Biosimilar Drugs: Panacea for Health Care Costs? Not Exactly

By David Beier

This article is an edited version of a longer piece on biosimilars. For those interested in more details here is a link to the longer version along with the footnotes or endnotes that provide references.


Biosimilars are important to the future of the life sciences. They have the potential to increase consumer choice for an expensive class of products through competition and price reductions.

But let’s be clear: Biosimilars are no panacea for driving down drug spending. As Food and Drug Administration Commissioner Scott Gottlieb seeks a Goldilocks solution to the vexing policy challenge of biosimilars, we need to set reasonable expectations and prioritize policies based on sound principles. First, a step back to define biosimilars: What are they, and why are they important?

A biosimilar is a close cousin of a biologic — a class of drugs made using living cells, not synthesized from chemicals. Some of the world’s most expensive drugs are biologics, which is why biosimilars are so important.

It is important not to confuse the relationship between biosimilar drugs and originator biologics with that between generic drugs and their brand-name counterparts. There are significant differences. For example, the U.S. generic drug industry grew because with chemical drugs, in contrast to biologics, the FDA could verify an exact match between the physical identities of the drugs, without expensive and time-consuming clinical trials.

As the biologics industry evolved, it became possible to create products similar, but not identical, to biological drugs. In 2003, Europe introduced regulatory pathways to permit the approval of “biosimilars.” The U.S. followed suit in 2010.

This is where the story often veers into confusion. In contrast to the relationship between generic and brand-name drugs, the difference between a biosimilar and its counterpart requires clinical trials. Furthermore, both Europe and the U.S. provide a form of intellectual property protection that bars biologics from being approved on the basis of the original drug’s underlying data for a period of years. In the United States, an additional regulatory feature set by state laws prevents automatic substitution, unless a biosimilar has been determined to be “interchangeable” by the FDA.

Not surprisingly, biosimilars have not produced the massive shift seen in the generic drug market. In Europe, biosimilars tend to lower pricesby less than generic drugs. While there is substantial variation between pricing decisions within the nations of the European Union, the price reduction upon entry of a first biosimilar is roughly 30-40 percent, and biosimilars frequently garner less than a majority of market share.

Even in countries with more favorable industry rules, the savings from biosimilars are modest compared to generic drugs. In the United States, nine biosimilars have been approved by the FDA, but intellectual property litigation arising from a confusing federal law, the rules for patents, trade secrets and other forms of intellectual property have kept all but three biosimilars from the market.

Recent policy debates suggest some commentators want to jump-start biosimilar competition by ignoring laws on substitution and treating biologics like generic drugs. Even more troubling is a push to use insurance coverage to encourage increased use of biosimilars. Another problem is the policy mandating higher prices for biosimilars in certain safety-net hospitals.

There is a consensus that biosimilars will play a vital role in creating competition — lowering prices and offering more choices of safe and effective biologics. Savings from biosimilars in the United States are estimated at $54 billion from 2017 to 2026, with a range of $24 billion to $150 billion. While we would all like these savings, we should not make the mistake of viewing biologics through an economic lens alone.

The following three points must guide our policy decisions:

1) Science should drive FDA policy. Decisions about the manufacturing of biologic products should be made based on the best-available science and use of appropriate data analytics. One important example of the FDA (and the European Medicines Agency) using data to make market entry by biosimilars faster is the common rules on “extrapolation.” Regulators permit approval of many biosimilars for multiple indications based on studies of only some of the diseases because, in the U.S. and Europe, the sound science directs that approach. The FDA’s current guidance, which requires switching studies and comparisons between U.S.-approved biologics (and not foreign-only products), should be retained.

2) Patient-centric policies have led the FDA to require the originator product and the biosimilar to have different and distinguishable names. The goal is to facilitate pharmacovigilance and post-approval safety. Equally important is the policy guiding FDA decisions about switching studies for interchangeability determinations. These decisions must be made on the basis of real-world data. Lastly, a patient-centric insurance scheme should make sure that patients receive the cost reductions from rebates or discounts. It is heartening that United Healthcare and others have shown that giving rebates to patients and not insurers is possible.

3) Clarity and certainty in policy stem from fundamental business principles. The greater uncertainty or confusion among investors, the less they will invest. Uncertainty around patent litigation is an example of a problem Congress should address. One possible solution is to make the exchange of patent information mandatory instead of today’s confusing voluntary regime. Another example is the idea of imposing new manufacturing requirements on originator products. Investment-backed expectations should not be altered just because there is a chance new rules might reduce the expenses of biosimilar products.

A set of biosimilar public policies should be clear and predictable, as well as patient-centric and based on sound science. The Trump administration has an opportunity to make sure the promise of biosimilars can be secured. As Gottlieb knows, the complexity of the matter suggests the executive branch should first do no harm.


David Beier, J.D., is a senior fellow at the USC Schaeffer Center for Health Policy and Economics and a managing director of Bay City Capital.






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