Regulatory Lessons from Europe

Published in The American, October 1, 2008

American free-marketers often criticize Europe for its misguided regulation of the drug industry, rightly attributing the continent’s paucity of pharmaceutical innovation to its penchant for price controls. But when it comes to promoting innovation and investment in today’s most revolutionary medicines, biologic drugs, the Europeans have created a regulatory policy that provides the proper incentives. In this area, at least, U.S. lawmakers have much to learn from Europe.

Biologic drugs are highly complex pharmaceutical drugs grown in living organisms, such as plant and animal cells. Sometimes they’re even grown in mammalian cells.

The difference between a conventional drug and a biologic is like the difference between a matchbox car and a Ferrari. An Aspirin molecule has around 21 atoms. A biologic can have up to 25,000.

That higher complexity means higher efficacy. Biologics have shown unprecedented promise in treating an array of diseases, including cancer, rheumatoid arthritis, and anemia. Biologic sales in America exceeded $40 billion in 2007 and are expected to grow at an annual rate of 20 percent. Worldwide biologic sales increased by 12.5 percent last year to $75 billion. Understandably, generic drug manufacturers are eager to jump into this burgeoning market.

Unlike conventional generic drugs, which can be exact copies of the original, generic versions of biologic drugs are not identical to their brand-name counterparts. Biologics are far too complicated—both in their chemical makeup and their manufacturing process—to duplicate exactly. That’s why they’re known as “follow-on biologics.”

As clinical researchers Simon Roger and Ashram Mikhail recently explained in Canada’s Journal of Pharmacy & Pharmaceutical Sciences, “Biologics require hundreds of specific isolation and purification steps. It is thus impossible to produce an exact copy of a biopharmaceutical, as changes to the structure of the molecule can occur with changes in the production process.”

Roger and Mikhail went on to note that the “structural differences in the final product may lead to differences in efficacy and, more importantly, in their ability to trigger damaging patient immune responses.” In other words, even if a biologic has proven itself safe and effective in clinical trials, its follow-on could cause harm. The European Union’s equivalent of the FDA, the European Medicines Agency (EMEA), recognizes this and regulates accordingly.

The EMEA requires that follow-on biologics go through separate safety trials before they’re approved, and it monitors them after they’ve entered the market, checking for relevant therapeutic differences with the original that might not have been discovered during the initial trials. The EMEA also grants biologic innovators a 12-year period of “data exclusivity” for their drug, during which time other follow-on firms are prevented from gaining access to the drug’s research data. This is equivalent to patent protection, and it is essential to creating the financial incentives needed for investment in the next generation of biologics.

Biotechnology companies need investors, and investors need assurances that they’ll get a return on their investment. Biologic research is tremendously expensive and requires an enormous amount of capital. Investors need to know that other firms won’t bring their follow-on products to market before the creator of the drug has recouped its investment. According to a study by Duke University economist Henry Grabowski, the average biologic requires 12.9 to 16.2 years of market monopoly simply to break even.

When considering legislation for follow-on biologics, Congress should assure that the United States remains a market leader in biologics by guaranteeing at least a 14-year period of data exclusivity. By following Europe’s lead in respecting the special status of this new class of medicines, U.S. lawmakers could ensure that our drug supply remains safe and make certain that biotechnology companies have the incentives they need to continue developing new medicines.

Grace-Marie Turner is president of the Galen Institute, a nonprofit research organization focusing on free-market solutions to healthcare reform.