Drug costs represent a large and growing share of health care costs and for good reason: Developing a new drug and proving it safe and effective is more expensive than ever before, and the cutting-edge drugs of late have proven to be incredibly effective, creating an extraordinary demand for them.

But the other reason for their high prices is that these blockbuster drugs have faced little competition. That may be about to change, as last week the FDA approved the first biosimilar drug for sale in the United States.  While it is a welcome development, unless the FDA takes further action this approval will represent little more than a minor victory for drug users as well as the taxpayers who fund government insurance programs and the policyholders paying private insurance premiums who bear most of the drug costs in this country.


Biosimilar drugs are to biologic drugs--which are chemical compounds made from live cell lines--what generic drugs are to the more traditional, small molecule drugs. Nearly all of the breakthrough drugs this century have been biologic drugs. Just as generics offer real competition to small molecule drugs, biosimilar drugs hold the promise to help keep biologic prices--which can be as high as $1,000 a pill--under control.

Europe--and most of the rest of the world--began using biosimilar drugs over a decade ago, without any untoward outcomes.  Despite their widespread adoption elsewhere the FDA remained wary of doing likewise. Ultimately, Congress forced the agency to proceed by including a provision in the Affordable Care Act that prescribed that the FDA take the necessary steps to allow biosimilar drugs to be allowed in the United States by 2015.

Just ahead of the Congressionally imposed deadline, the FDA gave formal approval last week to the biosimilar drug Zarxio, which reduces the risk of infection in patients receiving chemotherapy. Zarxio has been used in Europe for years, first receiving the green light from the European Medicines Agency (EMA), the European counterpart to the FDA, in 2009.

The potential cost savings of biosimilar drugs is huge--a Rand Institute study estimates that widespread adoption could reduce drug costs by as much as $66 billion over the next decade. While patients and hospitals would surely welcome such a development, pharmaceutical companies that make biologic drugs are naturally ambivalent about this development. They have worked assiduously to put up barriers to slow their adoption, although to be fair the FDA’s natural intransigence has proven to be the main hurdle: it studied the issue to death, questioning whether efficacy data from biosimilar drugs’ use overseas was relevant to the U.S., or if biologic drugs approved before the Affordable Care Act’s passage might be protected from biosimilar drug competition.

While the approval of Zarxio is a welcome development,there are still barriers in place that could potentially limit the gains from the introduction of biosimilar drugs. For starters, the FDA has yet to decide whether to assign each biosimilar a unique International Proprietary Name, or INN, or else merely give them the same INN as their biologic equivalent. Myriad ostensible reasons have been given for advocating that they be given a different INN, but the real reason its proponents have is that it would slow the entry of biosimilars into the market while making it more difficult for doctors to substitute them for biologics, thereby preserving profits and lowering potential savings.

There are also numerous other biosimilar drugs awaiting FDA approval, each of which has been on the market in other countries and used safely for years. If the approval process for these drugs drags on it could be years until we get anywhere close to the robust biosimilar market environment we see elsewhere.

The FDA has been admirably above politics when it comes to making important decisions about providing access to life-saving innovations. However, it has been guilty of taking caution to extreme lengths, and this is arguably what it’s done with the battle over biosimilars. While finally giving approval to the first biosimilar drug is a welcome start, there are many other biosimilar drugs under consideration that merit a rapid decision. It should do all that it can to ensure that the U.S. healthcare system finds it expedient to adopt these drugs as well, which hold the promise to save taxpayers and patients many billions of dollars a year.

Brannon is a former chief economist for the House Energy and Commerce Committee.