Estimating US Savings from Biosimilars

This is the eighth and last in our series of posts based on the OHE seminar and summarises the remarks of Alexis Ahlstrom of Avalere Health.

Since the seminar, the US has passed the Biologics Price Competition and Innovation Act of 2009, a subtitle of the Patient Protection and Affordable Care Act that was signed into law in March 2010.  Briefly stated, the law provides for an abbreviated approval process for biosimilars, a 12-year data exclusivity period, and FDA determination of ‘interchangeablility’. Passage of the law removes the issue of the length of the period of exclusivity, but does not remove uncertainty about the impact of biosimilars on the market.  Savings will not be realised immediately.  The FDA first must develop a regulatory framework to implement the provisions of the law, a process likely to take up to three years.  Moreover, FDA is expected to be cautious in reviewing the first biosimilars, meaning that review time could take two years or so.  Thus, savings are not likely to appear at all until 2015.

Debates preceding passage of the law included estimates of potential savings, performed by the analytical offices of Congress (CBO) and the President (OMB).  Avalere health created its own model to project savings from the availability of biosimilars. It assumes that market share of biosimilars will depend on four factors: FDA judgement about interchangeability, payer treatment, physician prescribing behaviour and consumer demand, and pricing.

With respect to interchangeability, market share will grow more slowly even in the face of lower prices if the FDA judges a biosimilar not to be fully interchangeable.  Omnitrope, a biosimilar human growth hormone approved in mid-2006, has gained only 2% market share despite being priced 25% below the market.

Avalere found that payers are not pushing physicians to prescribe cheaper therapeutic alternative human growth hormone or rheumatoid arthritis products.  In addition, a key driver of market penetration for small-molecule generics, the pharmacist, will have far less impact on biologics, both because of current laws in each state that govern substitution by pharmacists and because only about a third of biologics are provided through pharmacies.

Information on physician prescribing behaviour and consumer demand for biologics is very limited.  Acceptance of small-molecule generics is high in the US, but it is not at all certain that this will carry over to biosimilars unless and until positive experiences increase comfort levels.

Good data also are scare about the probable pricing of biosimilars. The Avalere model relied on research by Prof Grabowski, as did CBO’s estimates.

CBO and OMB analyses estimated the impact of biosimilar availability will be slight in terms of total health care spending -- less than one-half of 1% of total health care costs in the US.  Avalere’s estimates are that savings will not begin to be realised until 2015.  What is even less certain, of course, is the ultimate impact of biosimilars not only on costs, but on the incentives for innovation. A

lexis Ahlstrom was a Director at Avalere Health at the time of the conference; she now is at the US 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.

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