President Obama signed into law on March 23, 2010 the Patient Protection and Affordable Care Act, which included the Biologics Price Competition and Innovation Act of 2009 (“Biologics Act”). By clearing a regulatory path for expedited entry by “biosimilar” versions of branded biological products (called “follow-on biologics” or “FOB products”), the Biologics Act will profoundly affect competition between biotechnology firms in the development, manufacture and sale of biologic products—those therapeutic drugs that are protein-based and derived from living matter or manufactured in living cells using recombinant DNA biotechnologies.

Key features of the Biologics Act, particularly for purposes of assessing antitrust risks, include: (1) a 12-year exclusivity period for the innovator biological product; (2) one year exclusivity for an “interchangeable biosimilar product”; (3) procedures to determine the extent of patent disputes between the innovator and the FOB manufacturer; and (4) provisions that require information sharing between innovator firms and FOB manufacturers. These features will undoubtedly raise a number of antitrust issues, some of which have become a common feature in the world of small molecule pharmaceuticals. To help mitigate antitrust risks associated with the Biologics Act, counsel familiar with the antitrust laws, the FTC’s views on FOB competition, intellectual property rights in biologics, and patent settlements in general should be consulted early in the Biologics Act process.

Summary of the Biologics Act

The Biologics Act establishes a pathway for the regulatory approval of biosimilar and interchangeable biological products that is loosely modeled on the Abbreviated New Drug Application (ANDA) process for small molecule drugs, which was enacted through the Hatch-Waxman Act Amendments to the Food, Drug and Cosmetic Act (21 U.S.C. § 355) (“Hatch-Waxman”).1 The Biologics Act provides a process through which FOB manufacturers can utilize some of the innovator’s data (after expiration of a 12-year exclusivity period) to obtain FDA approval. This should reduce the costs associated with the development and launch of FOB products.

For antitrust purposes, the key provisions of the Biologics Act include:

  • 12-Year Exclusivity for Reference Products. To encourage investment in the development of biologic products, the Biologics Act establishes a 12-year period of exclusivity for reference products. Follow-on biologic product applications cannot be submitted until four years after the date on which the reference product was first licensed by the FDA, and no application can be approved until twelve years from the date on which the reference product was first licensed by the FDA.
  • One-year Exclusivity for First “Interchangeable Biosimilar Product.” The Biologics Act provides a one-year period of exclusivity for the first FOB product that is approved and deemed by the FDA to be “interchangeable” with the reference product. This is similar to the 180-day exclusivity period provided to the first generic filer for a pharmaceutical product under Hatch-Waxman.
  • Patent Dispute Procedures, Including Information Exchange. The most unique provisions in the Biologics Act establish a step-by-step exchange of information between the innovator and the FOB manufacturer of the follow-on biologic—presumably aimed at narrowing the issues for any patent litigation. The Act provides for the exchange of information regarding the FOB manufacturer’s product and processes, and each side’s analysis of the relevant patents. Notably, the Act does not allow for a 30-month stay of approval if litigation is filed, a feature from Hatch-Waxman that may be less relevant under the Biologics Act given the duration of regulatory exclusivity.

Identifying and Minimizing Antitrust Risks Under the Act

The Biologics Act and its implementation will undoubtedly raise a number of familiar, and some new antitrust issues. Efforts to resolve patent litigation, particularly during the period of information exchange, will likely give rise to familiar issues associated with patent settlement agreements (also referred to by some as “reverse payment” or “pay for delay” agreements). New issues may also arise from the sharing of information between the innovator and the FOB manufacturer—particularly the disclosure of information regarding product and process improvements). The Federal Trade Commission (“FTC”) has already warned that that the type of information sharing mandated by the Biologics Act “is likely to lead to consumer harm, including the facilitation of anticompetitive conduct.”

Patent Settlement Agreements

The existence of a new pathway for accelerated entry of FOB products—products that are biosimilar to and/or interchangeable with the innovator’s product—will inevitably lead to patent disputes between innovators and FOB manufacturers. Indeed, as noted above, the Biologics Act provides specific procedures aimed at narrowing issues for pre-approval patent litigation. It is likely that some innovators and FOB manufacturers will want to resolve patent disputes rather than invest time and money in litigation. What’s more, the information exchange process established by the Biologics Act may facilitate patent settlements because each party will have the ability during this exchange to assert the strength of its position on the validity, enforceability, and/or infringement of each patent that is at issue in the manufacture of the relevant biological products.

Both the FTC and the U.S. Department of Justice view patent settlements resulting in a payment from an innovator to its would-be competitor (the company challenging the patent or patents) to be presumptively illegal if they delay entry of the competing product. FTC Chairman Jon Leibowitz has stated that “eliminating these deals is one of the Federal Trade Commission’s highest priorities.”2 In the FTC’s view, payments are not limited to cash, but could be anything of value (for example, a “sweetheart” license agreement, supply agreement or other side deal) transferred to a potential entrant for purposes of delaying entry.

In a June 2009 study, the FTC commented that “it is likely that a pre-approval patent resolution process in the FOB context could facilitate collusive agreements” between innovators and FOB manufacturers. 3 Patent settlements that result in the delay of the launch of an FOB product will be at risk of challenge by the FTC and/or by private plaintiffs, particularly if they involve the exchange of value from the incumbent to the alleged infringer that might be perceived as consideration for delayed entry. Thus, to minimize this risk, much as is necessary in the Hatch-Waxman context, antitrust and IP counsel should be consulted in connection with innovator/FOB manufacturer patent settlement discussions and agreements.

Information Exchanges Pursuant to the Biologics Act

The Biologics Act provides for the exchange of competitively sensitive information between would-be (or actual) competitors. The FOB manufacturer will be required to provide a detailed description of the product and manufacturing processes to the innovator. In a June 2009 report on follow-on biologic competition, the FTC noted that such an exchange of information could facilitate anticompetitive conduct because the FOB manufacturer is likely to compete against the innovator’s product with a similar, but not identical, product.

Perhaps recognizing the potential that this type of information exchange could facilitate anticompetitive conduct or have other unintended consequences, the Biologics Act limits access to information disclosed pursuant to the Biologics Act to outside counsel or in-house counsel who did not participate in the patent prosecution for the reference product. The FTC, however, has suggested that these types of restrictions are likely to be ineffective safeguards.

The FTC is the federal antitrust enforcement agency that will be policing biotech competition, including competition between innovators and FOB manufacturers, so its views are of more than academic interest. Biotech firms, both innovators and FOB manufacturers, must be vigilant to ensure that confidential information learned during the information sharing mandated by the Biologics Act (particularly competitively sensitive information regarding product or process improvements) is not disclosed within their respective companies.

Firewalls and other safeguards should be put in place to ensure that strategic decision makers for the innovator do not have access to the FOB application and information about the manufacture of the FOB product that has been disclosed pursuant to the Biologics Act. It may be necessary for the innovator to rely upon a third party expert to assist in its patent infringement analysis. In that event, the innovator is required by the Biologics Act to seek prior written consent from the FOB manufacturer (not to be unreasonably withheld) for the disclosure to the third party.

Other Potential Antitrust Risks

The uncertainties of a new legal regime and the nature of FOB products (they do not have the identical chemical composition as the referenced innovator’s product and they are typically difficult to manufacture) may prompt an increase in innovator “citizen petitions” to the FDA to deny approval of an FOB product application based upon safety, scientific, or legal concerns. In the Hatch-Waxman context, citizen petitions have been subject to antitrust challenge when a petition was found to be objectively baseless and filed for the purpose of delaying generic entry. In the biologics context, a citizen petition filed by an innovator may be subject to a similar challenge if it is not based on verifiable facts.

Innovators may also opt to invest in marketing campaigns that seek to inform physicians and health care consumers of the differences between the innovator’s product and any FOB products. Typically, with small-molecule pharmaceuticals, the brand drug manufacturer does not invest significantly in marketing after the introduction of generic versions of the drug because generic versions are often identical in chemical structure. Biologics, however, are different. Because biologics are manufactured from living cells, an FOB product that the FDA finds to be “interchangeable” or “biosimilar” will be necessarily be different from the innovator’s product in some way. In light of this, innovators may choose to invest in advertising campaigns that compare the innovator’s product to the FOB product. Such advertising campaigns may be vulnerable to challenge either under Section 43(a) of the Lanham Act (15 U.S.C. § 1125(a)) (false advertising) or under Section 2 of the Sherman Act (monopolization or attempted monopolization).

Conclusion

It remains to be seen how competition in biologics will play out after enactment of the Biologics Price Competition and Innovation Act of 2009. The Hatch-Waxman experience teaches that the actions of innovators and FOB manufacturers will be subject to intense scrutiny by antitrust enforcement authorities and potential antitrust plaintiffs. Careful planning and execution of competitive strategies can help mitigate these risks.