Memo to biotech investors: Chill out when it comes to worrying about the coming onslaught of cheaper, generic versions of top-selling biotech drugs. Yes, I know that President Obama wants this to happen sooner rather than later. His health care reform plans call for the creation of a regulatory pathway in the U.S. that will allow for the approval and launch of so-called biogeneric drugs. And yes, cheaper biogenerics, if successful, pose a competitive threat to companies like Amgen ( AMGN), Biogen Idec ( BIIB), Genzyme ( GENZ) and Genentech ( DNA). Last December, I wrote about the challenges facing biogenerics, but it's worth revisiting the topic again because of the spotlight focused on the issue by Obama's new budget proposals. The reason I remain unconcerned for now is that Obama may set policy, but it's the folks who work at the Food and Drug Administration who will be in charge of writing the laws and regulations that will actually govern how biogenerics come to fruition in this country. And if you take a look at the hard line the FDA has taken recently with biotech companies trying to manufacture their own biologic drugs, you'll realize that biogeneric makers face a rough road. Earlier this week, Eli Lilly ( LLY) and Bristol-Myers Squibb ( BMY) said that the FDA is delaying add-on approvals for their cancer drug Erbitux because regulators want more data to ensure that Erbitux used in recent clinical trials to expand treatment into lung cancer and head-and-neck cancer patients is the same as the Erbitux used today to treat patients with colon cancer.
Confused? Isn't Erbitux just Erbitux? You'd think so, but apparently the FDA does not. The agency is concerned that cancer patients' bodies may react to "new" Erbitux in slightly different ways than they do to "old" Erbitux, which could lead to changes in the drug's efficacy or safety. To minimize the risk, the FDA is asking Lilly (which recently acquired ImClone Systems, the developer of Erbitux) and Bristol to conduct a new animal study proving that the two versions of the drug are similar. Similarly, the FDA continues to hold up approval of Genzyme's Pompe disease drug Lumizyme, in part because the company has had trouble convincing regulators that Lumizyme is clinically equivalent to Myozyme, Genzymes older Pompe disease drug. Cases like these illustrate how sensitive the FDA is to even small changes in the way biologic drugs are manufactured. Regulators today are making biotech companies jump through all kinds of hoops to guarantee the intra-compatibility of their biologic drugs. With that precedent, companies like Merck ( MRK), Novartis ( NVS) and Teva ( TEVA) -- all of whom have announced plans to get into the biogeneric business -- face a very difficult task convincing the FDA that their entirely new versions of these biologic drugs are comparable to what's already on the market. The challenge for biogeneric drug makers isn't impossible. I do believe biogenerics will be approved, but not without a lot of clinical hit-and-miss and extensive reviews that will gobble up time and money.
Biotech is a risky business that gives investors plenty of things to worry about. At this point, however, a stunning loss of sales from biogenerics is just not something I'd lose sleep over.