Here come the biosimilars. Last month, Sandoz, a subsidiary of Swiss multinational pharmaceutical company Novartis, launched Zarxio, the first U.S.-approved biosimilar to be introduced under the Biologics Price Competition and Innovation Act.
BPCIA, as the reader likely knows, created a pathway to regulatory approval of a competitive biologic, analogous to what Hatch-Waxman did with the accelerated new drug application (ANDA) route for generic pharmaceuticals in 1984.
Hatch-Waxman looked to protect branded drug developers by incentivizing generic drug makers to delay introducing lower-priced alternatives. BPCIA is intended slightly differently: it seeks to balance the patent rights of biologics developers with the needs of patients, healthcare providers, and insurance companies for so-called “biosimilar” drugs that have the same effects at a lower price-point. It provides for an extended twelve-year period of exclusivity for a biologic’s innovators, but also a one-year period of exclusivity to the first successful developer of a corresponding biosimilar once the patent rights of the original biologic’s developer expire. And BPCIA provides for expedited review of patent infringement claims.
What impact will forthcoming biosimilars have on the economics for developing biologics? Will entry of a biosimilar be as damaging for the original biologic maker as generic entrants are for branded drug makers?
When a generic enters the market, its pricing can be as much as 80% lower than that of its branded counterpart. Generics are used to fill prescriptions unless the doctor specifies no substitution, so once a generic competitor enters the fray, it sucks out of the market a substantial percentage of revenues and profits. Branded pharmaceutical companies claim those profits help recoup development costs. They do indeed, and at some point, once the cost is recouped, the rest is almost pure profit.
Developing new biologics is dauntingly complex and expensive. Will the same pricing differential emerge in the biologics sector? If it does, how will it affect innovation? Will it dampen biotechnology development? To answer these questions, we’ll have to watch the market as new biosimilars enter and are adopted.
Sandoz’s Zarxio is priced 15% lower in the U.S. than its biologic counterpart, Amgen’s cancer drug Neupogen. In Europe, where Zarxio was introduced in 2009 at the same discount, the price has continued to decrease, causing a widened price gap of around 20 to 30 percent. That’s still a far cry from the 80% reduction in price seen by pharmaceuticals.
Reuters reports that insurers hope the cost of biosimilars will eventually be 40 to 50 percent less than the original brands. The article also notes that, “Citigroup analysts have predicted a transfer of at least $110 billion of value from innovator companies to copycat producers in the next decade.” But this pejorative term is unfair: The transfer of wealth aside, a biosimilar producer is not a copycat.
For one thing, biosimilar products are very difficult to make. Biosimilars don’t directly correlate to conventional generic small-molecule compounds. Deriving engineered proteins from human genes is staggeringly complex. So biosimilars also cost a lot more to develop, manufacture, and distribute than chemically synthesized drugs, and they require more sophisticated administration of patents and trade secrets.
Think of it as climbing Everest: You know it can be done, and you may even know a route to follow. But you still have to climb it, and it’s very hard indeed.
Will biosimilars eventually suppress prices by 80%, like generic pharmaceuticals do, or will the delta stay much less? Will biosimilar innovators continue to recoup their investment—stimulating more development? If not, what happens to innovation in the biologics sector?