the cost of entry by generic suppliers and created a highly competitive environment that has saved consumers billions of dollars.

The Hatch-Waxman Act, however, did not anticipate the new age of biologics, which in 2007 accounted for $40 billion in sales in the U.S., or one of every seven dollars spent on prescription medicines — a proportion that’s rising swiftly. Because no regulatory pathway was created in the law for generic biologics, it is much harder for manufacturers of these treatments (called biogenerics, or biosimilars) to enter the market, even after all of the relevant patents have run their course. The result is less competition, and high prices, for many older products. For example, an annual course of Herceptin, a breast cancer drug, can cost $48,000.

Congress is considering a pathway for biogenerics, but — as laid out in the measure passed in a Senate committee on July 13 and a House committee on July 31 — the process is deeply flawed and will reduce, or even eliminate, potentially significant savings to consumers.

The 1984 act balanced the new regulatory pathway with other measures, including a five-year period of “exclusion— between the time a product is first registered and when the generic route can be used.

The original proposal for biogenerics would have retained most of the features of the 1984 Hatch-Waxman Act, including the five-year exclusion. But, after an intense lobbying campaign by the manufacturers of biologics, new amendments to the Senate and House versions of the bill made it much more difficult for makers of generics to enter the market.

The most glaring change in the legislation extended the exclusion period from five to 12 years. Other changes will make it easier for incumbents to challenge generic approvals on scientific grounds and make it harder for insurance companies to insist on the cheaper generics.

As a result, Bill Marth, the North American CEO of Teva Pharmaceuticals, the world’s largest maker of generics, recently told Reuters that, if the changes stand, his company does not see a way to enter the biogenerics market. And if Teva won’t make such drugs, Marth said, “I don’t know who will.—

While the amendments clearly harm consumers, Members of Congress from both parties have claimed that long monopolies are needed to stimulate investments in research and development. We strongly disagree. R&D for new medicines is undoubtedly expensive, but this is just as true for products that the FDA classifies as “small-molecule,— or conventional, drugs as it is for biologics. And innovation has prospered under the Hatch-Waxman regime. In the case of both small-molecule drugs and biologics, new inventions are granted not just 20-year patents but other types of incentives, such as seven years of market exclusivity for products that serve fewer than 200,000 Americans.

A Federal Trade Commission report in June closely examined the issue and found that a “12- to 14-year regulatory exclusivity period is too long— and “unnecessary to promote innovation.—

Test-data exclusivity and patent protection stimulate innovation, but both require a time limit to give consumers broad access to low-cost generic copies. The length of those limits has to strike a proper balance between boosting R&D and generating competition.

The framers of the Constitution understood the need for balance in creating monopolies that were temporary. As Article I, Section 8, Clause 8 states: “The Congress shall have Power … To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.—

A critical question is defining “limited Times.— Endless monopolies, particularly those created by regulatory measures, must be avoided — especially now, as President Barack Obama and Congress seek ways to make health insurance more affordable. From different ends of the political spectrum, the two of us agree that a 12-year exclusion simply does not meet the test of logic.

If Congress adopts such an exclusion — and provides other opportunities to litigate generic entry or “evergreen— their monopoly protection (that is, make minor modifications to a product in order to start the clock again), then the pathway for biogenerics will be a long and torturous road that may be seldom, if ever, traveled.

James Love is director of Knowledge Ecology International, a public interest advocacy group that searches for better solutions to managing knowledge resources. James K. Glassman was under secretary of State for public diplomacy and public affairs in the George W. Bush administration and was editor of Roll Call from 1988 to 1993.

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