Please ensure Javascript is enabled for purposes of website accessibility

Winners and Losers of Senate Drug Bill

By Brian Orelli, PhD - Updated Nov 14, 2016 at 11:52PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Could the compromise regarding generics be win-win?

Generic-drug makers have scored a point in their push to take market share from biotech companies like Genentech (NYSE:DNA) and Amgen (NASDAQ:AMGN). Senators last week OK'd a bipartisan agreement for a bill that would give the FDA the power to approve follow-on versions of biologics. But the biotechs got a point as well, as the bill would give them 12 years of market exclusivity.

Patient advocates and generic-drug companies had argued for a five-year period, and biotech companies were lobbying for 14 years, so the compromise clearly fell in favor of the biotech companies. But, in reality, I'm not sure the longer exclusivity really affects the generic-drug manufacturers that much. They'll have to wait a while to start making the nonbranded versions of these high-price drugs, but it's not like there aren't plenty of biotech drugs coming off patents to choose from.

The biggest winners may actually be small developmental-stage biotech companies like Medarex (NASDAQ:MEDX) and Rule Breakers pick PDL Biopharma (NASDAQ:PDLI), which can patent their protein-based drugs early in the development stage and not have to worry about how much time will be left on their patents when the drugs finally make it to market.

The other sticking point was whether pharmacists would be allowed to substitute the follow-on biologics for brand-name drugs without consulting the prescribing doctor -- something they're currently allowed to do with small-molecule generic drugs made with a synthetic process. (Biologics are different as they are therapies produced in living organisms.) That provision made it into the bill, scoring another point for the generic-drug makers.

On the clinical-trials front, the Senate bill allows the FDA to decide on a case-by-case basis whether the generic-drug makers are required to run clinical trials on their follow-on drugs. Given what the FDA knows about the safety and efficacy of the branded biologics, I think it's likely that many of the follow-ons won't be required to conduct clinical trials to prove that they are equivalent. That would speed their path to market. On the other hand, the separate FDA reform bill currently in the House would likely require the follow-on drugmakers to run the same post-marketing clinical trials that the biotech companies will be required to run, so I'll give a point to each for equality.

When the U.S. markets open up, Dr. Reddy's Laboratories (NYSE:RDY) will be poised to jump in with its follow-on versions of Roche's Rituxan and Amgen's Neupogen as well as the eight drugs it's planning on introducing in the next few years. Novartis (NYSE:NVS) will be close behind with its follow-on version of Amgen's and Johnson & Johnson's (NYSE:JNJ) Procrit/Epogen, which is close to receiving European approval.

If you haven't been keeping track, that's two points for the biotech companies and three for the generic-drug makers. Not a bad showing by both parties, and since the bill is a long way from becoming a law, I'll refrain from declaring a winner until we see how many amendments get added and what the House version looks like. Stay tuned to the Fool for more updates or jump on the community discussion boards and make your opinion known.

Looking for more Foolish biotechnology coverage? Check out the Fool's market-beating Rule Breakers newsletter. You can take a look at all our recommendations, as well as get access to our message boards and exclusive content, with a 30-day free trial.

Fool contributor Brian Orelli, Ph.D., got an A in his high school government class, but he's far from a political junkie. He doesn't own share of any companies mentioned in this article. The Fool's disclosure policy is the most important law in Foolville.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Novartis AG Stock Quote
Novartis AG
NVS
$84.83 (3.63%) $2.97
Amgen Inc. Stock Quote
Amgen Inc.
AMGN
$245.37 (0.94%) $2.28
Johnson & Johnson Stock Quote
Johnson & Johnson
JNJ
$182.29 (1.46%) $2.63
PDL BioPharma, Inc. Stock Quote
PDL BioPharma, Inc.
PDLI
Dr. Reddy's Laboratories Limited Stock Quote
Dr. Reddy's Laboratories Limited
RDY
$55.92 (1.67%) $0.92

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.