Generic drugs have saved over a trillion dollars in healthcare costs between 2002 and 2011 by competing against name brand drugs.
Another opportunity now exists to further reduce pharmaceutical drug expenditures involving a growing, but expensive, innovative class of drugs, called biologics. The introduction of their generic-like counterpart, called biosimilars, should result in similar benefits to the economy and consumers as those from the introduction of generic drugs some 30 years ago.
Allowing biosimilars to compete with the original biologic drugs is one solution to our nation’s problem of soaring healthcare costs. Healthcare inflation has increased faster than overall prices, and healthcare spending in the U.S. is approaching 20 percent of GDP. The rate of healthcare expenditure is not sustainable.
Biologics are large molecule drugs produced in living systems such as a plant cell or microorganism. They treat some of the most serious, life threatening diseases. The research and development cost for biologics can be in the billions of dollars. Their manufacturing is more complex and costly than that of chemical drugs. A biosimilar is highly similar but not identical to the branded reference product, and they compete with branded biologics. The European Union, Canada and Australia have allowed for biosimilar competition, and their consumers have benefitted.
The United States presently has no mechanism in place to allow for biosimilar competition. This means that biologic monopoly prices could last for a long time (beyond the patent period) unless biosimilars are allowed. The benefits of competition to consumers cannot occur until the FDA establishes guidelines for biosimilar entry.
The high cost of pharmaceuticals, especially biologics, has become an important issue in the battle to get a handle on our ever increasing healthcare costs. Medicare expenditures for biologics are in the billions of dollars and are increasing each year. The average cost of a biologic in the U.S. is $45 per day compared to only $2 per day for chemical drugs. Lower priced biosimilars will not only result in savings, but improve access to these lifesaving and quality of life enhancing drugs.
Thirty years ago, the United States was faced with the issue of allowing generic chemical drugs. The Hatch-Waxman Act was passed with the intention of balancing competition and innovation. The public policy goal was to enhance competition from generics, which would lead to lower prices but still provide the branded pharmaceutical companies the incentive to innovate. The Hatch-Waxman Act for the most part has worked.
The Patient Protection and Affordable Care Act of 2010 (PPACA), which included the Biological Price Competition and Innovation Act, gave the FDA authority to develop a mechanism for approval of biosimilars, somewhat similar to what was done for generics under the Hatch-Waxman Act. No approval process had existed for biosimilars until the passage of the PPACA. However, even after PPACA’s passage, the FDA has not yet provided guidelines to allow for biosimilar entry, putting the benefits to patients and savings of these drugs on hold.
The FDA needs to be cautious with the rules for biosimilars entry since the FDA must be sure that the drugs are safe and effective. One safety issue with biosimilars could be devastating to the development of the biosimilar market. However, the FDA has probably been too cautious in the approval process since there have been biosimilars in the EU market since 2007 and there have been very few if any safety issues. In July 2014, despite having no formal guidelines, the FDA accepted an application for a biosimilar which had previously been approved in the European Union. However, the FDA still needs to make the implementation of biosimilar guidelines a public health priority.
Biosimilars have been on average around 30 percent less expensive than their reference products. Express Scripts estimated that biosimilars can save around $250 billion in healthcare costs from 2014 to 2024. Thus, the sooner the market is open to entry, the sooner consumers will reap the benefits.
Ironically, the generic market (biosimilars) would not exist without the branded market. However, the branded market is also helped by the existence of generics, and consumers benefit from both. The generic market decreases the price of older drugs and thus lowers the cost and budget expenditures for these pharmaceuticals and healthcare costs. This allows society to pay for new drugs, which enhances the quality of life of consumers. This apparent dichotomy has worked well and needs to continue with the FDA developing a pathway for biosimilar entry.
Various studies have shown that access to drugs has decreased the need for medical procedures and hospitalization, which decreases overall healthcare costs. No one can reasonably question that generics have resulted in considerable savings in healthcare expenditures and increased access to drugs for patients. Biosimilars also have the potential to do the same and already have in the EU. Therefore, we must encourage the FDA to make the guidelines that will allow biosimilar entry so that more Americans can have access to these life-saving drugs.
Fuhr, PhD, is a professor of Economics at Widener University and a senior fellow at The American Consumer Institute Center for Citizen Research.