A biologic or biological product is a preparation, such as a therapeutic drug or a vaccine, made from living organisms, either human, animal, yeast, or microorganisms. Biologics are composed of proteins (and/or their constituent amino acids), carbohydrates (such as sugars), nucleic acids (such as DNA), or combinations of these substances. Biologics may also be cells or tissues used in transplantation. A biosimilar, sometimes referred to as a follow-on biologic, is a therapeutic drug that is similar but not structurally identical to the brand-name biologic made by a pharmaceutical or biotechnology company. The brand-name product is sometimes referred to as the innovator or reference product. In contrast to biologics, most commonly used drugs—over-the-counter drugs and most prescription drugs—are synthesized via a chemical process. A generic drug is chemically identical to its reference brand-name drug. The molecular structure of a commonly used chemical drug is much smaller than a biologic and therefore less complicated and more easily defined. For example, Table 1 shows that the chemical drug aspirin contains nine carbon atoms, eight hydrogen atoms, and four oxygen atoms while the biologic drug Remicade contains over 6,000 carbon atoms, almost 10,000 hydrogen atoms, and about 2,000 oxygen atoms. Inflectra, which is biosimilar to Remicade, was approved by the Food and Drug Administration (FDA) in April 2016. The FDA regulates both biologics and chemical drugs. The Center for Biologics Evaluation and Research (CBER) within FDA regulates what are often referred to as traditional biologics, such as vaccines, blood and blood products, allergenic extracts, and certain devices and test kits. CBER also regulates gene therapy products, cellular therapy products, human tissue used in transplantation, and the tissue used in xenotransplantation—the transplantation of nonhuman cells, tissues, or organs into a human. The FDA Center for Drug Evaluation and Research (CDER) regulates prescription brand-name and generic drugs, over-the-counter drugs, and most therapeutic biologics; this last responsibility was transferred from CBER to CDER in 2003. See Appendix A for further details. Examples of types of therapeutic biologics regulated by CDER are briefly described in the list below. Monoclonal antibodies—proteins that bind to a specific substance in the body or a specific cell. A monoclonal antibody may carry a drug or toxin. An example of a monoclonal antibody product is infliximab, used to treat Crohn's disease, ulcerative colitis, rheumatoid arthritis, and psoriasis. Cytokines—proteins that control (stimulate or slow down) the immune system and are used to fight cancer, infections, and other diseases. Examples include interleukins, interferons, and colony-stimulating factors, such as filgrastim. Growth factors—substances, such as hormones, made by the body that regulate cell division and cell survival, such as the human growth hormone somatropin. Enzymes—proteins that speed up chemical reactions in the body. Enzymes take part in many cell functions, including cell signaling, growth, and division. In cancer treatment, enzyme inhibitors may be used to block certain enzymes that cancer cells need to grow. Immunomodulators—substances, such as a vaccine, that stimulate or suppress the immune system and may help the body fight cancer, infection, or other diseases. Biologics and biosimilars frequently require special handling (such as refrigeration) and processing to avoid contamination by microbes or other unwanted substances. Also, they are usually administered to patients via injection or infused directly into the bloodstream. For these reasons, biologics often are referred to as specialty drugs. In the past, biologics were often dispensed by pharmacies with specialized facilities and personnel. The term specialty drugs is now used to describe drugs that are expensive for any of several reasons, including the requirement for special handling. The cost of specialty drugs, including biologics, may be extremely high. For example, the annual cost of some biologic medications, such as Soliris (eculizumab) and Vimizim (elosulfase alfa), exceeds $250,000 per patient. The use of biologics and spending on these products has been increasing; see for example Appendix C . Spending on biologics in the United States totaled $105.5 billion in 2016, a 13% increase over 2015. The amount spent on biologics subject to biosimilar competition in 2016 was $3.2 billion (3% of $105.5 billion), of which $2.9 billion was spent on "original" biologics and $0.3 billion was spent on biosimilars. Biologics spending has increased by 10% each year since 2011. According to a December 2016 report to Congress by the Department of Health and Human Services (HHS), "[i]ncreases in spending in the Medicare Part B program have been driven by increases in biologics. Spending on biologics between 2006 and 2014 grew by 13.3 percent annually, whereas spending on small molecule drugs grew by 0.7 percent annually during the same period. In 2014, biologics accounted for 63 percent of prescription drug spending in Part B." Biologic drugs are often more expensive in the United States than in Europe and Canada; see Appendix B . In Europe, the introduction of biosimilars has reduced prices for biologics, in some cases by 33% compared with the original price of the reference product; for one drug in Portugal, the price reduction was 61%. The next section of this report describes efforts by Congress to lower the price of commonly used chemical drugs via passage of the 1984 Hatch-Waxman Act and its use of a similar approach in 2010 to provide lower-cost alternatives for biologics. Congress passed the Drug Price Competition and Patent Term Restoration Act of 1984 ( P.L. 98-417 )—often called the Hatch-Waxman Act—to allow for the FDA approval of generic chemical drugs. By offering an alternative to brand-name drug products, the Hatch-Waxman Act has been credited with lowering the cost of drugs to consumers, as well as allowing the U.S. generic drug industry to expand. For chemical drugs, "generic medications decrease prices 60% to 90% on branded oral-solid medications," according to some experts. The generic drug industry achieves cost savings by avoiding the expense of clinical trials, as well as the initial drug research and development costs incurred by the brand-name manufacturer. Before a generic drug is approved for marketing, the generic drug company must demonstrate to the FDA that the drug product is identical to the original product. This "sameness" allows the generic company to rely on, or "reference," the FDA's previous finding of safety and effectiveness for the already approved drug. A generic drug is considered to be interchangeable with its reference (brand-name) drug and with other generic products that use the same reference drug. The sponsor of the generic drug must also meet manufacturing process standards and reporting requirements. During the time that Hatch-Waxman was debated by Congress and later implemented by the FDA, the biotechnology industry was developing its first biologics for use as human therapeutic agents. In 1982, FDA allowed on the market the first human drug developed by the biotechnology industry, human insulin (Humulin-R). This was followed by human growth hormone (Protropin) in 1985, alpha interferon (Intron-A) in 1986, tissue plasminogen activator (Activase) in 1987, and erythropoietin (Epogen) in 1989. Most biological products are regulated— licensed for marketing by FDA via a biologics license application (BLA)—under the Public Health Service Act (PHSA). Biological products were originally regulated by the National Institutes of Health (NIH) and its precursors. In 1972, this regulatory responsibility was transferred to FDA; see Appendix A of this report for further details. All chemical prescription drugs are regulated— approved for marketing by FDA via a new drug application (NDA) or abbreviated new drug application (ANDA)—under the Federal Food, Drug, and Cosmetic Act (FFDCA). The Hatch-Waxman Act provided a mechanism for the approval of generic drugs under the FFDCA, but it did not provide a mechanism for follow-on biologics/biosimilars under the PHSA. As a result, after Hatch-Waxman, companies could submit follow-on biologics applications for FDA review only for the very small number of so-called "natural source" biologics that had been approved under the FFDCA. Companies were effectively blocked from submitting follow-on applications for the much larger group of therapeutic biologics that had been licensed under the PHSA. Historically, certain biological products were regulated as drugs under the FFDCA rather than as biologics under the PHSA. In 1941, Congress gave the FDA authority over the marketing of insulin. The hormone insulin is a small protein—a short chain of 51 amino acids—that regulates carbohydrate (sugar) metabolism. In the 1940s, insulin was obtained in the same way as many biologics—extraction from animals—hence the term "natural source." Despite this similarity with other biologics, insulin was regulated as a drug by FDA rather than as a biologic by NIH. Besides insulin, a small set of other natural source biological products were regulated as drugs under the FFDCA rather than as biologics under the PHSA: the hormone glucagon, human growth hormone, hormones to treat infertility, hormones used to manage menopause and osteoporosis, and certain medical enzymes (hyaluronidase and urokinase).