Abandon Biosimilars as Biologics are Natural Monopolies
Biosimilars will not effectively lower the price of biologic drugs after the period of market exclusivity.
Originally published on 04/15/2019 in Health Affairs
This failure is predictable because biologic drugs hold natural monopolies in the market, not artificial ones. In the setting of a natural monopoly, price regulation, not competition, is the preferred approach to lowering prices after exclusivity.
The Drug Pricing Lab, along with collaborators, proposes abandoning biosimilars and instead imposing price regulation on the innovator firms after exclusivity. They propose a formula that includes production costs plus a healthy profit for those firms to continue to supply the market place, and if they do not then they must handover all of the ability to do so to another firm. This type of "cost-plus" reimbursement is already in place in other areas of Medicare where production at marginal cost is expected, such as reimbursement for hospital care.