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Biosimilars: Market Changes do not equal policy success

Numerous articles and reports have trumpeted biosimilar market growth, but it's critical we do not lose sight of the sole objective for creating the biosimilar market: to reduce the cost of older biologic drugs for society and taxpayers.
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Originally published on 03/15/2021 Drug Pricing Lab

Market growth ≠ Policy success

In April 2019, we published "Biologics Are Natural Monopolies” in which we suggest the biologic drug market is a "natural monopoly" as a result of "intrinsic scientific uncertainties that make creating interchangeable substitutes difficult, costly, slow and risky". Since then, few biologics faced competition, and of those, the competitors were meager. Policymakers should be wary of assuming that biosimilar entry itself is an adequate surrogate marker of the approach's success.

Key Takeaways

Biosimilars do not reduce the cost of biologic drugs as policymakers had hoped. Many remain entirely unchallenged even though they are past their exclusivity period.

The US reimbursement system consistently favors drugs that cost more by relying on percentage-based markups for providers and other intermediaries.

Policymakers are not stuck with biosimilar market competition to drive down prices--they could require biologic manufacturers to sell their products at Production Plus Profit Pricing (P-quad) after they lose FDA exclusivity

What’s happening with the biosimilar market?

Numerous articles and analysts’ reports have trumpeted biosimilar market growth, citing rising sales in the US and success stories from across the pond. But the goal of biosimilars is to reduce the cost of older biologic drugs the same way generics do for branded small molecules. Evidence of this would be that nearly all volume shifts rapidly to lower priced once the innovator’s market exclusivity has expired, and net prices fall rapidly and considerably. Instead, today’s market presents neither of these features, especially as biosimilar manufacturers are incentivized to price high.

Eligible post-exclusivity biologics must face competition, but most aren’t (and likely won’t)

Few biologics past their exclusivity date face biosimilar competition, or even the prospect of it. According to a recent report by IQVIA, only 22 additional molecules have biosimilars in development whereas 153 reference biologics do not yet have any in development. Of the biosimilars approved in the last five years, originator molecules generated an average of over $5 billion per year at their peak.

Biosimilars must lower the price of biologics, but they don’t

The average discount offered by biosimilars at market entry for 5 drugs facing new biosimilar competition in the last two years (Avastin, Herceptin, Rituxan, Neulasta, and Epogen) was less than 10%. Originators continue or even accelerate their price increases once biosimilars are filed with the FDA.

Some biosimilar entry can take place, and some discounts can be reported, and yet the policy can still fall massively short of its savings objective

Biosimilar operating margins are more like branded drug makers than branded commodity manufacturers

Amgen, Biogen, Merck, Novartis, and Pfizer have all launched or plan to launch biosimilar products. This is a sign that the biosimilar market itself is lucrative enough for multi-national drug companies to dominate. The median operating margins for global branded pharmaceutical and biotech companies are over 30%, which is a good indicator that these companies see comparable margins in the biosimilar market.

Conclusion

Structural obstacles to truly competitive biosimilar entry are still present in the US market, just as they were about two years ago. But policymakers are not stuck with biosimilar market competition as the only means of driving down prices for biologics. Production Plus Profit Pricing (P-quad) has numerous features worth considering.

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