Generic versions of off-patent drugs, which today account for more than 88% of all prescriptions, save patients and the U.S. healthcare system hundreds of billions of dollars per year.
When the Biologics Price Competition and Innovation Act was tacked onto the Affordable Care Act, healthcare cost-control advocates expected the long-delayed arrival of biogenerics would do the same.
It hasn't turned out to be the case.
A lot is at stake. Bioengineered human proteins now account for nearly 30% of the $350 billion we spend each year on drugs. That proportion is certain to soar in the years ahead, since most of the pricey new drugs coming out of industry labs are biologics.
Many of the older biologics are long past their patent expiration dates. Serious price competition from generic versions of those off-patent biologics could generate big savings.
Unfortunately, this year's first approval and the latest applications to the Food and Drug Administration for what are now called biosimilars—there's a lot behind that name change—suggest they will never generate the same kind of price competition as traditional generics.
The main reason is that the FDA has created a more difficult pathway for approving biosimilars. There are some legitimate reasons for this. But they don't justify the price tags on biosimilars that analysts estimate will be as little as 20% off their branded predecessors' prices, and far less than the 80% discount seen for most other generics.
Let's get wonky. A biologic is a recombinant form of a naturally occurring protein or a bioengineered antibody. It is a huge, complex molecule. Unlike most small-molecule drugs, it has to be administered intravenously.
During the manufacturing process, the biologic's DNA is spliced onto an immortal cell line (biochemists have a number of options such as a Chinese hamster ovary or insect cells). It is then grown in a nutrient soup, harvested, bottled and sent into commercial use.
The particulars of the process can determine the molecule's physical properties, such as how the protein folds or how many sugar molecules are attached. Attach more molecules, and it will stay in the body longer; hence the first “biosimilars,” subjected to full clinical trials and approved as new drugs, were actually longer-lasting versions of already approved drugs. Those molecular changes can affect how biosimilars affect patients.
A potential generic manufacturer of an off-patent biologic could attempt to replicate the process used by the innovator company if its chemists knew the precise details. But that's not possible since they are considered trade secrets.
But why bother? It still wouldn't satisfy the FDA, since under the law, once a biosimilar has been produced, it still has to be tested in animals and humans to ensure it's having the same effect as the original drug and doesn't cause safety problems.
In a series of guidances issued over the past several years, the agency has suggested that some less-complex biosimilars will require less testing. But most will be subjected to far more animal and human testing than small-molecule generics.
It is this clinical trial process, not figuring out the manufacturing process as some have suggested, that accounts for biosimilar approval costs that may run as high as $200 million per drug—100 times more than the cost of getting a traditional generic drug approved.
Moreover, most companies in the generic drug-manufacturing business do not have the skill set to manage the clinical trials necessary to win biosimilar approval. The first company to bring a follow-on biosimilar through the FDA's process was Switzerland-based Novartis—not a company one usually associates with generics.
So the problem with biosimilars for pharmaceutical purchasers is that they are going to be priced like branded “me-too” drugs that do the same thing. Consumers only got a small discount when the second statin drug came on the market. Since the FDA's pathway for pharmacy substitution rights will require human clinical trials proving safety and efficacy, the best that purchasers can hope for under those circumstances is 20% off.
The Federal Trade Commission has never taken an interest in investigating why there isn't more robust price competition between two drugs that do the same thing. Congress, where both sides of the aisle are now making noise about investigating the skyrocketing price of drugs, ought to look into the question.
