Price Competition for US Biosimilars: Why are Savings so Slim?

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By Andrea Kelly

As part of the Affordable Care Act, Congress passed the Biologics Price Competition and Innovation Act (BPCIA) to create an abbreviated approval pathway for follow-on-biologics, or “biosimilars.” The passage of the BPCIA brought enthusiasm at the prospect of increased supply and affordability of lifesaving medications, as well as skepticism of the degree of price reductions that increased competition would foster.

In the market for traditional small molecule drugs, the introduction of generic medications resulted in discounts as high as 80% compared to brand name products. However, much smaller discounts are anticipated for biologics. Europe, where biosimilars have been on the market for nearly a decade, has seen price reductions of as much as 70% compared to the originator products. With the passage of the BPCIA, initial estimates projected that biosimilars in the United States would be offered at a 30% discount. Finally, Xarxio, the first biosimilar approved by the FDA, launched on September 3 at a 15% discount of the reference product.

So why are these discounts so modest compared to traditional generic medications? The answer is complex, and arises from both the unique challenges arising from the development and distribution of biologic medications, as well as certain barriers established by the BPCIA itself. Specific challenges include:

  1. Cost of development: Biologic products are by definition complex molecules comprised of organic, volatile compounds. Unlike traditional small molecule drugs, no two batches of the same biologic medication are identical. Instead, each batch shares the same active ingredient and sequence of amino acids that result in a given clinical benefit. Therefore, while manufacturers of traditional generic medications can reverse-engineer the brand name product, biosimilar manufacturers must develop their own formula, replicating only the clinical meaningful portions of the chemical structure. As a result, biosimilar development results in higher research and development costs relative to traditional generics, which are ultimately passed on to the consumer.
  2. Specialized distribution: Most biologic medications require specialized storage, transport, and administration techniques. These requirements result in increased costs throughout the supply chain, to cover investments in infrastructure, packaging, and training. Again, these costs are cooked into the final price of the drug.
  3. Industry consolidation: Given the complexity of biologic medications, few manufacturers have the necessary technical knowledge, equipment, and funding to produce biologic medications. These capacity constraints, combined with recent mergers in the pharmaceutical industry, result not only in less competition for brand-name products, but also among biosimilar manufacturers themselves.
  4. Patent litigation costs: As evidenced by the delayed launch of Xarxio, defending a biosimilar product against patent infringement claims can be a lengthy and expensive process, which ultimately delayed the launch of the first biosimilar in the US for 6 months following FDA approval.
  5. Lack of automatic interchangeability: Because traditional generic medications are chemically identical to the brand name product, pharmacists can automatically substitute generic drugs when filling prescriptions written for the brand (with some exceptions). In contrast, the BPCIA specifically indicates that biosimilar products cannot be automatically substituted. To do so, the biosimilar would have to be approved as an “interchangeable biologic.” While biosimilars need to demonstrate that they are highly similar to the reference product, interchangeables must show no clinically meaningful difference. Unfortunately, the FDA has not yet indicated how a manufacturer would make this showing, spurring skepticism that we will see an application for interchangeablity any time soon.
  6. Added marketing costs: As was the case with generic products when they first came to market, physician, pharmacist, and patient uncertainty surrounding biosimilars restrict their willingness to prescribe, distribute, or request these products. Many biologic products have been on the market for over a decade, and patients may be reluctant to switch from the brand name if it is working well for them. To combat these public perceptions, biosimilar manufacturers expect to engage in substantial marketing of their products, both to physicians and directly to the consumer.

AndreaKelly

Andrea Kelly is a second year student in the MPH@GW program. She works as a paralegal for AARP.

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