Biotech Life-Cycle Management

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Elisabeth Pena

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10 J u n e 20 03 PharmaVOICE THE MANAGEMENTTEAM … CAROLCHERKIS,PH.D. Life sciences consultant,NewCap Partners Inc., Los Angeles; NewCap Partners is a private investment banking firm that focuses on the finance needs of middlemarket companies.For more information, visit newcap.com. TILLMAN U.GERNGROSS,PH.D. Chief scientific officer, GlycoFi Inc., Lebanon,N.H.; GlycoFi is developing technology to address the biopharmaceutical industry’s need for a safer, faster, and more costeffective therapeutic protein production.For more information, visit glycofi.com. NICOLE LAMBLE.Healthcare strategy analyst, Datamonitor Plc., London; Datamonitor,with U.S.offices in New York, is a business information company specializing in industry analysis for six industry sectors: automotive, consumer markets,energy, financial services,healthcare, and technology. For more information, visit datamonitor.com. STEPHEN B. MAEBIUS.Partner, Foley & Lardner,Washington,D.C.;Foley & Lardner,a provider of legal counsel to global companies, offers total solutions in the automotive, life sciences, financial services, insurance, healthcare, energy,and sports industries. For more information,visit foleylardner.com. PAUL J.MEYER JR.Associate, intellectual property practice, Squire, Sanders & Dempsey LLP, Los Angeles; Squire,Sanders &Dempsey is an international law firm. For more information,visit ssd.com. SIDNEY PESTKA,M.D.Chairman and chief scientific officer, PBL Therapeutics,Piscataway, N.J.; PBL is developing ultra interferonbased cancer and antiviral pharmaceuticals and novel delivery systems.For more information, visit pblbio.com. AUDREYPHILLIPS,PH.D. Executive director, BIOTECH: LIFECYCLEmanagement BY ELISABETH PENA Traditional pharmaceutical companies are wellversed in developing lifecycle management strategies for their branded products. But according to some industry analysts, the biotech industry is not as wellprepared — for myriad reasons. Patent Expiration Dates for Key Biologic Products Notes: Estimated sales of Genentech’s Activase are $130 million;“e” denotes Datamonitor estimate. Source: Datamonitor, NewYork.For more information, visit datamonitor.com. Total sales susceptible to generic competition by the end of 2005 = $13.5 billion Brand (generic) Company 2001 Sales ($ in millions) 2001 Cerezyme/Ceredase (alglucerase) Genzyme $570 2002 Novolin (human insulin) NovoNordisk $1,829 Humulin (human insulin) Eli Lilly $1,061 Intron A (interferon alpha2b) ScheringPlough $700e 2003 Avonex (interferon beta1a) Biogen $972 Humatrope (somatropin) Eli Lilly $311e Nutropin (somatropin) Genentech $250 2004 Epogen (epoetin alpha) Amgen/Johnson & Johnson/ $5,772 Sankyo 2005 Activase (alteplase) Genentech/Boehringer Ingelheim/ $276 Mitsubishi/Kyowa Hakko Kogyo Protropin (somatrem) Genentech $250 2006 Neupogen (filgrastim) Amgen/Roche $1,533 11 PharmaVOICE J un e 20 03 B LIFECYCLE management iotechnology medicines generally are highly complex and feature large molecular mixtures derived from living organisms. In contrast, chemical drugs typically consist of smaller, syn thesized, and chemically defined molecules. While the safety and effectiveness of a chemical drug can be established by the specification of its active ingredient, the safety and effectiveness of a biotech product can be impacted by the manner in which it is made, as well as by detailed inprocess and final characterization. Given the complexities surrounding the production of biotech drugs, many thought that the highcost and highscience of biotech products would protect them from generic competition. But, accord ing to Datamonitor, with more than half of the therapeutic proteins market — valued at $27 billion in 2001 — open to competition from generic alter natives by 2005, the appeal of more than $13.5 billion in biotechnology based products will be a powerful lure for manufacturers of “biogenerics” to enter the market. Despite the potential of the mar ket, the uptake of biogenerics is expected to be slow because of the high cost of producing these thera peutics and the lengthy process of establishing an approval pathway. The approval process for biogenerics is expected to be established by 2006, and by 2010, industry analysts say a number of biogeneric companies will be in operation. biopharmaceutical publicpolicy planning,Johnson & Johnson,New Brunswick, N.J.; J&J is one of the world’s most broadly based manufacturers of healthcare products, as well as a provider of related services for the consumer,pharmaceutical,and medicaldevices and diagnostics markets.For more information, visit jnj.com. RONALDA.RADER.President,Biotechnology Information Institute, and author/publisher of BIOPHARMA:Biopharmaceutical Products in the U.S.Market,Rockville,Md.;Biotechnology Infor mation Institute offers consulting in biotech and pharmaceutical information resources development and information use and analysis; technological,competitive,market and regulatory intelligence and assessments; Website development;information retrieval, to problem solving.For more information,visit bioinfo.com. PATRICKM.SCHMIDT.Presidentand CEOof FFF Enterprises Inc.,Temecula,Calif.;FFF Enter prises is a multidimensional healthcare company,delivering solutions in biopharmaceutical distribution,health information management,and consumer health services,as well as supplying fractionated blood products,including albumin, intravenous immune globulin, and antihemophilic factors. For more information,visit fffenterprises.com. CHRISTOPHER J. SEARCY,PHARM.D.VP, corporate development, Nektar Therapeutics, San Carlos, Calif.; Nektar provides a portfolio of leading drugdelivery technologies, including molecule engineering — advanced PEGylation,particle engineering, and pulmonary delivery solutions that maximize the potential of large and smallmolecule drugs.For more information,visit nektar.com. MICHAEL STEINER.Worldwide healthcare practice leader,Bain & Co., NewYork;Bain & Co.,with headquarters in Boston, helps industry leaders, emerging businesses, and private equity firms build ongoing value. For more information,visit bain.com. DAVID L.WEBSTER,PH.D. President,The Webster Consulting Group Inc., LehighValley, Pa.; Webster Consulting provides management consulting services to the pharmaceutical, biotechnology, and medical industries. For more information,visit websterconsultinggroup.com. NANSKEWOOD.President,Carbon Healthcare Communications,Wayne,N.J.; Carbon Healthcare,a unit of CommonHealth,is a professional advertising and promotion agency that provides biopharmaceutical and other emerging technology companies with ways of differentiating brands and building businesses.For more information,visit commonhealth.com. GILLIAN R. WOOLLETT,MA,D.PHIL.,VP, science and regulatory affairs, Biotechnology Industry Organization,Washington,D.C.;BIO represents more than 1,000 biotechnology companies,academic institutions, state biotechnology centers and related organizations in all 50 U.S.states and 33 other nations. For more information, visit bio.org. DANIEL B.YAROSH,PH.D. President and chairman,Applied Genetics Inc. Dermatics, Freeport,N.Y.; AGI Dermatics is a private biopharmaceutical company focusing onDNA repair technology, dermatology technology, skincancer research,and the lifestyle enhancement market.For more information, visit agiderm.com. One of the biggest issues confronting the biogenerics industry, which may or may not emerge, is the huge regulatory uncertainty.WE DONOTKNOWWHAT THE FDA IS GOINGTOWANTAND THATMAKES IT VERYRISKYTO BE ENTERING THIS AREA. Dr.Tillman Gerngross 12 J un e 20 03 PharmaVOICE LIFECYCLE management The REGULATORY Horizon LAMBLE. We do not definitely know if and when an abbreviated pathway is going to be introduced but Datamonitor expects it to be by 2006, in which case $13.5 bil lion of the 2001 market for therapeutic proteins is at risk to bio generic competition. That shows how big the market for biogener ics is with almost 50% of the market for therapeutic proteins potentially set for generic competition. PESTKA. The regulatory agencies have established standards for biotherapeutics and the timing of a clear pathway to approval may be around 2006. Once these standards are met, generic products likely will be approved. But generic com panies will likely need to reach a higher standard than the original standard for approval. PHILLIPS. The scientific and legal factors regarding this issue are very complex, and it is difficult to predict when the final requirements will be determined. There is clear agreement among scientists and reg ulators in the European Union, and increasingly so in the United States, that followon biologics will need to be tested more extensively than conventional generic products. WOOD. It is important to note that biogenerics are in a grey zone with respect to current generic laws and regulations in the United States and in Europe. This is in part because some currently marketed recombinant proteins are registered as biologicals, while others are registered as pharmaceuticals. The difference in registration leads to different regulatory pathways initially and to different generic approval processes later on, which in the United States involve different laws and regulatory agencies. Furthermore, whatever the category of initial registration, there are difficulties applying currently existing terminologies and procedures for biologicals or for pharmaceuticals to these “biopharmaceuticals.” We will soon be entering a period of complex legislative “clarifica tion” with respect to these issues. SEARCY. I don’t believe that the regulatory process can be the same for biotech drugs as for chemically derived drugs. The safety and effectiveness of a chemical drug can be established by the specifica tion of its active ingredient. But, the safety and effectiveness of a biotech drug may be affected by the manner in which it is made and pro cessed, which may not be evident when exam ining a detailed inprocess and final product characterization. Small differences from the originator in manufacturing, for example, may change the drug in a way that could impact safety or immuno genicity. This is likely a bigger issue for proteins than peptides because of the more complex nature of these molecules, including attributes such as tertiary structure and glycosylation patterns. While it is of interest to contemplate the concept of generic bio logics, I believe there are a number of issues that need to be addressed before one can really say that a biologic manufactured by one process in one facility is equivalent to the same biologic manu factured by a different process in a different facility. Until a track record has been established, I believe demonstration of efficacy and safety will still be the norm rather than the exception for biologics. PESTKA.The rate of utilization of biogenerics likely will be slow because the regulatory agencies and the generic companies are trav eling on new ground. Even the definition of a generic will need to be redefined. We already know that some biotherapeutics have different properties when produced in E. coli or when produced in animal cells, for example, because the products themselves are significantly different. In addition, the use of generic products will There are a number of hurdles that remain that make the speedy approval of BIOGENERICSUNLIKELYTO HAPPEN IN THENEXTTHREETO FOURYEARS. Dr.David Webster GENERIC PRODUCTSTHATARE ESSENTIALLY IDENTICALWILL EVENTUALLY BE ALLOWED once regulatory agencies can be assured they meet proper safety and efficacy requirements. Dr.Sidney Pestka 14 J u n e 2 00 3 PharmaVOICE LIFECYCLE management be slow because of the complicated intellectu al property landscape that has evolved around many biotherapeutics. Expression vectors, host cells, purification methods, and formulations may have intel lectual property barriers. Another factor is the cost of entry into this market since the production costs of protein biotherapeutics and clinical trials are high. But generic companies that move in this direction may have an opportunity to develop multiple bio therapeutics and develop a strong position, particularly if they start early. Efforts and resources of small companies might be bet ter placed if they focus on making new and better products. For example, small companies have taken the approach to develop and to produce improved forms of interferon and other biotherapeu tics and to use them for new indications. This approach should make a significant impact on the treatment of diseases for which there are no current therapies. This strategy also will add to the total market of biotherapeutics and make the greatest impact on patients. GERNGROSS. A generic manufacturer may know what the molecule is, but in the case of therapeutic proteins the manufactur ing process profoundly impacts what that molecule ends up look ing like. Current FDA rules do not mandate that companies that make biologic drugs disclose exactly how the drugs are made. For a biogenerics entry, all this work has to be figured out and then implemented to come up with a molecule that is identical to what has been made before. The manufacturing of biogenerics is going to be very difficult. PESTKA.Generic products that are essentially identical to the innovator or original product eventually will be allowed once regulatory agencies can be assured that they meet proper safety and efficacy requirements. Thus, detailed, clear specifica tions must be carefully devel oped by regulatory agencies so that generic companies have a clear standard to achieve and a welldefined pathway to follow for approval. A Complex PROCESS SEARCY. It is very important to under stand the difference between biotechnolo gy medicines, which are highly complex and are derived from living organisms, in contrast with chemical drugs, which typically consist of smaller, synthesized and chemically defined molecules. Making a generic biologic will be much more complicated than making a generic smallmolecule chemical drug. PHILLIPS. The question at the heart of the current dialogue and investigation is how much more testing will be required across a variety of biologics? This is an important issue for all biotechnol ogy companies to be aware of. Safety and preservation of efficacy of all biologics should be the future focus as sensible steps are identified. GERNGROSS.Aspirin is aspirin, and if a company makes a gener ic form of aspirin then it can be determined without any doubt that the molecule is identical to what was made before. With biological drugs, this is much more difficult because biological drugs are very large molecules that cannot in essence be characterized down to the individual molecule. It is almost a given that the industry is going to have to redo some of the safety studies. WEBSTER.Much of the value of a biologic is in the company’s abil ity to manufacture it and replicate that manufacturing over millions of doses. That is not a trivial task. There is a big question as to whether generic companies can replicate that process as easily as they do with small molecules. YAROSH. The uptake of biogenerics will be much slower than for chemical generics because the technology for chemical synthesis and analysis is more widely shared than the specialized technology for many biologicals. This is true not only for the product, but for the validated bioassays and the preparation of biologi cal substrates needed to match the innovator product. GERNGROSS.Biogenerics are unlikely to displace bio molecules that come off patent. There will be improved versions of those molecules, such as versions that have to be administered less frequently, that have a higher toler ance, or are less immunogenic. It is unlikely that there will be exact versions of the same biologic molecule that will compete on price. One way that biotech companies can extend the life cycle of their protein drug products or create differentiated versions is to APPLY ADVANCED FORMS OFDRUG DELIVERY. Dr.Christopher Searcy Ultimately, if biogenerics get closer to becoming a reality, it will be interesting to see if biopharmaceutical companies, particularly those with biological production capacity, WILL PLAY IN THE BIOGENERIC SANDBOX as well. NanskeWood 15 PharmaVOICE J u ne 2 00 3 LIFECYCLE management RADER. The first branded biologic products that will be considered for biogenerics will be products coming off patent. These products essentially use 1980s technology, and generic versions of many of these products already are on the market internationally. These include recombinant insulin and human growth hor mone products regulated by the FDA as drugs for which generic regulations are largely in place. Although multiple, substantially identi cal active ingredient, generic versions of these products already are marketed in the United States, they were not approved as generic drugs. For example, the sponsors conducted the usual safety and efficacy trials and gained approval based on showing pharmacological equivalence to a prior product. SCHMIDT.As research and manufacturing pro cesses have gotten better, companies are more easily able to replicate drugs. The first and early adopters, the first companies in with the tech nology, incur the greatest expense. RADER.The real fight concerning generic bio logics will be about the more complex products regulated as biologics such as factor VIII, which is an extreme example. Factor VIII is the largest and most complex recombinant DNA product on the market, and even the companies that have been making it for years have repeatedly had problems in manufacturing it, even with their expertise and experience. Producing some bio logics is very difficult. Examples of the difficulty faced even by originators and their partners/licensees in manufacturing substantially identical products are Ortho/J&J’s problems with serious adverse effects with Eprex (recombi nant erythropoietin; EPO), which is supposed to be identical to EPO (Epogen) from Amgen, which is not showing the same adverse effects. And the recent delay in approval of Raptiva because of the product manufac tured by Genentech has different pharmacoki netics than the product manufactured by its partner, Xoma. SCHMIDT. Another consequence is the erosion of biological products to biotechnology prod ucts. Typically a biotechnology product is much more expensive to the end user or to the payer than a biological product. For example, one of the top biotechnology products is recombinant factor VIII for use in people with hemophilia A — a very successful product. Hemophilia used to be treated by a plasmaderived biological fac tor that several manufacturers made. And that biological product was a part of the profitabili ty profile for the manufacturers. If a plasma manufacturer was making three different prod ucts from one liter of plasma and because of a biotechnology advancement it only makes one product, it becomes much more expensive to manufacture that one product. Or, when a biotechnology product replaces a biological product, patient care could be impacted dra matically. Recombinant factor VIII, which is a great advancement for the hemophilia commu nity, could have a deleterious effect on the mar ket for primary immune deficiency products because the product is much more expensive and potentially less available. Going GLOBAL LAMBLE. Manufacturing is one of the key issues with biogenerics because biological pro teins are very costly to manufacture. Biogener ic companies are preparing for this market by setting up businesses outside the major mar kets, in places such as China. To prepare for an abbreviated regulatory approval pathway in the United States, these companies have to get these foreign manufacturing plants up to good manufacturing practice standards (GMP), so that when the approval pathway is put in place, they are ready to run in the new market. In the meantime, to sustain busi ness these companies are entering markets that don’t have the patent protection laws of Europe and the United States, such as China and Eastern Europe. Branded biotech companies must EXPLORE DEVELOPING MARKET MANUFACTURINGOPTIONS whether they are challenged by biogenerics or not. Dr.Daniel Yarosh Major Players — Biogeneric Companies in 2002 Apotex Location: Canada Key areas of development:NA Barr Laboratories Location: U.S. Key areas of development:NA BioTechnology General Location: U.S. Key areas of development: Insulins Cangene Location: Canada Key areas of development:Colony stimulating factors and growth hormones E.Merck (Merck KGaA) Location: India Key areas of development:Growth hormones and interferons GeneMedix Location: U.K. Key areas of development:Colony stimulating factors, interferons, erythropoietins, insulins, interleukins, and growth factors Ivax Location: U.S. Key areas of development:Colony stimulating factors, interferons,and growth hormones LG Chemicals Location:Korea Key areas of development:Erythropoi etins, insulins, and interferons Microbix Biosystems Location: Canada Key areas of development:Plasminogen activators Rhein Biotech Location: India, Argentina Key areas of development:NA Sicor Location: U.S. Key areas of development:Colony stimulating factors, growth hormones, interferons,erythropoietins Stada Location: Germany Key areas of development: Erythropoietins, interferons,and colonystimulating factors Teva Location: Israel Key areas of development:Growth hormones Source:Datamonitor,New York.For more information, visit datamonitor.com. 16 J u n e 20 03 PharmaVOICE LIFECYCLE management YAROSH. Brand ed biotech compa nies must explore developing differ ent market manu facturing options, and they probably should whether they are chal lenged by bio generics or not. It is unclear whether contract manufacturers can accommodate, under one roof, the variety of technical expertise needed to assist an array of biotech companies. This will be a spe cialized business. WEBSTER. One big issue is the potential for entry from generic producers outside the United States. The biggest pool of compe tency for generic biologic manufacturing is overseas. Some countries — such as Russia, which has a very big generic vaccine industry — have incredible resources for producing generic biologics. If U.S. generic firms want to get in the business they will have a lot of for eign competition. If a regulatory pathway does open, U.S. con sumers will benefit by having a lot of foreign firms capable of ramp ing up quickly. Then it becomes a question of safety and whether these foreign companies can meet strict FDA regulations. PESTKA.Investment by generic companies in manufacturing facil ities in developing markets such as China probably will not make a major impact in the next three to five years as oversight and quali ty control issues will not make it easy for small companies to devel op plants in China or other countries where costs are much lower. However, in the long term it will be natural for companies to devel op production in countries where costs are lower. This has been the pattern in almost all industries in the past such as the steel, elec tronics, textile, and automobile industries so it will be followed in the pharmaceutical industry as well. In fact, when major innovator companies begin using labor in countries where costs are substan tially lower, it will be much more difficult for the generic compa nies to compete on the basis of cost alone. STEINER. The biological industry is expected to face a manufac turing capacity bottleneck. There has been a manufacturing facility buildup in developing markets such as China and Singapore. Sev eral biopharmaceuticals, most of which are still patent protected in Western countries, already are being marketed in those countries because of the lack of patent protection. But it might be difficult for generic companies to manufacture and export these prod ucts to the United States or Europe after their patent protection has expired because of the very stringent review procedures of their regulatory authorities. An obvious manufactur ing strategy is to acquire biotech companies that have a manufacturing capability. That is the most straightforward way to overcome the manufacturing capacity bottleneck. WOOD. Some biogeneric manufacturers hope to side step U.S. leg islative issues by marketing biogenerics in markets outside the United States where proteins do not have patent protection and thereby establishing some initial market credibility. Several bio generic companies also are taking a waitandsee attitude. SEARCY. If generic companies do successfully invest in manufac turing facilities in countries such as China or form alliances with contract manufacturing organizations, biotech companies with branded products will need to be prepared to improve and differen tiate their brands so that they stay ahead of the generic companies. SCHMIDT. As products go from branded to generic, there is a potential consequence for wholesalers and drug distributors. Dis tributors work on certain margin percentages, so it’s always better if there’s a highercost product because the percentage from a high ercost product is more lucrative than a less expensive product. Defending the BRAND LAMBLE. Obviously, one of the first strategies to defend a biotech nology brand is for innovator companies to adopt a very aggressive legal stance. The second is to reposition the branded biological ther apy through enhanced formulations and extendedrelease versions that offer a clear advantage over a generic coming into the market. An ideal strategy is to accelerate the release of a followup product, for example using pegylated technologies such as Amgen’s Neulasta. MAEBIUS.Pioneer ing companies need to look at their patent portfolios. They need to deter mine if they have developed a strong position beyond the initial expiration of the patent that cov ered the basic bio logic product that was on the market. AKEY ISSUE ISTHE ACCEPTANCE by physicians in terms of how confident they are in the safety of biogenerics. Nicole Lamble The uptake of biogenerics will not be as aggressive as with some smallmolecule generics because of the DIFFICULTIES IN GAININGTHE EXPERTISETO PRODUCE THE BIOLOGICAL MOLECULES. Michael Steiner 18 J un e 20 03 PharmaVOICE LIFECYCLE management BIO: Biogenerics Require Original Nonclinical and Clinical Data T THE BIOTECHNOLOGY INDUSTRY ORGANIZATION (BIO) HAS MADE PUBLIC ITS POSITION that the approval of followon biotechnology products, biogenerics, must be based on the same rigorous standards applied by the Food and Drug Adminis tration (FDA) for the approval of pioneer biotechnology prod ucts.According to the organization, the science does not exist to provide an alternative to a full complement of data, including clinical evidence, to demonstrate safety and effectiveness for fol lowon biotechnology products. In a citizen petition submitted to the FDA in April 2003, BIO urged the agency to conduct open and meaningful debate on the scientific, legal, and policy issues concerning followon biotechnology products if the FDA is considering creating an approval mechanism for them. “Even if a generic company does submit a complete filing, it hasn’t shown that the product is the same,”says Gillian R.Woollett, MA,D.Phil.,VP of scienceand regulatory affairs at BIO.“All that it has shown is that what was submitted has purity, potency, identity, and/or is safe and effective for the use for which it is proposed,but it doesn’t show that the two products are substitutable.” In a letter sent to FDA Commissioner Mark B. McClellan,M.D., Ph.D., before the submission of the citizen petition,BIO President Carl B. Feldbaum urged the agency leader to “actively solicit pub lic participation” if the FDA is considering a regulatory change related to biotechnology products. POLICY CHANGESREQUIRETRANSPARENCY “We strongly believe that any changes in a policy so significant to the biotechnology industry should involve a process that is transparent, public, and open to all those interested in helping develop sciencebased regulations for biotechnology medicines,” Mr.Feldbaum says.“Such openness has been a longstanding FDA tradition and serves the best interests of patients, the public, and manufacturers. We ask that the FDA actively solicit public partici pation so that all parties — government, the scientific community, the biotechnology industry, our patients, and others — may express their views.” Currently, most biotechnology products are covered under the Public Health Service Act as biological products. Certain biotech products, such as insulin and human growth hormone, were, for historical reasons, approved by the FDA as new drugs under theFederalFood,Drug and Cosmetic Act.Theactallows for abbreviated approvals for generic drugs that are proven by their manufacturers to be equivalent to the innovator drug,but it does not specifically address biotechnology medicines.In recent state ments made by FDA officials, the agency has indicated its will ingness to establish a followon pathway for some biotechnolo gy products. FOLLOWONPRODUCTS REQUIRE RESEARCH BIO representatives believe that FDA approval of any followon biotechnology medicine must be based on a full complement of original nonclinical and clinical data because of the unique scien tific nature of biotechnology products. Without this information, the followon productscould poseanunnecessaryand potentially serious risk to patients.A followon biologic could induce immuno genicity that would preclude the efficacy of the innovator. “The crux of the argument is safety and, therefore, at some level ethics,”Dr.Woollett says.“Much, but not all, of the work surrounding followon biologics is doable, in so far as the science has progressed. But sciencebased regulatory mechanisms have yet to be created that would also allow innovators to significantly refine their process es, let alone allow a followon manufacturer to start from scratch.” The issues surrounding followon, or generic, biotech drugs have become more urgent following the introduction of a “func tionally equivalent standard” by The Centers for Medicare and MedicaidServices (CMS) as part of an agency rule on its outpatient prospective payment system, which became effective Jan.1,2003. Under the functionally equivalent standard, CMS treated one new biological as if it were the same as an older product for pay ment purposes because the agency found the therapies to be “functionally equivalent,” simply because the older, existing medicine costs less even though the two drugs differed signifi cantly in important therapeutic respects in terms of side effects, dosing,and modes of administration. MembersofCongressandBIO havespokenoutabout this deci sion,declaring that CMSoverstepped its statutory bounds when it implementedwithoutnotice or anopportunity for public input on a “functionally equivalent” rule in determining payment amounts for erythropoietic products. In addition, several members of Congress say the functionally equivalent standard runs counter to existing law and should not have been implemented in the first place, let alone without any opportunity for public discussion before its implementation. “The FDA is the only organization that can determine equivalence, CMS is not in a position to make that judgment,”Dr.Woollett says. I DON’TTHINK BIOGENERICSWILL EXIST.The fundamentalpoint of BIO’s petition is: on what basis can it be shown that a followon product is the same? Dr.Gillian Woollett the number of injections or treatments required, such as with sus taineddelivery formulations, is one approach that already has been used. These improvements have provided benefits for patients for some indications. Thus, a generic version of the original product may have a more limited use for a small subset of overall indica tions. GERNGROSS. Biotech companies can manage the life cycles of their branded drugs through new technologies that can improve the product’s pharmacokinetic behavior. An injected therapeutic protein degrades over time, but by improving the protein’s glyco sylation, for example, a company can make the molecule longer lasting, which reduces the number of administrations and improves the quality of care for the patient. The drug has the same underlying molecule and binds to the same receptor, but it lasts longer and therefore it is an improved version that can displace an old version. SEARCY. The use of drug delivery to provide noninvasive, or min imally invasive, delivery of these agents is gaining momentum. Nektar’s PEG and inhalation technologies are particularly applica ble to enabling the improvement and/or differentiation of proteins. LIFECYCLE management In biotechnology there is a greater ability to patent downstream than there may be in the pharmaceutical area. There is much more processing and innovation that occurs in the production of the biotech molecule or drug than occurs in the pharmaceutical indus try. There also may be patents at many different levels that all form potential barriers to entry even after the initial patents expire. For example, when a company first discovers a basic protein it gets a patent on the protein. Then the company can patent the DNA sequence as well as the processes used to make that protein. Then further down the road, the various methods of treatment and com bination therapies using the protein are discovered and those are patented. Pioneer companies should aggressively patent all aspects of their production system as they continue to innovate throughout the life cycle of biologic products. WOOD. Manufacturers of biopharmaceuticals can prepare for new legislation by getting involved in the legislative process. BIO has taken a stand and is communicating its position to Washington. Biopharmaceutical manufacturers also can employ strategies that have been used in the past to combat generics, including creating alternative delivery systems or new formulations of the existing product; using litigation to delay the introduction of a potential biogeneric (in this case it could possibly be years); lobbying congress to create bills to extend the patent life of their product; and working with biogeneric manufacturers to identify the best way to move forward togeth er as the biogeneric product gets closer to launch — this method should be investigated cautiously to avoid illegal activities from a Federal Trade Commission perspective. SCHMIDT. Many of the standard practices of lifecycle management apply to biotech drugs. Most companies that have biotech drugs have been very successful at branding the product, creating brand awareness, and creating the proper reimbursement profile. Those are the best ways to manage the life cycle and extend the life cycle of a product. A biotech company can have a huge advantage down the road if it has created dramatic brand awareness within the patient population, and patients are asking for the brand and they believe there’s a difference between the original and a generic biotechnolo gy product. Most biotech drugs are for chronic diseases and the patient populations are well educated. Therefore, the conversion from a branded biotechnology product to a generic will be more difficult, which would extend the life cycle of a biotechnology product. PESTKA. The standard procedures that inno vator companies have used for other molecules to retain and improve market share will be used for biologic products. Decreasing 20 J un e 20 03 PharmaVOICE LIFECYCLE management Amgen applied PEG technology to create Neulasta (pegfilgrastim), an improved version of Neupogen to treat neutropenia. Pfizer sim ilarly added PEG technology to Somavert (pegvisomant) to improve the therapy for acromegaly. Roche and ScheringPlough both used a form of PEG to improve interferonalpha therapy for hepatitis C. The PEG version now is considered standard treatment. All four of these transformed therapeutics are now on the market. Building CrossBorder Alliances A ACCORDING TO CAROL CHERKIS, PH.D., LIFE SCIENCES CONSUL TANT FORNEWCAPPARTNERS INC.AND PAUL J.MEYER JR.,ASSO CIATE WITH THE INTELLECTUAL PROPERTY PRACTICE AT SQUIRE, SANDERS & DEMPSEY LLP, THE BIOTECHNOLOGYPHARMACEU TICAL INDUSTRY HAS PROVEN THAT CROSSBORDER ALLIANCES BETWEEN COMPANIES RESULT IN SOME OF THE WORLD’S BEST COLLABORATIONS. But those alliances are built on more than just good science. The most successful collaborations have been formed with care ful legal planning that minimizes a company’s exposure to get ting burned on the alliance’s greatest asset — the intellectual property that goes into and comes out of it. The truth is that crossborder alliances are not as seamless as they may appear and, in some cases, can turn into complex night mares for companies that donotperform adequate duediligence and, ultimately, fail to protect their businesses and intellectual property. However, sensible companies that employ thorough business and legal planning in everything from partner selection to exit strategies can successfully avoid these situations and stay focused on what really matters — the collaboration. CHOOSE FRIENDSWISELY Partner selection is noeasy task.Just as complicated is figuring outhowa companywilldevelop intellectual propertywith anoth er company. Companies that carefully select their partner can be confident that they will maximize the value of the alliance. Particular countries/regions in the world may be best suited to establishing the crossborder alliance. The two most important considerations in selecting a region are to first have the ability to justify a presenceand develop abusiness rationale for doing busi ness in that regionand second,to determine whether the country of interest offers any favorable financial incentive for forming alliances. Answering these two questions will help in narrowing the location of the alliance, if the company does not already have an alliance partner in mind. Once a country or region has been targeted for further inquiry, more specific questions must be answered.For example: . What are the regulatory policies and what is the scope of IP pro tection in the region/country? Are compositions and methods of treatment adequately covered by the country’s patent laws? If not, are there significant risks for entering the market of the alliance partner? . Are there sufficient enforcement/remedies for violations of intel lectual property rights, especially for tradesecret theft? . Is there a quantifiable return on investment for the alliance? . Are there requirements in the host country that will significantly reduce the value of the alliance, for example a requirement to compensate an employee for developing IP? The company should understand the existing alliance base inside the country. A country/region that is home to conflicting alliances may be less appealing, while the reverse is true for an area with more complementary existing alliances. It is also important that thecompanydetermineswhich strengths are most desirable in an alliance partner. When a company knows that the partner will bring significant experience in manufacturing and distribution (in addition to intellectual property) to the table, there are expanded opportunities for collaboration. RUN A BACKGROUND CHECK Proper due diligence is the hallmark to avoiding most pitfalls in any alliance.Successful alliances ensure that the legal and intellectual prop erty issues are addressed and that both parties share the same under Dr.Carol Cherkis Paul Meyer Jr. 21 PharmaVOICE J u ne 20 03 LIFECYCLE management STEINER. A big protection for biotechnology and biologic com panies with branded products is the relevant expertise that they have in house to extract biological molecules, because that is a main lever of competitive advantage. Having this expertise is almost as important as holding a patent. The generic competitor doesn’t have access to this methodology, to the strain, the growth material, or the cells. YAROSH. Greater use and protection of trade secrets as well as con fidentiality in manufacturing and assay of biologics are strategies that can be employed to protect branded biologic products from generic competition. In addition, companies also can defend against generic biologics through greater exploration and patent protection of biological variants with improved characteristics, for example, generation stacking. standing of any negotiations before the formal relationship is estab lished. This type of investigation enables companies to know for certain, and perhaps most importantly, whether the partner is the rightful ownerof any intellectual property he claims. If thepartner is the right ful owner,duediligence also will reveal thevalueof the partner’s intel lectual property, as well as the strength of the proposed partner’s intellectual property portfolio, which may include blocking patents and other important knowledge assets.Any investigation also should include a risk assessment to see whether the proposed partner is involved in, or is likely to be involved in, any highstakes intellectual property litigation. Oncecompleted, the duediligence phase provides valuable infor mation in terms of how best to structure the alliance — including its tax treatment — and how to address any anticipated intellectual property or regulatory challenges. Moreover, the due diligence will likely provide some issues for further discussion and negotiation. STRUCTURETHEALLIANCETO PROTECT INTERESTS Negotiations should be conducted with the goal of building trust between partners. As with any alliance, the partners should draft a mutually acceptable nondisclosure agreement, understand the partner’s commitment to the alliance, and identify the alliance’s goals. Other common issues faced during negotiations include manag ing any downsides to the alliance and any cultural issues. For exam ple, in some foreign jurisdictions,negotiations involving certain tech nologies can trigger compulsory licensing provisions. In other cases, there may be antitrust issues or basic cultural issues that may impact how businesses in those countries view intel lectual property. The partners must be mindful of how they are going to protect their intellectual property. For a company contributing intellectual property to an alliance,no aspect is more important to it than retain ing maximum control over its intellectual property to the greatest extent consistent with achieving its individual goal.Likewise,each company engaging in an alliance must consider ownership of intellectual property generated by the alliance. CREATETHE KNOWLEDGEASSET When the alliance actually begins producing the intellectual property, the partners must determine how the intellectual prop erty will be managed and how it will be audited. The alliance should ensure that the appropriate party has the responsibility for maintaining the IP. For example, the parties must determine who will file patent applications before established bar dates/disclosures. Also, the alliance must be aware of any issues particular to the host country, such as requirements to “work” a patent. Protection of the intellectual property is important,as well.The alliance partners should vigorously protect the alliance’s intellec tual property and diligently respond to any confidentiality issues in exchanging information between partners. Further, the part ners should determine whether additional parties, such as con sultants and employees of the alliance, also might access and use the intellectual property. To gauge whether the alliance is meeting expectations in terms of quality and return on investment, the partners should also provide for an audit of the work. WHENTHEALLIANCE ENDS Partners in any alliance should start their collaboration with the end in mind. In other words, a wellplanned termination agreement will make for a smoother transition when it comes time for the collaborators to part ways. A top priority for every alliance should be to decide which party owns any jointly developed intellectual property. This includes any obligations that survive the termination, such as maintenance of licenses to use the intellectual property that is produced by the alliance and maintenance of the value of the intellectual property. 22 J u n e 20 03 PharmaVOICE LIFECYCLE management PESTKA. Biotechnology companies are modifying their products for new needs and uses. Examples of this are pegylated interferons and glycosylated erythropoietins with a longer half life in serum that need to be administered less frequently to patients. This pat tern of improving the product is similar to what has been done for other pharmaceuticals to maintain patent protection and market share. WEBSTER. One big strategy that differentiates biologics from branded pharmaceuticals is the way the company contracts and sells the biologic to managedcare and grouppurchasing organiza tions. With pharmaceuticals, manufacturers typically lock into longterm contracts because traditionally the price path starts out very high and then declines over time. With biologics, even if there is generic entry, if manufacturers lock into longterm agreements, they will be leaving money on the table. There is the potential that a generic competitor might have manufacturing problems at any given time and supply is always an issue. Just because there are generic manufacturers doesn’t mean that the supply of biologics might not increase in value over time. LAMBLE. One of the key things that biotech and pharma compa nies can do to protect their branded biologics is to promote the safety of the original product to physicians and emphasize the importance of having a proven track record compared with poten tial biogeneric competition. Legal TANGLES RADER. Small, startup, biotechnology companies are going to have trouble protecting their products against generic competitors in the courts, if only because most generic companies are better financed and are used to protracted court battles. But biotech com panies that have decent financing, welldeveloped business plans, and their own production facilities — in other words, small to midtier biotech companies — can readily take on the challenge from biogenerics. These companies have the resources and confi dence to take on generic manufacturers and sponsor lengthy legal battles. WOOD. At this point, many of the products at risk from biogener ics come from large pharmaceutical players, for example, Procrit (Ortho Biotech), Humulin (Eli Lilly), and EngerixB (GSK/Bio gen). These companies might be willing to dedicate significant resources to protective legal strategies. It is difficult to predict the impact new legislation will have on the viability of legal strategies in the future. LAMBLE. Branded biotech companies will put up a lot of resistance to biogenerics in the form of lawsuits. For biogeneric manufacturers the actual initial costs to develop their drugs are going to be quite high. When biogenerics do reach the market, these products won’t have the same price discounts that smallmolecule generic products do. Smallmolecule generics enter the market at about 50% of the branded price, whereas biogenerics will come in at about 80% of the branded price. The Supply Chain Can Provide a Competitive Advantage AS THE COMPLEXITIES SURROUNDING THE HEALTHCARE INDUSTRY INCREASE, MORE COMPANIES ARE OUTSOURCING THEIR SUPPLY CHAIN OPERATIONS.THIS IS ESPECIALLY IMPORTANT IN THE BIOTECH INDUSTRY,WHERE SPEEDTO MARKET,SCALABILITY,AND REGULATORY KNOWLEDGE IS CRITICAL TO MAINTAIN A COMPETITIVE EDGE. The following key trends in the biotech industry have specific sup plychain ramifications. INCREASING PACE OF INNOVATION Biotech Trend: With the mapping of the human genome and advances in genomics and proteomics,product life cycles are shorten ing, and the pace of new biotech product introduction is accelerating. SupplyChain Ramification: Need for scalable, quickly imple mentable distribution conduits to speed product to market with max imum operational efficiency and economy. MIGRATION OFPRODUCTIONANDCONSUMPTION BiotechTrend: Increasingly,biotech innovations are occurring outside traditional pharmaceutical production geographies.At the same time, consumption of biotech materials is no longer confined to large insti tutions operating within major metropolitan areas. SupplyChain Ramification: Need for global supplychain capabili ties, capable of handling bulk shipments and parcel quantities with equal agility and precision. INCREASING PRODUCT SOPHISTICATION BiotechTrend:Theheightened effectiveness of newbiotech materials coincides with more complex handling and storage requirements. SupplyChainRamification: Need for disciplined environmental con trol, time definite and expedited delivery,visibility, and reporting. HEIGHTENED OVERSIGHT BiotechTrend: Increasing regulatory oversight and customercompli ance requirements are impacting all facets of biotech distribution. SupplyChain Ramification: Need for endtoend visibility and accountability, with complete audittrail reporting, and the ability to act upon supplychain information to enhance service. INCREASED COMPETITION Biotech Trend: The biotech arena is aggressively contested, with a myriad of alternative products,providers,and channels. SupplyChain Ramification: Sustainable success requires the extend ed supply chain to become a competitive advantage, driving topline sales by enabling penetration of increasingly lucrative markets, while driving down bottomline costs. Source:UPS Supply Chain Solutions,Alpharetta,Ga. For more information,visit upsscs.com. LIFECYCLE management YAROSH. Litigation over any issue for a biotechnology company is expensive and potentially crippling. Larger companies often exploit this advantage during negotiations and business dealings, so this is nothing new to smaller biotech companies. Because of the long drought in IPOs and capital investment, biotechnology com panies already are seeking, and will continue to seek, mergers and alliances with big pharmaceutical companies for funding. Alliances, however, do not remove the threat of litigation if the partners do not agree on what to do. MAEBIUS. Patent litigation may not necessarily drive biotechnol ogy companies to partner with big pharma companies. The bigger drivers are the distribution capabilities of a large pharmaceutical company. Most biotechnology companies just don’t have this distri bution and marketing capability. Big pharmaceutical companies, on the other hand, have a lot of resources, including a lot of marketing people and huge sales staffs. In addition, they can distribute prod ucts quickly. WEBSTER. Big biotech companies certainly have the resources to defend highvalue products. For smaller companies, in some senses, the cost of losing a patent dispute is much lower, because there is not as much at stake. For big products, biotech won’t have any prob lem funding patent disputes. Physician/Payer ACCEPTANCE SEARCY. Biogenerics have the potential to be disruptive to innova tor companies especially if efficacy can be demonstrated through clinical trials or general usage. Generic companies, however, still have to deal with physician, patient, regulatory agency, and payer skepticism. LAMBLE. It will take a while for physicians to accept biogeneric products, in particular products for patients who are being treated for chronic conditions, which biologic proteins often treat. Physi cians will be reluctant to switch their patients from the branded biotechnology drug unless they are absolutely confident in the generic version. SCHMIDT.The uptake of biogenerics will depend on how the fed eral payers look at these products. Depending on how good a job latter entrants do in convincing government payers that their prod ucts are the same and the reimbursement level for their generic is much lower, there may be rapid conversion. STEINER. In the beginning, there will be a lot of skepticism by doctors and a reluctance to prescribe biogenerics. Generic biophar maceutical companies will have to overcome this obstacle by prov ing that the quality and safety profile of their product is the same as the innovator brand. There will have to be a lot of convincing to get doctors to prescribe biogeneric drugs. MAEBIUS. It is impossible to produce a truly identical generic version of a biotechnology drug because of the unpredictability of producing proteins in living cells and the inevitable minor varia tions, for example, differences in glycosylation. The medical pro fession might be a little slow to prescribe those first few biogener ic versions that come through the pipeline for patients in view of these potential differences. On the other hand, the intense pressure to reduce healthcare costs will create a powerful incentive for physi cians. PESTKA. Because of the pressures to reduce healthcare costs, doc tors will try biogenerics if the costs are sufficiently different to make them worthwhile for their patients. The issue about a biogeneric product’s quality will be secondary because the FDA and other reg ulatory agencies will have set the standards. Once those standards are set, biogeneric products should be quite comparable to the orig inal products. WOOD. If biogenerics are able to demonstrate equivalency in both efficacy and safety at a significantly lower price point, physicians will be pressured to prescribe biogenerics. The question remains whether a biogeneric manufacturer will be able to bring the cost down to a level where there’s a big enough incentive for a physician to change his or her prescribing habits. YAROSH. Physicians are very much aware of the cost of drugs. In many cases they will be compelled to use biogenerics. They discov er very quickly in their practices which generics products perform like the branded products. Market forces will determine the success of each biogeneric. F PharmaVoice welcomes comments about this article. Email us at feedback@pharmavoice.com. Therapeutic Protein Classes Most at Risk from Biogeneric Competition Erythropoietins Insulins Interferons Blood factors Monoclonal antibodies Colony stimulating factors Growth hormones Interleukins Growth factors Therapeutic vaccines Enzymes Simple non Large market High profit Low proprietary No patent size margins competition formulations issues Overall Unsuitable for biogeneric competition Little potential for biogeneric competition Some potential Good potential Key target for biogeneric competition Source:VentureWire,New York. For more information,visit venturewire.com. Note: For the time period of 1/1/02 through 12/6/02 23 PharmaVOICE J un e 2 00 3

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