On March 23, 2010, President Obama signed into law a comprehensive health care reform bill, the Patient Protection and Affordable Care Act (PPACA; P.L. 111-148 ). PPACA establishes a new regulatory authority within the Food and Drug Administration (FDA) by creating a licensure pathway for follow-on biologics. This pathway is analogous to that which allowed for the approval of generic chemical drugs via passage of the Drug Price Competition and Patent Term Restoration Act of 1984 ( P.L. 98-417 ), often referred to as the Hatch-Waxman Act. By offering an alternative to brand-name drug products, the Hatch-Waxman Act is credited with lowering the cost of drugs to consumers, as well as allowing for the expansion of the generic drug industry in the United States. This report provides a brief introduction to the relevant law, the regulatory framework at the FDA, the scientific challenges for the FDA in considering the approval of follow-on biologics, and a brief description of the biologics provisions in PPACA. At the time that Hatch-Waxman was being debated by Congress and subsequently implemented by the FDA, the biotechnology industry was just beginning to develop its first biologics for use as human therapeutic agents. The first FDA approval of a biotechnology drug for human use, human insulin, occurred in 1982, followed by human growth hormone in 1985, alpha interferon in 1986, tissue plasminogen activator in 1987, and erythropoietin in 1989. Most biologics require special handling (such as refrigeration) and are usually administered to patients via injection or infused directly into the bloodstream. Biotechnology products are expected to become a larger share of the drugs sold by the pharmaceutical industry to U.S. consumers. However, with no equivalent to the generic alternatives for chemical drugs, the cost of therapeutic biologics is often prohibitively high for individual patients. For example, the costs per year (in 2009) of some commonly used biologic drugs: Enbrel for rheumatoid arthritis, $26,000; Herceptin for breast cancer, $37,000; Rebif for multiple sclerosis, $40,000; Humira for Crohn's disease, $51,000; and Cerezyme for Gaucher's disease, $200,000. Spending by Medicare in 2006 on Epogen, a treatment for anemia, was $2.8 billion, more than the entire FY2006 budget for FDA, which was $1.863 billion. Medicare spending on biologics totaled about $13 billion in 2007. Spending on all pharmaceuticals currently represents about 11% of health care spending in the United States. Increasingly insurers are adopting strategies to manage the use of expensive biologics, such as a tiered formulary (resulting in higher patient cost-sharing) and prior authorization (requiring physicians to obtain approval from an insurer for coverage before a prescription is filled or administered). In situations in which such expensive drugs have no effect on overall survival, insurers may turn to "innovative payment models, such as providing payment only in cases in which a drug actually leads to clinical improvement." For chemical drugs, some experts argue that "generic medications decrease prices 60% to 90% on branded oral-solid medications." The Congressional Budget Office estimated the savings generated by generic drug use in 1994 was between $8 billion and $10 billion. The generic drug industry achieves these cost savings by avoiding the expense of clinical trials, as well as the initial drug research and development costs that were incurred by the brand-name manufacturer. In the case of chemical pharmaceuticals, before a generic drug can be marketed, 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 approved drug. Even though patents for several specialty biotechnology drug products have expired, very few have had to face the same type of market competition that occurs with chemical drugs. In contrast to the relatively simple structure and manufacture of chemical drugs, follow-on biological products, with their more complex nature and method of manufacture, will not be identical to the brand-name product, but may instead be shown to be similar. The Generic Pharmaceutical Association (GPhA) advocated that the FDA establish a regulatory system for the approval of follow-on biologics under its existing statutory authority. However, the Biotechnology Industry Organization (BIO) filed a citizen petition with the FDA requesting a number of actions that would inhibit the approval of follow-on biologics. On April 12, 2006, the European Commission approved the first biosimilar product Omnitrope, a human growth hormone, in Europe following a positive scientific opinion issued by the European Medicines Agency (EMA); a second biosimilar human growth hormone, Valtropin, was approved on April 24, 2006. Sales of Omnitrope in the United States only occurred following the April 10, 2006, ruling by the U.S. District Court in the District of Columbia in favor of Omnitrope's sponsor, Sandoz. The court ruled that the FDA must move forward with consideration of the abbreviated application, submitted by Sandoz in 2003, that presents Omnitrope as "indistinguishable" from the FDA-approved Genotropin marketed by Pfizer. Sandoz "alleged that the FDA had violated its statutory obligation to act on the Omnitrope application within 180 days, a time frame that the FDA characterized as merely a congressional aspiration." In June 2009 the Federal Trade Commission (FTC) released a report that examines the potential impact of follow-on biologics on the price of biologic drugs and compares this with the impact of generic drugs on the chemical drug market. The report found that for a number of reasons the competition between follow-on and brand-name biologics is unlikely to be similar to generic and brand-name chemical drug competition. Based on these findings, the FTC report concluded that the 12- to 14-year market exclusivity period is too long to promote innovation, particularly since the brand-name firm will retain substantial market share after the follow-on biologic enters the market. The report also stated that follow-on biologic manufacturers are unlikely to require a 180-day marketing exclusivity period as an incentive to develop interchangeable products. Lastly, the report concluded that special procedures to resolve patent issues are unnecessary and could undermine patent incentives and harm consumers. The Obama Administration believed that its proposal of a seven-year market exclusivity period was "a generous compromise between what the FTC research has concluded and what the pharmaceutical industry has advocated." In contrast, a group representing the biotechnology industry believed that 12 to 14 years of market exclusivity was necessary to promote innovation and that patent resolution procedures would benefit patients, physicians, insurers, and manufacturers. Others provided commentary and recommendations on the length of the data exclusivity period, including John Calfee of the American Enterprise Institute, Alex Brill, a principal at Matrix Global Advisors, LLC and former chief economist to the House Ways and Means Committee (seven years), and Duke University economist Henry Grabowski (12.9 to 16.2 years). Economic studies on potential savings to the federal government over 10 years due to the use of follow-on biologics have ranged "between nothing and $14 billion." A study by Avalere Health estimated "government savings at $3.6 billion in the first 10 years"; another study by Express Scripts estimated "10-year consumer savings at $71 billion and federal savings at $14 billion." On June 25, 2008, the Congressional Budget Office (CBO) released a cost estimate on a bill introduced in the 110 th Congress, S. 1695 (Kennedy). The CBO study found that enactment of S. 1695 would save the federal government $5.9 billion over 10 years (2009-2018) and would reduce total expenditures on biologics in the United States by about $25 billion over the same period. The Obama Administration FY2010 budget proposal estimated the amount of savings, following the implementation of a pathway for the approval of follow-on biologics, at $9.2 billion over a 10-year period (2010-2019). Although most observers agree that lower prices for biologics would be of great benefit both to consumers and payers, some have expressed concern that the abbreviated application process allowing for expedited FDA approval of these complex therapeutics might compromise patient safety. A report published in October 2008 investigated the nature, frequency and timing of safety-related regulatory actions for biologics approved in the United States and the European Union. It found that 41 of 174 biologics approved since 1995 were the subject of 82 regulatory actions regarding safety. These regulatory actions were primarily letters to healthcare professionals and some "black box" warnings on product labels but no product withdrawals. The October 2008 study found that the probability of a first safety-related regulatory action was 14% 3 years after approval and 29% 10 years after approval. The authors noted that these may be underestimates—not all drugs are marketed right after approval (and some may never be marketed), but all biologics that obtained market authorization were included in the study. As is the case with chemically produced drugs, many safety problems are identified only after drug approval because some serious adverse drug effects are rare and will only become apparent following use in large numbers of patients. Lastly, and perhaps most importantly for individuals interested in follow-on biologics products, the study found that the first biologics approved in a chemical, pharmacological and therapeutic subgroup (in other words, innovator products) were especially prone to safety-related regulatory action compared with later approved products in that subgroup.