Embracing Competition To Empower Biosimilars – Pacific Research Institute

Embracing Competition To Empower Biosimilars

In 2017, there were 46 new novel drug innovations, including new treatments for cancers, Parkinson’s disease, and serious skin infections. These innovations are essential for improving the quality of health care in the U.S. However, innovation is not sufficient. It is equally imperative to promote drug affordability through greater competition.

Promoting both innovation and competition requires a careful balance. Thanks to the Hatch-Waxman Act of 1984, the incentives for chemically-based medicines reasonably promote both pharmaceutical innovation and a competitive drug market.

Due to this balance, the U.S. is now the global leader in developing new drugs – 57 percent of all new drugs are developed in the U.S. – and has the largest generic sector compared to all other OECD countries. In fact, generic pharmaceuticals share grew from 13 percent in 1984 to 89 percent of all prescriptions filled as of 2016.

Despite this success for chemically-based medicines, the U.S. health care system has not yet struck the right balance for biologic medicines. Although biologics have been a primary driver of many recent pharmaceutical innovations, the development of a robust biosimilar market has been lacking.

Biosimilars compete against biologic medicines just like generics compete with branded chemically-based medicines. There are important differences, however. Biosimilars are complex molecules that are difficult to develop and can never be identical to their reference biologic. Consequently, price discounts on biosimilars are expected to be around 30 percent, compared to the 85 percent discount already realized by generics.

These savings would still be substantial.

As an example, based on the current prices of the biologic (Remicade) and biosimilar (Renflexis and Inflectra) versions of infliximab, I estimate that biosimilar versions of the medicine could save between $2,050 and $4,370 per patient depending upon the condition treated and the provider mark-up. For the entire market, and assuming a 50 percent market share for the biosimilar versions, the aggregate annual savings would be between $262 million and $315 million.

And, these savings are for just one biosimilar. Applying these savings to the 40 different biosimilar medicines approved for use in Europe (there are only 11 approved biosimilars in the U.S.), indicates that billions of dollars in annual health care savings are possible if a robust biosimilar market develops.

Despite these potential savings, a vibrant biosimilars market has yet to develop. The pertinent question becomes: What is obstructing these savings?

One of the more important obstructions is the current “buy-and-bill” reimbursement system that dis-incents lower-cost biosimilars. Under this system, providers purchase medicines and then, once the medicines have been administered to the patients, bill insurers for the costs of the medicine plus their mark-up. The provider mark-up is typically a percentage of the medicine’s price.

Since a biosimilar’s price is less than a biologic’s price, providers lose money when they prescribe a lower-priced biosimilar medicine instead of a higher-priced biologic medicine. These losses are not de minimis either. A 2017 study found that in the case of one medicine class, infliximab, broad adoption of the biosimilars could decrease providers’ profits by as much as $100 million.

Next, insurance plans commonly include fail-first policies. Typically, the purpose of fail first policies is to require patients to use lower-priced generic medicines first, then, only if the generic medicines fail to sufficiently help the patients, can a more expensive branded medicine be prescribed. As applied to biosimilars, however, fail first policies work in reverse. In this case, the insurance clauses will only allow patients to use the less expensive biosimilars if they first failed on the more expensive biologics. Thus, as currently applied, fail first policies bias the market against less expensive biosimilars harming competition in the process.

There is also the problem of current biologic contracting practices that link insurers’ rebates to minimum volume-thresholds, or link biologic sales thresholds to rebates on other medical devices. These contracting practices create another reimbursement disincentive that biases the market against lower priced biosimilars.

Then there is the FDA. While the law designed to foster biosimilar competition (the Biologics Price Competition and Innovation Act of 2009), the FDA has still not provided finalized regulatory guidance. Due to the large time and costs that must be devoted toward developing a biosimilar, this regulatory uncertainty creates unnecessary risks that deters the introduction of biosimilars.

The combined impact of these obstructions has caused the adoption of biosimilars to be slower than expected causing overall health care expenditures to be higher than necessary.

The potential benefits to the health care system from these potential savings are too great to ignore, however. Consequently, policy reforms should be implemented to eliminate these barriers and help biosimilars provide the same systemic benefits relative to biologics that generic medicines have created relative to patented medicines.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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