Estimating the potential for savings from the market availability of biosimilars cannot be based wholly on models derived from generic versions of small-molecule drugs. Barriers to entry for biosimilars are higher because of the characteristics of biologics. Biosimilars are not ‘biogenerics’, that is, the molecules differ and so require regulatory data beyond what is required for generics. This also limits interchangeability, i.e., to what extent the biosimilar can be used in place of the original biologic. Moreover, production costs for biologics are substantially greater than for small-molecule drugs – requiring the investment of sometimes hundreds of millions, rather than millions or less. Both factors create higher barriers for market entry for biosimilars; having fewer entrants, in turn, reduces the potential for competitive price reductions and makes unlikely the aggressive price competition on entry that has characterised the generics market.
Overall, the number of biologics that have a large enough market share to attract biosimilars is modest. Combined with high barriers to entry, this means that total cost savings may be limited, at least in the short run. The total pharmaceutical market exposed to biosimilar competition is estimated at 10% in the US and 5% in Europe, representing less than one percent of total health care costs. Moreover, these savings will accrue only over the next ten years or so – the recent US law will have virtually no market impact for at least five years.
Policies of regulators and payers can have a substantial effect on the evolution of the biosimilar markets. Regulatory requirements will affect the cost and time required for biosimilars to reach the market, thus also influencing the number of potential entrants. The role of payers will be somewhat different for biosimilars than for generics. For example, attempts to require drastic reductions in prices when the first biosimilars appear can backfire by making entry less attractive. Payers also must be directly involved in taking steps to address concerns about the safety and efficacy of biosimilars compared to the innovator product.
Bengt Jönsson is Professor Economics at the Stockholm School of Economics.
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.
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