On a recent excursion, I got a new "wise one" on the differences between the biotechnology industry and traditional pharmaceutical companies. The primary difference is that biotechnology companies focus on "large molecules" and pharmaceutical companies focus on "small molecules." I understood that prior to my recent discussions. But, I did not understand the deeper difference in their competition with generics.
In the 2006 annual report of Amgen, CEO Kevin Sharer writes, "Biosimilars, or follow-on biologics as they are called in the U.S., are not in any way comparable to generic pharmaceutical products. Protein-based medicines cannot be copied in the way that small molecules can be. Their production is complex, and their safety must be ensured through rigorous processes and tests." Without my new insights, I could not have deciphered this statement.
Essentially, both small and large molecules must be patented as a "utility patent." Their patents is published. Small molecules are not only easily understood, but more importantly, easily produced. Large molecules, even when perfectly understood, are affected by their "complex" method of production. The method of production is not disclosed as part of the patent, but only to the FDA as part of the "rigorous processes and tests." Because of the complexity of production, generic copycats cannot generate an easily approvable without replicating these "rigorous...tests." These tests raise the cost of production significantly. That moat is significant.
