Regs and costs will bring a decade of limited biosimilars development in the US

In March 2010, the Biosimilars Act was passed as part of the Affordable Care Act (ACA) and created an abbreviated regulatory pathway for the FDA to approve “biosimilars” – complex, large-molecule drugs made from living cells that are very similar, but not structurally identical, to established reference biological entities. Policymakers hope that biosimilars can fulfill a similar price competition role for biologics that generics have delivered for small molecule chemical entities. Generic products have yielded large drug cost savings and now account for over 80 percent of U.S. drug prescriptions.

Healthcare usage of biological drugs has been growing rapidly in recent years, now representing eight of the top 20 largest selling drugs in the United States. They have resulted in substantial health care benefits for patients and are targeted to many life-threatening and disabling diseases including cancer, rheumatoid arthritis, and MS. At the same time, these entities can cost tens of thousands of dollars or more per course of treatment.

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Taking this environment into account, in a paper published in the June 2014 edition of Health Affairs, Rahul Guha, Maria Salgado and I examine the prospects for biosimilar competition in the U.S. over the next several years. Given their complexity, biosimilar products need to undergo costly clinical trials to show comparability with their reference biological products. Compared to generic competition, even higher hurdles exist for a biosimilar to be considered interchangeable with its reference brand. Interchangeability has been a key driver of generic utilization, and serves as the basis for automatic state pharmacy substitution laws and managed care formulary programs encouraging generics. As a consequence, fewer biosimilars entrants and more moderate price discounts are expected compared to the generic market where entry costs are much lower.

Initially, biosimilars are expected to compete as non-interchangeable therapeutic alternatives, more like branded drug products rather than as therapeutically equivalent, inexpensive generic-type drugs. Quality, price, and manufacturer’s reputation will all be important competitive attributes in the case of more complex biosimilars. Physicians and insurers are also expected to be cautious in switching patients to biosimilars until positive experiences with them accumulate in clinical settings.

These expectations are generally consistent with the experiences with biologics in Europe since 2007. We examined the competitive performance of biosimilars referenced to Eprex used in the treatment of anemia, and Neupogen, used to treat infections and neutropenia. We observed considerable variation usage across the five EU countries, reflecting different incentives and mandates as well as other factors. Price discounts of the biosimilars, relative to their referenced branded biologics, were generally 25 percent or less, based on audit and survey data.

Biosimilars also will be subject to dynamic competition from new biologics in the same therapeutic class – including incremental improvements to existing reference products such as extended duration of action. These next-generation products can provide quality and convenience advantages to patients and cost advantages to other health care cost components. In this regard, longer acting second generation products were introduced in Europe for both Eprex and Neupogen that require fewer administrations per course of treatment. We found these longer acting products had the largest market shares compared to first generation branded products and their biosimilars in all five countries.

Given the current regulatory hurdles and prospects of emerging dynamic competition from next generation products, the level of cost savings from biosimilars in the United States during the rest of the decade is likely to be below what was generally anticipated prior to the passage of the Biosimilars Act. At this point, even the relatively moderate cost savings estimate by the Congressional Budget Office (CBO) from biosimilars (roughly 0.5 percent of prescription drug spending over the first decade after the law’s passage) looks overly optimistic. More than four years have already passed since the law was enacted and not one biosimilar has been approved under the abbreviated pathway.

Over a longer time frame, the economic opportunities for biosimilars can be expected to grow. In particular, scientific advantage could reduce the cost of developing biosimilars and allow their interchangeability to be demonstrated through structural analysis, or what the FDA calls “fingerprinting,” rather than more costly clinical studies. It is also likely that medical practices and reimbursement procedures will evolve to be more receptive to the use of biosimilars over time, assuming that experience with them is favorable. It took more than a decade after the passage of the Hatch-Waxman Act for generic products to produce substantial cost savings, and that is also a likely scenario for biosimilars.

Grabowski is professor emeritus and director of the Program in Pharmaceutical Health Economics at Duke University.