Drug Pricing Lab 03/15/2021

Curbing Biologic Drug Spending with P-quad

Peter Bach and Mark Trusheim's latest drug pricing idea: Have biologic innovators lower prices to "cost" plus a fixed (and generous) profit margin. The result? Huge financial savings for everyone.

Having your cake and eating it too with Production Plus Profit Pricing (P-quad)

There is a drug spending problem in the US and the spotlight is on large molecule biologics. It's been over a decade since the Biologic Price and Competition Act (BPCIA, 2009) went into effect and biosimilar competition as a savings strategy has fallen disappointingly short of policymakers' aspirations. Today, biologic drugs might comprise only 2% of all drugs dispensed in the US, yet they account for 40% of drug spending.

Don't believe it? Consider Humira: first approved for marketing in the US in 2002, currently protected by 247 patent filings, biosimilar entry postponed until at least 2023 (i.e., 21 years after Humira's first approved). As of 2020, Humira generated $16 billion in US net revenue and remains the top selling drug in the US. And the world.

When compared with biosimilars, P-quad would yield an additional $265 billion in savings overall.

In 2019, Bach and Trusheim argued biologics are effectively natural monopolies. Two years later, they come back with more data and more details, starting with a biosimilars market update. The problem – potential competitive entrants must first run risky, expensive, uncertain, and time-consuming R&D. On top of this being a barrier to entry, the team has now examined the cost and ethics of running clinical trials that have as their sole objective evaluating biosimilars. Tens of thousands of patient volunteers have been diverted to these studies instead of potentially participating in studies of innovative new therapies. They have also put together a policy solution with accompanying implementation strategy to mitigate such sizable biologic drug spending, coined “P-quad” for Production Plus Profit Pricing. To round out the series, they commissioned Milliman, an actuarial firm, to model savings from the P-quad policy compared to the current environment of relying on biosimilar competition. Spoiler alert: the projected savings are staggering.

Wondering if it is only Bach and Trusheim worried about foregone savings from failing biosimilar competition? Nope – here is a report from United Health Group pointing out the savings that could be achieved from biologics if their prices just fell when they are supposed to, even by far more modest amounts than P-quad policy would yield.

Read about all of this in the New York Times here and join the Twitter conversation here.

Quote source: Bach, Trusheim. The Drugs at the Heart of Our Pricing Crisis, New York Times.

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Research & Insights

We conduct non-partisan, independent research, and make our work accessible and informative to policymakers and the general audience alike. Browse our featured research or explore our work by article type.

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