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LOS ANGELES (Reuters) - One of the pledges of the Obama administration's healthcare overhaul was to enable cheaper copies of expensive biotech drugs, but the savings may not be as deep or come as quickly as hoped.
Healthcare companies and industry experts say questions over how the market will work and the specter of patent litigation mean robust competition for generic biotech drugs might wait until the end of the decade. The regulatory requirements - which could force drugmakers to spend more money on testing - could mean eventual cost savings for payers of as little as 10 or 20 percent per treatment.
That discount is paltry compared with savings of up to 90 percent for traditional generic medicines sold at U.S. pharmacies once the patents on brand-name pills expire.
U.S. health regulators issued their first draft of guidelines governing that process in February. Drugmakers and industry experts say the proposed rules still fall short of providing a clear understanding of the best way to develop this market.
"It should be the next bolus of growth for the generic drug industry and we need to fight to get a substitutable, interchangeable biogeneric marketplace," said Heather Bresch, chief executive officer at Mylan Inc, the world's third-largest generic drugmaker. "We don't have that today."
The U.S. healthcare law in 2010 stipulated that regulators establish a process for approving lower-cost copies of biotech drugs - often referred to as "biosimilars" because they are not made from the same living cell line as the original drug.
It drew upon a 2008 estimate by the Congressional Budget Office that the United States would save $25 billion from the use of biosimilars over 10 years.
"The CBO anticipated the first biosimilar to come this year in their score of savings impact," said Jonah Houts, senior director of government affairs at pharmacy benefit manager Express Scripts Inc. "That is not likely to happen."
Biologic medicines that treat conditions such as cancer and rheumatoid arthritis are derived from living organisms such as proteins and tend to be injected. The innovative drugs - first introduced in the 1980s - can cost tens of thousands of dollars a year.
Copying them, while ensuring safety, is much more complicated, and expensive, than making conventional chemical-based compounds.
With annual sales near $150 billion, the U.S. biotech drug market is a juicy target for companies that have seen lower-cost generics take a huge share of the traditional prescription drug market. By 2015, U.S. sales of biosimilars are expected to reach $1.9 billion to $2.6 billion, according to IMS Health.
The approval process for generic versions of chemical-based pills has existed for nearly 30 years. The U.S. Food and Drug Administration's new guidelines are meant to provide a similar "abbreviated pathway" for biotech medicines. But the complexity of biosimilars has led to a drawn-out process and more questions posed by the industry.
For example, the FDA said that manufacturers could also seek to have their drugs classified as "interchangeable," which would allow a biosimilar drug to be automatically dispensed by a pharmacy without first checking with the prescribing doctor. The label could also lead to a deeper discount for patients.
The FDA is the only health regulator in the world that has been given the authority to make that classification - as stipulated under the healthcare law. It is accepting public comment through early April and will hold a hearing on May 11.
For a biosimilar to be considered interchangeable, the FDA said it would require additional clinical studies, which would increase research costs for manufacturers. Drugmakers would need to show that switching back and forth between a brand-name biologic drug and its copy does not compromise patient care.
"Sponsors of those drugs have to consider how much to invest," said Gillian Woollett, vice president of FDA regulatory strategy and policy at industry consulting firm Avalere Health. "An interchangeable would be considered more of a generic drug ... the idea would be to gain market share in exchange for lower price."
If the drugs are not deemed interchangeable, doctors will need to issue prescriptions specifically for the biosimilar version, as opposed to the brand drug it is copying. That will require companies to spend more on marketing costs to promote their biosimilars.
The FDA's guidance "could have been written in a way that made interchangeability easier to achieve," said Express Scripts' Houts.
Hospira Inc, which has a biosimilar to Amgen Inc's Epogen anemia drug on the market in Europe, expects to launch its U.S. product in mid-2015. It will not be considered interchangeable with Epogen, said chief scientific officer Sumant Ramachandra.
"It is likely FDA will avoid interchangeability in the first few years of the market, but that does not negate the possibility they will be approved towards 2020," Sanford Bernstein analyst Ronny Gal said in a research note.
Hospira said U.S. biosimilars are likely to sell at discounts of 20 to 40 percent from the branded competitors. Loreen Brown, senior vice president at distributor AmerisourceBergen Corp's pharmaceutical consulting service, puts the discount at 10 to 20 percent.
The magnitude of the discount for biosimilars, even if they are interchangeable, will depend on how many competitors reach the market and the costs to make the medicines.
"Manufacturers are going to have to promote these products just like the branded products," Brown said.
The first biosimilar versions of top-selling biologic drugs may not even use the FDA's new process to reach the U.S. market as companies contemplate simply pursuing a standard drug approval process instead.
A standard drug application and a single-usage approval could be adequate for biosimilars with just one use, but may not make as much sense for products used to treat a variety of illnesses - such as different types of cancer.
The biosimilar application process includes another requirement that could entangle drugmakers. A company seeking to make a generic version of a medicine will need to share its application with the brand-name manufacturer, a potential source of arguments, or even patent lawsuits, over how the generic was made.
U.S. patent expirations for biotech drugs will occur in 2013 for Epogen and another Amgen drug, white blood cell booster Neupogen. The FDA said in early February it had held discussions for a total of 35 potential biosimilar products, but had yet to receive an application.
Hospira has not yet decided whether to opt for a standard new U.S. drug application for its version of Epogen as opposed to the process outlined by the FDA's recent proposed rules, Ramachandra said.
The company puts the cost of getting a biosimilar drug approved for the U.S. market at $100 million to $200 million per product, compared with drug industry estimates of about $1 billion for new brand-name medicines.
"It's going to be a costly process. It's going to be a slow process," Woollett said.
Additional reporting by Bill Berkrot, Lewis Krauskopf and Ransdell Pierson in New York; Editing by Michele Gershberg and Matthew Lewis