You probably thought the Food and Drug Administration's slow approval process made it the only government agency that hated you. Nope! The Federal Trade Commission isn't making drug investors' lives easier, either.
In a report released yesterday, the agency argued that the 12-14 years that biotech companies have requested for exclusive sales before follow-on biologics can enter the market is too long.
Follow-on biologics are generic versions of protein-based drugs like Biogen Idec's (NASDAQ:BIIB), Elan's (NYSE:ELN) Tysabri, or Wyeth's (NYSE:WYE) and Abbott Labs' (NYSE:ABT) Enbrel. Unlike their small-molecule equivalents, there's no current pathway for the FDA to approve follow-on biologics, although it is on President Obama's to-do list.
Small-molecule drugs currently get five years of guaranteed exclusivity before generic drugs can come on the market. But since biologics are harder to make, biotech companies want a longer period of protection.
The FTC agrees that the drugs are harder to make, but shoves that right back in the biotechs' face, arguing that the drugs' tricky nature will limit their duplication by generic-drug companies like Teva Pharmaceuticals (NASDAQ:TEVA), Mylan (NASDAQ:MYL), and Novartis' (NYSE:NVS) Sandoz. The FTC says that generic-drug companies aren't likely to discount the drugs by more than 10%-30%, and only two to three companies are likely to vie for each drug.
Ironically, if the FTC's pricing is correct, follow-on biologics probably won't shave off as much of America's health-care bill as the Obama administration is hoping for -- which means biotech companies don't have too much to worry about.
The FTC has weighed in, but the debate is far from over. I'd guess we're looking at a compromise of seven to 10 years of protection. But no matter how much protection biologic drugs get, it's important for investors to remember that follow-on biologics won't be a death sentence for the biotech industry.
Follow-on Foolishness:
- The recession is (almost) over! Now what?
- Up 58% on no news? What's going on?
- It's finally time to buy these stocks.
