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The collision of biologics – emerging competition and what to expect

Author
Elaine Johnston

Partner, Co-Head Antitrust

New York

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23 March 2021

Recently, Global Competition Review hosted a series of interactive webinars discussing topical antitrust issues in the pharmaceutical industry. Our global co-head of antitrust, Elaine Johnston, participated in a panel that looked at the development of biologics and the role that antitrust can play in ensuring healthy price competition between biologics and biosimilars. This blog post highlights the types of behaviour that have attracted antitrust scrutiny to date and the lessons that can be learnt as the industry develops. 

In the 2009 European Commission (EC) pharmaceutical sector inquiry report, the EC highlighted the ‘tool-box’ used by originator companies to respond to generic entry, including patenting activities, patent settlements and other agreements between originator and generic companies, and strategies around second-generation products. These tools have been subject to antitrust investigations and challenges, including the recent EC decision fining Teva and Cephalon for delaying the entry of a cheaper generic version of Cephalon’s drug for sleep disorders through a “pay-for-delay” agreement (the Cephalon Case).  

There are significant differences between small molecule generics and biosimilars, which may affect the industry’s approach in the biologic/biosimilar context and how competition law is applied to them. First, a small-molecule generic is chemically identical to its reference drug, while a biosimilar is “highly similar” but not identical, affecting the level of substitution. Second, a larger number of patents typically protect a biologic than a small-molecule drug, reflecting the relative complexity of the products. Third, the cost of developing a biosimilar is much higher than the cost of developing a small-molecule generic, again reflecting product complexity.   

Below we consider how the originator tools which the EC described in the generic world may apply in relation to biosimilars and what we can expect to see in terms of competition scrutiny as more biosimilars are set to enter the market. 

(a) Patent thickets

A “thicket” of patents around an original drug can make it difficult for competing manufacturers to enter the market without infringing at least some of the patents. Given the highly complex nature of biologics, it is not surprising that large patent portfolios surround them. Whether these are correctly characterised as tactics to deter entry or lawful protection of a product is up for debate, but it was a mechanism allegedly used by AbbVie to delay biosimilar entry in the on-going Humira antitrust lawsuit in the U.S. It remains to be seen whether these claims succeed (the trial court rejected the claims and the case is currently on appeal.) For biologics, the likelihood of all of the patents being found invalid is low (given their complex nature) and thus it may be more difficult to challenge the accumulation of patents in the biologic context.

(b) Pay-for-delay / reverse payments 

A number of antitrust cases have centred on pay-for-delay/reverse payment arrangements relating to generics. Last year saw the EC’s decision in the Cephalon Case, and in March of this year the European Court of Justice upheld the EC’s pay-for-delay fine on Lundbeck and generics manufacturers. This is also one of the allegations in the Humira case: as part of the patent settlement agreement, biosimilar companies agreed to stay out of the U.S. market for several more years but were allowed to enter the European market early, a quid pro quo that the plaintiffs are characterising as a reverse payment arrangement. However, lower substitution levels for biosimilars, as compared with generics where substitutions happen almost overnight, may make these types of agreements less likely for biologics/biosimilars. Moreover, the ‘patent cliff’  pricing drop seen on generic entry is much less extreme on biosimilar entry, further reducing incentives to enter into these types of agreements. 

(c) Disparagement

In early March, the EC launched its first formal investigation against Teva into potential abuses relating to the misuse of patent procedures and exclusionary disparagement of competing products. Although this case concerns generics, similar behaviour by biologic manufacturers in relation to their biosimilar competitors is also likely to attract antitrust scrutiny. Disparagement of biosimilar products may, for example, affect biosimilar market entry where the manufacturers rely on being able to convince customers that their product is as effective as the current biologic (despite only being “highly similar” to its biologic reference product). This is not such an issue for generics that are identical to their branded counterpart and often benefit from automatic substitution laws. 

(d) Product hopping 

Product hopping occurs when, prior to generic entry, a pharmaceutical company introduces a modified version of an original drug and attempts to switch patients to the new version that is protected by further patents. This conduct has been challenged on the basis that the new version is not appreciably better than the original and the switch is motivated by the desire of the originator to avoid generic substitution of the original product. Product hopping claims seem less likely for biologics than small-molecule drugs. Reformulating biologics is not easy and requires a significant amount of investment. It therefore seems unlikely that originators will make the required level of investment unless the product is demonstrably more effective. 

What next?

So what is next for antitrust enforcement in this area? The EC has emphasised on a number of occasions that strategies to delay the entry of generics and biosimilars may require antitrust scrutiny.  There are clearly a number of competition law issues impacting the sector, although analysis involving biosimilars is still relatively limited, particularly in the U.S. where the first biosimilar was approved only in 2015. Time will tell how the competitive framework develops as the industry evolves. What is clear, however, is that regulators will be keeping a close eye on conduct in the sector.  

This article was co-authored by Laura Harvey and Fabian Kolf.

1.For further discussion of other potential hurdles to entry including misuse of divisional patent system, patent linkage and predatory pricing see Medicines for Europe’s white paper on ‘Anatomy of a Failure to Launch: a review of barriers to generic and biosimilar market entry and the use of competition law as a remedy.

2. Generics are approximately 80% cheaper that their branded counterparts three years after entry whereas the drop in price for biosimilars is only around 30% over the same period. 

3. See for example, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the regions on the Pharmaceutical Strategy for Europe in November 2020.

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