Biosimilars – Does it reduce healthcare cost or not?
As the US healthcare costs are skyrocketing, the legislators are making intensive efforts to find new ways to reduce them. One approach is to reduce the high cost of biologic drug products. Having the intention to reduce healthcare costs, the Congress established an abbreviated approval pathway for biosimilars as part of the Affordable Care Act (ACA), which became law in March 23, 2010. The Affordable Care Act authorized the US Food and Drug Administration (FDA) to develop regulations for the approval of biosimilars. As a matter of fact, the benefits of biosimilars to all its stakeholders seem modest due to the complexity of biological molecules, challenging manufacturing processes, expensive clinical studies and the barriers to market access.
Unlike chemical-based prescription drugs, biologic drugs are derived from living cells. They are used to treat cancers, immunological diseases and other chronic illnesses. Biosimilars are generic versions of biological drugs that are similar to innovative biological drugs. The Patient Protection and Affordable Care Act (PPACA) became law in 2010. Section XII of the law allows an abbreviated approval pathway for biosimilars. FDA is currently developing a specific regulatory route to govern the abbreviated approval process for biosimilars. There are no biosimilars approved in the US under the law yet, but more than 17 Investigational New Drug (IND) Applications for biosimilar development have been submitted to the FDA. A legal framework for approving biosimilars was established in the European Union in 2003 and European Medicines Agency (EMA) has already approved 19 biosimilars.
The healthcare costs were reduced in the US due to the availability of generic chemical drugs. According to the generic pharmaceutical association’s report, “Over the period of 2003 through 2012, generic drug use has generated more than $1.2 trillion in savings to the US health care system. In 2012, generics saved the U.S. health system $217 billion, up from $188 billion in 2011.” Generic drugs account for about 65% of the US pharmaceutical market. The Hatch- Waxman Act of 1984 established an abbreviated approval pathway for the generic chemical drugs.
The approval process of a generic chemical drug is simple and requires limited clinical studies. In order to approve a generic chemical drug, FDA requires only bioavailability and bioequivalence (BA/BE) studies in humans to compare the generic drug to the innovator. The safety and efficacy of the generic drug are assumed based on studies conducted for the innovator product. Since the innovator drug market has already been established, no additional commercialization programs required. As a result, generic chemical drugs take less time to develop and their manufacturing and commercialization costs are significantly lower than that of the innovator products. The less financial investment leads to the lower costs of the generic drugs. There may be multiple generic versions for any given innovator product. This increases competition for market share and reduces the retail price even further. Also, a generic version of a chemical drug is an exact copy of the innovator drug and is interchangeable at the pharmacy level. Therefore, a pharmacist can dispense a generic drug instead of a brand-name drug without a separate prescription. All these reasons made the generic drugs affordable to everyone and thus reduced the healthcare costs.
Based on the success of generic chemical drugs, the possibility of approving generic versions of biologic drugs became very attractive to all stakeholders including the generics industry, the insurance industry, consumers and legislators. However, it involves several crucial scientific and technical issues. These issues need to be addressed to determine the safety, efficacy and availability of generic biological drugs or biosimilars. The traditional regulatory approval pathway used for generic chemical drugs will not work with biologic drugs because of the complexity of the molecules and the manufacturing processes.
First of all, the biological molecules are extremely large and complex. The active ingredients in chemical drug products are ‘small molecule’ variety and it will be easily available. Therefore, a generic company can produce an exact copy of the original chemical drug product. But biological drug products are different, which include biological molecules naturally found in the body. They may include proteins, sugars, DNA or RNA. Since they are large and complex, it is hard to work with them. For example, Pfizer’s Lipitor (chemical drug) has a molecular weight of about 1200 daltons but Amgen’s Enbrel (biological drug) has a molecular weight of about 150,000 daltons. Also, extensive characterization studies needed to identify them and verify their behavior. Hence, it is very hard to identify the active ingredient for biosimilars.
Secondly, biosimilar development and manufacturing processes are extremely challenging. Biological drug products are manufactured using extensive biological processes and are very sensitive to manufacturing process variations. Very minor changes in the process can adversely affect the clinical properties of the products and its safety and efficacy. Innovator companies protect many of the processes as proprietary trade secrets. Therefore, the generic manufacturer should use different process to create a generic version. Any changes in the manufacturing process may adversely affect the biosimilar’s clinical properties, safety and efficacy. So, the generic version will not be an exact copy of the innovator drug. Also, biosimilars are less stable than chemical drug products and require specific storage conditions. Therefore, it is difficult to develop and manufacture a biosimilar product.
Moreover, due to the complexity of the molecule and its manufacturing process, biosimilars will be similar but not identical to the innovator biological drug product. So, biosimilars will not be interchangeable and there will not be an automatic substitution at the pharmacy level. If physicians prescribe a branded biologic drug, pharmacists will have to dispense it and not the biosimilar. As a result, biosimilars would be more like competing innovator products than price-cutting generics.
In addition, the process of creating a biosimilar will be much longer and more expensive than for a generic chemical drug. FDA will consider each biosimilar application as a new product. Therefore, applications for biosimilars require expensive clinical studies, comparability studies, safety and efficacy studies, and extensive characterization. Also, the biosimilar would not be considered substitutable for the innovator product. Therefore, an independent commercialization program is required, which adds additional expense on biosimilars. Unlike chemical generics, biosimilars will have to go through post-marketing surveillance to determine the side effects occur in the biosimilar that are not present in the branded product. This put additional burden on the biosimilar manufacturer. Therefore, the expense in making a biosimilar will be almost equal to that of the innovator biological product.
Furthermore, once a biosimilar gets approval, it will face strong barriers to enter into the market. Gaining market share for a biosimilar could be challenging when the product is not interchangeable. Generic chemical drugs lowered drug prices approximately 90 percent and captured a large share of market in a short period of time. However, modest cost reduction of biosimilars will not affect the brand product manufacture. They will also reduce the price to discourage the use of biosimilars. Also, patients and physicians may be reluctant to switch to a biosimilar for small cost savings if the branded product is working.
Based on the issues discussed above, the goal of reducing healthcare costs with biosimilars will not be attractive. The cost reduction caused by biosimilars will be much lower than that of the generic chemical drugs. The estimated percentage of cost reduction would be around 20–30 percentage of the innovator drug. The European experience also shows that the biosimilar could lower the innovator drug prices roughly from 20% to 30%. Also, the competition will be very low in the biosimilar market. Due to difficulties and huge investment associated with the development of biosimilars, only few companies will enter into the biosimilar market. The less competition will not reduce drug price. Thus, the biological drug price would not be reduced as expected.
In conclusion, the price difference between innovator biologic drugs and biosimilar drugs will be far narrower than the price between brand-name chemical drugs and their generic counterparts. Therefore, the benefits of biosimilars to all its stakeholders seem modest due to several issues associated with the biosimilars such as the complexity of biological molecules, challenging manufacturing process, expensive clinical studies and the barriers to market access.

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