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.


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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Research & Insights

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The Drugs at the Heart of Our Pricing Crisis
The US drug pricing system is broken, but not irreparable. For large-molecule biologic drugs, enter: Production Plus Profit Pricing (P-quad, pronounced like Ahab's seagoing vessel).
NYTimes 03/15/2021
Bottom-Up Pricing Estimate for P-quad
How much would biologic drugs cost under P-quad pricing? Two approaches to estimating fully loaded costs plus a profit (10% and 20% examined) suggest net discounts from current prices would be at least 65% to 75%
Drug Pricing Lab 03/12/2021
Modeling P-quad
The Drug Pricing Lab engaged Milliman to conduct an independent analysis of the Production Plus Profit Pricing (P-quad) policy proposal. The Milliman analysis estimates the projected spending on U.S. biologic and biosimilar drugs under a referent scenario where there is no biosimilar entry or competition, the existing ‘status quo’ scenario under the current biosimilar environment, and the Drug Pricing Lab’s P-quad policy proposal. 

This report was commissioned by Drug Pricing Lab.
Milliman 03/12/2021
Ethics of Clinical Trials to Evaluate Biosimilars
Biosimilars require extensive, expensive, and time-consuming human testing prior to market entry, a process vastly different than generics. So why are we still doing them?
MedRx IV 03/09/2021
Abandon Biosimilars as Biologics are Natural Monopolies
Biosimilars will not effectively lower the price of biologic drugs after the period of market exclusivity.
HA Blog 04/15/2019
Production Plus Profit Pricing (P-quad) for Biologic Drugs
In 2019, Peter Bach and Mark Trusheim argued that biologics are "natural monopolies". Two years later, they revisit this idea with new data.
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Xeljanz, the FDA, and nine years of patient harm
Quantifying population-level adverse events in the near decade between when safety concerns were identified and FDA action
Drug Pricing Lab 05/31/2022
Atypical antipsychotics: Decades of use, unfathomable harms
Using attributable risk calculations to quantify how many premature deaths resulted from atypical antipsychotic use in the elderly
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Medicare Part B Premium Dynamics Explained
The Drug Pricing Lab commissioned Milliman to prepare a report exploring the impact of changes in Medicare Part B program costs on beneficiaries’ premiums and Social Security payments. This report focuses on the 2022 Part B premium for beneficiaries with various income levels to illustrate the payment dynamics and discusses the implications for related programs.
Milliman 12/23/2021
Comparing Factors that Influence Pharmaceutical Pricing and Access in the…
Drug prices in the United States are some of the highest in the world, which has triggered several policy proposals aimed at adopting pricing strategies used by other countries.
Drug Pricing Lab 12/20/2021
Biosimilars in Medicare Part D: pricing dynamics and considerations
The Drug Pricing Lab engaged Milliman to prepare a report summarizing the pricing dynamics affecting utilization of biosimilars in the current Medicare Part D marketplace and under the proposed Part D benefit design in the Build Back Better Act.

This report was commissioned by the Drug Pricing Lab.
Milliman 12/14/2021
Evaluating Industry’s Drug Pricing Claims
A closer look at three of PhRMA’s most cited talking points.
Drug Pricing Lab 11/18/2021

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