Price Competition and Biosimilars

Virtually all models forecast that price competition will be less intense and price declines modest in comparison to the generics model. Many models, however, miss or underestimate factors and trends that push the biosimilars market in the other direction. These include, for example, sources of supply with lower variable costs, profit incentives for entry, participation of major pharma companies and an increase in comfort levels over time.

This is the fifth in our series of posts based on the OHE seminar on biosimilars and summarises the remarks of Prof Richard Frank of Harvard Medical School.

What many models miss or underestimate, however, are factors and trends that push the biosimilars market in the other direction.  For example, several of the 15 to 30 biosimilar firms or partnerships now in operation are in India and China, where variable costs are likely to be lower even for US-owned facilities.  Moreover, although entry costs may be higher for biosimilars, mark-ups also are higher, carrying a greater potential for profit and thus incentive for entry.  The regulatory uncertainty that now surrounds biosimilars, finally, should gradually wane as experience is gained.

With respect to demand, several factors may moderate sluggish demand.  For example, the planned participation in the biosimilar market of major pharma players can help create greater confidence in biosimilars. Moreover, if interchangeability – or substitutability – is demonstrated for biosimilars, pharmacy benefit managers and decision makers will increase demand for lower-priced biosimilars.  The comfort levels of physicians and patients also should increase for biosimilars that demonstrate acceptable efficacy and risk profiles.

Predicting just how much biosimilars may affect prices is tricky. As noted, the generics model is an imperfect analogy.  Actual experience with biosimilars to date generally has seen prices decline equal to or greater than forecasts – as high as 40% — but experience is too limited to draw definitive conclusions.  The key to maximising savings from the availability of biosimilars will be enacting policies that emphasise the advantages of entry, realistically minimise regulatory hassles, and gradually increase price competition as clinical evidence and comfort levels warrant.

Prof Richard Frank is the Margaret T. Morris Professor of Health Economics in the Department of Health Care Policy at Harvard Medical School and a research associate with the National Bureau of Economic Research.  He currently is on leave, serving in the Department of Health and Human Services.

Publication now available for download: Mattison, N., Mestre-Ferrandiz, J. and Towse, A.  eds (2010) Biosimilars: How much entry and price competition will result? London: Office of Health Economics.