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A World of Opportunity

Biological drugs have caused a revolution in healthcare. Made from living organisms rather than chemical compounds, these drugs offer therapies for conditions which were often not previously susceptible to traditional treatments. These include cancers, inflammatory conditions (such as psoriasis, Crohn’s disease, and rheumatoid arthritis) and other autoimmune diseases.

The market for such therapies is booming and, as one study predicts, “Within 5–10 years, up to 50% of all drugs in development will be biopharmaceuticals.”

But biological drugs are expensive to develop and consequently to deliver to patients. According to one manufacturer, the cost of developing an entirely new drug costs $2.6 billion and takes over ten years.

Nevertheless, the net benefit to healthcare systems from use of biologics is worth pursuing. As one study notes, “…biologics may increase drug costs. However, biologics offer demonstrated improvements in patient care that can reduce expensive interventions, thus lowering net health care costs.”

In contrast, a biosimilar (which has the same clinical effect as an original biologic) costs in excess of £100 million and takes five-to-nine years. Still, this is a huge jump up from the investment needed to create a small molecule (chemical compound) generic drug, which usually costs $1-2 million and takes just two years.

Introducing biosimilars into the market, after the original biologic’s patent has expired has been seen to reduce prices through healthy competition.

While competition is healthy and beneficial for healthcare systems and their patients, markets must remain commercially sustainable for pharmaceutical companies to continue investing in new biologic discovery and eventual biosimilar development.

In this report we assessed the state of biosimilar competition in the world’s two largest and highly regulated markets - Europe and the U.S., and highlight a number of key issues that need to be addressed to ensure improved functioning and commercial sustainability of those markets. We also estimate the level of price reductions which could result from competitive – but sustainable - biosimilar markets, where original biologics are coming off patent over the five years between 2018 and 2023.

Drug innovation and competition

The U.S. Food and Drug Administration (FDA) set an all-time record for new drug approvals in 2018 with 59 novel drugs and biologics approved. The number of new molecular entities and biologics approved surpassed the agency's previous record of approvals year (1996) and is a significant jump over the 46 new drugs approved in 2017.

The new therapies in 2018 include new treatments for cancers, serious skin infections (antifungals and antibacterials), lung diseases, smallpox, bone deformities and growth problems.

These innovations are essential for improving the quality of health care in the U.S. However, innovation alone is not enough. It is equally important to promote drug affordability through greater competition.

Promoting both innovation and competition requires a careful balance.

Drug categories distinguish between chemically based medicines (‘small molecule’) and biological therapies - those made from living organisms (‘large molecule’).

For chemically-based medicines, the U.S. Hatch-Waxman Act of 1984 introduced rules and incentives that have successfully struck a balance between the commercial return that incentivises pharmaceutical innovation and the public interest of a competitive drug market.

Thanks to this balance, the U.S. is now the global leader in developing new drugs. Over half - 57% - of all new drugs are developed in the U.S. and the country has the largest generic sector when compared to other OECD countries.

In the case of biological therapies, the Biologics Price Competition and Innovation Act (BPCI Act) of 2009 created, in the words of the FDA, “an abbreviated licensure pathway for biological products that are demonstrated to be biosimilar to or interchangeable with an FDA-approved biological product.” This pathway was established as a way to provide more treatment options, increase access to lifesaving medications, and potentially lower health care costs through competition.

Biosimilars

Despite this success for chemically-based medicines, the U.S. health care system has not yet struck the right balance for biologic medicines. Although biologics have been a primary driver of many recent pharmaceutical innovations, the development of a robust biosimilar market has not yet been achieved, although early experiences are broadly encouraging.

Take the comparison with what is happening in the European Union (EU). The EU already has far more approved biosimilars—59 products referencing 18 medicines —than the United States (17 products referencing 9 medicines). Moreover, the next wave of original biologics coming off patent between 2018 and 2023, the number of European biosimilars will grow further in the subsequent years.

Unlike generic, chemically based medicines, biosimilars are complex molecules that are difficult to develop and are similar, but not identical to, the original reference biologic. Development costs (and therefore treatment costs) differ by a factor of 10.

Sustainability of competitive markets

What, then, constitutes a sustainable but competitive biosimilars market? There is clearly a prudent duty on healthcare policymakers and regulators to steer the price of therapies and manage best value for the healthcare system and its patients.

At the same time, though, pharmaceutical companies must be expected to make a reasonable profit on their innovations and drug development.  Otherwise, as we have seen in other spheres, this simply suppresses new drug development and robs patients of possible future life-changing therapies, as well as undermining (through avoidable morbidity) citizens’ current and future economic contribution.

As further work is conducted on the lifetime clinical value of biologics and biosimilars, the picture will become clearer as to the long-term clinical ‘return on investment’ that different biologics offer over traditional therapeutic alternatives.

It is to be hoped that holistic measures of biologics benefits – Quality of Life Years (QALYs), co-morbidity avoidance, reduction of lifetime healthcare (cost) consumption, and so on – will increasingly confirm the exact long-term value of biological therapies to economies around the world.

This work is well under way in many clinical disciplines, but the situation requires constant vigilance, continued health econometric evaluation and regular re-appraisal. In addition, clinical and therapeutic choices are made on an ethical, as well as a financial, basis.

Key Issue 1

Strong IP protection for originator biologics to encourage innovations, alongside effective incentives for competition once patents expire. The cost of development is so high for new biological drugs that originators need a sufficient period to recoup their costs and fund further new drug development.

Encouraging biosimilar uptake

The vista that biologics offer is that conditions which were previously untreatable are now being addressed by biological therapies, ranging from psoriasis, to rheumatoid arthritis, and various forms of cancer.

Ultimately, however, any healthcare system – whether a centralised European-style structure, or a private-insurance-funded U.S.-style system – has limits of affordability and prioritisation, whoever the payer is (private or state).

Creating a sustainable market in biosimilars would therefore seem to appeal to the common sense of the majority of studies, official publications and expert commentary reviewed for this paper.

IQVIA offers a concise summary of the key issues which need to be addressed in creating sustainable biosimilars marketplaces. The organisation states, “Biosimilar sustainability improves patient access and physician prescription choice of safe and high quality biologic medicines, in a framework that considers the ongoing needs of all stakeholders (patients, healthcare professionals/providers, payers and manufacturers).”

Deloitte also notes the emergence of a more sophisticated, holistic view of patient outcomes, rather than simple discounting arrangements: “There are a variety of value-based contracting models (financial, outcome and service based), of particular interest to some payers. These agreements, which can be based on cost, evidence and risk, require a more collaborative relationship between pharma, payers, providers, physicians and patients, in which all members work together to improve patient outcomes and the performance of healthcare.”

The key to achieving success in this quest, however, rests on several factors.

Regulators issuing clinical guidelines and payers determining pricing and reimbursement strategies are currently debating how biosimilar uptake can be promoted in ways that best enhance market competition – all aimed at increasing the speed of biosimilar introduction and uptake. Incentives under discussion are prescription quotas or provider incentives that promote biosimilar use but do not restrict physician choice. Tendering and procurement best practices are also under scrutiny and development, along with biosimilar pricing and free market competition policies. All of these contributory factors to the long-term sustainability of biosimilars markets are discussed in the following sections of this paper.

Key Issue 2

Policies and actions by payers to encourage the uptake of biosimilars. Positive action by payers – whether state or private – may be required to rapidly create competitive biosimilar markets. There is clear evidence (referenced in previous sections of this paper) of beneficial price reductions and therapy uptake resulting from competitive but sustainable biosimilar markets.

Competitive discounting

In the more mature biosimilars market in the EU, price discounts on biosimilars – compared with the original biologic pricing – have varied widely, from product to product and between different national healthcare systems. However, illustrative descriptions of the financial impact of biosimilar market entry focus on a broad average of around one third.

For instance, a paper from Medicines for Europe notes, “Since the introduction of the first biosimilar medicine the EU in 2006, biosimilar medicines have already generated more the 700 million patient days of clinical experience worldwide and generated savings of about EUR 1.5 billion in the EU-5 alone. Nevertheless, the future opportunity is even bigger with an expected cumulative spending of EUR 47 billion (2016-2020) on 8 biological medicines that are expected to lose exclusivity in EU-5 only. The potential is therefore clear: a 30% reduction in price per treatment day across these 8-key originator biologic medicines, driven by biosimilar competition in the marketplace, could yield cumulative savings for European healthcare systems of about EUR 15 billion over the next five years.”

This is not comparable with much deeper discounts already realized in the generic drug market, but given the vastly higher development costs, this is hardly surprising.

This level of discount helps create a sustainable market where competitive market cost savings are balanced by reasonable commercial incentive for pharmaceutical manufacturers to continue investing in new drug discovery, development and certification.

Any responsible policymaker has to ask themselves the question, “Are calls for commercially sustainable markets simply a self-interested lobby for profitability by the pharmaceutical industry, or is market sustainability truly in the public interest?” A story from the world of antibiotics helps shed some light on what the answer might be.

A number of independent commentators have recently been analysing the issue of anti-microbial resistance (AMR), and the potentially catastrophic consequences for bacterial infection control that increased AMR is projected to have. It is worth saying that such projections come from country chief medical officers and authorities – a cohort not noted for exaggeration or over-the-top language.

The clear consensus amongst all these commentators is that overly fierce downward price pressure has made new antibiotic discovery less attractive because the return on investment for companies creating original antibiotics, which will only be used in rare cases when all other treatments fail, is either low or negative.

The AMR story may be viewed in parallel with the emerging world of biosimilars. Anyone doubting this has only to refer to comments from the scientific officer of a pharmaceutical company who noted that his company withdrew its pegfilgrastim biosimilar candidate as it was no longer “financially sustainable to continue” the product’s developments in markets such as the United States.

 

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