Progress of biologics slow in the United States


Biogeneric drugs still are a long way from seeing the light of day in the United States. Proposed legislation appears to be pushing the issue forward, but the case for this industry seems to be: One step forward and two steps back.

The situation in Europe is much more promising: Four biogenerics—known there as follow-on biologics or biosimilars—have been approved, three of them this summer. The first to be approved, in April 2006, was Sandoz’ human growth hormone Omnitrope, and more recently there’s Binocrit developed by Sandoz, Epoetin alfa Hexal, from Hexal Biotech and Abseamed from Medice Arzneimittel Putter—all generic versions of Johnson & Johnson’s anemia blockbuster Eprex, which is used to treat anemia associated with kidney disease and cancer therapy.

In the United States, the outlook for biogenerics is less optimistic. In June of this year, the Generic Pharmaceutical Association said it applauded legislation crafted by Sens. Edward Kennedy, Michael Enzi, Hillary Clinton and Orrin Hatch that would authorize the Food and Drug Administration to create a pathway for the approval of biogenerics.

However, the legislation, The Biologics Price Competition and Innovation Act of 2007, leaves Kathleen Jaeger, president and chief executive officer of GPhA with many significant concerns.

“First, we continue to oppose the extension of 12 years of market exclusivity that this legislation grants brand biotechnology companies,” she said. Under the Hatch-Waxman Act, pharmaceutical drugs are given five years of market exclusivity.

“Such an arbitrary and excessive period of time is not only unprecedented and unwarranted, but more important, would unjustifiably delay access to affordable competition and choice for consumers and businesses alike.”

She also pointed to another provision she says is flawed that would allow brand companies to make minor changes to their products and receive an additional 12 years of exclusivity. “This provision could allow brand companies to make multiple minor changes to their products and receive 12 years for each change, in effect maintaining their monopolies in perpetuity,” she said.

This practice is commonly known as ‘evergreening,’ and would essentially keep biogenerics off the U.S. market indefinitely.

Mark Merritt, president of the Pharmaceutical Care Management Association, agreed. “The fact that they’ve created a pathway is very significant,” he said, “but we don’t see any reason why biotech drugs should get longer [exclusivity] than small molecule drugs.”

But he was optimistic that this is the beginning of a movement toward creating a pathway for the approval of biogeneric drugs. “It could all look better next year, and the year after. This [legislation] is going to help in the next phase.”

Barath Shankar, research analyst with Frost & Sullivan, also could see a positive side: “The FDA has always been more challenging [than the equivalent in Europe] to work with, so there’s more need for a safety profile and for adverse events to be reported. The downside is that it delays the launch of biogenerics, but the good side is the safety.”

Biogeneric drugs would make a huge difference in costs for pharmacy benefit managers, consumers and health care companies. “They’re truly the lowhanging fruit in Washington in terms of bringing down costs,” according to Dr. Steve Miller, chief medical officer of PBM Express Scripts.

The average biotech prescription, he said, costs close to $1,500 per month. “People cannot afford this; it can devastate a family, but with biogenerics, we would love to see discounts of 20 to 25 percent.”

If the proposed 12 years of exclusivity is passed, these savings are a long time way away. “Twelve years would be very anti-consumer,” Miller said.

Miller pointed to the example of the Hatch-Waxman Act. “We have 20 years experience with Hatch-Waxman and it’s saving us tens of thousands of dollars every year. [With biogenerics] the savings will grow dramatically and slowly because as many drugs lose their patents, we’ll see more biogenerics.”

Despite his worries, Miller also commended the legislation because it leaves the decision of how much testing needs to be done of biogeneric drugs up to the FDA. “We believe that’s the correct approach but the whole key is balancing what’s in it for the innovators so we can keep research strong, but also keep costs down.”

Despite this ongoing controversy, not everyone believes that there is a place in the market for biogeneric drugs.

The FDA’s stance is that biosimilars cannot be approved easily because they are not exact replicas of biologic products.

At a conference last year, Rep. Henry Waxman, D-Calif., a big proponent of biogeneric legislation, countered this, explaining that there are some sensitive scientific questions that are unique to these products, but said: “I believe [the FDA is] wrong and instead, the uniqueness of biological products suggests only a case-by-case approach for evaluating each type of product. We can’t afford to wait for a time when we have a universal test.”

GPhA’s Jaeger agreed with him. “The FDA needs to determine the appropriate scientific background [of these drugs],” she said. “One size fits all won’t fit here.”

Jason Napodano, a senior biotech analyst with Zack’s Equity Research said he doesn’t see a place for biogenerics because they are so different from the biotech drugs they attempt to replicate. Even if a pathway is paved for approval of these products, he didn’t expect a stellar future.

“Even if there is approval for follow-on biologics, it will be a very small niche and it will be a very small market—at least for the next decade.”

Biosimilar companies would have to incur “a whole lot of costs” to prove their drug is the same as the biotech equivalent, he said, and there would likely be too many patents to getaround. Unlike with small molecule pharmaceuticals, which tend to have just one patent, biotech drugs are covered by numerous patents covering molecules, cells, manufacturing, etc. “The whole process is patented, so to produce a generic biologic patent, [a company] would have to either violate patents or pay a royalty.”

Jason Kolbert, a biotechnology analyst with Susquehanna Investment Group, foresaw too many complications in trying to replicate a biotech drug. “It’s very complicated and would almost suggest that generic drug makers need to run a mini clinical trial—and even that may not be enough.”

He also felt that the wrong people are involved in legislation aimed at creating a pathway for approval of biogenerics. “Science ought to be driving legislation, not politics. I don’t see how scientifically the FDA can prove a biogeneric is safe unless it’s been tested in clinical trials. It’s only a matter of time until somebody gets killed. And the amount of lawsuits that will occur if biogenerics kill somebody would shut down the industry.”


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Grocer sings new tune in community involvement


Meijer is taking another step in community relations, to the tune of promoting and selling CDs of local musicians.

The Michigan-based 176-unit grocery chain launched the Outside the Mainstream promotion in February with a solo CD from Josh Davis, a singer from Lansing, Mich., whose Fool Rooster CD was recognized by Performing Songwriter magazine for its lyric.

Each month, the chain is featuring a new performer in its circulars, which are sent weekly to 7 million households in Ohio, Michigan, Illinois, Indiana and Kentucky, according to company vice president of public affairs Stacie Behler. Meijer purchases 1,000 of the artist’s CDs and offers them for sale in all the chain’s stores for $7.49.

“The goal of the program is to bring some of the talent that we find in our own backyards to a wider audience than they can normally reach by themselves,” Behler said. “And by supporting this with a low price and a feature in our circular, hopefully it will lead people to gamble on the purchase of music that is worthy of discovery.”

Meijer, according to Behler, is trying to create regional loyalty to its stores by promoting local talent.

CDs chosen for promotion, according to the chain, must have a UPC and be professionally duplicated. Submitted CDs are sorted according to state and chosen on the basis of whatever state will be featured that month and how different the music is from the previous month.

Featured in April is Michigan-based Potato Moon with its CD “The Life of The Lonely Jones.”


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CVS wins Caremark battles

BY Antoinette Alexander

WOONSOCKET, R.I. —The battle for Caremark Rx has finally come to an end. And, to the dismay of Express Scripts, CVS has emerged the winner, creating a $75 billion pharmacy benefit management powerhouse that is likely to serve as a benchmark for additional mergers within the industry.

“CVS/Caremark will offer end-to-end services, from plan design to prescription fulfillment, as well as the opportunity to improve clinical outcomes, which will result in better control over health care costs for employers and plan providers,” stated Tom Ryan, president and chief executive officer of CVS/Caremark, late last month when the deal closed. “The company will improve the delivery of pharmacy services and health care decision-making, enabling consumers to benefit from unparalleled access, greater convenience and more choice.”

With the close of the transaction—ultimately valued at $27 billion—CVS/Caremark has moved into a strong, competitive position. The combined company will be No. 1 in pharmacy sales, PBM-managed lives, specialty pharmacy sales and retail-based health clinics. It will be No. 2 in mail services.

That adds up to a lot of extra leverage for the retail health care juggernaut with suppliers, as well as insurers and payers.

In terms of synergies, CVS expects to realize between $800 million to $1 billion in revenue synergies in 2008, and significantly more thereafter. The company expects about $500 million in cost savings, largely related to better purchasing.

“We would like to note that every deal that both CVS and Caremark have done historically has yielded synergies significantly in excess of original guidance,” stated Citigroup analyst Deborah Weinswig in a recent research note. “We believe this deal will be no exception.”

Charles Boorady, also of Citigroup, believes that if the company achieves cost savings from the drug-procurement process, it likely will come from a combination of the following: manufacturers accepting the lower price or offering greater rebates, the wholesalers and distributors accepting lower prices and manufacturers bypassing the wholesalers and selling directly to the combined CVS/Caremark entity.

While many industry observers view the merger as a boon for the companies, it undoubtedly will have major implications on the industry, in general, as vertical integration is a new paradigm that—if successful—could clear the way for more mergers moving forward, with Medco and Express Scripts likely being the next targets.

“The fragmentation in the past may be the reason why vertical integration did not work, but the sheer scale of the CVS/Caremark company may be able to make it work,” Boorady said. “The only test will be whether customers buy into the concept or the concerns over the perceived channel conflict will outweigh it.”

Either way, Boorady sees it as a win-win for rival PBMs. “I see Medco and Express Scripts winning either way. If this integration works, they are likely to be the ones that are acquired next. If it doesn’t work then they could stand to gain customers that prefer a standalone [PBM] instead of a vertically integrated model.”

Another issue such a deal brings to the forefront is network restriction. If customers are willing to restrict the retail pharmacy so that employees can get their prescriptions filled at a single chain, or just a few chains in the market, then it will make the synergy from a vertical integration more obvious, according to Boorady.

However, this has been a concern for several years and has yet to materialize.

“I think most employers have concluded, and will continue to conclude, that the sheer hassle factor that you are putting on your employees by making them go to a CVS instead of a Walgreens, or vice versa, isn’t really worth what little savings you can get relative to other things you can do that present less of a hassle to the employee but can save a lot more money,” Boorady said.

However, prior to the deal, CVS Pharmacare controlled a provider network of more than 56,000 retail pharmacies. Meanwhile, Caremark’s network numbered more than 60,000 retail pharmacies, so it is unlikely that the combined company, post-merger, would suddenly pull back the size of its network—particularly, if the end goal is to remain attractive to insurers and payers and competitive with stand-alone PBMs.

According to William Blair & Co. analyst Mark Miller, the combined company is facing its first big test as it expects an announcement on the large Federal Employee Program contract—currently up for negotiation—as early as May. Three years ago, Caremark won this contract from Medco and it is likely that the two PBMs, among others, will bid for this business aggressively.

“While there are many moving parts to these types of negotiations, this will be the first big test for the new CVS/Caremark, and may provide some incremental perspective on the current state of the competitive environment,” Miller stated in a research note.

In related news, CVS/Caremark has announced the members of the company’s board of directors. As previously disclosed, the 14-member board was evenly split among designees from CVS and Caremark.

Former Caremark chairman and chief executive officer Mac Crawford has been elected chairman of the board of the combined company. Ryan will continue to serve as president and chief executive officer.

The following individuals named to the board from CVS are:

Ryan, president and chief executive officer of CVS/Caremark Corp.

David W. Dorman, senior advisor and partner, Warburg Pincus LLC.

Marian L. Heard, president and chief executive officer, Oxen Hill Partners.

William H. Joyce, chairman and chief executive officer, Nalco Co.

Terrence Murray, former chairman and chief executive officer, FleetBoston Financial Corp.

Sheli Z. Rosenberg, former vice chairman, president and chief executive officer, Equity Group Investments LLC.

Richard J. Swift, former chairman, president and chief executive officer, Foster Wheeler Ltd.

The following individuals named to the board from Caremark are:

Mac Crawford, chairman of CVS/Caremark Corp.

Edwin M. Banks, founder, Washington Corner Capital Management LLC.

C. David Brown II, chairman, Broad and Cassel.

Kristen E. Gibney Williams, former executive of Caremark’s Prescription Benefits Management division.

Roger L. Headrick, managing general partner, HMCH Ventures; president and chief executive officer, ProtaTek International

Jean-Pierre Millon, former president and chief executive officer, PCS Health Systems

C.A. Lance Piccolo, chief executive officer of HealthPic Consultants


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Which area of the industry do you think Amazon's entry would shake up the most?