Biogenerics: All eyes on Congress

NEW YORK (CNNMoney.com) -- Biogenerics seem to be creeping closer to posing a serious threat to traditional biotechs in the U.S., but they still face significant political and scientific hurdles.

Biogenerics, or low-cost versions of name-brand biotech drugs, could eventually drive down prices for biotech leaders like Amgen (up $1.11 to $57.06, Charts, Fortune 500) and Genentech (up $0.09 to $75.35, Charts), much as generic drugs have posed serious competition to Big Pharma leaders like Pfizer (up $0.04 to $26.02, Charts, Fortune 500) and Merck (up $0.14 to $50.91, Charts, Fortune 500). But this threat is still years away, and its potential is difficult to gauge.

There is no biogenerics industry in the U.S. because there is no established way for the Food and Drug Administration to regulate it. Congressmen are hammering out a bill that would help the FDA create a biogenerics regulatory system, but the House of Representatives and the Senate are far from agreement on the shape of this legislation.

Sen. Ted Kennedy (D-Mass.), chair of the Committee on Health, Education, Labor and Pensions, crafted a biogenerics bill with co-sponsors Michael Enzi (R-Wyoming), Orrin Hatch (R-Utah) and Hillary Clinton (D-New York.) The Senators intend to add this legislation to another drug bill, the FDA Revitalization Act, which passed the Senate in May. The FDA bill would re-authorize an ongoing system (since 1992) where the agency charges fees to pharma companies to review their drugs. Also, the bill would expand the agency's role in drug safety, particularly for children.

The House of Representatives authored their own version of the FDA Revitalization Act, which it passed 403-16 on Wednesday. This bill is similar to the one from the Senate. But Rep. John Dingell (D-Michigan), chairman of the Energy and Commerce Committee, has not included biogenerics add-on legislation in the FDA bill. Dingell's office did not speak on the record as to why he did not add biogenerics legislation to the bill.

The Senators and Representatives will be holding a conference on the issue at an undecided date.

"The science is there, and the need for these medicines is great," said Andrea Hofelich, spokeswoman for the Generic Pharmaceutical Association.

But analysts said it could take years for a biogenerics bill to become a reality, and the legislative and scientific complexities make an uncertain fate for the biogenerics industry.

"The [traditional] industry is eventually going to have to prepare for this and is going to have to see that it's coming, but there's been a lot of reluctance from the U.S. side to pass this thing through," said Ken Trbovich, analyst for RBC Capital Market.

Trbovich said that even if the legislation passes Congress, it could get vetoed. But even if the bill gets past President Bush, the creation of biogeneric drugs through living organisms is far more complex and difficult than the manufacture of traditional generics based on molecular compounds.

"It's going to be challenging, even if it's legal," said Trbovich. "You're not going to have folks willing to spend tens of millions of dollars to file a biogeneric drug if there's not a clear approach."

Stephen Brozak, analyst for WBB Securities, said the emergence of a biogenerics industry is essential because "prices have gone out of control" for many biotech cancer drugs and "if you continue to see the price increases that you're talking about, [we] will have difficulty continuing with the problems facing American health care."

Brozak said the name-brand biotech products facing the most immediate generic threat include Genentech's Nutropin, which will see its patent expire in 2009. Amgen's drugs Procrit, Neupogen and Epogen, which all treat chemo side effects, will be at risk when their patents run out in 2013. Novo Nordisk's (down $0.58 to $110.52, Charts) human insulin Novolin, considered a biotech product, has already expired, said Brozak.

The issue is hotly contested, said Brozak, because generic drugmakers like Teva Pharmaceutical Industries (up $0.43 to $43.61, Charts) and Barr Pharmaceuticals (up $0.06 to $51.94, Charts) see the "tremendous profit margins" of biogenerics, while the biotechs plan "to defend this tooth and nail."

One of biotech's greatest allies in warding off competition is the serious challenge in producing exact copies of biotech drugs, which Brozak described as "exquisitely difficult" to mimic.

Jeff Joseph, spokesman for the Biotech Industry Organization, said biogenerics only poses a threat to biotechs "if it's done incorrectly," without recognizing safety, and without "undermining the incentives for innovative."

When asked about costly biotech cancer treatments, Joseph said, "What's expensive? This is not a car. This is not a grocery bill. It's a drug that saves lives."