The FDA has a structure in place to approve generic versions of small-molecule drugs once they go off patent. But for biologics -- protein-based drugs -- the process of proving equivalency is more difficult. Thus, the existing FDA approval structure can't be used for so-called follow-on biologics, and there's currently no alternative pathway their manufacturers can use to get approval. Last June, it appeared that key senators had reached a compromise to establish such a pathway -- balancing the needs of all the interested parties -- but little progress has been made since then in bringing a bill to the floor.
With the establishment of a pathway for FDA approval of follow-on biologics possibly dead until after the 2008 election, it may seem like there's little hope for investing in this potential multibillion-dollar market. But broadening your horizons may well lead you to a much different conclusion.
Europe appears to be more receptive to approving follow-on biologics, although all of the recent positive recommendations and approvals have been focused around the red-blood-cell-stimulating drug erythropoietin. That's the main component of Johnson & Johnson's
In August, Novartis
With two approvals likely this year, it looks like 2007 will mark the beginning of the follow-on biologics era in Europe. Look for more approvals as generic-drug makers try to expand into other biologic drugs.
Unlike Europe, India has been approving follow-on biologics for quite a while. Most Indian drugmakers trade only on the Bombay Stock Exchange, but there are a few exceptions.
Dr. Reddy's Laboratories
Another Indian generic-drug maker with experience in follow-on biologics is Matrix Laboratories. While you can't buy shares of Matrix directly on U.S. stock markets, you can get a piece of the action by buying Mylan
I know -- I said there was no U.S. pathway for approval of follow-on biologics. But the FDA did make one exception with Novartis' human growth hormone. Essentially, the FDA decided that there was enough information known about human growth hormone, such as Pfizer's
In addition to all the players mentioned above, Momenta Pharmaceuticals
While additional approvals of follow-on biologics in the U.S. are probably still years away, now is the time to do your research. Those that are leading the race overseas are likely to be first in line when the FDA opens its door to applications.
Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Pfizer is a selection of the Inside Value newsletter, while Johnson & Johnson is an Income Investor pick. The Fool's disclosure policy is anything but generic.