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Generic drugs as we know them differ from biosimilars, which are designed to be less costly alternatives to branded biologic drugs. Generics are small molecule drugs that are synthesized chemically, while biosimilars are made through a much more involved process that relies on living cells and special proteins that are purified from them. Biologic drug molecules are bigger and far more complex than traditional small molecule drugs, and the same is true for biosimilars and generics.
Few biosimilars are available in the United States, though they have been available in the EU for a while. Unlike generic drugs, which pharmacists can substitute for name brands unless a prescription prohibits doing so, biosimilars have to be specifically prescribed. In other words, a doctor prescribing a biologic and a pharmacist dispensing a biosimilar instead will not be allowed. That is because biosimilars are not identical to name brand drugs, and the way they get to market is different from how small molecule generics do.
Drug patent expiration for small molecule drugs used to be straightforward and predictable, but that is not always the case anymore. Perhaps the most prominent example is the drug Viagra in the United States. Pfizer, the company that makes Viagra, has fended off generic competition in the US far longer than would ordinarily be expected. Part of the reason they were able to do this was that the original patent application was filed in 1994, before the General Agreement on Tariffs and Trade (GATT), which passed in 1995. This gave the drug a longer time before patent expiration than it would otherwise have.
By contrast, competitor Cialis, which was patented and approved several years after Viagra, loses patent protection in 2017, while Viagra will hold onto its patent protection until 2020. At the same time, however, Pfizer has signed an exclusive agreement (with undisclosed terms) with generic maker Teva Pharmaceuticals to exclusively sell its generic Viagra at the end of 2017. The takeaway from all this is that even small molecule patent expiration is less predictable than it used to be.
With biosimilars, the rules for manufacturers are more complex from the start. Since some of the earliest biologics will soon lose patent protection, nobody can be certain what will happen. Brand name biologics makers, however, are expected to do what they can to stall biosimilars.
There have not been enough legal precedents to be able to predict how readily brand name biologics makers will be able to put off biosimilar competitors. Furthermore, parts of the approval process for biosimilars are still unclear. How big should clinical trials for biosimilars be? Will those trials measure clinical outcomes or biomarkers? Currently, that is decided on a case-by-case basis.
The fate of biosimilars depends on what happens in mostly-uncharted legal territory
A less well-known section of the Affordable Care Act (ACA) of 2010 creates an approval pathway for biosimilars. It also sets up a way for branded biologics to assert their patents before a biosimilar is approved, a process known as the “patent dance.” The branded company asks the biosimilar applicant to provide a copy of their abbreviated Biologics License Application (aBLA) and other information describing how the biosimilar is manufactured. The branded company can then use this confidential information to determine if it has patents it wants to assert to block the biosimilar application.
What has actually happened, however, is that biosimilar company applicants have argued that the whole “patent dance” is optional because the law contains provisions for consequences (the branded company “bringing action” to enforce its patents) if the biosimilar company chooses not to participate. Branded biologics makers do not like this, naturally. Biosimilar makers indicate that they are avoiding the patent dance because they do not want to share their trade secrets, even on the confidential basis the law prescribes. Indeed, a Court of Appeals ruling for the Federal Circuit has said that the patent dance is optional, and it has since gone to the Supreme Court, which is supposed to issue its ruling in July.
Because of all this, some branded biologics makers are concluding they are better off beating biosimilars at their own game, with some creating their own biosimilars divisions and others pairing up with biosimilar companies to share expertise and risk. This is considered a smart move since the potential market for biosimilars has so many unknowns. Investors are advised to keep an eye on upcoming rulings and patent fights concerning biosimilars, and in the meantime to value potential investments based on companies’ existing track records with other drugs.