Competition from Biosimilars an Incentive for Innovation

The Generic Pharmaceutical Association (GPhA) recently praised the Obama administration's fiscal 2011 budget proposal for the US Food and Drug Administration (FDA), which will increase the FDA's Office of Generic Drugs to $51.5 million, a $10-million increase compared with fiscal year 2010.¹ In supporting the administration's attempt to strengthen access to generics, GPhA's President Kathleen Jaeger noted, "Generics also save our health care system money, a critical factor in these difficult economic times. GPhA's landmark generic savings study, conducted by IMS Health, found that for every two percent increase in generic utilization, the nation's Medicaid program could save an additional $1 billion each year. Increasing consumer access to affordable medicines reaps tremendous dividends to private and public providers as well as taxpayers."¹

Saving healthcare dollars and increasing access to medications are 2 goals shared by all healthcare stakeholders, including payers, providers, patients, drug manufacturers, and employers. These goals, however, apply not only to small-molecule generics but also to any future generic biologics, also known as biosimilars or follow-on biologics (FOBs). (That we still do not agree on the nomenclature is but one indication of the shape of things with so-called generic formulations for biologic pharmaceuticals.)

Innovation is key to advances in medicine and in healthcare as much as in other areas of business and science; but innovation is used as the reason to prevent competition in biologic products that will occur with the initiation of a pathway for FDA approval of biosimilars. We know that such a pathway is inevitable, and we know it is the way of the land to provide for competition and promote innovation. The bills for that new pathway have been circulating—with twists and turns—in Congress for some time now, but the legislation has been taking longer than the "normal route of innovation" dictates.

Last year we discussed the legislation for the evergrowing elephant in the room—the new pathway for biosimilars, musing that perhaps 2009 would bring in such a new track.² It did not: will it be 2010 instead? The signs are still positive, but the wheels in Washington turn slow, especially now that the "big" healthcare reform has been put on hold, and the spirit of promoting competition and innovation—for the benefit of all stakeholders, including consumers and business—is all but gone from Congress for the moment. The healthcare reform bill, which was advocating for 12 years of patent exclusivity for biologics as protection from biosimilars competition, has also gone the way of the healthcare reform itself; when the discussion resumes, potentially a shorter exclusivity period will be introduced, to allow for faster access to lower-cost biologic products.

In June of last year, the Federal Trade Commission (FTC) issued a report elucidating the reasons why the introduction of biosimilars does not pose a threat to biologic drug manufacturers.³ The rationale for the report (titled "Follow-on Biologic Drug Competition") was in line with the FTC's role to "investigate alleged anticompetitive business practices."⁴ The nature of competition that will ensue between biotechnology companies and manufacturers of biosimilars will be different from the competition between manufacturers of small-molecule pharmaceuticals and generic drugs, according to the FTC, because⁴:

1. The substantial costs to obtain FDA approval, and the substantial costs to develop manufacturing capacity, will limit the number of biosimilars competitors
2. The lack of automatic substitution between a biosimilar and an original biologic will slow the rate at which a biosimilar can acquire market share
3. A biosimilar may have difficulty gaining market share, because of concerns of safety and efficacy differences with the original biologic
4. Biologics are not reimbursed according to strategies that insurers often use to encourage the use of lowerpriced drugs
5. Therefore, a biosimilar entry will be less dramatic than generic drug competition. The entry of a biosimilar is likely in biologic drug markets with annual sales >$250 million. Only 2 or 3 biosimilar manufacturers are likely to attempt entry for a given biologic. These entrants are unlikely to introduce their drugs at discounts of >10% to 30% of the original biologic's price
6. The effect on the original biologic manufacturer will also be different; they are expected to respond to and offer competitive discounts to maintain market share and are likely to retain 70% to 90% of their market share, and continue to reap substantial profits, even after the entry of a biosimilar.

Based on these findings, the FTC concludes that the introduction of biosimilars will emulate brand-brand drug competition rather than brand-generic drug competition, and that "patent protection and market-based pricing will promote competition by FOBs, as well as spur biologic innovation."³

The FTC's prediction, rooted in the foundation of the free-market that more is better, and more competition to be introduced by generic formulations of biologic products will invite innovation rather than deter it, offers an interesting insight. The argument that biosimilars differ from small-molecule generics by necessitating similar biologic entities that will keep the price high, thereby forcing only a small price adjustment on the part of biologics, was the basis for the FTC's position.

Whether this is sufficient to convince biologic manufacturers that a new pathway for FDA approval of biosimilars is not detrimental to their market-share potential remains to be seen, but the trend is clearly leaning in that direction. If the FTC is correct that competition breeds innovation even in this case, then everyone is poised to win—patients, payers, drug manufacturers, and our entire healthcare.

This point was further reiterated in a recent roundtable discussion on generics by the Directorate for Financial and Enterprise Affairs Competition Committee, saying that, "The competitive dynamic between brand-name drugs and their generic equivalents creates an incentive for brand and generic manufacturers to conspire to avoid competition and share the resulting profits."⁵

The FTC report concludes "that providing the FDA with the authority to approve such FOBs would be an efficient way to bring these lower-priced drugs to market,"⁴ and increasing access to all patients is an efficient way to improve health and reduce healthcare costs, as was suggested by the GPhA.¹ Time, however, is of significance. Escalating costs may eventually force biologic manufacturers to bring their costs down some, with or without competition from biosimilars. The main obstacle to implementing a biosimilar pathway remains the duration and nature of patent protection. But the argument against preventing access to these life-sustaining therapies for patients is bound to win; as has been seen time and again, increasing access to good care benefits all healthcare stakeholders, not only patients.