There’s a new face on the block for blockbuster drugs, and it’s promising cheaper treatments.
Just over a week ago, the FDA announced its approval of Zarxio, the first “biosimilar” in the United States, as an alternative to a drug used to treat chemotherapy patients susceptible to infection. Officially approving Zarxio represents the first step in a greater shift toward more affordable drugs that could have a big impact on health care spending as a whole.
Analogous to generics for traditional brand-name drugs, biosimilars are cheaper, pharmacologically-comparable alternatives to biopharmaceuticals, which are called biologics for short. Back in 2010, the Affordable Care Act opened the door for biosimilars, creating a pathway for them to be approved by the FDA and sold in the United States for the first time.
Over the next ten years, as a number of brand-name biologics like Lucentis and Humira face the expiration of their patents, some analysts project that allowing biosimilars to enter the market could reduce overall spending on drugs by up to $250 billion. Zarxio on its own could reduce drug spending by $5.7 billion over the next decade, according to Express Scripts.
While biosimilars are new to the U.S., they have already seen widespread use in other countries, effectively lowering drug costs without safety issues. In fact, beginning in 2006, the EU approved the substitution of biosimilars for traditional biologics, followed by Japan, Canada, Australia, South Korea, and most recently, India. Last February, France went even further, becoming the first EU state to instate automatic biosimilar substitutions for brand-name biologics, in the same way some states in the U.S. allow default prescription of generics unless otherwise requested by the physician.
However, the debate over biosimilars in the United States is far from over. The ACA established a 12-year data exclusivity period for biologics, protecting them from biosimilar competition for 12 years. This is significantly longer than the five-year patent protection that most other pharmaceuticals receive, despite the fact that biologics only take an average of 7.4 months longer to develop than traditional chemical drugs. President Obama had originally proposed a seven-year data exclusivity limit in the ACA, and has continued to fight for a reduction of the exclusivity period. Most recently, his FY 2016 budget proposal included a reduction of the biologics data exclusivity period and estimated savings of $4.5 billion in the coming decade.
This debate is also playing out on the international stage, as pharmaceutical companies push to lock in the 12-year exclusivity period in the Trans-Pacific Partnership trade deal currently being negotiated. In March of 2013, Senators Max Baucus and Orrin Hatch submitted a letter to the U.S. Trade Representative urging the inclusion of such a provision.
Manufacturers of biologics argue that this longer monopoly period is justified given their heavy front-end investment, not only in generating and maintaining the biological lines necessary to produce the drugs but testing the candidate biomolecules for safety and efficacy. The industry group PhRMA claims that the cost of successfully developing a drug is $1.2 billion over the course of 10 to 15 years. They say the colossal profits that companies earn from their monopoly on drug discoveries are necessary to offset the risks and costs of failed drug ventures.
Many experts, meanwhile, argue that these assessments are wildly inflated. And even assuming Big Pharma’s estimates are correct, their returns on investments don’t leave them just scraping by. Major pharmaceutical companies in 2013 reported profit margins of nearly 20 percent on average, making them among the most profitable of all industrial sectors.
The stakes underlying this debate were highlighted last week when Express Scripts released a study showing that national drug spending increased 13.1 percent in 2014, with specialty drugs — many of which are biologics — accounting for more than 31 percent of all prescription spending. Previous analyses by Express Scripts also indicated that U.S. spending on specialty drugs has quadrupled since 2006 and is predicted to account for 50 percent of all drug costs in 2018 — despite only constituting one percent of all U.S. prescriptions.
Much like the rise of generic alternatives to traditional drugs, biosimilars have the potential to significantly reign in spending on pharmaceuticals in the U.S., saving billions in federal and state dollars. Those savings, however, mean lower profits for pharmaceutical companies. That’s why, as Zarxio marks the first FDA-approved biosimilar in the country, pharmaceutical interests are working overtime to limit the entry of more biosimilars into the market.
Given a fair chance, biosimilars present an opportunity to redefine the pharmaceutical landscape, encourage innovation and competition, and take a step toward sustainable health care spending in the U.S. There are some proactive steps we could take to get closer to those goals. A meaningful first step would be to speed up biosimilar approval by reducing the exclusivity period to seven years. Additional actions could be taken by the FDA and Congress to provide guidance for the approval and assimilation of biosimilars, as well to encourage the use of biosimilars through measures like a standardized naming system so that consumers can recognize the drugs more easily.
Daniel Liaou is a Health Policy intern at the Center for American Progress.