New Report Identifies $378 Billion in Savings From Generic Biologics

In a new report, Robert Shapiro identifies $378 billion in savings which he argues could eventually be realized if the US creates an accelerated pathway for the approval of follow-on biologics. Dr. Shapiro is a prominent economist who served as Under Secretary of Commerce for Economic Affairs during the Clinton Administration and currently heads up a private consulting firm. The report was sponsored by Insmed, a company that recently settled a patent infringment suit brought by Genentech and Tercica alleging that Insmed's follow-on product IPLEX infringed Genetech/Tercica patents covering the the innovator biologic prodcut Increlex (as discussed in another article, The Impact of Human Gene Patents on Innovation and Access: A Survey of Human Gene Patent Litigation). the settlement came while the case was on appeal to the Federal Circuit and after the district court found Insmed liable for patent infringement.

The report finds that biologics will play an increasingly important, albeit costly, role in US health care, and that by facilitating accelerated and less costly approval of follow-ons the US could save $378 billion over 20 years. Moreover, the report states that this estimate "almost certainly understates the savings." It suggests that the US emulate the EU's new regulatory pathway for follow-on biologics.

The report notes that earlier studies have found much lower saving (e.g., up to $14 billion over 10 years), but finds that the estimates of these studies are too low because they assume "such high costs to enter the market that few biogeneric competitors would emerge, which would keep by a generic prices relatively high and produce limited savings."

In a conference call I participated in with Dr. Shapiro this morning, he noted that these earlier studies fail to adequately account for the capability of foreign countries like India and China to produce biologics at a lower price than US production facilities, and also substantial excess capacity in US biologic production facilities. When I questioned him regarding potential safety concerns with offshoring biologic production to countries like India and China, particularly in view of the heightened importance of process in the production of biologics relative to conventional small molecule drugs, Dr. Shapiro agreed that this was an important and critical issue that needs to be addressed, and that safety is of paramount importance in any plan to bring less expensive biologic products into the US market.

Clearly, concerns regarding the ability of FDA to effectively monitor production processes outside the US are substantial, as noted in a Washinton Post article last year, FDA Scrutiny Scant In India, China as Drugs Pour Into U.S. These concerns have led FDA to seek to establish offices in China and India. Just last week it was reported that:

"Chagzhou Scientific Protein Laboratories, which own the factory that supplies Baxter's blood thinner, heparin, was never checked by drug regulators in China. The plant has no certification. Heparin has led to four recent deaths in the USA, as well as hundreds of allergic reactions throughout the country."

Highlighting how difficult it is to monitor production processes for safety, USDA (which is generally considered to impose much stricter monitoring of food safety than FDA) recently issued the largest beef recall in history, covering beef produced over the last two years at a California facility, and acknowledging that most of the meat has probably already been eaten.